In a desperate attempt to justify whacking the “rich” with higher taxes, Rob Salmond comes up with a new form of maths – when a figure is negative you count it as zero, rather than include it in the calculation.

According to Rob if you had assets and liabilities of (for example):

1. Term Deposit – $200,000
2. Shares – $100,000
3. Loan – $50,000

Then your term deposit is only 67% of your net assets ($200,000/$300,000) rather than 75% 80% ($200,000/$250,000).

Hilarious. And desperate.

Over at Stuff, I look at the numbers in the latest Colmar Brunton poll, and look at which Labour MPs would be toast, and which are hanging on.

I also look at the projected seats – National/ACT/United are on 71 seats, and 75 seats with the Maori Party. That is a pretty hefty margin.

Labour have said that over 15 years their tax package will reduce debt by $8b. Steven Joyce says it will increase debt by $15b. Let’s have a look at where their numbers differ.

First it is worth recalling that what is undisputed is that Labour’s package will result in more debt for at least the next seven years. It is only if Labour win this election, the 2014 election and 2017 election that in their third term would their tax switch start to reduce debt – by their own calculations.

By Steven Joyce’s calculations, it will never reduce debt. At a time when debt is growing massively, Labour is actually proposing to borrow for tax cuts – they very thing they have accused National of in the past.

Now I’m going to go through the differences line by line. Keith Ng has also blogged on some of the differences. Keith, like me, is a former parliamentary staffer for Labour (National for me of course) so we both tend to have a more favourable disposition towards numbers from our own side. But that doesn’t mean one can’t also look at the quality of the argument.

CGT – The $1.6b difference is not hugely significant, both Keith and I agree. This is for revenue over 13 years, so the difference is around $100m a year. Joyce uses a Treasury CGT model developed in 2011, and Cunliffe uses BERL. Joyce makes the point though (which has not been covered much) that getting a CGT in place by April 2013 would be nigh impossible considering the huge number of issues being left to the expert panel. You need time to appoint panel, have the panel do its work, then draft a bill up, and then go through select committee process.

New top tax rate – Joyce has this coming in at $934m less over 13 years. Not a big difference per annum. I would tend towards the lower figure because I think it is inevitable that a top personal tax rate of 39% and a company tax rate of 28% will see massive (legal) avoidance. We already know half the top 100 earners don’t pay the top rate. This policy will probably see it drop even lower.

Loss ring-fencing. The TWG said loss ring-fencing will lead to behavioural changes, so Labour’s policy will only bring in half of what Labour says. Keith Ng basically agrees, so little dispute there.

Anti-avoidance. Labour have just invented a figure of $300m a year from greater anti-avoidance work. Now this is pie in the sky. If Labour announced actual law changes to reduce avoidance, then maybe you can estimate revenue changes. But this is the equivalent of “I hope it happens”. Keith Ng is right that it is probably not realistic to say Labour will not be able to get any extra revenue at all, but when you consider most experts are saying their tax package will make the tax system more complicated, I think avoidance will increase not decrease. In the absence of any specifics around anti-avoidance measures, I think you go with zero.

Agriculture ETS. this is basically an argument about what the price of a carbon credit will be. Cunliffe uses $50 and Joyce $25. Ng backs Cunliffe on the basis that the PCE has said they estimate the price will be $50 by 2030 if there is little international action on climate change and $100 if there is a moderate commitment. Australia’s ETS is priced at NZ$30.

However against that the current international price is 11 euros, which is NZ19 only. And bear in mind this is for the whole period 2013 – 2025. Let’s say the PCE is right and in 2030 the price is $50. Then if you assume linear price increases, maybe an average price is $35 for the period of the forecasts. So around halfway between what Joyce and Cunliffe say. Personally trying to predict ETS revenues more than a few years out is very challenging as it all depends on if a post-Kyoto agreement can be reached.

