Stop the jobs tax

National has launched a petition to stop the jobs tax:

Labour wants to take more of your hard-earned cash, with a plan to impose a new 1.39% Jobs Tax on every worker and every employer.

The Jobs Tax would make a typical worker (earning $60,000) $834 worse off every year. That’s $834 less for your groceries, your power and other bills, and your own savings. Employers would also be forced to pay the tax for every employee on their pay roll. Yet another cost on business that will put pressure on prices and make it harder to get a pay rise.

The Jobs Tax has been dreamt up by the Government to pay for Finance Minister Grant Robertson’s latest pet project: an “income insurance scheme”. This gold-plated welfare scheme would allow those made redundant to stay off work for up to 6 months on 80% pay. This despite businesses crying out for skilled workers!

The Jobs Tax joins the long line of other taxes Labour has introduced to fleece New Zealanders of their hard-earned cash, all while delivering worse outcomes for you and your family.

Help us stop Labour’s obsession with spending your money. Sign our petition to stop Labour’s Jobs Tax today.

Want to know how much Labour’s Jobs Tax will cost you? See how much worse off you’ll be HERE.

That link takes you to a table that shows someone earning $35,000 would pay $487 a year, the employer would also pay that making a total of $974  taken from the worker and the business in extra tax.

Someone earning $60,000 would have $834 taken from them, so would the employer making a total of $1,668 taken from the worker and the business by the government.

Workers earning $135,000 and their employers would pay  $1,820 each, a total of $3,640 taken from those who earned it by the government that promised no new taxes.

That’s a lot of tax that would be taken from workers and employers and who do you think would make better use of the money – the employees and the businesses or the government?

In less than 10 hours, over 10,000 Kiwis have made it clear they don’t want Labour’s latest tax grab: the Jobs Tax, which will leave every NZ worker worse off.

✍️Sign our petition to join them: https://t.co/uQRTEmzyRg

— NZ National Party (@NZNationalParty) September 27, 2022

Taking that much tax to redistribute to people who may or may not need it is bad enough. It gets worse when you read Eric Crampton explaining how the scheme would be open to rorts:

A dark part of me hopes the government’s employment insurance scheme is enacted exactly as proposed.

It will be terrible.

But the rorts it will spawn will be the stuff of which economics columnists’ dreams are made.

The scheme really is not insurance. Insurance charges premiums that vary with risk. The government’s employment insurance scheme simply charges a proportion of a worker’s salary.

It’s not an insurance scheme it’s a tax and it’s not needed by many, perhaps most workers.

Has anyone bothered to investigate how many people are really at risk of losing their jobs and how many of those who, in the current environment, would walk straight into another job?

Consider seasonal employment which is only covered if a worker is made redundant before the end of the contracted picking season.

But employers making workers redundant every year will not pay a higher insurance premium.

Clever employers will put seasonal workers on to permanent contracts before making them redundant towards the end of the picking season. Workers in on the bargain will work through the initial four weeks of redundancy covered by the employer if they want to play the game again next season.

And a lengthy period on 80 per cent of their prior salary awaits.

You might even consider it a subsidy scheme for seasonal work. Attracting workers out to the regions is easier if those workers can enjoy six months of government-provided redundancy pay as part of the bargain. . . 

Or consider maternity benefits.

Parental leave provides payments of up to $621.76 per week. But if a parent-to-be were to be made redundant, just consider the benefits for those on higher incomes!

Rather than see their pay drop to a meagre $621.76 per week, they could receive up to about $2000 per week – if they earned $130,000 or more before taking parental redundancy.

It really is brilliant. Labour has come up with a mechanism ensuring higher-earning women face fewer costs when having children, while doing fairly little for women on lower wages.

If a right-wing government had come up with the scheme, it would be accused of doing it deliberately, and possibly with eugenic intentions.

What employer would be so mean as to decline their employee’s request to be made redundant before the birth of their child?

And while parental leave is only available to one parent at a time, both parents in a two-income family could take redundancy. They could enjoy a full year with one parent at home with the new baby, or six months of family togetherness. On an “insurance” payment. . .

Labour has done a lot to make better-off people better-off while the poor have got poorer.

The jobs tax would do more of that and it would foster make-work schemes for employment lawyers:

Under current employment law, it is impossibly difficult to fire underperforming workers in some circumstances. It is too easy for employers to find themselves tied up in personal grievance claims for months – to the benefit of the lawyers.

But if both sides in a fractured employment relationship can agree that the worker will be made redundant, with an “insurance” scheme picking up months and months of redundancy payments at 80 per cent of the worker’s salary, everything becomes easier.

