NZ 2nd most competitive tax system in OECD

September 26th, 2014 at 3:00 pm by David Farrar

The Tax Foundation assesses the tax systems of OECD countries. They note:

Many countries have been working hard to improve their tax codes. New Zealand is a good example of one of those countries. In a 2010 presentation, the chief economist of the New Zealand Treasury stated, “Global trends in corporate and personal taxes are making New Zealand’s system less internationally competitive.”

In response to these global trends, New Zealand cut its top marginal income tax rate from 38 percent to 33 percent, shifted to a greater reliance on the goods and services tax, and cut their corporate tax rate to 28 percent from 30 percent. This followed a shift to a territorial tax system in 2009. New Zealand added these changes to a tax system that already had multiple competitive features, including no inheritance tax, no general capital gains tax, and no
payroll taxes.

In a world where businesses, people, and money can move with relative ease, having a competitive tax code has become even more important to economic success. The example set by New Zealand and other reformist countries shows the many ways countries can improve their uncompetitive tax codes.

In the digital age, capital and labour are highly mobile. Companies can choose which countries to base themselves in, to sell to the world from.

The top 10 countries are:

  1. Estonia 100
  2. NZ 88
  3. Switzerland 82
  4. Sweden 80
  5. Australia 78
  6. Luxembourg 77
  7. Netherlands 77
  8. Slovak Republic 74
  9. Turkey 70

They also note:

Under this measure, no country has a perfect VAT or sales tax base. New Zealand has the broadest base with a ratio of 0.99

We have the simplest and broadest GST in the world. We should resist exemptions that complicate it.

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Secondary tax

August 24th, 2014 at 11:00 am by David Farrar

Stuff reports:

Labour has announced plans to scrap secondary tax for workers with more than one job – but National says it’s already implementing the policy.

In the current system, those with more than one job often pay a higher rate on their secondary income.  It is expected they claim a refund on the wash-up at the end of the financial year.

However, Labour says this is too complex, overpayments are often not claimed back and the system hits hardest those in casual work.

Within five years of taking office Labour would develop an alternative to secondary tax. In the interim, it would implement special tax codes until an Inland Revenue computer upgrade comes online.

I’m not sure you can call this a policy. At best it is a desire. A policy would be an announcement of the alternative. All they have announced is that at some stage before 2020, Labour will develop an alternative.

However, National’s revenue spokesman Todd McClay said they were already going ahead with the policy.

He said IRD’s Business Transformation plan will “address the PAYE system, including secondary tax and end-of-year square-ups.”

And that work is due to be completed by the end of 2015, well before 2020.

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Greens pledge higher taxes for higher welfare

August 18th, 2014 at 9:00 am by David Farrar

Andrea Vance at Stuff reports:

A Green Government would hike the tax rate to 40 per cent on income over $140,000 and use the extra revenue to tackle child poverty.

The party’s $1 billion poverty package includes new tax credits for low-income families and children in their first few weeks of life. These would be extended to the children of students and beneficiaries.

The party has this afternoon launched its election campaign in Auckland and also announced plans to harmonise the trust tax rate with the top income tax rate and crack down on avoidance. Its costings say this would generate and extra $1bn a year.

Under the plans, the Family Tax Credit and the In-work Tax Credit would be scrapped and replaced with a Children’s Credit, worth an extra $60-a-week. It would be extended to those who currently miss out on the In Work credit, which is available only to parents who work more than 20-30 hours a week.

Basically a huge income boost to families not working, funded by a tax hike on some families that are working.

The welfare system is designed so there is an incentive to be in work. The Greens want to remove one of they key incentives.

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T is for Tax

July 12th, 2014 at 4:00 pm by David Farrar

One of the big ones. Tax.

Taxes are one of the most tangible links between the government and civil society. We all pay taxes in some form, and in exchange we expect the government to provide certain goods and services: roads, infrastructure, the courts, law enforcement, education, and support for society’s most vulnerable.
 
From this perspective, the oft-quoted declaration ‘taxes are the price we pay for a civilised society’, widely attributed to Oliver Wendell Holmes, rings true.
 
However, it is a common misconception that a dollar taxed is a dollar that can be spent by government on goods and services. In reality, a dollar taxed is a dollar that must be spent on collecting tax, ensuring tax compliance, public administration of policy and, of course, the actual public policy.
 
Besides, increases in tax rates do not automatically lead to an increase in tax revenue, as illustrated by the Laffer curve. Named after Arthur Laffer, this curve popularised the notion that higher tax rates may actually cause the tax base to shrink so much that tax revenues will decline. Conversely, a cut in tax rates may increase the tax base so much that tax revenues increase.
 
How so?
 