The first $5,000 tax free zone has a $2.2b difference over 13 years. Keith says:

Everyone earning over $5000/year would get the benefit of the whole tax free threshold. That’s pretty much everyone in the workforce. So if everyone already gets something, how would more people get it?

The cost of a tax-threshold only grows when new people enter the workforce.

So unless Joyce thinks he can create 3 million jobs (and find 3 million workers to fill them) in the next decade, this is a patently stupid and ridiculous result. Common sense would tell you that it is impossible.

This one goes firmly in Labour’s favour.

But Keith misses a key point. It is one I have blogged on many times, but gets so little media attention. Labour’s tax free zone is not just for people in the workforce. They have pledged it will also apply to everyone on benefits, even though benefits are calculated on an after tax basis.

Labour are actually promising to increase all benefits by $10 a week – the first ever increase (beyond inflation) for over 20 years. Tax cuts have never applied to benefits in the past (as they are calculated on an after tax basis). Cullen’s 2008 tax cuts did not. But Labour is saying they will pay people on the dole more money for not working.

Also as superannuation is calculated with a floor linked to the after tax average wage, their tax free threshold will increase the cost of superannuation.

So Keith is wrong when he says the tax-free threshold will only increase in cost when new people enter the workforce. It will increase in cost whenever we get new workers, new beneficiaries or new pensioners.

Now having said all that, National’s numbers do still look a bit high with the cost increasing approx $80 million a year, which suggest an extra 160,000 people per year working (as tax free zone is $500 of foregone revenue), on benefits or retired. So while Keith gets some stuff wrong, National’s numbers may be too high.

On GST there is no dispute, and for R&D tax credits Keith says National’s figures look more robust.

Then finally we have the biggie – finance costs, or the extra interest on the extra borrowing. There can be no debate that one should calculate finance costs, unless Labour has convinced the People’s Republic of China to loan us money at 0% interest. This is an extra $7.5 b of costs. Even if you take Labour’s numbers for some of the items, you will still have billions in finance costs.

Using Cunliffe’s numbers Labour is borrowing for at least seven years. If you go to Keith Ng’s numbers then I’d say (Keith didn’t do formally calculate this) that the borrowing is for at least a decade, and if you think Joyce’s numbers are more realistic (and for the most part I think they are) then Labour’s package is never fiscally positive.

But the up to $15b of extra debt is just the beginning. You see Labour done a big lie, and said it is a choice of asset sales or their tax package. But they have not calculated for any increased borrowing through no sales. If you add on the extra $7b they will need to borrow, then the borrowing figure climbs to up to $22b. Of course there will be over the long term less income from dividends.

But even putting aside the asset sales issue, the big big issue is spending. You see Labour’s debt track is already up to $15b higher – before they even fund a single spending promise. it is impossible to think that Labour is going to campaign on spending no more than National. Labour were increasing spending at $2b a year and National reduced this growth to $1.1b, then $0.8b and finally zero. Each time, to protests from Labour. Let’s say Labour promises an extra $1b a year of spending (they have implicitly already promised many billions through their opposition to spending reductions).

The cumulative debt from an extra $1b/year of spending is:

• Year 1 – $1b
• Year 2 – $3b
• Year 3 – $6b
• Year 4 – $10b
• Year 5 – $15b
• Year 6 – $21b

Basically Labour are going to increase debt with their tax package, increase debt with their spending, and increase debt through not doing partial floats of SOEs.

Danya Levy at the Dom Post reports:

Prime Minister John Key says the Government was powerless to stop disgraced former minister Richard Worth being re-appointed as Monaco’s honorary consul to New Zealand.

Worth was reappointed to the position last October.

In 2009, he resigned from Parliament after sexual allegations against him by two women. He was never charged over the alleged incidents.

Key said Worth held the position before becoming a minister in his Government but resigned because of conventions protecting potential conflicts of interests.

The government of Monaco had approached New Zealand to have him reappointed when he was no longer a minister.