The employer neither needs to come up with a very expensive golden handshake, nor deal with months of workplace toxicity as a personal grievance case works its way through.

The worker can simply be made redundant.

You might even view it as a tidy second-best workaround to dysfunctional employment legislation. It will be far easier for employers to fire problem workers, with their agreement, when the scheme is in place. . . 

If there’s ever a good time to add a new tax, it’s not when all but the wealthy are struggling with the impacts of steeply rising prices.

If there’s ever a good time to make it easier for people to not work, it’s not when there’s a nation-wide shortage of workers.

This is a bad tax made worse by the potential for rorts and really bad timing.

 

 

 

Public support spending cuts

Yesterday’s increase in the official cash rate (OCR) was expected and unwelcome::

In a massive blow to homeowners, out-of-control inflation has pushed the Reserve Bank into once again hiking the Official Cash Rate by a dramatic 50 basis points, National’s Finance Spokesperson Nicola Willis says.

“Today’s statement is yet more bad news for New Zealanders, confirming inflation is set to stay higher for longer, growth will be lower and interest rates will have to be hiked even higher to bring things under control.

“The cost of living crisis is hitting everyone across the country and it’s not going away anytime soon. Runaway prices are crushing household budgets. Rapidly rising interest rates are crushing mortgage-holders. Today’s statement confirms both these things are set to persist for many months ahead.

“Concerningly, today’s forecasts from the Reserve Bank suggest inflation now won’t return below 3 per cent until the middle of 2024 and won’t get back to its target midpoint until 2025.

“Instead of throwing up their hands and blaming international factors, the Government needs to take action to bring inflation under control. Broken immigration settings and runaway spending are choking off supply while overheating demand – a recipe for more inflation.

“The Reserve Bank acknowledged ‘labour shortages are a major constraint on business activity’, but the Government is still failing to fix our broken immigration settings. Businesses and consumers will continue to be squeezed by widespread skills shortages until that changes.

“The Government should adopt National’s five point plan to fight inflation – return the Reserve Bank to a single focus on price stability, reduce costs on businesses, remove bottlenecks in the economy, rein in government spending, and prioritise tax relief for workers.”

Labour MPs are always critical of National’s calls to rein in government spending, but the policy has public support:

The Taxpayers’ Union says that cuts to Government spending are a far better way to deal with the inflation crisis than the Reserve Bank of New Zealand hiking the Official Cash Rate – and the public agree. Kiwi voters understand the drivers behind inflation and the latest Taxpayers’ Union Curia Poll demonstrates that they want cuts to Government spending.

Responding to today’s OCR announcement, Taxpayers’ Union Executive Director Jordan Williams said:

“As part of this month’s Taxpayers’ Union-Curia poll, we asked New Zealanders if the Government should be increasing, decreasing, or maintaining spending levels in response to high inflation. The most popular response – 45% of respondents – was that Government should decrease spending.”

“Only 12% of respondents thought increasing spending was the right idea and 27% said spending should be kept the same.”

“Next time Labour MPs try to troll National Party leader Christopher Luxon with claims he will ‘cut spending’ Mr Luxon should say he will. This poll shows that it is precisely what most voters want him to do!”

“We also asked about tax cuts and 59% of voters support a temporary 10% reduction in overall income tax for all families to help with the increased cost of living.”

“As Grant Robertson recently acknowledged, tax relief is less inflationary than Government spending. Swapping out Government spending to leave more money in taxpayers’ pockets would both help with the costs of living and ease the pressure on inflation.”

“Something that the Beehive should take note of is that Labour voters are the most in favour of a temporary package for across-the-board tax relief!” 

The results for the August Taxpayers’ Union Curia Poll can be found here – https://www.taxpayers.org.nz/inflation_polling

This government has demonstrated time and time again that more spending doesn’t always result in better outcomes.

Time and time again they’ve shown that they are not good managers of other people’s money.

The TU poll shows the public understand that and favour being able to keep more of their own money.

 

‘Tax is love. Enjoy its fruits.’

Dr Oliver Hartwich writes, we are paying the price for economic mismanagement:

We can reasonably expect New Zealand’s economy to enter recession after the Reserve Bank raised its Official Cash Rate again by 50 basis points.

No one likes being in recession, but current circumstances make it almost desirable. Accelerating price increases and tight labour markets are both signs of an overheated economy. 

The Reserve Bank therefore wants to engineer an economic downturn to let off some steam. This would relax both the labour market and consumer price inflation. . .