Taxes distort behaviour by influencing the personal decisions people make about their work and consumption. For instance, people who would prefer to work longer hours or at a higher pay may work less or refuse a pay rise to avoid being taxed at a higher rate. Higher personal income taxes encourage workers to substitute their preference for work to economic activities that they would otherwise not prefer.
 
This is known as the deadweight loss of taxation, where the tax system causes individuals to pursue actions they would otherwise not prefer. To gain maximum tax revenue, there must be a careful balance between low rates with a greater tax base, and high rates with a smaller tax base.
 
There is also the issue of tax incidence, which describes who bears the cost of the tax. For example, increasing the tax on high income earners may not necessarily mean that they bear the cost of the tax. If workers are receiving less money in their pocket, for an equal or greater amount of work, employers may feel compelled to raise their wages to ensure employees receive the same take-home pay. Thus it is employers who bear the burden of a higher rate of income tax.
 
Taxes are not the price we pay for a civilised society. At best they are the price we pay for a civilised government. But they are also the price of overly bureaucratic procedures, unpredictable outcomes, and the loss of freedom to make our own decisions.

 

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Herald on Labour’s tax the rich pricks more plan

June 26th, 2014 at 3:00 pm by David Farrar

The Herald editorial:

Taxing the rich seems a defining policy of the Labour Party. It plays especially well to its left wing, a point underlined by the Council of Trade Unions’ hearty welcome to the announcement that Labour proposes lifting the top personal tax rate from 33c to 36c for those earning more than $150,000 a year. On other grounds, however, the policy doesn’t make a lot of sense. Not only is it unnecessary but it will surely raise far less additional revenue than anticipated.

Labour says the new top rate would raise almost $200 million in the 2015-16 year, increasing to $350 million a year by 2020-21. 

It won’t. The 2000 tax hike for those earning over $60,000 did not produce any significant extra revenue, and may in fact have reduced it. It will just drive high earning NZers to set up a company (28% tax rate) or to move their tax base overseas.

Nor is much of value likely to come from its plan to clamp down on tax avoidance by internet-based multinational corporations such as Google and Facebook. As welcome as this instinct may be, and as unwelcome as the practice of avoidance is, there is little hope that its approach will yield anything like $200 million a year. 

It won’t bring in $1.If anything, it will see them pay less tax in NZ, as they close their NZ subsidiaries, and just have people deal with say their Australian one.

The only was one can deal with global companies choosing a tax base in a low tax country, is through international agreement. Not press releases.

 

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Google’s tax in NZ

June 24th, 2014 at 12:00 pm by David Farrar

Stuff reports:

Google’s New Zealand subsidiary reported an annual loss of just over $60,000 and paid just $227,000 in tax in 2013, its latest accounts have revealed.

New Zealand businesses are believed to spend hundreds of millions of dollars annually on Google’s advertising services and software.

Yep, but they buy those from Google, not Google NZ. Google NZ did not invent the search engine we all use.

But Google is one of a number of technology multinationals that book most of their revenues in Ireland, enabling it to take advantage of legal tax rorts that are currently the focus of an attempted-clampdown by the Organisation for Economic Cooperation and Development (OECD).

The subsidiary turned over $10.1 million in 2013, according to accounts published by the Companies Office on Friday.

Google globally actually paid $2.3 billion in tax last year, which was an effective tax rate of 16%. Companies will incorporate in countries with lower corporate tax rates – but they still pay tax there.

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Provisional Tax

June 16th, 2014 at 4:00 pm by David Farrar

Stuff reported:

The much-hated provisional tax system that forces small businesses to forecast their tax liability a year in advance will be overhauled, Revenue Minister Todd McClay has all but confirmed.

McClay said he did not believe the provisional tax system was “fit for purpose”.

A “business transformation” programme under way at Inland Revenue, which the department expects to cost up to $1.5 billion, could allow firms to pay tax on their income in, or closer to, real time, he said.

It would be “wonderful” if Inland Revenue could get to a point when income was taxed only when it was earned, but any changes would need to be balanced against the Government’s needs, he said.

John Payne, head of tax for the New Zealand Superannuation Fund and spokesman for the Corporate Taxpayers Group, said reform of provisional tax was certainly needed.

Provisional tax is a pain. My company’s income and profit can vary greatly from one year to the next. I don’t even know what the year end is likely to be until around 9 months into it. So often my provisional tax has been over-paid, or turns out to be inadequate and you risk penalties.

A system where say every four months you just calculate your provisional profit and pay 28% of that with a final adjustment after year end, would be much easier.