”The important point here is that it is nothing to do with me, it’s who do the people of Monaco want to represent them here in New Zealand and the answer is Richard Worth,” he told TVNZ’s Breakfast programme.

Foreign Affairs Minister Murray McCully had sought a legal opinion over whether the Government could prevent his re-appointment, Key said. However, the Government was advised it had no grounds to stop it.

Richard Worth was the Consul for Monaco for many years before he became a Minister. It is no surprise they asked him to resume the role after he left Parliament.

What I find interesting is the massive difference in reporting around Darren Hughes and Richard Worth. Both men were accused of sexual crimes, and in both cases no charges were laid. In the case of Darren Hughes, the media report that he could stand again for Parliament in a few years

Yet when it comes to Richard Worth, the reporting suggests there is something wrong that he has got on with his life after Parliament and assumed one of his former roles – a role far far less publicly significant than standing for Parliament again.

Family First have done this video to bolster their argument that some parents have been prosecuted for trivial acts of parental discipline.

While I have to say I’m largely over the debate (and I think most Kiwis are also), my view is the same as in 2007 – that the law should be changed in line with the Borrows amendment which would actually define reasonable force, and apply it to all situations where parents may need to use some force.

Chooka Parker from Australia’s Got Talent. Not bad.

Tonight’s One News poll:

• National – 53% (+1)
• Labour – 27% (-7)
• Greens – 10% (+4)
• Maori – 3% (+1.4)
• ACT – 3.1% (+0.6)
• NZ First – 2.4% (+0.8)
• United Future – 0.3%
• Mana – 0.5% (-0.4)

The poll was taken after the media reported that Labour would announce a capital gains tax, but before they released the details on Thursday.

Andre Hueber at the HoS reports:

One of the country’s most notorious criminals has been awarded $3500 compensation – for breach of privacy and hurt feelings.

The man, who is currently serving a prison sentence, has been convicted of crimes including attacking a police officer, unlawful possession of firearms, aggravated robbery, theft, burglary and trying to escape from custody.

But he took umbrage when he learned that the Ministry of Social Development (MSD) had wrongly listed him as having a conviction under the heading of “domestic violence”. …

He said the stress and injury to his feelings, aggravated by the MSD’s unlawful actions, meant “nothing less than monetary compensation and an apology is acceptable to me”. …

The tribunal decided his privacy had been breached, he had suffered emotional harm, and he was entitled to a payout. Without him asking, the tribunal also ordered that he not be identified, in order to protect his family. …

MSD chief executive Peter Hughes issued a terse statement to the Herald on Sunday.

“His violent criminal history speaks for itself and he has spent much of his life in prison,” Hughes said. “

“He said our refusal to put a note on his file when he originally asked us caused him considerable distress, loss of dignity, humiliation and that his feelings were hurt. He then wanted money from us. I declined to pay him anything.”

But, said Hughes, the tribunal had ordered $3500 compensation and – although he disagreed with the decision – he would comply.

I think what offends me most is not the $3,500 but the name suppression, so that New Zealanders can not find out for themselves what his full criminal history is.

Cost of Labour’s Promises

Steven Joyce has put Labour’s numbers through the Treasury calculator (found at http://www.treasury.govt.nz/government/fiscalstrategy/model) and found that it is far worse than even Labour were revealing.

Labour’s own numbers revealed that their tax plans would lead to greater deficits and debt for the next six to seven years. They desperately did not want people to know this, so left this document off their website.

But their own numbers were inflated, such as as imaginary $300m a year from reduced tax avoidance (despite them wanting to have an 11c gap between the top tax rate and the company rate). They also failed to take account of interest costs, and over-estimated revenue from some of their measures. The numbers on the CGT itself were largely accurate, but on the rest of their package were crap.

So what does it mean? It means Labour’s package will result in less tax revenue until 2024! And then when you take account of the interest on the extra borrowing, it will result in an extra $15b of borrowing between now and 2025.