That’s what it wants, but it won’t be easy with a very tight labour market.

With Kiwis leaving and fewer migrants coming here, labour constraints could therefore remain, even in the face of a recession. That would make the Reserve Bank’s job much harder.

However, our central bankers will be concerned about more than just the labour market.

Because next year is an election year, the Government will be tempted to soften the downturn. This might take the form of fiscal stimulus and transfer payments – but both would counteract the withdrawal of aggregate demand the Reserve Bank wants to achieve.

It is possible that the Reserve Bank would struggle to meet its goals despite sustained increases in the OCR. 

Instead, it would see the economy showing simultaneous signs of overheating in the labour market, declining economic activity and consumer price inflation. In a word: stagflation.

Some will argue that it is mainly the Reserve Bank’s fault for having led us into this mess. And they would be right. This is a recession we did not have to have. . . 

It could have been avoided had the Reserve Bank not flooded the country with cash, and the government been disciplined in its spending.

The Reserve Bank can only do so much. The best it can do is emphasise the return to price stability as its main goal.

The remaining responsibility for economic management, however, rests with the Government.

Demand-side management must be avoided, no matter how tempting it may seem. And in order to boost the supply side, the Government must make doing business easier and cheaper.

The Government’s economic competence will determine how long and how deep our economic downturn will be. 

How much confidence can we have in the government’s economic competence?

Worry not, Dr Bryce Wilkinson writes ‘from’ the Beehive to rebut our misplaced fears:

We in the Beehive are aware of some unfounded dissatisfaction amongst the great unwashed.

There are stories of a health system in crisis. This is not so. If it were, we would have told you.

The real emergency is, as everyone knows, climate change. Think not of hospital shortages today. Think instead of all those who are going to drown in 2100 because they did not notice sea-level rise. Subsidies for electric cars are more important than yet more money for hospitals.

There are also stories that the amalgamation of Polytechnics has destroyed their creativity and independence.

This is absurd. Our new structure has at least 21 people with “chief executive” in their titles. The 21 oversee the chief executives of the 16 polytechnics. What chief executive would not welcome such support?

Some are complaining that the top boss is earning $13,000 a week while on ‘special’ leave. That is what we call a fair go for the ordinary bloke. Others can learn from it.

School truancy. Another problem inherited from the other lot. What everyone is missing is how much worse it would be if parents were paying directly for their truant children. Private schools are the pits.

Some are concerned that around 40% of school leavers are barely literate. Will they be able to pay enough in taxes to support our retirement? Perhaps not, but again think of how much worse it would be if parents had greater school choice.

We had to shut down partnership schools because too many parents did not understand that state schools were best. Imagine if we told parents which schools were poor performers. There would be chaotic disruption. People need government to protect them from themselves.

There are stories that people are feeling unsafe in the streets. There are shootings. It is said that police are powerless to prevent reoffending by ten-year olds because of the laws protecting minors. Nor can they do much about hardened criminals given our lenient courts. Our judges even struck out Parliament’s three strikes legislation, before we did. If they do not understand our constitution, who does?

All such complaints are unkind. You are paying for approaching 450,000 public sector employees who wake up each morning thinking only of how they can best help you each day.

Our excellent governance arrangements ensure nothing stands in their way.

Tax is love. Enjoy its fruits.

Feeling reassured now?

Enjoying the fruits?

Or worried that the fruits are rotten?

Public funding of political parties political poison

The Taxpayers’ Union says the idea of public funding of political parties must be nipped in the bud :

Responding to the terms of reference for a new review into electoral laws, the New Zealand Taxpayers’ Union is calling on politicians to rule out supporting taxpayer funding for political parties.

Union spokesman Louis Houlbrooke says, “Taxpayer funding for political parties is a terrible idea for a number of reasons. Firstly, the criteria for allocating funding will necessarily benefit incumbent political parties, amplifying those already in power and drowning out political outsiders. This goes against the spirit of our liberal multi-party system.

How would the funding be calculated – the vote at the previous election, the number of members  . . .?

There is simply no way taxpayer funds could be allocated fairly.

“Secondly, shifting away from private funding towards public funding will shield party leadership from accountability to their grassroots supporters who currently pay campaign bills. In other words, politicians will get sucked further into the Wellington bubble.

Good MPs value and listen to party members, understanding the important role they play in helping them win elections and also keeping them in touch with issues and concerns in the real world.