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Tax Freedom Day

June 4th, 2014 at 2:59 pm by David Farrar

The Taxpayers Union broke the good yet sad news:

Congratulations New Zealand, as at 10.04am today you are working for yourself. However, the fact the Government accounts for all the money earned until today means it is unlikely New Zealanders will be celebrating. The government has effectively sucked up all of our earnings for the first 154 days of the year.

OECD figures put the current burden of government in New Zealand as 42.2% of GDP. This is larger than the 30% recently quoted by Finance Minister Bill English because it also takes into account crown entities, such as SOEs as well as local government. …

We need to aspire to countries like South Korea, Switzerland and Australia. Tax Freedom day this year fell on 21 April in South Korea, 2 May in Switzerland and 11 May in Australia.

March would be my ideal month for tax freedom day, but I’ll settle for April.

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Tax revenues down

April 9th, 2014 at 1:00 pm by David Farrar

Stuff reported:

Worsening budget deficits raise serious questions about National’s management of the economy and its books, Labour finance spokesman David Parker says.

He was speaking after Treasury today reported that the Budget deficit had continued to worsen. A lower tax take had pushed the books into the red by $1.4 billion, $884 million more than expected.

Parker said for four months in a row the books were worse than predicted, with tax revenues falling short of expectations.

“For the November and December figures Treasury said there were timing issues. They were given a bit of leeway. But now even Treasury admits it doesn’t know why the books are even more in the red.

“Somehow (Finance Minister) Bill English is presiding over a growing economy but not getting the tax revenue that should be coming with it. He needs to explain himself.”

Tax revenues are notoriously difficult to project. Even an individual company can easily find its profit will vary from forecast by 10% to 20%. The Government’s tax revenues are based on projecting the combined profits and hence tax payments of several hundred thousand companies. And that’s just on an annual basis – let alone on the monthly forecasts.

Employers may be hiring extra staff which reduces profitability and tax in the short-term. They may be purchasing assets which increases depreciation.

Or it may be that heightened business confidence and economic growth is not actually being reflected in profitability and tax for structural reasons – which would be more of a concern.

English said the figures reinforced the need for restraint in government spending.

“We remain committed to reaching a surplus next year and Budget forecasts next month will confirm we are on track,” he said.

“It is a challenging task that will be achieved only if we remain disciplined.”

Yep. The Government has limited control over how much tax is paid to it by the private sector. It does however control how much money the Government will spend.  Hence the constant need for fiscal discipline.

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Guest Post: 85% OF TAX REVENUE COMES FROM THE PRIVATE SECTOR

March 4th, 2014 at 2:00 pm by David Farrar

A guest post by Kiwi in America:

The left are totally invested in big government. The power of the state is the mechanism that they use to bring about a just and equitable society. Their goal is to tax the productive sector as much as possible to pay for ever more costly social programmes that they hope will create equality and thus a fairer and happier society. When they run up against the reality that the owners of capital are intelligent and seek the best returns on their assets and that a good percentage of capital is mobile and can be moved to jurisdictions less hostile to enterprise, they show their utter ignorance of how the free enterprise economy works.

A game I love to play with lefties who are employed in the government sector is to ask them who pays their salary. The conversation goes like this:

Me       Who is your employer?

Lefty   The University

Me       Who funds the university?

Lefty   The government

Me       Who funds the government?

Lefty   The tax payers

Me       Who employs the taxpayers who pay the taxes who fund your salary?

Lefty   Pause ….employers

Me       What percentage of employers are private sector companies?

Lefty   Cottoning on to where I am heading – “well the taxes from the employees of the government sector pay as much tax as the private companies and anyway all private company owners do is try to avoid tax”

Me       Actually 85% of the total government tax take comes from the taxes paid by private sector companies, their employees and the self-employed – the productive non-government sector of the economy

Lefty   That’s absolute rubbish and right wing propaganda

If any of you have had this discussion, here are the statistics to back up the claim – that 85% of all tax receipts source from the private sector activity in the economy. Almost all the money that governments expend on government services and benefits come from the pockets of hard working New Zealanders who own, or are employed by, evil capitalist companies. The chart below is a summary only and each line is footnoted – some to government department websites and the rest to supplementary charts that are available below the fold for those interested in seeing how I arrived at the total numbers. Note that the staff numbers for government entities were lifted from the statutorily required Annual Reports that each file in Parliament or from the entity’s own website.

The table provided is embedded below.

 

 

Public vs Private Sector

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Fallow on tax

February 28th, 2014 at 1:00 pm by David Farrar

Brian Fallow writes in NZ Herald:

Large chunks of the tax base resemble icebergs, drifting north into the warm waters of the global and digital economy.

Policymakers have a term for this: “base erosion and profit shifting” – BEPS for short.

