The image says it all. Labours no intention of reversing any increase in GST and Mangrove has signaled increases in Income tax as well. They need to come clean.

Labour's real Policy: Max the Tax

Popularity: unranked [?]

As well as being completely geographically challenged along with telling blatant lies about their intentions regarding GST. Labour’s Stuart Nash aka Mangrove has also suggested that we should actually increase taxes.

The Nats had the Tax Working Group and Australia had the Henry Tax Review.  Dr Henry is the Australian Federal Treasury boss.

For some reason, Prime Minister Key and Finance Minister English have always operated under the assumption that the Henry review would recomend to the Rudd government that taxes should be cut - esp the company rate.   Key and English’s own tax working group also seemed to be operating under such an assumption.

Dr Henry presented his report to Federal Treasurer Swan in December, and while the report has not been made public, Dr Henry said in a recent speech that the consequences of the aging population means that Australian’s will need to pay MORE taxes.  Mr Rudd has said that he is putting the Henry tax review on hold as he concentrates on major health reforms.

So, Mangrove thinks that we should be raising tax and Labour is campaigning to axe a tax rise, which they won’t axe, which means they actually support the tax rise……oh my head hurts. Mangrove of course forgets why Australia needs tax increases…to pay for Kevin Rudds largesse.

Mr Key and Mr English seem to be stuck in a late 20th century economic timewarp when the rest of the world is concentrating on how to stimulate the economy by providing relief for those who actually need it – those 70% of salary and wage earners on $40k or less – those 800,000 New Zealand families with a combined household income of $60k or less.  How about doing something for these Kiwis Mr Key.!   Take a leaf from Mr Rudd’s book and put these tax increases for the many so as to cut taxes for the few on hold – then seek a mandate from the people in 2011 for such radical and unfair changes.  Go on.

I’m really confused now. I’m was sure Labour are campaigning to Axe taxes.

Popularity: unranked [?]

The Minister of Finance has released his much-anticipated National Infrastructure Plan. Generally I’m averse to plans putting the decisions of consumers and businesses into straight-jackets on the whims of politicians, however, the plan itself appears sound: invest in key infrastructure areas such as fibre to the home, roads of “national significance”, schools, hospitals and prisons. These things that lead to long-term sustained economic growth, not random and hard to administer tax breaks and subsidies.

However, as is a usual theme for this government, it seems like one good idea – Public-Private Partnerships or PPPs, will not be utilised. As FCK has long stressed,  the government is spending beyond New Zealand’s means. This situation cannot last forever – either the economy has to grow much faster than government spending, or government spending has to be cut so economic growth can catch up. This means unless we slash welfare spending or strike oil, a big spend up on infrastructure isn’t feasible.

This is where PPPs come in. While lefties moan that PPPs represent “privatization by stealth” and ensure returns go to private investors, the reality is that they ensure infrastructure is built sooner (thus enabling economic activity to grow faster than before) and reduce the taxpayer’s exposure and expenditure. The government’s cautious approach to PPPs and its desire to spend up large on infrastructure make the task all the more harder, and expensive, for taxpayers.

Meanwhile, Tower Investments want PPPs to be made available to KiwiSaver investors. Now there’s an innovative idea – all the silly nonsense that infrastructure will end up in the hands of foreigners would be quickly forgotten, as only New Zealanders can invest in KiwiSaver. According to KiwiSaver’s own website, $930 million has been deposited in the scheme between 2009 – 2010.

Popularity: unranked [?]

Labour have very consciously avoided photographing the back end of Caropotamus the Tax bus. Here is why, that little logo tells us that you are paying for their campaign.

Labour uses taxpayers money for campaign, makes Heatley wine bottle fiasco look small change.

Popularity: unranked [?]

…well, that used to be the Act Party’s slogan. Not anymore sadly.