But it does not end there. This assumes that Labour will keep to National’s spending track. That they will not pledge one cent extra in spending than National. That there won’t be one cent extra for early childhood education etc.

So the $15b of extra debt is just on the revenue side. Wait until they release their spending plans and see that number increase exponentially.

The problem is not Labour’s CGT per se. The problem is that their promise to remove income tax on the first $5,000 of income is unaffordable. It has no fiscal credibility and can only be funded by increased borrowing.

Bernard Hickey writes in the HoS:

Prime Minister John Key says a capital gains tax is one of the “third rails” of politics in New Zealand – and anyone who touches it will, in political terms, be killed instantly.

This week Labour touched that rail and received only an invigorating tingle rather than the shock of their lives.

That may be a premature call.

The debate is welcome, but Labour could have done much better and should be trumpeting how such a tax would shift investment into more productive export industries and create higher-wage jobs to keep young New Zealanders here.

Instead, it has watered down that message by proposing a capital gains tax that is full of exemptions and then used the revenues to shuffle tax from the very rich to the poorest. …

The exemptions for the family home, for residences in family trusts, for Maori land, collectibles and gambling winnings will be welcomed with open arms by budding tax accountants and lawyers.

These will be high-paid jobs, but they’re not the sort we want.

The exemption for gambling is interesting. If you take a chance by investing in the (initially) unproven company Xero, and make a capital gain you’ll be taxed on it. But if you take a chance at a casino and win the same amount of money, you’re exempt from tax.

A land tax would have been much more efficient, simple and lucrative.

The idea put forward to the Tax Working Group in late 2009 by Motu economist Arthur Grimes for a 0.5 per cent land tax with a $50,000 a hectare tax-free threshold and the ability to defer payment until sale would have raised about $2 billion a year.

I support a land tax, so long as income tax rates are cut to compensate.

Whale has a copy of Trevor Mallard’s e-mail to the masses. The key extract:

How­ever, as we all know the NACT team will be com­ing for us over the week­end, there will be hic­cups includ­ing a TVNZ poll taken before the launch and with­out the pol­icy details. We want to keep the momen­tum going as much as is possible.

The key point for us is not to be dragged down into the detail on the CGT. The pub­lic don’t care and we get boring.

Very ironic. Trevor is saying ignore the poll because it was taken before the policy details were known, yet he is also instructing the faithful to avoid mentioning the detail as he says the public don’t care about it.

If they don’t care about the detail, then the TVNZ poll should be regarded as accurate as it was taken after they had announced there would be a CGT but prior to any details. Can’t have it both ways.

Trevor even supplies pre-fabricated tweets for Labourites to use:

• Labour’s plan to keep assets and pay off debt  #ownourfuture
• Labour’s bold plan for the econ­omy– most NZers will get a tax break  #ownourfuture
• NZ not for sale #ownourfuture
• Fam­ily home exempt – tax not ret­ro­spec­tive #ownourfuture
• Kiwis bet­ter off with Labour #ownourfuture
• Stop Asset Sales #ownourfuture
• Labour’s plan means we can keep our assets #ownourfuture
• If you are in a hole, don’t sell the lad­der #ownourfuture
• Labour: Keep our assets to grow our econ­omy not some­one else’s #ownourfuture
• Labour’s tax reform will pay the debt down, and lets Kiwis own our future.    #ownourfuture

Of course the tax reform will not pay the debt down until at least 2018. It will increase the deficit and debt for the next two terms of Parliament if implemented.

NRT blogs:

this month ResearchNZ asked about it in their regular monthly poll of social attitudes. The question was

“In your view, should same sex couples also be allowed to marry?”According to the results [offline, but will be up here later], 60% of respondents were in favour and 34% opposed

If that is correctly reported, then that is a great result.

Support was higher amongst women (66%) than men (51%), and significantly higher amongst young people, with 79% of those in the 18 – 34 age bracket in support (vs “only” 61% of 35 – 54 years olds, and 44% among older people).

With 80% support amongst under 35s, I’d say it is inevitable and just a matter of time.