They are grappling with the changing nature of international commerce, where the eternal desire to minimise the tax you pay is assisted by the rapid growth of e-commerce, and by the opportunities presented by countries’ different tax laws and the ability of multinational firms to locate debt funding and intellectual property wherever will maximise the bottom line.

As part of that effort, finance ministers from 20 major economies, meeting in Sydney last Sunday, agreed to adopt a regime for automatic information sharing among tax authorities.

The Organisation for Economic Co-operation and Development (OECD) calls it the Common Reporting and Due Diligence Standard. You can translate that as: “We are going to make your banks tell on you.”

The erosion of the tax base globally is a problem, but so is erosion at home.

Let me give you an example of how you can erode the tax base locally, and legally.

  1. Set up an incorporated society. It can be any sort of incorporated society.
  2. The society doesn’t have to pay income tax but it does have to deduct tax from its employees and pay GST.
  3. Now if you don’t pay that tax, then the IRD can come and liquidate you, which means the society gets wound up.
  4. So set up a limited liability company, and have some of your transactions go through that company instead of the society. You can have the lease assigned to it, and charge management fees. You can also charge your salary through it also, as that then allows you to deduct stuff off tax.
  5. Have the limited liability company spend all its money on behalf of the society, and not pay any tax to the IRD. This means you have more money to spend.
  6. IRD liquidates the company, leaving the society untouched and the IRD ends up out of pocket by say $150,000 – while the society carries on unscathed.

This is all totally legal, using a crafty mixture of corporate tax structures and non payments.

I look forward to political parties putting forward policies on how to stop the erosion of the tax base in this way.

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Opposition to higher taxes broken down

February 17th, 2014 at 4:00 pm by David Farrar

The recent Fairfax poll asked respondents if they support or opposed raising taxes to pay for new spending. 69% said they were opposed and 25% in favour which means the net disapproval was -44%.

I was interested in the breakdown by party vote, which Fairfax kindly supplied. The net disapproval for supporters of each party against higher taxes was:

  • National voters: -59% net disapproval
  • Labour voters: -23% net disapproval
  • Green voters -0.5% net disapproval
  • NZ First voters -55% net disapproval

No surprise National voters are against higher taxes. Pleasing to see NZ First voters just as strongly against. What was fascinating is that most Labour voters are against increasing taxes to pay for new spending. Only 36% supported that with 59% opposed. The Greens were the only party not to be strongly opposed and they were split pretty much down the middle.

Also interesting to look at the demographics of opposition to higher taxes. They include:

  • Under 30s: -38% net disapproval
  • Maori: -50% net disapproval
  • Europeans: -40% net disapproval
  • Students: -32% net disapproval
  • No qualifications: -67% net disapproval
  • Post-grads: -22% net disapproval
  • HH income under $50k: -46% net disapproval
  • HH income over $100k: -32% net disapproval

So three fascinating things here:

  1. More Maori than Europeans oppose raising taxes to pay for more spending
  2. Those with no qualifications at all are far more opposed than the small number of people with a post-graduate degree
  3. Those with household incomes below $50K more opposed than those with HH income over $100k

So if parties go into this election vowing to raise taxes to pay for more spending, they will be seriously out of touch. As we head back into surplus, I want parties to be offering tax cuts, not tax increases.

The detailed results are here, for those interested – Fairfax poll breakdown

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Hehir on UK Labour’s tax plans

February 6th, 2014 at 12:00 pm by David Farrar

Liam Hehir writes in the Manawatu Standard:

The United Kingdom’s Labour Party recently pledged to lift Britain’s top marginal tax rate from 45 per cent to 50 per cent.

The reaction was interesting because it illustrates the way people in politics sometimes talk past one another in political debate.

The policy has been partly framed as a deficit reduction measure and partly as an effort to create a “fairer” economy.

In critiquing the proposals, detractors have focused on the first of these, pointing out that the analysis of Her Majesty’s Treasury is that the higher tax rate only accounted for an additional £100 million in tax revenue.

In isolation, that seems like a lot. Given that the UK Budget deficit exceeds £116 billion, however, the proposal would not meaningfully contribute towards putting Britain’s public finances in order.

It’s a rich prick tax. Would plus the deficit by 0.1% only. They’re doing it to punish.

There are other factors at play, too. In a modern, globalised economy the transnational elite can easily shop around for competing jurisdictions in which to base their economic activity.

The best way to get more companies to pay tax in NZ, is to have lower tax rates.

American President and liberal icon John F Kennedy recognised this when calling for the slashing of the top income tax rate in 1962. Kennedy, no rabid Right-winger on domestic affairs, opined that: “. . . tax rates are too high today and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now”.

Yet left parties in NZ are promising to increase tax rates.