After reading through the debate between The Standard, Idiot/Savant and DPF, it looks like the best possible retort – because both DPF and the lefties are arguing at cross-purposes. It doesn’t matter if you’re talking about households, families or individuals. The problem is that progressive tax systems inherently tax the wealthy more; so the wealthy always benefit the most from cuts to any of the rates of tax, whether they’re the lowest or highest rates. That’s the whole point of a progressive tax system.

So as soon as you talk about cutting income tax, those at the bottom always get the least, because they pay the least proportionally. Key’s problem – apart from breaking a promise on paying GST (sure, that’s a free hit for the left – and Key’s reaction should’ve been “yeah I broke a promise – but I’ve spent a lot of taxpayers money looking at fixing the tax system, so it was a promise I’m justified in breaking” not some dopey defence of being quoted out-of-context – but I digress) is that any attempts at reducing tax for the poor will trickle upwards. The only alternative is further tinkering with Welfare Working For Families, or some other kind of tax credit for poorer households.

It would be far smarter to simply scrap WFF and introduce a tax-free threshold for everyone who’s not actually a net contributor to the government’s revenue – in other words, a tax-cut for every worker. The top tax rate could then fall as all households benefited, albeit still with increases in GST. Of course, government spending in other areas would need to be cut (as it has to anyway).

Popularity: unranked [?]

Like I said, don’t get your hopes up. DPF rates Key’s Opening Statement to Parliament with a “B”. I’d give it a “C”, although I’m tempted to give it a D (i.e. fail), because Key has simply disregarded the Tax Working Group and 2025 Taskforce’s recommendations (his reactions to Capital Markets will be out next week).

Key ought to have done something about the tax status of property. That would’ve given the government better leverage to to get income, trust and corporate tax rates down (NB: I’m not totally convinced of the need for a land tax, but think LAQCs should go). Increasing GST to cut income tax was a good move, but there is little mention of cutting spending save for better enforcement of welfare rules. To do it, Key will break a promise on not increasing GST. He should’ve broken his promises on superannuation thresholds and the age of eligibility.

Bernard Hickey is saying I should get a one-way ticket to Australia because of Key’s failure to introduce a land tax. Personally I’d rather do what my parents did in the 70s and go earn the big money in Europe to save. Or join my mates in Hong Kong or Singapore. But I digress…

Popularity: unranked [?]

The Prime Minister will make a big speech tomorrow at the opening of Parliament. Apparently it’s going to set out the government’s tax policies. Be prepared to be disappointed. That way if the package is good, you’ll be elated.But seriously, tomorrow’s speech needs to articulate a way forward – a wishy-washy yes maybe speech won’t cut it. Luckily, I suspect the way it’s been talked up in the media implies JK’s office knows it.

It won’t be Labour that ends John Key’s dream run. No, 2010 will be the year that makes or breaks John Key’s premiership. Showing some testicular fortitude now by moving the country towards significant changes in how much tax we pay, and what we pay it on, will significantly alter our future course as a country. Allan Bollard is right – we won’t catch Australia if we don’t make some bold changes.

Fixing the tax system is not a silver bullet though. The government must also address our long-term spending problem; the fact we are living beyond our means. Because today’s spending problem is tomorrow’s debt problem – and that debt will unnecessarily burden future generations. That’s why I care about these issues – because of our future generations. I don’t want them burdened by some previous government’s inability to control its own spending, as my generation was during the 90s thanks to Muldoon’s spending binge of the late 70s and early 80s. So come on John, show us you’ve got a pair and give us the step change we need.

Popularity: unranked [?]

Well, after my fuck up on minimum wages, I guess I’d better point to something that shocked me: a Labour MP talking sense. Mr Rick Barker on Red Alert takes aim at the pain capital gains tax could cause to mainstream, hardworking Kiwis. His anecdote (perhaps staged, but that’s not the point) looks at a typical scenario:

This man is no bludger, no rack rent landlord, he is not highly leveraged gambling on capital gain to off set other costs, he is a hard working Kiwi and a saver.  He has done what was asked of him and now he fears that he is to be punished some how for doing the right thing, saving prudently.  He saw a house as a good investment.  Property values might go down, but he would still have the house.

