The problems with the current tax system
The Herald takes a look at the tax system:
The most significant problems facing the tax system can be simplified as follows:
The mobility of the tax base: New Zealand is heavily reliant on both its corporate tax take and on the personal taxation of high-income earners representing a low percentage of the total workforce. Companies have the third-highest tax burden in the OECD (measuring tax revenue as a percentage of GDP), and the Treasury is still concerned the company tax rate is among the highest in the smaller OECD economies.
The burden of personal tax is also high, with New Zealand again the third-highest in the OECD in percentage terms. In the 2009 Budget the top 1 per cent of taxpayers pay 15 per cent of the tax, while the top 3 per cent pay 26 per cent. It is not known if these high effective rates of tax contribute to our having the highest diaspora (population of New Zealand-born expatriates) of skilled workers in the OECD, but highly skilled people are mobile and sought after in the global economy.
Taxes that damage economic growth: A related problem to our high taxation of business (in particular company) and personal income taxes is that, according to the Treasury, there is growing evidence these types of taxation are bad for productivity and the most negative for growth.
An concise summary. Labour will wail if the top tax rate is dropped that this is giving tax cuts to millionaires, but tax reform is not about redistributing income, as much as it is about better economic growth so everyone does better. Plus as the Herald reports NZ is dangerously reliant on what Cullen calls the rich pricks.
January 5th, 2010 at 11:52 am
Yes, better to get 30% tax off $250k skilled workers than 0% when they go offshore.
January 5th, 2010 at 11:53 am
“tax reform is not about redistributing income”
It shouldn’t be, but this is the left’s holy grail- the use of government to bring about Nirvana.
Tax is a means to pay for essential government services (and only essential government services), and we should never have moved away from this basic concept.
January 5th, 2010 at 12:02 pm
I agree with an urgent need to reform and reduce our taxes (and to reduce the size of government).
Aren’t rich pricks also reliant on poor pricks, without whom they would not be able to make their riches?
Widening income gaps cause problems for both rich and poor.
January 5th, 2010 at 12:08 pm
I guess. However only one group seems to be in danger of making themselves…unavailable.
January 5th, 2010 at 12:15 pm
It is disgusting the top 3% of tax payers pay 25% of the entire tax haul. These people should be admired for their huge contribution, yet cullen calls them rich pricks.
That sums up all that is wrong with nz. Kiwis hate achievers.
January 5th, 2010 at 12:17 pm
The poor are always with us. The rich can get on a plane and go.
Then you can’t tax them anymore to provide for the poor.
Thus socialism brings about equality by producing mutual poverty
January 5th, 2010 at 12:23 pm
Hang on. Most countries have ‘progressive’ tax rates. Does that mean everyone hates achievers? Of course not.
Even with a flat tax rate, the bulk of the income tax-take would still come from the upper-earning minority.
January 5th, 2010 at 12:26 pm
Perhaps its time to seriously consider the introduction of some type of Financial Transactions Tax that takes a small percentage of each financial transaction made through the banking system – would appear to me to be a more equitable system which might be able to replace GST someday and would hit banks who move funds offshore for short periods of time and speculators the hardest?
January 5th, 2010 at 12:44 pm
malcolm
Most countries have progressive taxation – true. But most countries are lucky enough to have a minister of revenue/finance that knows what rich is. Imagine Dr Cullen standing up in 1999 and saying;
By the time we lift this rich prick threshold 75% of high school teachers will be classified as rich pricks.
Do you think it would fly ?
January 5th, 2010 at 12:48 pm
Burt , you should ask them in America what they think of Wall St executives. Rich Prick wouldnt even come close.
Have you forgotten that was whom it was applied to by Cullen, after a slur against Helen Clark.
Remind me again what the highest tax rate is in Australia
January 5th, 2010 at 12:49 pm
The most famous acknowledgement that Cullen was all ideology and zero integrity was when he said in 1999 that a top tax threshold set to 39% was moderate on world standards. He said in the US the top threshold is 48% (which it was in 1999) but being a lefty and incapable of being honest he forgot to mention that the top tax rate in the US at that time kicked in at $400,000 USD (about 10 x the income threshold of our rich prick rates).
