Tax Working Group Final Report

January 20th, 2010 at 1:32 pm by David Farrar

The Working Group have released their final report. It is a readable 73 pages.

They first cite three major problems with the current tax system:

  1. New Zealand relies heavily on the taxes most harmful to growth – particularly corporate and personal taxes on capital income.
  2. Differences in tax rates and the treatment of entities provide opportunities to divert income and reduce tax liability. This disparity means investment decisions can be about minimising tax rather than the best business investment.
  3. There are significant risks to the sustainability of the tax revenue base: Compliance is likely to be affected by perceptions that the system is unfair. International competition for capital and labour, especially from Australia, will impact on the sustainability of corporate and personal tax rates.

They have 13 recommendations, in order:

  1. The company, top personal and trust tax rates should be aligned to improve the system’s integrity.
  2. New Zealand’s company tax rate needs to be competitive with other countries’ company tax rates, particularly that in Australia.
  3. The imputation system should be retained.
  4. The top personal tax rates of 38% and 33% should be reduced as part of an alignment strategy and to better position the tax system for growth.
  5. Base-broadening is required to address some of the existing biases in the tax system and to improve its efficiency and sustainability
  6. Most members of the TWG have significant concerns over the practical challenges arising from a comprehensive CGT
  7. The majority of the TWG support detailed consideration of taxing returns from capital invested in residential rental properties on the basis of a deemed notional return calculated using a risk-free rate.
  8. Most members of the TWG support the introduction of a low-rate as a means of funding other tax rate reductions.
  9. The following targeted options for base-broadening should be considered for introduction relatively quickly:
    1. Removing the 20% depreciation loading on new plant and equipment
    2. Removing tax depreciation on buildings (or certain categories of buildings) if empirical evidence shows that they do not depreciate in value
    3. Changing the thin capitalisation rules by lowering the safe harbour threshold to 60% or by reviewing the base for calculating this measure.
  10. GST should continue to apply broadly. There should be no exemptions.
  11. Most members of the Group consider that increasing the GST rate to 15% would have merit on efficiency grounds because it would result in reducing the taxation bias against saving and investment.
  12. There should be a comprehensive review of welfare policy and how it interacts with the tax system, with an objective being to reduce high effective marginal tax rates.
  13. Government should introduce institutional arrangements to ensure there is a stronger focus on achieving and sustaining efficiency, fairness, coherence and integrity of the tax system when tax changes are proposed.

There is little in these recommendations I disagree with, and I hope the Government implements most of them.

The removal of the ability to claim depreciation on buildings as a taxable expense is long overdue, considering almost all buildings actually appreciate in value.

Some of the other recommendations such as a deemed rate of return on investment properties and/or a land tax will help prevent future housing bubbles.

And dropping income tax rates is of course highly desirable.

While I would like to see GST increase, I am not sure that a net revenue gain of just $200 million (after compensating lower income families) from going to 15% makes it worthwhile.

The TWG make clear that they all agree that the status quo is unsustainable and not an option. The Government has pretty much said they agree. So the question is not whether there will be some reform, but how much.

Of course the tax side is half the equation. Maintaining discipline on the spending side is crucial also, and there is more there to be done also.

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75 Responses to “Tax Working Group Final Report”

  1. peteremcc (341 comments) says:

    Everyone knows we need lower taxes, not just taxes from different sources.

    Cut and align personal and company taxes.

    Then cut spending, so you don’t need to create a load of new taxes.

    It’s not the high taxes that are the main problem, it’s the high spending.

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  2. william (47 comments) says:

    To me the main thing in favour of such reforms is the productivity side of things and the aspirational aspect of a fairer system. The whole review is about stimulating investment in productive parts of the economy; rather than property and other lazy investments. Reducing top tax rates will do that. I for one will try a bit harder to increase my income at a 30-33% tax rate rather than the current 38% top rate. It really is ridiculous what some of us pay in tax at the moment…. though I concede it has been much worse.
    I think the reform will be significant and this is a great blueprint for it.

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  3. Manolo (13,339 comments) says:

    I hope this new report does not go unheeded or quickly dismissed by empty-suit Key.

    2010 will tell if the National government is serious about correcting some of our economy’s tax deficiencies, or if the election promises, e.g., lower taxes, were just empty words to be forgetten once in power.

    Call me cynical, but I wouldn’t hold my breath expecting any taxation changes from this mediocre set of “leaders”; although you can bet your house Bill English will be eyeballing the GST hike to 15% as the first step to be taken.

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  4. Jack5 (4,571 comments) says:

    A major theme of the report is the need for NZ to align tax policy with Australia.

    Obviously the sooner NZ becomes an Australian state the better.

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  5. jag (54 comments) says:

    How shockingly inept is this piece of “journalism”….
    http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10621245&pnum=2

    Not even a single mention of the property recommendations aside from a small footnote at the end.

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  6. salaries (3 comments) says:

    No surprises there – just a lot of good recommendations for NZ workers.

    With increased global mobility and poor housing affordability (relative to incomes) there’s a real need to lower and align personal income tax rates. The TWG’s recommendations look to hit this head on, in a form the Government shouldn’t find to be political suicide.

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  7. Crampton (214 comments) says:

    iPredict saying about a 6% chance of GST increase before July; 50% chance before January.