Great stuff – a capital gains tax will hurt hardworking Kiwis, which is why the Prime Minister has rightly ruled it out. The only problem Rick, is that your own leader wanted to do a deal on capital gains tax. You’re on the right track, but you really need to get rid of the phil-in in charge of Labour.

Popularity: unranked [?]

Yesterday I posted the tale of two houses. House A and House B are both shitters and only 2 square meters different in size. According the financial genius fiscal fool at Kiwiblog these buildings almost always go up in value. Here is where fantasy-land of the financial genius’s fiscal fool come crashing down and also destroys the argument for capital gains tax.

House A: Capital Value of $345,000,  Made up from Land at $325,000 and Improvements (buildings for the terminally stupid) of $20,000.

House B: Capital Value of $875,000, Made up from Land at $855,000 and Improvements (buildings for the terminally stupid) of $20,000.

The houses (buildings) according to the government are the same value. The dirt under them however is vastly different in value. One of these houses is just around the corner from my place and a stones throw (by DPF) from the beach. The other is in Whangaparoa. The House in Howick is House B, and is on a street that has houses ranging in value from this one to over $4 million dollars.  On this street this is the last shitter, over the last five years as oldies popped their clogs and the houses got sold the shitters have all uniformly been bowled. Quite literally they weren’t worth anything, in other words they were valueless, not going up almost always in value. The land however is where the value is and to pay $1.5 million for a property on Marine Parade and then bowl the shitter and spend $800,000 on a new house making the whole package worth about $3 million is worth it.

So how do you measure capital gains in that scenario. You have gone from $875,000 to perhaps a little under $2 millionin the time it takes to build your new mansion, and the property doesn’t even look the same. One the numbers alone the IRD would say that is a capital gain, now do you charge that on the realised value or the non-realised value. You can’t do either is how. Too freaking hard, and that is but one example.

Far more rational if you want to be a pinko wealth stealer and try and grab more cash is to have a Stamp Duty on housing transactions and match it with the same on shares. If you are a real Pinko then have the Stamp Duty on the Buy and the Sell and pretend they are two separate transactions.

The Tax Working Group should have been bold, instead they were like Speedo Weldon skinny dipping in the Antarctic. What we need is a Tax Working Group made up of advisors that have no financial interest in scoring big government contracts or feathering their own nest who can take a holistic view of our system and start with a blank piece of paper. The group I would have would be analysts from Hong Kong and Singapore and their brief would be design a tax system that assists in generating wealth of individuals and Companies and rewards hard work. That is it.

But no, what we have are mealy-mouthed platitudes from dicky-licking, pocket pissers trying to score contracts for their firm or tossers like Speedo Weldon who wants his shitty little Exchange to be a mover and shaker in the world instead of a flea on the gnats proverbial. Wake up New Zealand our economy is rounding figures compared to economies like China and the US and the EU.

Popularity: unranked [?]

David Farrar doesn’t think there should be depreciation on building. His reasoning is that houses go up in value and not down so it is silly.

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

So here is a little test for you. Which house if more expensive? House A? or House B?

Popularity: unranked [?]

Not bloody likely if “Tiger” Mallard has anything to do with it.

I knew Labour’s MP blog would get “Tiger” in trouble, he just can’t keep his trap shut just like he can’t turn down the glad eye from a woman.

I sure hope that $45 million paid off, it would be interesting to know if the taxes paid by the staff exceeded the $45million tax credit to the production company?

Popularity: unranked [?]

Key says personal tax cuts still on Govt agenda

Excellent news. Harmonise the personal tax rates with corporate tax rates by cutting wasteful government spending and increasing GST.

Popularity: unranked [?]