“Thirdly and most simply, taxpayers shouldn’t be forced to fund the promotion of views they disagree with or find abhorrent. It’s one thing to fund MPs to do their jobs in Parliament – it’s another thing entirely to fund their propaganda.

If parties can’t attract sufficient funds from people who support them, there are absolutely no grounds for giving them funds from people who don’t through taxes.

“Instead of pouring more public money into the political process, we should be taking this opportunity to scrap the archaic ‘broadcasting allocation’ which funds election night broadcasts from fringe political parties too hopeless to fundraise for themselves.

Yes. If parties wish to broadcast advertisements they should be able to do so but only at their own expense.

On the potential for restrictions on private donations to political parties, Mr Houlbrooke says:

“Limiting donations to political parties won’t stop the wealthy from influencing elections. It risks the rise of American-style ‘super pac’ organisations with shadowy funding sources campaigning on the parties’ behalf. At the very least, wealthy donors may simply redirect donations to advocacy groups like the Taxpayers’ Union or Greenpeace. Even if we would benefit from such a change, we cannot in good conscience support it.

Current disclosures of larger donations from groups of individuals is part of an openness and transparency in the democratic process, but as long as that is robust, there is no need to place limits on the donations, especially when, as is the case now, there are limits on how much parties can spend in the regulated pre-election period.

Contrary to the concern that money can buy elections, post-election disclosures show that often more money per vote is spent by parties which lose.

Political parties are voluntary organisations.

There are no more grounds for taxpayer funding of them than there would be for funding service clubs or religious groups.

If National and Act are true to their principles they will be opposing this vehemently.

I have no doubt they will because the idea is political poison.

Opponents to it have only to rank the many, many high priorities for taxpayer funding, including the frontlines of health and education, and then ask where taxpayer funding of political parties comes in.

It won’t even make the list.

Takers or makers

This is a government of takers.

They took away our freedom and while the first Covid-19 lockdown was excusable, subsequent ones that were due to the delay in the vaccination rollout were not.

Matthew Hooton writes of the cost of last year’s extended Auckland lockdown:

. . .Then, in late August, our still largely unvaccinated population was hit by Delta. Prime Minister Jacinda Ardern had no choice but to order what became the long lockdown of 2021/22. It contributed to yesterday’s Budget Economic and Fiscal Update (BEFU) estimating Robertson will end up spending $128.4b to get us through 2021/22.

That’s $13.7b more, or over $7000 for each of New Zealand’s estimated 1.9 million households. The “good news” is that Robertson expects to collect an extra $10.6b in tax this financial year compared with the forecast a year ago, or around $5500 more per household.

Inflation is one reason why, fuelled by both monetary and fiscal stimulus being needed for much longer than if we had been vaccinated before Delta arrived.

That, of course, is only the start of the cost. In Auckland in particular, the preventable lockdown also drove more family businesses broke, ruined a second school year for tens of thousands of students and worsened already fragile mental health.

Yet no one in the Beehive or the bureaucracy has even apologised for the failure to begin our mass vaccination programme six months earlier. . . 

The late rollout also took some of the freedoms we were promised over summer, people without vaccine passes were barred from a lot of places, numbers were restricted for weddings, funerals and other events; and we were all still supposed to sign in.

And let’s not forget taking the freedom to come and go from New Zealand that grounded so many Kiwis overseas, kept others here,  locked out families and friends, is still keeping some migrant families apart and restricting employers ability to get migrant workers.

Then there’s Three Waters and the very real threat that they’ll take away both the assets and control from local authorities and rural water schemes.

And the biggest take away is money  in higher taxes, higher costs through more regulations, and worst of all the loss we’re all having to bear because of inflation that’s adding to the cost of everything and eroding the real value of savings.

Not content with that the government is looking at how to take more from the wealthy, in spite of a promise there would be no new taxes and no wealth tax.

Just think how much better off we’d all be, individually and collectively if they put as much thought in how they could help us to make more instead of how they could take more.

This is a government of takers. The country desperately needs one that understands and supports makers.

Bad timing for bad tax

Just a day after announcing they’ll let people earning less than $70,000 keep $27 a week more of their own money temporarily, Labour pushed legislation that will take much more off all of us permanently.

The Government is using dirty tactics as it pushes through enabling legislation to increase PAYE revenue by 10% under the cover of yesterday’s Budget, says the New Zealand Taxpayers’ Union in response to the Income Insurance Scheme (Enabling Development) Bill.

Union spokesman Jordan Williams says, “This is a tax branded ‘insurance’ by spin doctors to try and make it palatable. They are polishing a stinker. The ‘premium’ is not risk-based or reflective of individual circumstances. It is in practice a massive extension of PAYE, increasing revenue from the PAYE system by 10%.”