The guy is a complete dim-bulb – but lovers of big govt, rich pricks leaving the country and corruption in govt voted him back 3 times.
January 5th, 2010 at 12:51 pm
Oops its DPF who says “NZ is dangerously reliant on what Cullen calls the rich pricks”
Oh dear , you have a quote for that?. See above.
Would love to See Keys net wealth and his Annual tax bill.
January 5th, 2010 at 12:52 pm
Countess
Would that be Australia run by a tory govt with higher taxes on it’s rich than the socialist NZ govt. Oh and don’t forget that the tory Aussie govt had lower taxes on low earners than the socialist NZ govt.
Cullen was a dim-bulb. All he understood was that if he over taxed the country he had lots of money to spend making his party look good. Remind me again how gifted he was….
January 5th, 2010 at 12:52 pm
I’m not arguing with you there Burt.
I was just taking exception to notion that Kiwi’s hate achievers because tax is paid disproportionately by the ‘rich’ or that we have a ‘progressive’ tax system. It’s a non-sequitur.
January 5th, 2010 at 12:54 pm
malcolm
A ‘rich prick’ tax is fine – for rich people. What is it with lefties that forces them to think that anyone who earns more than a beneficiary is rich ?
January 5th, 2010 at 12:55 pm
the top 1 per cent of taxpayers pay 15 percent of the tax, while the top 3 per cent pay 26 percent
Can anyone confirm if that figure is restricted to the income tax slice? I’d be interested to know what percentage GST (for example) makes up of the tax take. Presumably, most people pay GST (although given the rebates and allowances for low income earners, we could consider that a GST rebate.)
What was Helen’s promise about the top rate of tax? Even with the “rich prick” threshold moved from 60K to 70K, I’d guess we are still a long way from her promise, a situation National might want to rectify.
January 5th, 2010 at 12:57 pm
And don’t forget the ‘doing OK’ pricks, the ‘I studied and worked hard’ pricks and the ‘I worked three jobs’ pricks. Who do they think they are wanting more of the pie they baked?
January 5th, 2010 at 1:01 pm
ZenTiger
Which broken promis of Helen’s are you talking about;
Noone earning less than $60K will pay a cent more income tax – Broken.
This tax will be used to fix health and education – Broken.
Only the top 5% will pay this new tax – Broken before it was even implemented.
Hell the public were stupid to believe anything she said – it was easy to tell when she was telling lies – her lips moved.
January 5th, 2010 at 1:01 pm
For real?
January 5th, 2010 at 1:04 pm
stephen
Yes that was true in 2008. Cullen needed the fiscal drag and he had fooled enough lefties that tax cuts were never required because the dim-bulbs were too slow to understand static tax thresholds and wage inflation were punishing them.
January 5th, 2010 at 1:10 pm
DPF
The income stats from the 2008 tax year are probably available now – would be very interesting to see how many tax payers were classified as “rich” under the dim-Doctor. I bet as a proportion of actual working people it was close to 25%.
January 5th, 2010 at 1:14 pm
Yeah, at the very least the tax thresholds need to be indexed. It’s a no-brainer. Fiscal drag has long been used by NZ pollies of all stripes to get themselves out of the shit (into the shit?).
I have such low expectations of the John and Bill Circus that I’d actually be quite impressed if they did that alone. Quite pathetic really.
January 5th, 2010 at 1:14 pm
Burt, that was not the promise. Which was to increase the tax rate. You are addding your own interpreatation.
Any way didnt harm the countrys growth.
Maybe why English/Key has KEPT THE TAX STEP – only raising it so that rich pricks are $70,000+ for 38%
HA HA HA
But have you looked at English/Keys tax cut promise, broken . After the election too when they knew the economic facts.