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  8. Dirty Rat (504 comments) says:

    Dividend distributions need to updated to get rid of the 3% Withholding Tax requirements ( from 1st April 2009)

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  9. salaries (3 comments) says:

    jag, nzherald have a longer article here:
    http://msn.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10621228
    The first one must have been a work in progress

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  10. wreck1080 (3,726 comments) says:

    I like this, am sick of residential property investors paying no tax on their profits.

    30% top tax rate seems pretty fair.

    Just goes to show, how badly labour screwed up the tax system with their tinkering.

    I still wake up every day feeling pleased about helen clark getting the boot.

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  11. inversesquare (14 comments) says:

    tax tax tax tax……Ever heard that song ‘Devil with a blue dress blue dress blue dress devil with a blue dress on’?

    News for Ya’ll (in case you haven’t figured it out yet) National is Labour with a Blue logo.

    How about we STOP SPENDING and start getting the economy PRODUCTIVE! (hint….this in no way involves raising taxes so we can spend them on BULLSHIT!!)

    Thank you and goodnight…..

    Maybe we should get the coming economic melt down….destined to happen in the not so distant future, out of the way now by all voting green. At least we can get the complete failure of our Economy out of the way quickly…..heh……

    It’s like some kind of bad recurring nightmare….

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  12. dime (9,392 comments) says:

    Goddam a 30% top rate would be glorious.

    whats the bet, no cuts come until just before the next election.

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  13. Dirty Rat (504 comments) says:

    Wreck

    I assume you are talking about LAQC’s in regards to the offset of losses of residential properties.

    It was introduced in the early Nineties.

    BTW Residential Property Investors do pay tax on profits, they just dont pay it on losses

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  14. bchapman (649 comments) says:

    Don’t think these changes will affect long term property investors as you can recoup the extra tax paid by the higher rents over the next ten years. Also new properties should be cheaper. Property values will slowly recover after an initial fall but people will also have to live somewhere. Hopefully interest rates will be cheaper as well.

    Only people hurt by this will be the shonky Property hawkers you see in the Society Pages who have made a fortune out of the taxpayer through their tax minimalisation schemes.

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  15. Rufus (621 comments) says:

    Call me simple, but this all seems like a merry-go-round…

    Reduce one tax, but increase others to make up for it.

    How does the ordinary tax-payer benefit?

    How about we reduce Govt. spending, and reduce taxes, and try to improve productivity?

    Trev “the Muss” Mallard really got my goat the other day – he was on some radio show, and stating we have to pay workers more in order for them to become more productive… numbnuts…pay someone more to do the same job?! Hardly sound economics.

    This country has so many unproductive people, so many bludgers who honestly believe the Govt. “owes” them a living.

    WINZ is a big problem – go to your local office and its full of losers, people who will never get a job because their attitude is so out of whack with reality. But the NZ govt. is happy to continue to let them live in fantasy land and financially support their delusions.

    Mind – boggling.

    We need to get some of that old-fashioned work ethic back into people again. “Honest day’s work” and such. No work = no Sky, no fags, no booze etc.

    At the present NZ’s society is unsustainable.

    Rufus

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  16. big bruv (13,220 comments) says:

    I cant help but think this is all smoke and mirrors, as others have said, we need spending cuts more than we need changes to our tax system.

    I am deeply disappointed that the National socialists are already talking about increasing benefits to compensate for the increase in GST, the bludgers should get nothing more.

    Change the tax system all you like Neville but until you start slashing government spending nothing will change.

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  17. Manolo (13,339 comments) says:

    Good posting Rufus, and thank you for calling it as it is.

    The day of reckoning will arrive sooner or later if the NZ Inc. ship continues to travel carrying a high load cargo of idlers, bludgers, and deadbeats, who feel entitled to a lifestyle at the expense of the paying passengers.

    An iceberg is looming on the horizon.

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  18. Fisiani (945 comments) says:

    You can dramatically and safely steer a car that is heading for a crash by skilfully turning the steering wheel , accelerating AND pulling on the hand brake.
    This is what the Tax Reform Group are all about. Shifting the incentives to the productive economy and away from property speculation. This is about bringing HOPE. Hope is about the future and the future is what we make of it. The key to a handbrake turn is to be decisive. Half measures don’t work. Budget 2010 is the turning point for New Zealand. Bring it on.

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  19. Jack5 (4,571 comments) says:

    The Tax Working Group members for those interested:

    Bob Buckle, Victoria University of Wellington (Group Chair)

    Rob Cameron, Cameron Partners

    Paul Dunne, KPMG

    Arthur Grimes, Motu Economic and Public Policy Research

    Rob McLeod, Ernst & Young

    Gareth Morgan, Gareth Morgan Investments Limited

    Mike Shaw, Deloitte

    Geof Nightingale, PricewaterhouseCoopers

    Casey Plunket, Chapman Tripp

    John Prebble, Victoria University of Wellington

    John Shewan, PricewaterhouseCoopers

    Mark Weldon, NZX Limited

    David White, Victoria University of Wellington

    Accompanied, of course, by a hoard of Govt officials.

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  20. oob (194 comments) says:

    Any income above the average wage should be tax exempt. Anything else is theft, designed to force the hard working to support the lifestyle choices of the indolent.