“The audacity of the timing cannot be understated. Labour is pushing it through first reading in a special Friday session of Parliament, less than 24 hours after a massive Budget that taxpayers, the media, and the Opposition are still busy digesting. This is cynical politics – Labour is playing dirty to push through a tax it knows will not stand up to public scrutiny.”

“Even worse, the Government is pushing this new tax as the costs of living spikes. The tax on workers will reduce take-home pay by up to $1,820 a year – far more than the temporary cost of living handouts announced yesterday. The additional tax on employers will in practice be passed on to workers, or translate to higher prices adding fuel to the inflation fire.”

“‘Unemployment insurance’ might be the name the PM’s media advisers have come up with, but Kiwis are smart enough to see right through it. It’s a nasty tax on employment, at the worst possible time. It’s also a recipe for rorting: family businesses will manufacture redundancies to take advantage of the generous handouts; and people on salaries as high as $131,000 will take six month sabbaticals between jobs, on 80 percent pay, courtesy of tax-paying workers.” 

Just one day later, Saturday, was tax freedom day and it came 10 days later than last year.

. . . Baker Tilly Staples Rodway has calculated New Zealanders will pay 10 days’ worth of taxes more in 2022 than they did last year, largely because of last year’s reintroduction of the 39 percent top tax rate.

It says the tax increase works out at 15 percent more than last year and brings tax freedom day back to where it was in the early 2000s.

Another significant concern is “bracket creep”, where an individual receives an increase in their salary, pushing them into a new higher tax bracket on their marginal earnings.

“The effects of bracket creep are becoming more obvious as more Kiwis receive pay rises,” Baker Tilly Staples Rodway tax director Mike Rudd said.

“That’s having flow-on effects such as Working for Families payments essentially being paid directly back to the government after tax.” . . . 

That’s two working weeks’ of tax paid before subtracting even more for the insurance scheme, the merits of which are questioned by many accountants:

. . . Chartered Accountants Australia and New Zealand said about half of its members supported the scheme as it could help people in sectors where redundancies were not offered and give people who had lost their job more time to find another role that matched their skills.

But members also had major concerns about the proposed timeframe, its cost, its effects on low-income families and the potential for the system to be gamed, he said.

“Many of our 31,000 Kiwi members have significant reservations about whether the scheme should go ahead, regardless of whether they support the policy rationale in principle,” CA ANZ New Zealand country head Peter Vial said.

Accountants had also been unable to review any of the detailed data and modelling for the scheme, or how it would be funded, Vial said.

“That’s a pretty concerning lack of transparency for a scheme that will impose significant costs on all New Zealand employers and employees – and considerable cost to the public purse. . . 

Vial said it would be “ambitious” to try and have the scheme up and running by the end of 2023 and suggested it would take a couple of years to develop the program to work out details, such as how it would work for low-income employees who would be least able to afford the levies.

“If the government does introduce a scheme, it needs to be as fair and efficient as possible, and economically viable, and must be careful that the proposal does not act as a disincentive for people to go back to work.”

Vial said there were alternatives that could be considered, such as expanding the scope of the Accident Compensation Act to include insurance cover for health events and disabilities that people away from work, as well as implementing an Australian-styled system which would provide minimum redundancy entitlements. . . 

We’re already paying more tax through bracket creep and inflation’s impact on GST. The flawed, compulsory insurance scheme will take even more from us.

It’s doubtful there’s ever a good time to impose a new tax on people.

Doing it now when the economic impacts of Covid and inflation are overstretching so many budgets for households, businesses and charities, would be bad enough. Doing it for a scheme that is unfair on people on lower incomes and so open to rorts is even worse.

This is bad timing for a bad tax that demonstrates yet again how out of touch the government is with how difficult finances are already for so many.

The case against meddling with GST

The steep increase in the price of food has led to inevitable calls to exempt at least some foods from GST.

Good tax is oxymoronic but simple taxes are better taxes and GST is simple.

Australia’s isn’t and here’s a good argument for not following them by complicating ours:

Majority want to keep own money

More than two thirds of New Zealanders want to keep more of their own money:

The latest Newshub-Reid Research poll has found an overwhelming majority want a tax cut from the Finance Minister in this year’s Budget 2022. 

Labour’s dramatic drop in Newshub’s poll has the party under pressure and it’s showing. Meanwhile, the National Party is celebrating.  . . 