Polls show that large majorities of the British public would support the move. About 40 per cent would do so even if it raises no revenue.

An envy tax.

For the current generation of progressive leaders, stiff marginal tax rates are not exclusively (or even primarily) a means of raising money for the government to spend. Decreasing the wealth of the rich is considered a legitimate end unto itself – even if nobody else benefits.

That is so sadly true. This is what many proponents of reducing income inequality want – less rich people rather than less poor people.

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Labour supporters want tax hikes even if they bring in no more revenue

February 3rd, 2014 at 12:00 pm by David Farrar

Daniel Hannan writes in the Telegraph:

Ponder the graph above. Sixty-nine per cent of [UK] Labour supporters would want a top rate tax of 50 per cent even if it brought in no money.

I’m sure they’d dispute the premise. I’m sure they’d insist that it did bring money in. And, on one level, they’d believe it; it’s human nature to start with the result we want and then rationalise it to ourselves with what look like hard data. I think their rationalisation would be false, obviously – once the behavioural consequences of the tax are factored in, it becomes a net drain on revenue – but I might be subject to my own confirmation bias in the other direction.

Anyway, this isn’t a blog about the statistics – I’ve already posted one of those. No, this is a blog about the mind-set of people who see taxation, not as an unpleasant necessity, but as a way to punish others.

This is amazing. Over two thirds of UK Labour supporters want higher taxes, even if those higher taxes did not produce more revenue for the Government.

I wonder what the percentage would be in NZ?

Envy is an ugly and debilitating condition, but it seems to have an evolutionary-biological basis. The dosage varies enormously from individual to individual, but even toddlers often display a sense that, if they can’t have something, no one else should either. If they had the vocabulary, they would doubtless, like the 69 per cent of Labour supporters, explain that emotion “on moral grounds”. Few toddlers, and few Labour voters, openly admit to being actuated by vindictiveness.

Hannan also touched on inequality:

I accept that there are advantages in homogenous, Nordic-type societies. Huge inequalities of wealth can lead to higher stress levels, higher crime rates and weaker social engagement (oddly, the people who deploy these arguments in support of economic homogeneity almost never extend them to multiculturalism, but that’s another story).

The case against state-enforced equality is not that a narrowing of the wealth gap is in itself a bad thing; it’s that it carries a disproportionate cost in terms of lost prosperity and lost freedom.

Wealth taxes make societies more equal; but they do so by making them less prosperous. We can push plutocrats into shifting their money abroad. We can drive hedgies to Singapore or Switzerland. We can, more prosaically, make entrepreneurs spend more time with their accountants and less creating jobs. We can encourage by far the most common forms of legal tax avoidance: shorter hours and earlier retirement. All these things will make our country more equal. All of them will make it poorer.

And be careful with what you wish for:

Following the credit crunch, inequality fell. City salaries plummeted, average salaries fell slightly, benefits stagnated. In other words, the 69 per cent got their way: Britain became poorer and more equal. Yet, in the event, it was Labour supporters who moaned loudest. There’s no pleasing some people.

The focus should be on economic growth. If you grow the pie, then you get better options as to how to divide it up. Taking more tax off hard working taxpayers so you can give it parents earning $140,000 does not grow the pie.

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OECD says you can’t do special tax rules for digital companies

February 3rd, 2014 at 10:00 am by David Farrar

The FT report:

Proposals for a tax crackdown on digital companies such as Google and Amazon are to be dropped, as governments push ahead with measures affecting the global economy.

Designing special tax rules for internet companies would not be viable, given the growing digital presence in large parts of the economy, an international task force has concluded.

So I’m really looking forward to details of the magic wand that Labour claim they have, that will mean those companies will pay tax in New Zealand based on their turnover instead of their profit.

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Labour jumps the shark

January 28th, 2014 at 8:25 pm by David Farrar

3 News reports:

The Labour Party has put forward a possible solution to force multi-national corporations to pay more tax – ban them from the internet.

It says the Government should first talk with companies like Facebook, but if that doesn’t work it is important to have a backup, something Labour is describing as a credible threat.

Facebook is the world’s largest social network by far, but pays little tax here in New Zealand.

“The Government should always have in its back pocket the ability to ban websites,” says Labour revenue spokesman David Clark.

No they shouldn’t. At all.

But Finance Minister Bill English says “frankly, that sounds nuts”.

“Fine print, he’s going to close down Facebook,” says Prime Minister John Key. “That’ll be interesting.”

Not just Facebook. Labour says Google, Apple and Amazon also don’t pay enough tax, so I presume they are included in the list of sites they might try and ban. Perhaps EBay also?

Why stop there. Fairfax and APN pay no tax, or very little tax, in New Zealand. Maybe Labour will also try and ban the NZ Herald and Stuff websites.