January 5th, 2010 at 1:19 pm
Per usual, this highlights that a property tax would offset our highly mobile tax base and allow rates to be reduced. While GST may be politically unsaleable, introducing property tax (which is linked to include capital value, so as not to disadvantage farmers) would raise quite a bit of money and would raise productivity by lowering income taxes and making space more efficiently utilised. Complaints against this, primarily in the form of redistributative objectives, can be dealt with by reminding people that the rich tend to own larger houses and will thus pay for it. What they won’t be taxed for is earning more money.
January 5th, 2010 at 1:21 pm
Countess
WHAT was not the promise ? I listed 3 things. I was working in tax in 1999 – I even wrote letters to the editor (which were published ) moaning about no indexing of the new “super low wealth” threshold.
January 5th, 2010 at 1:22 pm
Countess
Yes national broke election promises for sure – what a pitty nobody in Labour was prosecuted for breach of the public finance act over non disclosure of the real picture eh.
January 5th, 2010 at 1:25 pm
The income stats from the 2008 tax year are probably available now – would be very interesting to see how many tax payers were classified as “rich” under the dim-Doctor. I bet as a proportion of actual working people it was close to 25%.
The Listener had a few graphs in one of their December issues as I recall.
My ‘for real’ more related to teachers falling into that bracket by virtue of having an income that high – didn’t think they earned that much, especially such a high proportion.
January 5th, 2010 at 1:35 pm
stephen
$60K is not rich. There are beneficiaries who receive more than that. Any tax system that makes vast numbers of single income families reliant on welfare to survive is basically fucked beyond repair. People who vote for such a system clearly have no ability to think for themselves.
January 5th, 2010 at 1:43 pm
I wonder what Michael Cullen’s personal wealth is?
(Income, government super, bonds, etc.)
How many houses does he (and associated trusts) own?
(Remember how often he lambasts ordinary kiwis who bought an investment property for their retirement.)
And he has the gall to use the phrase “rich prick”!
All politicians are to some extent hypocrites. But leftie politicians especially so.
January 5th, 2010 at 1:44 pm
No personal taxes in NZ are indexed. See the latest tax changes.
What you all forget is that the tax rate only applies to that ABOVE the tax threshold. So the difference to a ‘teacher ‘ on $70,000 is only small. Plus since they are paid from taxes , maybe they might see the connection.
What vast numbers reliant on welfare to survive??
Maybe you are referring to working for families which is a tax credit. Which you have to pay back if you earn more ( or earn less).
But its not welfare. That was only a national party talking point which is part of their ‘bullshit’ agenda.
January 5th, 2010 at 1:53 pm
I think we should have a flat tax rate of 15% as a temporary measure before its eventual elimination.
The reason for the ‘temporary measure’ is to pay down the enormous debts incurred by the National/ACT party government – Sir Roger Douglas being the 61st vote which passed the budget and its record breaking deficit, btw, and he could just as easily refused to vote for it.
Anything above 15% is just communism and unnecessary spending.
http://www.nightcitytrader.blogspot.com
January 5th, 2010 at 2:11 pm
“Maybe you are referring to working for families which is a tax credit.”
Tax credit? No, it’s just another euphemism for a welfare benefit targeting a sector of the population; and the same WFF our fearless leader, the empty-suit Key, labelled as “comunism by stealth” during the 2008 election campaign.
Thanks to populist and spineless goverments NZ is destined to be saddled with these welfare anomalies, which after a while become an entitlement and can never be removed or taken away for fear of an electoral backlash.
Clark, Cullen, Key, and English are all politicians cut from the same socialist cloth.
January 5th, 2010 at 2:13 pm
You people out there living in shared rented accommodation- do you apportion the rent according to how much each tenant earns??
Of course you don’t, and likewise there is no reason to apportion tax according to how much anyone earns either.
Tax should be a flat amount, paid by cheque once a year.
The increase in production created by such a move would immediately improve the living standards of every NZer by around 50%.
January 5th, 2010 at 2:16 pm
I don’t want to get into an ideological debate about tax today. I simply want to note that the Herald needed to get pretty damn creative with their statistics to come up with numbers as doom-and-gloom as these. My bet is they didn’t really bother to count local or state income taxes, or payroll taxes, which are quite significant in some places. That isn’t very helpful if you actually want an informed discussion.