The poll put National ahead of Labour. It’s only one poll but does continue the trend of National support growing while Labour’s falls.

It gets worse for Labour because the poll also showed overwhelming support for tax cuts.

It’s bad news for them though, because the Finance Minister appears allergic to the idea. But perhaps the latest results of the Newshub-Reid Research poll will make him reconsider.

It asked: Do you think the Government should give New Zealanders a tax cut in the upcoming May Budget?

A clear majority – 68.7 percent – say yes, hand back over the cash, while only 23.7 percent said no. Even a majority of Labour voters – 54.2 percent – want a tax cut, with 35.7 percent saying no. 

But it’s not going to happen. 

“We do not agree that tax cuts that favour those who earn the most are the priority right now,” Robertson said in Parliament on Wednesday.

The political pressure is piling on from National.

“Kiwis are doing it incredibly tough in this cost of living crisis because of inflation and really what we want to do is be able to give more of their money back to them to spend and save it as they wish,” National leader Christopher Luxon said. . .

That’s an important point.

This isn’t the government’s money, it’s the earnings of the people and it’s no surprise they want to keep a bit more of it.

Having the government which is wasting so much taking more of what you earn, or keeping a little more of your own money?

No contest.

Wasting $s on bureaucratic back patting

Does this government and its agencies hold the record for the most money wasted on propaganda?

If you want to go down a rabbit hole of grift, browse the portfolio of @clemengerBBDO, the creative agency responsible for this ad. https://t.co/jzJn3G1uMZ https://t.co/CMsukLkoFN

— New Zealand Taxpayers' Union (@TaxpayersUnion) March 17, 2022

The worst of it is that the Govt has budgeted a total of $197 *million* for its Road to Zero "education campaign" through to 2024.

This money could have been spent on median barriers, but the Govt has decided it would rather spend the money annoying you with dumb ads.

— New Zealand Taxpayers' Union (@TaxpayersUnion) March 17, 2022

The government and Waka Kotahi are wasting money on advertising what amounts to an admission of failure.

They’re failing to make roads safer and so in an effort to reduce the road toll they’re resorting to reducing speed limits and trying to convince us that’s good.

The advertisement isn’t the only money being wasted on transport mistakes.

The Auckland tram might cost $29.2 billion.

That is $15,000 for every household in New Zealand. So every family in Gore and Hastings and Levin will be paying $15,000 more tax so Auckland gets some trams to the airport!

If it costs $29.2 billion, then that is a cost of:

• $1.22 billion per km
• $1.22 million per metre
• $12,167 per cm
• $1,217 per mm

Think of the opportunity cost. A new four lane motorway costs around $50 million per km. For what the Government may spend on trams in Auckland you could construct a 630 km long four lane motorway. That is approximately the distance from Auckland to Wellington. . . 

Back to annoying advertisements, Waka Kotahi has another that starts by showing a driver swerving to avoid a possum.

It is, as Camryn Brown writes,  a case study in obliviousness :

. . . Consider the TV ad for the new “Road to Zero” campaign. What does that ad want you to do? A typical road safety ad wants you to slow down, be sober, or wear a seatbelt. This ad has nothing for a road user to act on, it simply promotes the idea of an all-of-system approach to road safety. It tells you that road safety depends on coordinated work across enforcement, road design, regulation, and so on.

It shares this big idea that has excited the bureaucrats so you may see how clever they are and so that you may appreciate them more.

That’s what the ad wants you to do – it wants you to know what the bureaucracy is doing to do and it wants you to think better of them for it. The beneficiary of the ad is the public service, not the public. . .

Compounding the waste of money is the stupidity of showing a driver swerving to avoid a possum, which is dangerous.

If the advertisement pointed out that drivers should never swerve to avoid a small animal and that running over a possum would be doing a service to conservation because they’re pests which carry TB and prey on native fauna and flora it might be acceptable.

But it doesn’t to that and it’s not acceptable use of scarce money that would be far better spent on making roads safer.

Instead, they’re wasting millions on an expensive exercise in bureaucratic back patting.

It does nothing to encourage safer driving and it reinforces the growing chasm between the government, its agencies and the public who finance their wasteful spending.

Another economic blunder

The government’s plan to introduce an unemployment insurance scheme is, Dennis Wesselbaum says, another of its blunders:

We do not have details about its precise design, but what we hear is that the new scheme will pay up to 80 per cent of income for up to half a year, if an employee loses their job. In any case, the reform will be a historic turning-point.