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  21. plum (38 comments) says:

    Meanwhile, if these changes are implemented those of us on incomes only slightly above the NZ median wage will not see a drop in personal income tax, but will have to pay increased GST, and presumably, higher rent (sought by landlords seeking to offset property investment taxes). Fun.

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  22. jag (54 comments) says:

    Salaries,

    That same half arse article is the lead story on the herald website an hour and a half later.

    TVNZ’s probably worse though:
    http://tvnz.co.nz/business-news/capital-gains-among-tax-recommendations-3336063
    Sensational headline to pull in the “pitchfork” brigade.
    Whatever happened to balanced reporting.

    I am in favour of the proposals put forward… we have to get the incentives right first then focus on targetted spending cuts.
    As the TWG has stated: doing nothing is NOT an option. Key can’t dismiss this.

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  23. stephen (4,063 comments) says:

    Plum, “after compensating lower income families” would seem to cover that…somewhat.

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  24. Bed Rater (239 comments) says:

    I agree 100% with the idea that spending cuts should be taking priority over tax reform, however I think the recent comments regarding the goal of revenue neutral reform being pointless are a little short sighted.

    One of the major secondary purposes of taxation is to ‘guide’ the economy, as hard as that may be for many to swallow, therefore a reduction in income tax, and an increase in consumption tax, while netting off to a nil change in overall revenue will have an effect overall on the economy.

    It sounds horribly ‘nanny state’ but thems the breaks.

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  25. Monty (962 comments) says:

    David I see in the Herald there is a statement that says the top 10% of earners contribute 44% of the total tax take. I also understand that the tax base is very small and that only 40% actually pay tax in the first place – no doubt due to WWF but also the number of beneficaries.

    Do you have a graph or a table demonstrating the amount of tax paid by the various income brackets? What % of people now are paying Cullen’s “rich Prick Tax” originally it was only supposed to be 5%. Labour have totally buggered the tax structures in NZ. National now have the difficult task of unravelling the mess. Hopefully they will make good progress and deconstruct the welfare state.

    I am at a loss to see how (or why) compensation should be given to those on low incomes who no doubt pay very little tax as it is.

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  26. plum (38 comments) says:

    @ Stephen – ‘The TWG therefore recommends that any equity concerns associated with increasing the rate of GST
    are instead addressed through compensation for lower income earners and benefi t recipients through
    existing mechanisms, such as an increase in benefits or New Zealand Superannuation’ (pg. 47)

    So, following this proposal only beneficairies would be compensated for higher GST.

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  27. stephen (4,063 comments) says:

    plum, while that’s a better quote than I supplied, it specifically mentions ‘low income earners’, which sounds a lot like workers to me though perhaps you know better. Their choice of ‘existing mechanisms’ don’t apply to workers (or very few(?) workers who are working part time and on a benefit) obviously, but the fact they didn’t mention a mechanism for compensating workers leads me to believe they can’t think of one, or weren’t paid to think of one!

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  28. Uplander (46 comments) says:

    Further to Monty’s comment, I seem to recall in 1985 when the top tax rate was 66c in $1 only a nominal amount was received from these people. Thus reducing the rate down to 45c or whatever was only going to cost a negligible amount of tax. Obviously the income structure has changed massively in the last 25 years if we are in the position of the top 10% contributing 44% of the tax. We need empirical evidence

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  29. Alistair Miller (557 comments) says:

    I agree the current system is unsustainable (surprise, surprise, it is progressive and encourages avoidance). My only concern with what I’ve seen so far is that broadening the tax base and reducing high personal rates can easily be re-engineered. How long will it be before the average NZ voter decides it’s time to let the other team have a go and we get another nasty, evil, spiteful little bastard like Cullen? The first thing he will do is increase personal tax rates to target those “rich pricks”. And will he reduce the GST, or remove the property tax? Like hell he will. And, with economic retards like Mallard The Muss spouting on about paying people more to do the same job, as if that somehow improves productivity, how long will it be before the minimum wage is aligned with the “rich prick” tax bracket ($70,001, if anyone’s interested)? This country is basically buggered after 9 years of corrupt dictatorship, and while I applaud the TWG’s work and findings, I worry about what will happen should the lunatic left (Liarbore and the Watermelons) figure out which levers to pull to get themselves back onto the treasury benches.

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  30. plum (38 comments) says:

    @ Stephen, I imagine some workers would be compensated through the lower top tax rate, and maybe they would do something through Working for Families for low/middle income workers, but neither of those are relevant for people in my situation. Personal moan I know, but I can’t see any compensation coming my way for my increased cost of living.

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  31. barry (1,317 comments) says:

    I think the TWG’s real objective is actually to get poeple to go back to the share market. However beware – the economy is much more reliant on the housing sector than everyone thinks. If people stopped buying and building houses then the banks would have no one to lend to and the manufacturers who make stuff for buildings would be laying off people faster than you could imagine. Ask the reserve bank – deep down they know this.

    A couple of comments above that piss me off.

    1. “I like this, am sick of residential property investors paying no tax on their profits.”. Well that applies to shares also. In both cases its the intent “Did you intend to sell when you bought it”. If the answer is no, then no tax, if the answer is yes, then it taxable.