January 5th, 2010 at 2:20 pm
Redbaiter said: Tax should be a flat amount, paid by cheque once a year.
A little bit draconian there Red. You have to have some safety net, but a flatter tax system and a hand-up not a hand-out mentality would be a whole lot better at incentivising the populace than the current middle class welfare money-go-round we have at the moment.
January 5th, 2010 at 2:30 pm
” You have to have some safety net, ”
Providing “safety nets” is not an essential government service. You insure your car and your house don’t you? What’s wrong with insuring your health and your income/ employment.
The folly of the shifting of responsibility from the individual to government is the core reason this country is becoming a stinking stagnating clapped out socialist sewer.
January 5th, 2010 at 2:39 pm
Tax credit? No, it’s just another euphemism for a welfare benefit targeting a sector of the population;
But also a tax credit?
January 5th, 2010 at 3:13 pm
@Countess:
“What you all forget is that the tax rate only applies to that ABOVE the tax threshold. So the difference to a ‘teacher ‘ on $70,000 is only small.”
You are right that a teacher earning just over 70k is only going to be taxed at 39% on a very small part of his income. Of course that also means that the government is only going to see a very small gain in revenue. But that marginal rate is going to make a *huge* difference to the economic decisions made by that tax-payer.
If he wants to make more money, every new dollar he earns in NZ is going to be taxed at 39%, which means every new dollar he could in a country with a lower marginal rate is worth more, or alternatively if we want him to work more we have to pay him a lot more to make it worth his while.
The problem is not that it’s unfair to take so much money from the most productive members of society, though of course it is unfair. The bigger problem is that high marginal rates bring in relatively little revenue while causing huge dead-weight losses (i.e. people deciding to not work as much, or worse, deciding to work somewhere else).
January 5th, 2010 at 3:22 pm
Flat tax? Great idea, not going to happen with this timid government and mostly brainwashed electorate. NZ should have Hong Kong’s tax rates and Singapore’s social security. Having visited both more than once, I’m astounded both countries tax less and are yet richer, spend less on welfare yet have less visible poverty and crime. Nothing will be done to break the welfare cycle or statist mentality in NZ, just more of the same, but now with 10% extra FREE!
January 5th, 2010 at 3:24 pm
Redbaiter, I recently read an analysis suggesting that the welfare state was introduced in the 1930s to knock the nastiest edges off capitalism. The intent of this being to reduce the likelihood of a communist revolt by the working class. Not saying I necessarily agree with this analysis, but it is interesting.
January 5th, 2010 at 4:55 pm
We appear to have strayed from the point of the article: income tax (corporate and personal) acts as a disincentive and lowers productivity growth in the economy (through making increased earnings less attractive). Within those taxes, and particularly because of the complexity of legislation, there is plenty of room to distort markets and create serious economic problems. That Treasury has identified this and has pointed to wanting to reduce the Government’s dependence on a mobile tax basis is pretty straightforward. Further considerations, such as whether a flat tax or low marginal rates, or whether tax should be redistributive or punative, are beyond the scope of what was said. Obviously, socialists will want a higher tax burden to fall on ‘rich pricks’ (such a wonderful way to describe those that pay taxes) and capitalists will want a lower tax burden so that people work hard and don’t make distorted decisions. In either case, both objectives fall outside of what this article points out.
January 5th, 2010 at 5:00 pm
redqueen – the design of the taxation system is inevitably affected by the amount of tax required.
January 5th, 2010 at 5:51 pm
“Labour will wail if the top tax rate is dropped that this is giving tax cuts to millionaires,”
Correction
“Labour will wail if the top tax rate is dropped that THEY THINK this is giving tax cuts to millionaires,”
Gareth Morgan summed it up pretty well a few weeks back, the millionaires often do not pay the top marginal income tax as they utilize the loopholes to get around it, whether it be PIES, companies, or family trusts. The reality is, it is the middle to upper income people that pay this, not the top earners.
January 5th, 2010 at 6:06 pm
Redbaiter actually makes an excellent point about taxes being paid once a year.