This policy, however, will reduce welfare (wellbeing would be more politically correct), increase unemployment, increase the duration of unemployment, reduce income, increase inequality, and lead to higher inflation. This outcome is robust and well-known in the field of macro-labour economics.

Recent experiences in Spain and Germany have shown that increasing the duration of unemployment insurance increases level and duration of unemployment. The probability of being unemployed for 12 months, for example, increases from 15 per cent to 40 per cent, if you move from a no unemployment insurance scheme to a one-year unemployment insurance scheme.

Hence, this leads to more (long-term) unemployment. . . 

The longer people are unemployed, the harder it is for them to re-enter the workforce.

Anything which encourages longer term unemployment is economic and social sabotage.

In Opposition Labour was highly critical of increasing inequality but this policy will make it worse.

Those workers who are employed enjoy a higher wage, but there will be fewer of them. This will increase income inequality in the economy. Importantly, overall welfare in the economy decreases.

Firms face higher labour costs which increases prices and creates inflation.

With less consumption, production falls, and overall income in the economy drops. . . 

More unemployment requires more to be spent on benefits and fewer people working leads to less tax being paid.

This will reduce fiscal space to deal with future recessions and restricts spending for important long-run factors such as infrastructure, education, or health.

Even worse, be prepared to have lower incomes, because all of this will be financed via an income tax increase. Taxes will increase by about 3-4 per cent. This tax hike will damage economic growth, by reducing incentives to invest and work. This will additionally shrink the supply side, which further fuels inflation.

In conclusion, you will be paying higher income taxes, have lower income, and pay higher prices such that the Government can implement a policy which will be harmful for the economy in many ways and reduces welfare – which this Government claims to be its raison d’être.

This reform is against every lesson economists have learned.

In my opinion, this shows the Labour Government does not care about designing useful economic reforms that would lead to better outcomes, but rather does whatever is required to transform Aotearoa into a socialist welfare state with a central government controlling all aspects of life.

Few, if any, people would never have an accident which is a good argument for ACC.

Few, if any, would never need hospital treatment which is an argument for a health insurance scheme, perhaps similar to Singapore’s.

But very few people are made redundant which makes the unemployment insurance scheme just a tax by another name that will do far more harm than good.

The blundering doesn’t stop there.

The proposal to impose UnFair Pay Agreements on employers and their staff  will compound the economic and social damage the government is inflicting on the country.

Taxing times

This really is a taxing government:

The Government’s biofuel mandate will be another cost that will see motorists paying twice at the pump for carbon emissions, National’s Transport spokesperson Simeon Brown says.

“Every litre of fuel Kiwis use already faces an 18 cent cost under the existing Emissions Trading Scheme. Adding a biofuel mandate on top of that will simply be another cost for the same outcome already being achieved by the ETS.

“MBIE stated that the introduction of the biofuel mandate will increase the price of petrol by 0.4 cents per litre, diesel by 7.1 cents per litre, and jet fuel by 7.1 cents per litre (or 11.2 per cent).

“Overall, it is estimated the economic cost of the policy will be over $1.2 billion. Yet as New Zealand already has a cap on our emissions, there will be no reduction in New Zealand’s total emissions.

“Essentially, this is a policy to make it more expensive for New Zealand to achieve emissions reduction targets, and to make petrol and diesel more expensive at the pump.

“At a time when Kiwis are paying more for petrol at the pump than ever before, the Government needs to grant relief to motorists by removing the Auckland regional fuel tax at a minimum.

“The mandate will be particularly hard for farmers who are already facing the introduction of the new ute tax, as the biofuel mandate could increase the price of diesel by 7 cents per litre.

“While National is supportive of biofuels and reducing our carbon emissions, the Government cannot double dip into Kiwis’ pockets by taxing them through the ETS and the biofuel mandate.”

The taxing doesn’t stop at the petrol pump:

Grant Robertson is riding inflation to execute an unjustifiable tax grab, says the New Zealand Taxpayers’ Union in response to today’s Half Year Economic and Fiscal Update.

Speaking from the HYEFU Treasury lock-up, Union spokesman Louis Houlbrooke, “The Government is set to increase its tax take by an extra $7 billion each year for the next five years. That’s perverse in the context of a pandemic that has left businesses reeling and households facing rising living costs. New Zealanders deserve tax relief, but Grant Robertson seems proud to be taking more and more.”

“A major cause of Grant Robertson’s revenue bonanza is inflation, which is now forecast to hit 5.6% next year. Inflation this high should be intolerable – there’s a reason the Reserve Bank targets 1-3%. But rising living costs are made even more painful by the Government’s refusal to adjust income tax brackets to keep up.”