“Paedophile websites are banned the world around,” says Mr Clark.

Oh my God. He is comparing Facebook to paedophile websites. How can anyone think Labour is even close to ready for power, when they come out with this crap.

And as it happens paedophile websites are not banned in NZ. It is illegal to download or upload paedophile images, and browsing such a site may be a criminal offence, but the Government has no power to ban any website.

Putting aside the sheer lunacy of advocating the Government should try and ban Facebook if they don’t pay more tax, isn’t there something deeply malevolent about an aspiring Government making such threats. If you think a company should pay more tax, then you change the law to close down loopholes. But to declare as an MP that you have unilaterally decided Company X should pay more tax, and that you will threaten to ban them from New Zealand unless they voluntarily agree to pay more tax is what you expect from some tin pot third world dictatorship, not a so called serious political party.

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How?

January 7th, 2014 at 3:00 pm by David Farrar

The Herald reports:

Labour says it will tackle “aggressive tax avoidance” by multinationals such as Facebook and Google which it says is costing the taxman hundreds of millions of dollars each year.

How? A magic wand?

Local concerns were fuelled last year when iPhone and iPad maker and iTunes owner Apple reported paying just $2.5 million on $571 million worth of New Zealand sales in 2012. Google and Amazon’s tax bills were also tiny in comparison with their reported sales here.

Economic illiteracy continues. Company tax is based on net profit, not on gross sales. Any comparison of tax to sales is misleading.

Labour revenue spokesman David Clark yesterday said: “We certainly think there’s a lot of aggressive avoidance going on.”

He said the party was continuing a major research project on the issue and would be more proactive than the Government in addressing it through policies likely to be released before the election.

Again how? Are you going to ban them from selling to NZers unless they pay more tax here?

If Labour want to be credible on this they need to specify what actual changes they would make to tax laws, so we can assess whether or not it would result in one extra cent of revenue.

 

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Taxing pot

November 21st, 2013 at 4:00 pm by David Farrar

The Daily Beast reports:

In 2012, voters in Colorado and Washington passed full-on, no-hemming-or-hawing pot legalization by large majorities. Lawmakers in each state have spent the better part of the past year figuring out how to tax and regulate their nascent commercial pot industries, which will open for business in 2014 (until then, recreational pot is only supposed to be cultivated for personal use). The spirit behind the legalization efforts in both states was that marijuana should be treated in a “manner similar to alcohol.

Unfortunately, it’s starting to look like both states are going to treat pot in a manner similar to alcohol during Prohibition. Not only are pot taxes likely to be sky high, various sorts of restrictions on pot shops may well make it easier to buy, sell, and use black-market marijuana rather than the legal variety. That’s a bummer all around: States and municipalities will collect less revenue than expected, law-abiding residents will effectively be denied access to pot, and the crime, corruption, and violence that inevitably surrounds black markets will continue apace.

The lesson here is that is you tax something too much, then a black market prospers.

The upshot of such actions is predictable and depressing. Colorado lawmakers are banking on about $70 million a year (PDF) in taxes from pot and their Washington counterparts have projected new revenues of $1.9 billion over the first five years of legalization. There’s just no way that’s going to happen if a legal ounce of pot is double the price or more of back-alley weed. Even the most stoned pothead isn’t that easy to scam.

It will be very interesting to see what the legal and black market prices are, when the legal market starts. Also what market share each gathers. How much more will people pay for it to be a legal purchase?

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France revolts against new taxes

October 23rd, 2013 at 10:00 am by David Farrar

The Daily Telegraph reports:

A poll on the front page of last Tuesday’s Le Monde, that bible of the French Left-leaning Establishment (think a simultaneously boring and hectoring Guardian), translated into stark figures the winter of François Hollande’s discontent.

More than 70 per cent of the French feel taxes are “excessive”, and 80 per cent believe the president’s economic policy is “misguided” and “inefficient”. This goes far beyond the tax exiles such as Gérard Depardieu, members of the Peugeot family or Chanel’s owners. Worse, after decades of living in one of the most redistributive systems in western Europe, 54 per cent of the French believe that taxes – of which there have been 84 new ones in the past two years, rising from 42 per cent of GDP in 2009 to 46.3 per cent this year – now widen social inequalities instead of reducing them.

I guess this is what people mean when they vow to over-turn neo-liberalism. 84 new taxes!

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The tax system has got more, not less, progressive

October 23rd, 2013 at 7:00 am by David Farrar

Bill English has stated:

Lower income households are paying a smaller proportion of net income tax than they did in 2008, indicating that the tax system has become more progressive since the Government’s tax changes in 2010, Finance Minister Bill English says.