    2. “The whole review is about stimulating investment in productive parts of the economy; rather than property and other lazy investments” Building is not an unproductive part of the economy. Its a myth that building buildings is a ‘nothing’ activity.

    I invest in buildings rather than anything else because:
    1. I control it.

    2. Almost no building – that you did even casual due diligence on – will perform as badly as most NZX companies do, especially that top 10 or 20. Go back 5 or 10 years and take the top 10 or 20 at that time and see how well they’ve done as a group – and you’ll find they’ve done VERY BADLY. You’ll be lucky to make 2 or 3% on the share value. You have to be in the know to be brave enough to select just one or two and run the risk. Who knew that Telecom or Fletchers or AHI or Air NZ etc prove to be such dogs – only those close could have known how bad the management was.

    3. With a building you can take immediate and urgent action if things change. If you own shares and things turn bad – the best you can do is sell (at a loss) or hold on and hope that the management can recover. You cant influence anything.

    4. With a building you can decide when to spend to improve the value. You can take advantage of changes market circumstances yourself – you dont rely on some remote group to do it.

    5. Small companies (mid cap and smaller) can be wiped out overnight. Take GDC. Telecom suddenly decided to change contractors. GDC shares went from about a $1 to zero overnight. As a shareholder you are screwed.

    No – too risky to rely on a bunch of what are pretty average or below managers of NZ companies.

    Oh – and since there is going to be a ‘property tax’ I expect that it will apply to shares as well as land and buildings……………………

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  32. Grendel (950 comments) says:

    i doubt the suggestion that buildings don;t depreciate.

    in most properties its land that appreciates, not the building. buildings do get worn down, and need fixing.

    in a normal business if you have plant and it wears down to the point of needing replacing, when yo ureplace it you get to depreciate the new one, to offset the capital expenditure.

    if you need to replace teh roof, or kitchen etc in your rental property becuase its worn down, you should be able to depreciate it.

    property is no different than any other investment, its just than in NZ lenders won;t lend money to buy shares, against the shares themselves, like they do in other countries.

    i;d rather the goverment just spend less, instead of finding ways to take more from me.

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  33. Pete George (22,776 comments) says:

    My only concern with what I’ve seen so far is that broadening the tax base and reducing high personal rates can easily be re-engineered.

    Not making necessary changes now in case a future government makes changes?

    It is pointless worry about things like this, because the tax structure can be re-engineered in the future regardless of what changes are initiated this year.

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  34. stephen (4,063 comments) says:

    plum yeah it’s got me stumped. Maybe a US-style ‘extra page on your tax form’ type thing to claim a rebate, I dunno.

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  35. Peter Cresswell (48 comments) says:

    …a deemed rate of return on investment properties and/or a land tax will help prevent future housing bubbles.

    Perhaps you could cite examples of anywhere in the western world in which their housing bubble was prevented by such an imposition?

    Anywhere at all?

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  36. Alistair Miller (557 comments) says:

    Nope, Pete, not suggesting not making the changes. NZ’s tax system is one of the things driving most of the talent offshore, and driving NZ towards the bottom of all those OECD rankings. Reform (real reform) is long overdue. I’m just suggesting there should be a way of safeguarding the system against the type of vandalism someone like the the (pretend) Doctor wrough over the economy for 9 years. Of course, the best way to safeguard the system is to keep the lunatic left away from the cheque book, but are NZs voters smart enough to do that?

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  37. ISeeRed (244 comments) says:

    Great. Let’s get started:

    15% GST
    19% income flat rate (first $20,000 tax-free)
    19% company tax
    Minimum wage reduced to $10 (it’s all tax-free now, so nett pay the same)
    Scrap WFF, replace with tax credits for children ($10,000 per child?)
    Other policies to promote 4-5% annual growth?

    I think keeping these rates under 20% is good psychologically and for the sake of international comparisons. We’d be lumped in with economies like Singapore and Hong Kong and be truly distinct from Australia.

    I also favour some form of cut in petrol tax. That should lower costs and prices throughout the economy, since all goods need transporting from A to B. This will help to offset increases in GST, so no need to “compensate” beneficiaries.

    On the spending time, as soon as the economy is producing sufficient jobs, freeze benefits at current rates. Getting tough on “bludgers” is one thing, but it’s unfair if the job market is still depressed.

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  38. stephen (4,063 comments) says:

    ISeeRed, Don Brash stole and presented your ideas as his own several months ago, wasn’t that well received.

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  39. OECD rank 22 kiwi (2,811 comments) says:

    New Zealanders are not aspirational. If you want to be aspirational in New Zealand the only solution is to by a one way ticket out of there.

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  40. Pete George (22,776 comments) says:

    Alistair, the best way to fix in the changes is to be bold enough to do enough to make a real difference. Then if the changes work well they will be much more difficult to bastardise. If National just tinker a bit more then it’s easier to keep tinkering.

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  41. Tauhei Notts (1,603 comments) says:

    Dirty Rat at 1.58 was right on.
    The sad part is that I doubt whether many on Jack5′s list at 2.38 would comprehend what Dirty Rat was writing about.
    The extra paperwork created because not all of the consequential changes that should have been done were attended to when the company tax rate was dropped to 30%; it is mind boggling. Dirty Rat has picked on one aspect.

