Shewan on taxes

June 30th, 2012 at 9:41 am by David Farrar

James Weir at Stuff reports:

New Zealand should move to a low-level land and cut personal rates, retiring PricewaterhouseCoopers chairman says.

He also says the “elephant” of rising national superannuation costs means a rise in the GST rate to 17.5 per cent in coming years was “almost inevitable”.

Shewan had his last day as PwC chairman yesterday. PwC partner Jonathan Freeman has been elected the new chairman.

Shewan said a rate should be low, perhaps 0.5 per cent of land value each year, and be assessed like a city council rate, with an offsetting fall in the personal tax rate of a few percentage points.

“I still think that is the right thing to do,” he said. That idea was rejected by the Government when proposed by the Tax Working Group, which Shewan was part of. “I regret that,” he said.

High taxes on personal incomes were the most damaging to the economy for growth and jobs. The most efficient taxes were those people could not avoid, such as tax on spending like GST or tax on land “because you can’t hide it”.

I agree with a land tax, so long as other taxes are reduced to compensate. Land tax is both unavoidable, but also encourages better economic use of land, unlike income taxes which actually discourage labour.

New Zealand’s tax system was a “complete wreck” in 1984, but was now one of the strongest and most robust in the world.

The basket cases of Europe, such as Greece, Italy, Spain and Portugal, shared a common thread of poor tax systems, with high levels of tax evasion and fraud. “They regard paying tax as voluntary,” he said.

In contrast, in New Zealand most felt they should pay their fair share of tax. Shewan said he was “very proud” of the tax system here.

It is one of the better ones around, so long as we resist the stupidities such as GST exemptions for fresh fruit and vegetables.

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28 Responses to “Shewan on taxes”

  1. ross69 (3,652 comments) says:

    Land tax is unavoidable…well of course it is if you own land. But plenty of people don’t own land, so they wouldn’t be paying any tax. Moreover, any land tax would be inherently unfair because many people, like superannuitants, are on fixed incomes but own land. So someone on a fixed income (ie benefit) would presumably pay the same tax as someone earning a million dollars. Seems like Shewan hasn’t really thought this issue through.

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  2. Viking2 (11,412 comments) says:

    The IRD considers the “advancement of religion” a charitable purpose that qualifies for a tax break.

    Sanitarium GM Pierre van Heerden doesn’t see any difference between rival food firms and a charity-owned, company tax-exempt enterprise. Photo / Dean Purcell
    Sanitarium GM Pierre van Heerden doesn’t see any difference between rival food firms and a charity-owned, company tax-exempt enterprise. Photo / Dean Purcell

    Down any New Zealand supermarket’s breakfast cereal aisle, there’s one company that dominates the shelves.

    Sanitarium – the maker of Kiwi staples Weet-Bix and Skippy Cornflakes – has evolved into a giant of the local food manufacturing sector over the last century.

    The Royal Oak-based firm says its share of the New Zealand cereal market sits at about 35 per cent, while Kellogg’s, its nearest rival, holds roughly 23 per cent.

    Sanitarium’s ownership structure, however, sets the company apart from its multi-national competitors such as Kellogg’s, Kraft and Nestle, which are publicly listed.

    Wholly owned by the Seventh-day Adventist Church, Sanitarium’s arms on both sides of the Tasman are exempt from paying company tax on their earnings because their profits help fund the church’s charitable and religious activities.

    But that tax break doesn’t mean all of the income generated by the church’s local businesses is required to stay in this country.

    Following enquiries by the Business Herald, the church confirmed that its New Zealand-based companies have invested roughly $13 million into three ventures in the United States since 2007.
    http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10816412
    James Standish, communications director for the South Pacific Division of the Seventh-day Adventist Church, would not specify which firms had made the investments, only saying they had been made by its “Group One” entities.

    The businesses owned by those entities, which reported a combined revenue of $86.1 million last year, include the New Zealand arm of Sanitarium, Avondale’s Life Health Food – which manufactures brands such as Lisa’s and Naked Organics – and the Bethesda retirement village in South Auckland.

    The $13 million has been invested into Washington state-based Sweet Green Fields, which has developed a natural, calorie-free food sweetener, Minnesota-based Primordia Seeds and Asklepion Pharmaceuticals, headquartered in Baltimore.

    An Inland Revenue Department spokesman says tax-exempt organisations are free to apply funds outside New Zealand, although business income that leaves the country can be liable for tax.