Some people thought the world would end with civil unions. It didn’t. All that happened is same sex couples who wanted to pledge their love for each other were able to do so in a way which has legal recognition.

Civil unions are marriage in substance, but not in name. I don’t think it is a burning issue, but I do think that Parliament should listen to the people, and amend the Marriage Act to allow same sex marriages.

The Dominion Post shows what people saw on Labour’s new website.

They’re blaming You Tube and computers for it, but the solution is simple. You untick the box which says “show related videos”. You also test before you go public.

I’ve said that in principle I support a CGT, if it is part of making NZ a broad base low rate tax system. Former ACT Leader Rodney Hide makes the argument against a CGT, as an effective double tax on business. He writes at interest.co.nz:

A business generates $100 a year. The going discount rate is 10 percent. The value of the business is $1,000. That’s if there’s no tax.

Introduce a tax of, say, 30 percent, and the business now yields only $70 a year. The business is worth only $700. The tax liability is capitalised into the value of the business.

Now let’s say I buy the business and fix it up. I double its income to $200. In the absence of any tax the business is now worth $2,000 and I can sell the business and pocket a $1,000 capital gain. However, if there’s an income tax of 30 percent the increase in the business’s value is from $700 to $1,400. My capital gain is now only $700.

My gain is not tax free even though I appear to pay no tax on my gain.

That’s because the capital value reflects the extra tax the extra income the business generates.

A capital gains tax of 30 percent reduces my gain from $700 to $490. I am doubly taxed.

Capital gains aren’t tax free and a capital gains tax doubly tax savings and investment.

Put like that, it does appear to be a double tax. Any arguments against the logic?

Capital gains tax is brutally unfair

There are plenty of ways a capital gains tax is unfair. Imagine a young widow with children whose husband poured his heart and soul into his business. Following his death the young widow has no choice but to sell the business. She has no income and no other assets.

The business was a start up. It generates $200 a year. After tax, that’s $140. The business sells for $1,400 upon which capital gains tax has to be paid at say 30 percent.

She nets $980. In the absence of any tax she would net $2,000.

The widow is taxed at 51 percent. That’s brutal.

A good case against by Rodney

Labour List MP Sue Moroney has been tweeting excitedly about the crowd who attended a public meeting today with Hon Phil Goff:

Labour Tax Costs

My column in the NZ Herald focuses on the numbers in Labour’s tax policies. They stuck up masses of data on their site, but the one document they did not stick up was the one above, which shows that it will take seven years for Labour’s tax package to be fiscally neutral. They’d have to win a third term for it to start to bring in more income than they forego. And they also project $300m a year less tax avoidance by waving a wand. In reality an 11c difference between the top personal tax rate and the company tax rate will lead to much greater levels of tax avoidance.

Lockwood refuses to allow Harawira to swear an oath which is illegal under the Constitution Act 1986. It was nothing to do with language – he is able to swear the oath in te reo. But he wanted to use words not allowed. he wanted to use the oath as a speech where he talks about reducing inequalities etc. That is what we have parliamentary speeches for.

Anyway, because Lockwood upheld the law, Idiot/Savant at No Right Turn has compared him to a member of the Ku Klux Klan.

That’s a pretty disgusting smear. It’s the extremism in politics that John Ansell was referring to. I didn’t agree with John’s ad, but I do agree you should be able to have a view that the Maori seats should be abolished, and not be called a racist.

Likewise you should be able to insist someone follows the official oath, without being compared to the KKK.

Thanks to John Stringer for this crossword. It is intended to be a weekly feature.

Aah, no broadband at home at the moment. That’s slowing things down posts.

Today’s shot is “The Itch”, our very own native fur seal.

Click for larger, higher res image

Going to be a crazy-busy day here…the espressos are flowing freely. Sigh.

Also, just a gentle plug to read my sciblogs post this week too – it covers some of the political economy of the parlous state of conservation in NZ.