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  42. inversesquare (14 comments) says:

    stephen (3358) Says:
    January 20th, 2010 at 3:50 pm

    ISeeRed, Don Brash stole and presented your ideas as his own several months ago, wasn’t that well received.

    And here in lies the problem…..maybe NZ needs to fall seriously flat on our faces for the country to wake from it’s socialist slumber….

    I predict that before this term of Government is through, we’ll have more tax and more spending.

    What we need is, less tax and less spending…..

    Vote greens! it will be a more humane way to slaughter the economy…..there are laws against inhumane slaughter of animals…..maybe we should have laws against government taking so long to suck the life out of our economy. If everyone is so hell bent on doing it (The voting public still seems to think it’s a wet dream come true)…..hurry up and get it over with so we at least reach a new start point, hopefully with enough of NZ licking it’s collective wounds that they’ll never want to go through it again……

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  43. Yeti (64 comments) says:

    The way I see it is National have another two years to fix up the mess from the previous administration and also present a decent plan for their next term should they win. They’ve done a whole lot of nothing so far, a don’t scare the horses policy in perfection. I am a ‘rich prick’ getting slammed paying for others. I earn too much to get WFF and no where near enough to live a rich lifestyle – it’s ironic. It’s reached the point where even Mrs Yeti has suggested Australia, and she is a dyed in the wool Kiwi – now that’s got me thinking once the downturn picks up, might be time to join the others over there. It’s too easy to pick up and move on these days, I really hope National do what’s needed and act boldly. For some reason I think the empty suit that is John Key won’t.

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  44. ISeeRed (244 comments) says:

    Not well-received by whom, stephen? Dreary left-wing commentators in the Granny Herald old enough to remember the Great Depression? New Zealand needs some kind of economic circuit-breaker. If international survey after international survey is correct, NZ is one of the least corrupt and burdonsome places to start or run a business. Apart from regulatory tweaks, the only major obstacle remaining is the current tax code. Let’s get to it!

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  45. berend (1,631 comments) says:

    DPF: The status quo is not an option.

    So the total tax take for NZ changes to? Ah wait no change. Just rearrange the deck chairs. Way to go National. Only 8 years left.

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  46. vibenna (305 comments) says:

    I have a suggestion for John Key and the TWG.

    There is no need to have the trust rate aligned, and this could lead to substantial savings. If the trust rate is lower than the personal rate, this does undermine the tax system. But there is no problem with the reverse. If anything it is desirable, as having the trust rate higher will help to unwind the tax-motivated trust industry that has built up over the last 10 years.

    So why not have 27-27-33 (Company-Personal-Trust). This imposes a charge on those who hold trusts for genuine reasons – but there are very few of those. It also imposes a cost on people like senior MPs and the TWG members, who likely use trusts to shelter assets. But they should bite the bullet and accept this suggestion for the good of NZ.

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  47. CharlieBrown (889 comments) says:

    Anyone notice how the press is calling the changes “Radical”?

    I would argue that doing nothing or “tinkering round the edges” would be a radical solution to our “broken” tax structure.

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  48. GJ (329 comments) says:

    Removing the ability to claim depreciation on buildings may not do what they expect. Yes depreciation is currently claimable on what are appreciating assets; however they do get a substantial payback when it is sold. This is the same as GST. It is claimed on purchase and paid on sale. In the case of property the payout on sale way exceeds the amount claimed on purchase.
    Tax cuts are I agree way overdue!

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  49. grumpyoldhori (2,410 comments) says:

    ISeeRed, I may be a tribal Labour type but I have no problem with what you banged up.
    But, all those ranting about lowering the tax Rates would be the same ones ranting that their kids should have a damn free to their kids education at university.
    I will believe people want changes when they are prepared to see the pain spread across the board.
    Forget it people, English will do fuck all because we Kiwis all rant we want lower taxes until it effects us, then the tune changes.
    Yes Douglas did it, but think the ordinary punter will allow English to pull a Douglas ?

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  50. Lance (2,442 comments) says:

    @vibenna

    I think you miss the point of trusts.
    They were set up as an entity originally to help colonisation (economic expansion). The risks were phenomenally high and England wanted to grow it’s economy but investors were seriously reluctant to lose everything they own if the venture went pear shaped.
    Trusts exist to help the economy expand as not all liability is covered by ‘limited liability companies etc’. I am sure the lawyers out there could shoot this argument down but that’s my understanding.
    So here we are, NZ as an economy is going nowhere fast, the myopic trend to stick all yer money in property is dooming us to mediocrity. We need people to grow the economy, take risks, engage in value added businesses and manufacturing.
    Increasing trust expenses looks very left wing and motivated by envy to me.

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  51. vibenna (305 comments) says:

    Lance, thanks hadn’t heard that analysis. Trusts were also known in medieval times and were then closely associated with estates held in trust for minors and widow.

    But I think now they act as a shelters for assets against personal bankruptcy, as a secrecy mechanism for people such as MPs, as a way of reducing income to receive welfare benefits, and of course as a way of reducing tax. I’m not sure any of those are helpful to the economy.