    However, Standish says that as long as a charitable entity retains ownership of an overseas investment the funds invested remain tax free.

    “I’m advised the Group One entities were not required, under New Zealand law, to pay tax on business income they reinvested and continue to retain ownership of,” he says.

    Canterbury-based charities researcher Michael Gousmett questioned why the church’s businesses had invested such a large sum of cash outside New Zealand that could go towards charitable work in this country.

    “If they’ve got so much money that they can afford to invest in other countries rather than apply the funds for charitable purposes, then you’d have to question that,” Gousmett says.

    Max Wallace, an Australian author and vocal critic of the tax exemptions enjoyed by religious organisations, says the investments support the idea that churches have become “corporations trading on their tax-exempt status”.

    “It’s certainly in the economic interest of governments now, with stretched budgets, to reconsider [the tax exemption] because the cost to the state is very significant,” says Wallace.

    The IRD considers the “advancement of religion” a charitable purpose that qualifies for a tax break.

    Wallace says that rationale harks back to archaic British law and is “way past its use-by date, especially in New Zealand, where religious belief is on the verge of dropping below 50 per cent of the population”.

    Sanitarium general manager Pierre van Heerden also defended the investments, saying Nestle has adopted a similar strategy in order to “ensure its future”.

    He says he doesn’t see any difference between a firm like Nestle or Kellogg’s and a charity-owned, company tax-exempt enterprise like Sanitarium.

    Mr Sherwin didn’t advocate for dealing with these situations at all, just raise more tax from taxpayers. Wouldn’t it be nice if all non taxpayers such as cahritable instsutuions so called and various IWI enterprises paid their share as well.

    No Mr Sherwin would rather stick it up the property owners nose instead, as if the ratepayer isn’t already being rooted by Govt. both local and National..

    Mr Sherwin didn’t even mention containg and eliminating the wasteful spend of much of Govt.

    Pleased he’s gone with his bean bag.
    Another failed thinking person

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  3. wat dabney (3,724 comments) says:

    On the other hand, there’s a certain sector of society which owns vast tracts of land and yet receives disproportionately high benefits to alleviate the “poverty” of its constituents.

    If land is not to be taxed then it should certainly be considered an asset which must be sold before 1c of taxpayers’ money is seized for “redistribution.”

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  4. nickb (3,686 comments) says:

    I can only say that Mr Shewan up on his ivory tower can’t deal with the complexities of the NZ tax system on a daily basis anymore.

    National have introduced some of the most absurdly complex changes to the tax regime since taking office, including the horrifically poorly drafted LTC legislation (fixing something that wasn’t broken) and changes to the GST and financial arrangement rules.

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  5. gravedodger (1,552 comments) says:

    Fine for the tall poppy choppers, another weapon to assault the aspirational citizens who choose to accumulate over the consumptives who eat drink and be merry. Cue the parable of the Grasshopper and the Ant.

    I choose to live on one acre of land that has views, aspect, space, privacy, water and is situated close enough to, and far enough away from a major population centre.
    My local authority in its wisdom, compels me to own another 15 acres of land to satisfy the dreams of pantywaist planners and their socialist supporters that adds a considerable value component to my land holding that I have no wish to own, the one acre I occupy fulfills all my desires and now another bunch of social engineers want me to pay “land tax” on that unwanted land, nice one Stewy, nice.
    Another source of OPMs for profligate socialist suckholes to tap into.

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  6. gravedodger (1,552 comments) says:

    Oh and tht little piece of terrific news to increase my tax liability on accumulated wealth, is in the same media that report on how successful the charitable trust that owns Sanitarium Health Foods pays no company tax along with several machinery outlets as yet un-named. Choice.

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  7. trout (937 comments) says:

    But Maori owners will cry foul and campaign for exemption. $20million dollars+ is owed by Maori owners in the north who refuse to pay rates (a land tax by another name).

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  8. Viking2 (11,412 comments) says:

    Well seeing as we are talking tax and Charities here is another rort well summarised by none other than Sir Bb.

    http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10813887

    Taking money from gambling zombies by stealth and paying it to worthy causes is not charity. Photo / APN
    Expand
    Taking money from gambling zombies by stealth and paying it to worthy causes is not charity. Photo / APN

    The Prime Minister should reject casino conference centre’s sleazy trade-off, writes Sir Bob Jones.

    Watching a Super-15 match and irritated by the referee’s incessant whistle-blowing, I lay on the carpet and played a game of patience. My youngest daughter, just turned 4, crouched beside me.