I am convinced the only reason we do not have massive tax cuts and massive spending cuts is because the average chap in the street does not ‘physically’ pay taxes; his automatic PAYE deductions do not seem ‘real’.
If he was given his entire salary without deductions and then told he would have to pay taxes personally, as businessmen do, and the average chap came face to face with taxes and tax rates and thoughts of what he could do with the money if taxes were lower, and thoughts of how much of his money is being wasted, and further thoughts of what he could do with the money himself rather than the State wasting it on welfare for the Maoris….
….then you would see the elimination of “we need a safety net”/”the government should do this”/”I do not mind paying my share” comments from the lexicon.
Instead of a welfare state and civil servant salaries and vast numbers of tax inspectors and government departments I strongly suspect the average chap in the street would be taking part in an armed rebellion to insist upon tax cuts/elimination… (together with hanging a few traitors, solo mothers, “long term unemployed”, former tax inspectors, Iwi Trust Board members and others who feel ‘entitled’ to the hard earned money of the average chap in the street).
For those students of history wondering about my ‘armed rebellion’ comments you may like to think “Yorktown, Virginia – mid October 1781″ as an example of what happens to those who seek to tax and tax and tax the ordinary chap in the street in a real and meaningful way for no better reason than they feel entitled to his money….and as an example of the average chap saying to those wouldbe taxers “up yours, Charlie”
http://www.nightcitytrader.blogspot.com
January 5th, 2010 at 8:23 pm
Well said Elijah, I believe a flat tax rate system would actually deliver a greater return to government. I suspect Shonkey and his cronies just wish this would go away, basically the bastards are socialist and hate the idea of losing control. The ability of government to tax its citizens becomes more about control after a certain level of taxation. A lower flat tax rate means the average citizen has a greater choice on how they govern their lives, their choices become greater the wealthier they become. The influence of the socialist way is so ingrained in political thinking that contemplating a different path is way to scary for the saps in Wellington. Our problem isn’t so much the level of taxation more the belief that big government is the only government least the people freak out, God knows we are all children in the eyes of those that think they know better.
January 5th, 2010 at 8:35 pm
And those eyes can watch even closer now that the police and SIS have more power.
January 6th, 2010 at 8:33 am
Redbaiter said: Tax should be a flat amount, paid by cheque once a year.
How about in your birthday month
Imagine paying $20,000 in a month, now that would get your attention!
January 6th, 2010 at 8:40 am
Flat tax or just GST.
no middle class benefits.
January 6th, 2010 at 2:32 pm
Question is, What did Labour do with the 700 Billion Dollars they said they had in Kitty, 6 Months out from the last Election,
Only to find out, What 700 Billion When National took Office,
Joke is, Labour Spent Every last Cent and Then some and Left the Nat’s with this Huge Problem of NO MONEY in Kitty that Labour Created when they had that Massive Spend up in the Lead up to Election Day, Because they knew They were on the Outer after 9 Years of ripping the Country Off, Big time.
So, Question is, WHAT did the Labour Party and Their Cohorts do with ALL That Money, Huh. ?
No Wonder the National Party is struggling to get the Country back up on it’s feet again after the labour Party Absconded with 700 Millions dollars that They said they had in the Kitty in the Lead up to the Elections,
Yep, Labour Party was / is, Full of Bull.
January 6th, 2010 at 2:34 pm
NOT A Labour Supporter, Never have been Never Will be.
January 8th, 2010 at 8:40 pm
Imputed rental value of owner occupied housing (net of mortgage interest) should be taxed as income. This was the case in the UK until the 1960’s. It’s explained on the internet – just Google it. No great mystery. The policymakers are undoubtedly quite aware of it but they choose to overlook it because it is politically very contentious. Clearly, failure to tax it amounts to a subsidy to owner occupiers effectively capitalised into higher house prices. Also it is inequitable that rent payers effectively do pay tax at income tax rates on the rental value of the property they occupy (they have to find a gross amount of income and pay tax on that before having a net amount of income with which to pay rent). Introduction, would broaden the tax base, remove a subsidy capitalised into higher house prices and remove a gross inequity.