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  52. Bullitt (137 comments) says:

    vibenna

    Thats a great idea, Ive never heard anyone suggest it before. If the trust rate stayed the same or dropped slightly and the personal rate dropped more to be lower than it I cant see how anyone would have grounds to complain.

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  53. Southern Raider (1,539 comments) says:

    Anyone else hear English on Newstalk ZB? Priceless

    Something to this effect.

    Q: Will you wait until Australia completes their tax review?
    English: Yes we will, just in case they surprise us by having a good idea.

    Q: Will you try and get cross party support from Labour for any tax changes?
    English: Why would we bother we already know what their answer will be and that will be negative, whinging and grumpling. We are looking for people who can provide positive input.

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  54. Viking2 (11,125 comments) says:

    Well I gotta say if this is the best all these “experts” can come up with then NZ is fucked. Millions of dollars of brain power and they have added zilch to the debate, brought forward not one new idea and show there bias and lack of knowledge of the real working world by their dismal ignorance of human behavoir. Fuckit, I’ve got sewing ladies working for me with more knowledge, understanding and courage then these useless twats.

    That’s always the problem when you get a bunch of pointy heads. Not a fucking clue how the earning people in the real world live or operate.

    I mean even our erstwhile host for whom I have some regard for his thinking seems to misunderstand why and how deprecation works with property. But then thats the price we pay for limited experience and knowledge.

    Answer me this. If land tax is applied what % of Kiwi’s will pay this tax? Now I don’t know the actual figures and I doubt anyone does but consider that about 35% of housing in NZ is rental housing, so by extrapolating that we can guess that 35% of the people in NZ will not pay land tax. Rough but won’t be far out, unless the Govt. allow landlords to pass the tax on. Now they won’t allow us to charge the tenant the current land taxes,(i.e. rates), so I can’t see them allowing land taxes to be charged.
    What happens in retirement villages where the land is owned by the resort and there is a license already in place to occupy?
    What happens to lease land. Will the law be changed to allow the owners to pass on a land tax to the lessees?

    This is wealth tax by another name.

    Deemed rate of return. Accountants, valuers and lawyers dream tax.

    Remove the 20% depreciation on plant and equipment. Now they are in wanker world. If anything it needs beefing up so we invest more in plant that makes us more efficient. FFS these twats must live in neverland.

    All together a disgusting farce and waste of tax money. And that’s it really isn’t it. three reports , nothing new at all that hasn’t been talked about for at least five or six years, all paid for by the taxpayer because the people who have been elected to actually do the job are either bereft of idea’s or fail to see the need and the significance of reducing expenses of Govt.

    The figure of lost tax (supposed) to landlords is about 200 million dollars. Doesn’t take much to prune that out of the system. Actually I have yet to see anyone critique that figure properly and explore what the result would be if
    1. tax rates had remained at 33% but the investments were still made.
    2. Interest rates had fallen and remained at 6% rather than the 8-9-10+ that have been over the period. And yes 10+ is still there.
    3.What would be the loss so called if the tax rates had maintained the same relative value over the period. Many people invested because their tax paid went up with their wages. Had the tax rates remained indexed would we have had this tax drain.

    Lots of people including myself were property investors before Helen cast her evil spell, in my case because it was the only way that I could recover from losing all the money I lost a Ruth(mouth and Trousers) hand. Now another bunch of useless Nats, seem to want to rob me of the wealth that I have accumulated by my hard work. Well the Nats can get fucked.
    We are greater than them and we will move, find flaws in their legislation , do what recent immigrants do and operate in cash but in jno way will they get fuck all from me.

    And you know it occurs to me that this bunch of luncheon wankers are so far removed from the day to day economy that they have no idea how all the new immigrants run their businesses. Cash, folding, don’t pay tax. and with all the will in the world IRD are just never going to collect it.
    What are they going to do about that?

    The place is run by idiots. ahhhhh

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  55. Shunda barunda (2,965 comments) says:

    So how is this going to help a small business owner like myself?
    I am currently looking at a 500% increase in land lease, a 20% increase in rates and now a GST rate of 15%.
    I’m so effing excited.

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  56. Viking2 (11,125 comments) says:

    Anonymous Anonymous said…

    What irks me is that solo mothers earn more on the DPB than hard working parents. I know people who pay off whole mortgages on very nice homes, through the govt. Hasn’t NZ gotten things topsy-turvy. Do nothing, get well rewarded, work hard, get heavily taxed. Very fair, not.

    12:24 PM..

    From Lindsay Mitchells blog. Now tell us how these smart arses are going to fix this before they raid my property business.

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  57. NeillR (347 comments) says:

    I’ve just got home and read the recommendations and some of the reaction to it. To some of the supposed “business leaders” who are against putting in a capital gains tax i say:
    I am a business owner and it fucks me off no end that if i had invested in non-productive assets i could have made massive TAX FREE gains while the rest of the country went to shit. Fuck you and the horse you rode in on – you’ve had it far too good for far too fucking long. Most of you who aren’t in favour of a capital gains tax are the first wankers who beat yourselves off about welfare costs while contributing nothing to the economy. Well your chickens have come home to roost and i can only hope that this country has finally seen the light and that they can’t keep screwing the productive sector while allowing more than $2bn a year of unrealised tax to go begging.