    “What you doing, Daddy?”

    “It’s a game; just watch.”

    “I won,” I cried triumphantly five minutes later, having got it out.

    My daughter looked puzzled. “Who lose, Daddy?” she asked. Our laughter baffled her even more but her child’s innocent clarity of thought got me thinking whether a winner always presupposes a loser.

    “Everyone’s a winner”, “there were no losers on the day”, “a win-win result” are usually rationalisations which set a sceptic’s antennae waggling.

    I pondered it further when the morning’s newspaper included a 12-page supplement from the Lion Foundation, listing the winners of their past year’s $55 million distribution derived from pub poker machines.

    In its introduction, the word “charity” was bandied about. The Lion Foundation is a charity only in the eyes of the law but it most certainly is not by any dictionary definition.

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  9. Viking2 (11,412 comments) says:

    Add to that this summation of the pokie industry and taxes.

    http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10816475

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  10. krazykiwi (9,186 comments) says:

    I agree with a land tax

    I don’t. Not because it’s a tax on land, but because its another tax. And while successive govenments have unconstrained appetites for more tax to fund their ‘get me re-elected’ schemes we should staunchly opposed further taxation. I’d change my view if any government set the tax take at a fixed percentage of GDP… and then lived within their budget. Won’t happen of course.

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  11. Jimbob (641 comments) says:

    Billions are collected in land tax now, i.e rates. You would be sucking money out of the system from people who have no way to recoup the loss of the land tax. Once the tax is in place it will only go up, as rates do at the moment, and will get to an unsustainable level, as rates are at the moment. Cut Government spending on people on middle class welfare and bring in incentives for the growth of exports. Finding new ways to haul money out of the system is counter productive, growing the revenue of the private sector is what is needed to be done.
    Bye-bye John.

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  12. mikenmild (11,247 comments) says:

    V2
    Thanks for that link. I would not always agree with Bob Jones – a nasty piece of work – but he’s spot on about pokies and the sleazy Sky City deal.

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  13. Paulus (2,607 comments) says:

    Why should Maori pay Land tax. They don’t own it it is in trust for their offspring.

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  14. peterwn (3,242 comments) says:

    Does the community really need ‘the most economic use of land’ in all cases. In most cases, land tax would be simply be passed on in the form of higher rentals. This may not happen immediately depending on lease terms, but will happen at rent review times and also with new leases that require the tenant to meet land tax along with rates. The value of premises and hence the attainable rent is highly dependent on the cost of new developments. If investors cannot get a reasonable return, they simply will not build.

    A land tax would probably be a deadweight impost on the likes of Dunedin and other places where development is slow or non existent.

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  15. thedavincimode (6,691 comments) says:

    V2

    Spot on. Sanitarium is hardly a cake stall or IHC clothing collection. The charities exemption wasn’t exactly intended to benefit substantial commercial enterprises or provide a lifestyle for career fundraisers (read rort artists).

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  16. Colville (2,261 comments) says:

    Paulus…why should I pay land tax…its in a trust for my offspring !

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  17. Colville (2,261 comments) says:

    A land tax would hammer the forestry industry…but I suppose with a LT introduced forestry land would need to be revalued as it would be almost worthless because it would need decent external cashflow to sustain…so the rates value would take a massive hit too…

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  18. Anthony (794 comments) says:

    Maybe land tax could be deductible against other taxes so as to not impose extra costs on those already being productive and paying tax.

    I’ve continued to be disappointed with Shewan on the issue of capital taxation – where the current provisions are a dogs breakfast and create a lot of work (and money) for the likes of PWC to help their clients navigate them. John must know this yet he always puts any reform of this area in the ‘too hard basket’. What a gutless wimp!

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  19. Manolo (13,571 comments) says:

    I agree with a land tax..

    I don’t. By the way, why don’t you pay an equivalent tax today, DPF? Who or what is stopping you from donating a bigger part of your income to the state coffers.

    Just do not wish it upon the rest of us, please.

    [DPF: I made quite clear it needs to have income tax drop in return. I believe taxation as a percentage of the economy should fall. But the taxation should be broad based and low rate]

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  20. Bryan Kavanagh (3 comments) says:

    Enjoying this discussion. For anyone seriously interested land tax, it has much to offer the current financial collapse. John Locke correctly observed that all taxes eventually fall on the land anyway – so why not put the revenue base there in the first place to remove all taxation’s deadweight? NZ had leaders such as Sir George Grey, who repaired a depression in South Australia by keeping land prices down, and John Ballance who returned NZ to prosperity using the land tax.