“This should contribute to improvements in income equality in New Zealand, contrary to the Opposition’s completely false claims that lower income households were disadvantaged by the tax changes,” he says.

If you repeat a lie often enough, people may believe it.

  • Households earning less than $60,000 a year, which total around half of all households, are generally expected to pay less in percentage terms towards total net tax in 2013/14 than they were paying in 2008/09.
  • Conversely, households earning more than $150,000 a year – that is, the top 12 per cent of households by income – are generally expected to pay more of the total net tax than they were paying in 2008/09.
  • And only 6 per cent of individual taxpayers earn over $100,000 a year, yet they pay 37 per cent of total income tax. This has increased from the 2010/11 tax year, when those taxpayers paid 29 per cent of total income tax.

Despite this, Labour persist with their rich prick envy tax insisting that those on higher incomes must pay 39% income tax as well as 15% GST!

Using data from the Household Economic Survey, the Treasury earlier this year estimated that this year households earning over $150,000 a year – the top 12 per cent of households by income – will pay 46 per cent of income tax.

But when benefit payments, Working for Families, paid parental leave and accommodation support are taken into account, these 12 per cent of households are expected to pay 76 per cent of the net income tax. And that is before New Zealand Superannuation payments are counted.

12% of taxpayers are funding 76% of the net income tax take, and Labour says this is not enough! What do they want? 90%? 95%? 100%?

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Russel Norman thinks tax is not a burden!

September 19th, 2013 at 11:00 am by David Farrar

This is incredible and should ring warning bells about the attitude of a Government with the Greens in it to taxation.

 

Its horrific that Dr Norman thinks tax is not a burden, and even worse calling it so is right wing.

When the state takes a large proportion of your income, of course it is a fucking burden.  If they didn’t do it, you’d have less more money.

If tax wasn’t a burden, then hundreds of thousands of people would pay extra tax voluntarily. Does Dr Norman wake up every morning and send a donation in to the IRD?

Plus the stupidity of Norman’s comments are highlighted by the fact that he got owned on Twitter by Gareth Richards who pointed out that Dr Norman himself had in the past used the term himself. So in fact Dr Norman was just attacking poor civil servants for using the same term as he had used. He should apologise to the Treasury officials he maligned.

Norman tried to defend his new found view that tax is not a burden on the basis the Government spends tax revenues on some good things. Eric Crampton points out:

Taxes are a bad, public services are a good. Saying the first doesn’t mean denying the second.

Again I’m horrified that we may have a senior economic minister in a future government who does not think taxation is a burden on hard working New Zealanders who fund the tax system. It reflects a neo-marxist view I guess that all income is really the property of the state’s, and we should be grateful they allow us to keep some of it.

Also Eric schools Dr Norman on some basic economics:

More importantly, economists use the word ‘burden’ in a particular way. A few useful notes about Principles-level (maybe intermediate) economics for someone who thinks himself qualified to be finance minister:

‘Burden’ measures the total cost of a tax. The ‘excess burden’ is the amount by which the cost of a tax exceeds the amount collected. Treasury tends to reckon that excess burden is around 20%: it costs us about $1.20 to raise $1.00 in tax. The $1.00 raised is a transfer from the public to the government; the $0.20 is pure loss due to distortions in economic activity consequent to increases in our current mix of taxes.

Also:

Russel Norman suggests only “right wing” economists talk about tax burden. Here is a JSTOR search on “tax burden”. There are 61 pages of search results with 100 results per page. Item number 177 on a date-sorted list is famous Right Wing Economist John Maynard Keynes discussing the Colwyn Report on Natinoal Debt and Taxation. Item 398 is rabid right-winger Nicholas Kaldor’s call for wage subsidies to reduce unemployment (1936).

Burden is just the term used by economists to describe the cost of the tax and to help sort out the difference between statutory and economic incidence. Like “While X writes the cheque to IRD, the burden of the tax falls on Y and Z.” That’s it. It’s the standard term used in the main texts to describe this thing. Richard Musgrave (centre, maybe centre-left) uses it. James Buchanan (right) uses it. Pick a random public finance text, you’ll find “tax burden” or “excess burden” somewhere in it.

Then on Twitter Dr Norman goes further rejecting both the labels burden and distortionary for taxes!

My challenge to all those who agree with Dr Norman that tax is not a burden, to write out larges voluntary cheques today to the IRD. That means it is no extra burden on you, and reduces the burden on the rest of us.

UPDATE: Russel has actually referred to the tax burden in Parliament, as has Metiria Turei. This reinforces that Dr Norman should apologise to the Treasury officials for his attack on them for using the exact same language both Green co-leaders have used in the past.