    I for one am looking for a bit of tax reform to allow my business to get off its knees.

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  58. Viking2 (11,125 comments) says:

    TutTut, I to am a small business owner. three in fact and I wouldn’t have any had dick heads like you been in charge for its the gain on my property that has funded them and will fund some more. You need to figure out a better business plan and have some decent assets to lean on when you need.
    And while you are at it why shouldn’t your business be subject to capital gains as well or for that matter the rate of return model and then some plonking fucking busy body bureaucrat could assess you yearly for your capital gains tax.

    No wonder this country is stuffed with brain dead people in charge of their business and their ilk trying to make policy.

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  59. GJM (58 comments) says:

    So, as a wage earner can see I will be screwed again. Taxes going up, on top of the other taxes that National have already put up, such as ACC, petrol tax and soon ETS levies, not to mention local rates spiralling ever upwards.
    So they will drop income tax? Based on previous form, the minuscule drop won’t make up for the increased other taxes. Then of course there is fiscal drag – a tax increase by any other name. The income tax drop will soon be gobled up by inflation and a few years down the track we have the new taxes, and all the old ones too.
    I am getting so sick of being taxed, and taxed and taxed and getting nothing for it. Be alright if they didn’t waste so much – liek the Supreme Court building…
    geoff

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  60. peterwn (3,148 comments) says:

    In the longer term, tenants both residential and commercial will end up paying land taxes. This is because for a growing economy, the value of property is essentially governed by the cost of building new property – houses, factories, shops or offices. These just will not be built if the prospective sale price or rental does not stack up and a prospective landlord will be looking at his return AFTER land tax has been paid.

    While there has been a bubble in certain property sectors others have been virtually unaffected. For example ordinary residential real estate in Wellington has not been affected that much, In some areas there has been a slight pause eg houses taking a bit longer to sell, but no major price drops.

    A good example is the Kirk Labour Government’s property speculation tax. It was supposed to tax ‘ill-gotten’ gains, but instead smart proprrty investors made a killing out of it.

    As I have said before, a major reason why mom and pop investors are in real estate is because they like the tangible aspect of ‘bricks and mortar’ and do not trust finance companies, Weldon’s Stock Exchange, etc as far as they can chuck them.

    And upset these people and it is a significant of right-leaning votes down the gurgler.

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  61. Shunda barunda (2,965 comments) says:

    Look, there is a bloody problem in this country, one bugger bought up half our street as part of his property portfolio and now the rest of us home owners are paying higher rates and land lease, and he gets to enjoy his big fat rentals and ultimate return down the track, tax effing free.
    I am looking at paying $2100 in rates and $4800 in land lease because of people like him driving up prices.
    That’s $132.69 a week in the shittiest part of town, and then there’s the cost of living and mortgage on top of that.
    It’s ok for some of my neighbours though, WINZ just takes care of all that while suckers like me keep plugging away at running a business.
    There is something wrong when people can’t own there own home unless they are upper class, this is not what NZ is about.

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  62. Anthony (766 comments) says:

    I agree with Shunda barunda and peterwn is mostly wroing. Nearly everyone gets into property investment because they are sold on the negative gearing allowing them to reduce their tax while they own the property and bank a fat tax free capital gain when they sell. Of course property investment is not that easy as many have found out but it’s all about perception.

    I get sick of smug midldle class property investors with pictures of their properties on their website or phone, talking about the taxman paying off their mortgage, thinking they doing a service to society and threatening to put up rents if they lose their precious tax breaks. These people buy existing properties so don’t increase the supply of accommodation – they just push up the price of purchase. They will be too scared to push up rents much as then they risk losing their tenants. The price of property will come down so it is again profitable to own houses for the rent rather than the capital gain.

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  63. Pete George (22,776 comments) says:

    Then of course there is fiscal drag – a tax increase by any other name.

    If the top rate lines up with company tax, say at 30%, that consolidates two brackets (38% and 33%) into one therefore significantly reducing or removing fiscal drag for most earners.

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  64. NeillR (347 comments) says:

    Viking2, i can only assume you were replying to me before and if so, let’s play the “my dick’s bigger than yours”.

    TutTut, I to am a small business owner. three in fact and I wouldn’t have any had dick heads like you been in charge for its the gain on my property that has funded them and will fund some more. You need to figure out a better business plan and have some decent assets to lean on when you need.

    So you’re actually saying that you don’t have a sustainable business model but you’re reliant on TAX FREE GAINS to keep your businesses running – way to go.

    And while you are at it why shouldn’t your business be subject to capital gains as well or for that matter the rate of return model and then some plonking fucking busy body bureaucrat could assess you yearly for your capital gains tax.

    My business IS subject to tax assessments every year. I DO pay tax on my gains. So tell me why you think it is that i should work all year to pay my tax so that some bludging clown should get a free run? And it might mean that instead of so much investment money going into unproductive housing assets that more money is available to invest in real businesses that make a REAL contribution to the economy.

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  65. Viking2 (11,125 comments) says:

    Neilr; Well you do show your ignorance then don’t you. I don’t use tax free gains as business profit, they are used to provide the security for the capital the businesses need. Something that businesses small can’t do without the security so when you figure that out you can move on.