Funnily enough, Marty at The Standard says that it’s “ironic” that I think he’s got it all wrong on GST tax-back for tourists. I didn’t actually say he was wrong, I said he was moaning – the difference between my position and Marty’s is ideological, and strictly speaking just saying Marty’s “wrong” goes without saying when it comes to ideology. Likewise, he’d say I’m always wrong because of his ideology.

Marty, and social democrats, are concerned with keeping the tax base as wide as possible, taking the largest possible slice of the economic pie. This is to ensure that the government can spend our money on a range of programs to create their version of “social justice”. That’s why one of Labour’s first actions in government in 1999 was to introduce a new higher tax rate. The idea of offering a tax-back to tourists is an anathema to Marty.

From my perspective, the purpose of the government is not to tax and spend or create social programs to spend; and it’s certainly not the purpose of government to try and borrow and spend our way out of recession. It’s to maintain law and order and do what it should to create conditions for a good standard of living. Taxation is a necessary evil to meet those ends (I don’t think taxes are necessarily theft as libertarians do, although the focus of tax on the wealthy is envy related), not a means to an end.

Anyway, back to GST off for tourists. The Aussies National Accounts do show a general upswing in tourist spending following the introduction of GST tax-back:

Aussie International Trade in Tourism

Tourism exports (that’s what people spend when they’re in Australia, and imports are Aussies spending money elsewhere) have generally been increasing. What’s missing is the data prior to 1999, when there was no GST. However, the general trend for tourism as part of Australia’s national accounts has been good. The only other reason I could think of that would account for a jump in 2000 was the Sydney Olympics, but the above graph tends to disprove that.

Popularity: unranked [?]

Mayor of Newmarket Cameron Brewer writes in the Herald today that tourists to New Zealand should be able to claim back GST. Apparently it leads to greater spend by tourists, something Mr Brewer would like very much on Newmarket’s Nuffield St:

In 2000 when the Australian Government introduced a 10 per cent tax on goods and services and subsequently their refund scheme, the yield from annual tourism spending jumped 8.75 per cent. Tourists now visiting Australia spend an average of A$1320 each on shopping.

It’ll be interesting to see what the trend of tourist spending was before and after the introduction of GST, but a figure of 8.75% is compelling.

As expected though, Marty at The Standard moans:*

So, basically Brewer wants the New Zealand government to run a system to give tourists money as they leave the country. Why is that in the country’s interest? Why is it worth the expense? All it does is take money out of our government’s coffers and give it to tourists who are on their way out of the country.

It’s in the country’s interest because it encourages tourists to spend more, as the figures above show. Marty disputes that, pointing out that you only get the money back as you leave the country. But believe it or not, most tourists read up about sales tax (go anywhere in Asia and you’ll soon understand the beautiful simplicity of our GST) before they come to New Zealand, and would find out that we don’t give refunds on GST like the Aussies do.

Oh, and so what if it takes money out of the government’s coffers? The point of tourism is to give New Zealanders employment, which they’re then taxed for by the government. Same with profits from retail sales.

*To be fair, he does point out that Mr Brewer is bad at maths, but that’s all that he gets right.

Popularity: unranked [?]

The NBR reports research by Westpac economists showing that cutting income tax will lead to lower house prices:

A reduction in the top rate of tax to 30 percent would see house prices fall 13.6 percent and rents rise 6.8 percent, the Westpac economists estimated.

This is because of our fairly generous rebates for the losses from investment properties:

Landlords received a tax rebate for losses on their rental properties at their marginal rate of income tax. If the marginal rate of income tax changed, so would the size of the rebate.

If I had the time I’d work out what the actual impact on the government’s books would be – if anyone has the figures, please drop a note in the comments. Also, an interesting note on land tax:

A land tax of 0.5 percent was estimated to cause house prices to fall 4.4 percent and rents to rise 2.2 percent. The fall in house prices was based on the median house, for which land made up 40 percent of the value. Land values were estimated to fall 11 percent.