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France says no more taxes

September 2nd, 2013 at 12:00 pm by David Farrar

The Telegraph reports:

Returning from their summer break, the French are about to discover stinging rises in tax bills in their letter boxes – the result of a series of new levies enacted by President François Hollande as he seeks to plug the French deficit and bring down public debt – now riding at 92 per cent of GDP.

But the extent of the hikes has apparently even shocked the very Socialist ministers who implemented them.

The total tax pressure (taxes and social security contributions) will account for 46.3 per cent of GDP this year – a historic high – compared to 45 per cent in 2012. …

The rich will see the highest rises, following Mr Hollande’s decision to raise the rate to 45 per cent for those earning more than 150,000 euros – effectively 49 per cent due to an additional levy.

This will be an aspirational target for Labour by the time their leadership primary is done!

In a clear damage limitation exercise, a chorus of top Socialists spoke out against any more rises.

Pierre Mosovici, the finance minister, told France Inter radio: “I’m very sensitive to the French getting fed up with taxes We are listening to them.” Laurent Fabius, the foreign minister followed suit, warning Mr Hollande to be “very, very careful” as “there’s a level above which we shouldn’t climb”.

One Socialist told Les Echos newspaper that the hand-wringing was totally hypocritical as “they are crying wolf, but the wolf is us.”

A cunning strategy. Pile on heaps of new taxes, and then claim to be against any more taxes.

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Tax reform principles

July 12th, 2013 at 12:00 pm by David Farrar

Former Senator Phil Gramm writes on his principles for tax reform.

First, under no circumstances should Republicans agree to make the tax system even more progressive than it already is, or to increase the number of people who do not pay income taxes. In 1980, the top 1% and 5% of income earners in America paid 19.1% and 36.9% of total federal income taxes. Today, the top 1% and 5% pay 37.4% and 59.1%. Meanwhile, 41.6% of American earners now pay no federal income taxes.

Sounds like NZ.

Second, government should collect the minimum revenues needed to support and protect a free society and do so in a way that is, as far as possible, neutral in its effect on individual behavior. In its purest form, this means no individual deductions, credits or tax expenditures. No matter how committed Americans may be individually to charitable giving or home ownership, the government should not promote those values through special provisions in the tax code.

Agreed.

Third, Republicans should require all similarly structured firms be treated the same. If sweat equity is taxed as a capital gain for a mechanic who opens a garage with a financial partner, it should be treated the same for a hedge fund or private-equity manager who shares in the gains of his investors.

Likewise a capital gains tax should have no exemptions.

Fourth, business subsidies and credits should be eliminated. Ending subsidies to fund lower tax rates improves the efficiency of capital allocation. The sine qua non of tax reform is a more efficient allocation of investment capital. If the tax breaks that create crony capitalism are allowed to survive, then tax reform failed.

Lower tax rates, not special tax rates.

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Net tax in NZ

July 10th, 2013 at 12:30 pm by David Farrar

net tax small

 

This is a fascinating table from a speech by bill English today showing how highly re-distributive the NZ tax and welfare system is. Basically what this shows is that the top 5% of households pay 47% of net tax in New Zealand. Households up to $60,000 income receive more in welfare on average than they pay in tax, Yes, they are effectively paying no tax.

Now I’m not complaining about this too much. I’m happy to some extent to help working lower income families when they have kids to look after. But when political parties complain that we need to hike taxes on rich pricks, then bear in mind that our tax and welfare system is already highly highly re-distributive. The debate should be on how we allow Kiwis to keep more of their income, not how to take more off them.

Bill English noted:

Estimates of net income tax paid by household income, before and after Budget 2010, indicate the system has become more progressive over this period, Mr English says.

Households earning less than $60,000 are generally expected to pay less, in percentage terms, towards net tax in 2013/14 than they were paying in 2008/09. 

Conversely, households earning more than $150,000 are generally paying more of the net tax than they were in 2008/09.   

“It’s appropriate to maintain a tax and income support system that helps low and middle income households when they most need it.

“But people who call for even greater transfers to low income families, or who call for the top tax rate to be raised, need to be aware of how redistributive the tax and income support system really is,” Mr English says.

Income tax rates should be lowered, not increased.

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NZ lifetime tax

June 18th, 2013 at 2:00 pm by David Farrar

Kiwi Dirt Biker has done a NZ equivalent of the UK site which shows how much tax you’ll pay over a 43 year career.

Housing would be a lot more affordable if we were paying less tax!

He has also done a page which compares your difference in lifetime tax based on the 2007 tax rates and the 2013 tax rates.

If you earn $100,000 a year you’ll end up with $273,000 more cash in the hand than if the 2007 tax and ACC rates still applied.

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