    Your business is assessed for its profitability each year not its capital gains i.e. it increase in value as a business. You will only do that when you want to sell it and take you tax free capital gain. Fundamental stuff that obviously you still need to learn.

    Where in the universe do you think the money for investment comes from? Do you know a friendly bank somewhere in the world that happily lends money to business without security. Doesn’t happen in NZ that I am aware of, perhaps you can suggest one to me.

    The real issue is to reduce the need for taxes and to limit the Govt.’s ability to tax and spend. Right now they could tax everyone at 75% and unless it could be overturned in parliament the on thing we could do is leave NZ. Is that right?

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  66. Inventory2 (10,095 comments) says:

    Did we hear Gareth Morgan correctly on Breakfast? Was he REALLY advocating a top tax rate of 45%?

    http://keepingstock.blogspot.com/2010/01/sour-grapes-gareth.html

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  67. Lance (2,442 comments) says:

    So just to put it in a nutshell.
    Does property investing do anything for NZ other than bleed it dry?

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  68. stephen (4,063 comments) says:

    Not well-received by whom, stephen? Dreary left-wing commentators in the Granny Herald old enough to remember the Great Depression?

    Key.

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  69. CharlieBrown (889 comments) says:

    Well well well, it already seems that the nats are steering clear of making any significant changes already.

    http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10621383

    Do these guys even have a spine? These people are intelligent, so it seems they are completely selfish, doing anything (well doing nothing) to stay in power, whilst they see NZ rot from the inside. I hope they prove me wrong but it seems we are in for a budget the same as last years.

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  70. Pete George (22,776 comments) says:

    That worries me too Charlie, English and Dunne have sounded weak willed and self interested.

    It is rare for a government to get a chance like now to initiate worthwhile reform with minimal electoral risk. I hope Key kicks their opulent bums into gear.

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  71. jackp (668 comments) says:

    The Tax Working Group members for those interested:

    Bob Buckle, Victoria University of Wellington (Group Chair)

    Rob Cameron, Cameron Partners

    Paul Dunne, KPMG

    Arthur Grimes, Motu Economic and Public Policy Research

    Rob McLeod, Ernst & Young

    Gareth Morgan, Gareth Morgan Investments Limited

    Mike Shaw, Deloitte

    Geof Nightingale, PricewaterhouseCoopers

    Casey Plunket, Chapman Tripp

    John Prebble, Victoria University of Wellington

    John Shewan, PricewaterhouseCoopers

    Mark Weldon, NZX Limited

    David White, Victoria University of Wellington

    Accompanied, of course, by a hoard of Govt officials.

    Thanks Jack5 for listing the people who put this suggestion together. I don’t know them but I worry when an academic is chairing this committee. Was there any mention about reducing the size of the government? If that isn’t included, then this whole excercise is worthless. I like Don Brash’s review. Must more realistic, Unfortunately, Key wouldn’t even give Brash’s outlilne a second look.

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  72. stephen (4,063 comments) says:

    Was there any mention about reducing the size of the government?

    I don’t think it was their job to look at stuff like that, more the efficacy of the tax system. Size of government is more a political question.

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  73. kaya (1,360 comments) says:

    Forget the picking round the edges, there are some very basic facts to always remember.

    In general NZ consumes more than it produces, a position that can’t be maintained indefinitely. We carry far too much non productive dead wood.

    Property “investment” is non productive and steals money from the kitty. This group along with a heavily bloated bureaucracy and an army of “consultants” and “advisers” are all non productive. (The reports pumped out of Wellington on a daily basis would be enough to make us carbon neutral, though that would be cancelled out by the amount of methane they produce from the bullshit they spout.)

    Combine that with a welfare system that is too generous and is routinely abused and you get the position we are in today. An ever reducing group of people doing real jobs being taxed more and more to fund the above parasites.
    As for the fiscally neutral tax recommendations pardon me but bollocks. It will be very easy to find a reason to increase personal tax again in a couple of years, there is no chance of the GST rate ever coming back down, that one is here to stay. The powers that be who maintain this gross status quo are convinced they can do whatever they want, and based on the previous apathy of the general public, that belief is warranted.
    As is the case in the USA, it is irrelevant which face is at the helm of the country. The real power lies behind the facade.

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  74. kaya (1,360 comments) says:

    And on that tragic note –

    “When you think of the long and gloomy history of man, you will find more hideous crimes have been committed in the name of obedience than have ever been committed in the name of rebellion.”

    - C. P. Snow

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  75. Cactus Kate (545 comments) says:

    GJ just outed him or herself as an accountant. Refer to a referenced explanation that I’ve left with Red Alert so we don’t have to waste time with that recommendation 9.2 which appeals only to those who have clearly had a rental property or a fixed asset:

    As for depreciation deductions
    a) land and buildings are separate in tax calculations. Land seems to always appreciate, buildings necessarily do not
    b) when you sell a rental property if the buildings are sold for a higher value than the adjusted tax value (cost – depreciation already claimed) there is a concept called “depreciation recovered” where you pay the deductions back through the net amount being included as taxable income in the year of sale…

    See references all through here and especially pg 29 and 30 here where there is a cute little example for all

    http://www.ird.govt.nz/forms-guides/number/forms-200-299/ir264-guide-rental-income.html

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