    It’s quite incorrect to see it as just another tax, because it’s a rent in nature, and therefore can’t be passed on in costs as taxes are. Land tax should be used to REDUCE taxation. The Henry Review of the taxation system in Australia held land tax and mineral rents, being COMMON wealth, to be an excellent revenue base.

    And EVERYONE pays a land tax, even renters, who pay it in their gross rental to the landlord.

    It arguable that the world may not have experienced this real estate bubble-inflated financial crisis with significant land taxes in place to keep the lid on land prices. i.e. Escalating land prices are the result of inadequate capture of publicly-generated land rent (via municipal rates or land tax.) That’s because land price is simply the private capitalisation of that part of the annual rent of land NOT captured for public revenue.

    Land tax ‘works’, but too few understand it.

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  21. Viking2 (11,412 comments) says:

    Here’s the problem with that suggestion DPF. If you own land you pay tax. If you don’t them youlive a tax free life with all the benfits that accrue.
    We have plenty of those free riders now. They are called renters and don’t bother telling me renters pay rates because it is illegal under RTA to charge rates to tenants.
    Renters use council services but don’t contribute one cent towards them. Landlords pay for the tenants use of communtity facilites.

    Rodney wanted to fix that but unfortunatkley Key and Phil didn’t want to freighten the horses.

    Oh and I should point out that the State via HNZ (read Taxpayer), pays the rates for the bludgers that live in HNZ houses.

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  22. Anthony (794 comments) says:

    Usually you could say the rates are passed on in the rent – but not for HNZ houses!

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  23. mikenmild (11,247 comments) says:

    All tenant pay rates, indirectly at least. If a landlord fails to take account of rates when determining the rate of return required from the property, then that’s their problem.
    A land tax is an excellent idea, so too a capital gains tax. Probably won’t happen the, I guess.

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  24. Bryan Kavanagh (3 comments) says:

    Yes, I agree, mikenmild. Obviously some people don’t quite get that even when rates and land taxes are legislated NOT to be passed on to tenants, the landlord still pays these charges out of his gross rental, so, it is the tenant who effectively pays them anyway. But that’s not the critical point, which is, to the extent that governments can get more land rent via rates or land tax, they can tax labour and capital less and help resurrect the economy. And it will tend to be be the parasitical 0.1% (who have the ability to claw back all the taxes they pay through the uplift in their land values) will pay the higher rates and/or land tax, not Joe Sixpack.

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  25. mikenmild (11,247 comments) says:

    Of course Mr Key has ruloed out a land tax, or a capital gains tax, among many other things rules out. Perhaps when he has finished ruling out policy options, we will be left with something for the government to implement. Or maybe not.

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  26. slijmbal (1,230 comments) says:

    The trouble with any capital based taxes like land tax is that they discourage the collection of capital, which of course is the desire of the far left as per the mantra ‘capital is theft’. We are not even talking a capital gains tax here just being taxed for owning something.

    It is bound to have unexpected consequences like the window tax and building width taxes of the UK and Netherlands respectively. You can still see buildings with bricked up windows and very narrow buildings from these taxes.

    Rates are already a wealth tax as opposed to a user pays for facilities approach …. the trend continues.

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  27. Bryan Kavanagh (3 comments) says:

    What’s a ‘wealth tax’ really mean, slijmbal? Getting the 0.1% to pay their fair share? If it gets at those who sit on land for speculative or capital gains purposes, is this not a good thing? Is not the productivity of labour and capital much more important than the speculative residential real estate behaviours that brought on this worldwide financial collapse? Yet our tax regimes ALL tend to fine work and real wealth creation whilst they reward property ‘investment’. Why is this, because people will do what the tax system encourages them to do?

    I don’t see how dropping the label ‘wealth tax’ on a land tax makes any valid point at all. Land taxes kick speculators out of the market and make them do something more productive with their money. If you’re saying the wealthy are all property speculators, then bring on a land tax!

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  28. leftyliberal (646 comments) says:

    Agreed completely Bryan. It’s only on the value of the land, after all, not on the improvements on top of the land: The improvements to the land are what the landowner uses to profit from the ownership of the land. This could be in rent or as a farm or forestry, industry, commercial etc.

    Obviously it should be balanced with an appropriate rebalancing of income tax.

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