Put them together, and you get:

Under a land tax of 0.5 percent combined with income tax of 30 percent house prices would fall 16.9 percent and rents rise 8.4 percent. The Westpac economists said such a combined approach was “politically plausible”.

Politically plausible, but not necessarily the best scenario for New Zealand. If Australia’s federal government cuts their business tax rate, New Zealand businesses will be left in a less competitive position internationally, and will be more likely to move to Australia, taking their profits and jobs with them. We ought to be aiming for a 25% business tax rate in 2010 – 2011. Because, as Bill English used to say “Us Kiwis can beat those Aussies!”.

Popularity: unranked [?]

So, you’re in business. You have a choice between situating your company in a larger, more diverse market which may be more competitive, depending on your industry, and a 25c in the dollar tax on your profits, and a smaller market that may be less competitive but with fewer expansion opportunities, and a 30c in the dollar tax on your profits. Which market would you choose to locate your business in?

This may be the choice facing many New Zealand businesses if the Australian Federal government lowers company tax rates. While Australia and New Zealand currently have parity in rates of company tax at 30% each, the Australian market is still bigger with more opportunities and has been attracting a number of New Zealand businesses. Decrease the company tax rate and it becomes even more attractive for businesses to hop the ditch. If they don’t, they’re faced with competing with better-funded Aussie businesses, who already benefit from stronger capital markets and a more diverse consumer market.

This is what Marty at The Standard needs to understand. It’s about competitiveness.

Popularity: unranked [?]

Interest.co.nz has the details of papers put up by Motu economist Arthur Grimes and Deloitte partner Mike Shaw to the Tax Working Group’s final conference in Wellington on Tuesday, detailing the pros and cons of a land tax. Here’s my responses to the pros and cons:

Pros:

* Brings in property to tax base. NZ has relatively low property taxes compared to other countries.

This is certainly true – the large burden of our tax base is on low-middle income wage earners. Spreading that tax burden will help the economy no end.

* Progressive tax hits richest hardest and hits those with most children least, as they have less land

Goodo, if you’re into that sort of thing. Not really much of a pro.

* Hits Maori and Pacific Island communities least

Again, good if you’re into that sort of thing – wonder how a land tax would affect Maori land though? Would National do a deal with Tainui or Ngai Tahu.

* Likely to cause rental property investors to rethink

Which is of course one of the problems we have – the $213 billion invested in rental property is 5 times what we’ve got invested in stock market. Because of LAQCs, this investment stock represents a tax “loss” of $500m (in credits). Why not just abolish LAQCs then? Probably not an election-winning strategy, although $500m could easily go towards lowering the top tax rate in compensation.

* Very cheap to administer

Excellent – all those tax law students hoping to work on land tax law should therefore re-think their careers at the IRD…

* No avoidance or evasion

No wine boxes then. Again, tax law students – start studying something useful.

* Land is immobile so no danger of assets ‘fleeing’ tax

Also good – one thing we struggle with in New Zealand is keeping our businesses onshore. Lowering company tax will help that.

* Per hectare threshold reduces hit on farmers and foresters

This would also be good – it would make little sense to cut company tax, then load more tax on productive sectors of the New Zealand economy – agriculture and forestry.

* Threshold cleaner and easier to administer than exceptions

Again, this is a pro – a “clean” tax cuts bureaucracy, and makes the IRD a little less bastard like.

* Discourages land-banking property developers from sitting on land

Good – that should mean lower house prices for first time home owners, if you’re into that.

* Less borrowing for property investment and lower overseas debt

Whoah there… less borrowing for property investment doesn’t mean less borrowing everywhere. It does mean that what is borrowed could be put into productive assets though, but this isn’t really a pro.

Cons

* 0.5% land tax could reduce land values by as much as 15%

Ouch. Pretty much a big election loser there… so that pretty much rules out the Government.

* House prices (land and buildings) could fall by 4-8%

Double ouch. Perhaps we could make the Grammar zone cover all of New Zealand to compensate?

* House price falls depends whether tax is deductible, level of real interest rates, other local body rates

Owww… lower house prices mean lower rates Bills. That’s actually a pro in my book.

* Retired households hit hardest

An incentive to move into rest homes perhaps? Here’s a sharemarket tip: if land tax is introduced, by shares in Metlifecare, Ryman, BUPA and Oceania Group. Not really a con in my books.

* Young homeowners with little equity, low discretionary income hit relatively harder

Now this is a big con, particularly at a time when housing affordability is down. However, is it really that important that everyone own their own home?

Overall, I would say conditionally that the pros of land tax outweigh the cons. I say conditionally because:

• The Government ought to reduce income and business tax and the same time as introducing any land tax – not using land tax just to generate more tax revenue. That means we’re still going to have to cut spending to sustainable levels.
• It’ll hurt house and land prices, something many small businesses depend on for equity, and “mum and dad” investors for their retirement. Although that is a long-term pro, as it will encourage New Zealanders to stop depending on housing to become wealthy, and put their capital to much better use.

Update: Big fail on rates there. Mea culpa. The issue is whether land tax increases average house prices and push up rates. So again, likely to make the government unelectable.

Popularity: unranked [?]

This country needs step-change. Gareth Morgan is willing to provide it:

• A Comprehensive Capital Tax (CCT) on all land, buildings, plant and equipment. Raises NZ$19 billion.
• A flat income tax rate of 25% on all corporate, personal and trust income.
• NZ$10,000 guaranteed minimum income for every adult to replace all benefits (which means the first NZ$40,000 of income is tax free).
• GST to remain at 12.5%

Don’t know if I agree with a Comprehensive Capital Tax on everything (it’s likely to hurt industries who’ll simply flee to countries where there’s lower labour costs and not capital tax – India or China perhaps?). However, Gareth appears to have more testicular fortitude than our current Minister of Finance, who despite his rugged southern man persona prefers to dismiss good ideas as “too radical” and offer piss-weak bandage solutions for gaping wounds.

Popularity: unranked [?]

Marty G at The Standard complains that income tax cuts help the wealthy the most. There’s a simple explanation for that: in a progressive tax system, the wealthy pay proportionally more of the tax burden. That’s the whole point of progressive taxation.

So naturally it’s very difficult to cut income taxes so that cuts only benefit poorer New Zealanders.

Popularity: unranked [?]

Colin Espiner reports that the Tax Working Group has put out its ideas to transform New Zealand’s tax system. Let’s look at each:

* Cut top personal tax rate in line with corporate and trust tax rates

Good – the difference between personal and corporate tax rates encourages director-shareholders of businesses to arrange their business affairs to avoid tax. Reducing personal tax rates would ensure this doesn’t happen.

* Cut taxes on capital income and remove ability to offset wage and salary income

Half good and bad – offsetting wage and salary income enables small business owners to get a return from their operations they otherwise wouldn’t receive. However, cutting tax on capital income means more capital investment, as returns would be better.

* Close tax shelter loopholes

Bad if you’ve got a tax lawyer or the Cook Islands Government. Neutral if you don’t. Good if you’re the New Zealand Government.

* Raise property taxes and/or GST

Neutral – if personal tax cuts come into place at the same time, this would be of benefit to first-time home buyers and would increase the Government’s tax-take on consumption.

* Adjust tax rates on interest payments for inflation

Neutral – would be difficult to implement, and complicate the tax system.

* Increase rates to push down property prices and ring-fence losses on rental properties

Bad – would probably make John Key unelectable, but more importantly hurt “mum and dad” investors with rental properties.

* Make income on capital investments tax-free until money is withdrawn

Good – will encourage investment in shares, bonds, etc. In conjunction with raised property taxes it would be very good for the “tradeables” (i.e. export) sector. However, again that would hurt mum and dad investors.

Popularity: unranked [?]