“Someone on the average salary ($58,836) is set to pay an extra $955 in income tax next year, assuming they’re lucky enough to get an inflation-level pay rise. Of course, their real pre-tax buying power will be no higher, so eitherway everyone is left poorer.”

“In response to a question from Brad Olsen of Infometrics, Grant Robertson flatly ruled out the adjustment of income tax brackets, and made no apology for his Government’s contribution to inflation via massive spending.”

“Tax brackets haven’t been adjusted for a decade. National and Labour might have thought taxpayers wouldn’t notice slow, inflation-driving tax creep, but with inflation curving up, the elephant in the room is now impossible to ignore.

“Taxpayers need relief from the corrosive effect of inflation. Grant Robertson’s refusal to acknowledge this is cruel.”

The government’s refusal to adjust income tax brackets adds more tax insults to the other taxing injuries it is inflicting on us:

Today’s Half Year Economic and Fiscal Update (HYEFU) confirms that despite a hot economy where everyone is competing for scarce labour and resources, Finance Minister Grant Robertson isn’t easing off his big debt-funded spend up and that will fuel inflation and hurt Kiwis, National’s Finance spokesperson Simon Bridges says.

“Improved macro fiscals like a higher tax take and lower expected net core Crown debt are all well and good, but that doesn’t wash with Kiwi families who are being burnt by price rises that far outstrip wage increases.

“Core government spending is forecast to run a whopping 68% higher since Labour took office this year. The HYEFU reforecast shows government spending remaining high even post-Covid.

“While elevated spending levels were appropriate through much of the pandemic, many economists and the likes of the Reserve Bank now confirm its an overheating economic picture where adjustments and some easing off is required. Otherwise Labour is just outbidding private players for land, building supplies, and motel rooms, and forcing prices up across the board.

“Not all spending is good investment and you can have too much of a good thing. What’s more, an awful lot of it is being funded by borrowing, which means it has to be paid back eventually.

“The real kicker though is that this spending is pushing inflation higher and that in turn is forcing the Reserve Bank to keep hiking up interest rates. More than half our inflation is from the non-tradables sector and so home grown, and at 4.9 per cent its growing faster than it has in over 30 years, much faster than in Australia (3 per cent), and much faster than wages at 2.4 per cent.

“Inflation is literally taking money out of Kiwis’ pockets and making us poorer. Whether it’s the mum at the supermarket, the tradie at the petrol station or the young person trying to buy a first home, inflation is making things much, much harder.

“With all Grant’s spending, it’s up to the Reserve Bank to come to the rescue, pushing interest rates higher than they might otherwise need to go.

“We are saying ‘rein it in a bit Minister’. Take off some of the pressure on inflation and interest rates and give Kiwis an economic fair go. Your hot economy is burning us.”

Inflation is theft – it steals the real value of money including wages and savings.

The government’s low value spending is adding fuel to the inflationary fire and the increase in interest rates that will follow will turn up the heat even more.

Now they’re coming for the dead

Labour broke it’s no-higher-taxes promise with the extension of the bright line test.

It broke its no-new taxes with the one on utes.

Now it’s looking at bereaking the no-new taxes promise again by taxing the dead :

 There are a couple of pieces of evidence to suggest may Labour may want to go to the next election proposing an inheritance tax.

The first is the Government’s decision to allocate $5 million over two years to Inland Revenue in the Budget to assess the income and wealth of high-wealth individuals.

An IR spokeswoman confirms that work should shed light on issues including the amount of inherited wealth.

If the Government is going to consider an inheritance tax, commissioning such research was probably going to be a necessary first step. . . 

Taxpayers’ Union Campaigns Manager Louis Houlbrooke lays out five reasons against the idea:

Incentives: A death tax would discourage New Zealanders from saving and investing their earnings. Less capital would be built up as older New Zealanders choose to spend their savings instead of building an economic legacy for future generations.

Fairness: A death tax is a double tax. Someone would spend a lifetime giving up their earnings via income tax, only to have their remaining earnings taxed again as savings upon their death.

Complexity: The biggest beneficiaries of a death tax would be accountants and tax lawyers, who would be engaged by the wealthy to thread investments through complex exemptions and loopholes in the tax, such as exemptions for farm assets, trusts, and gifts prior to death.

Gift tax was axed a few years ago because it garnered so little.

Revenue: Any revenue from a death tax would be meagre. Of the OECD countries to have implemented death or gift taxes, an average of just 0.5 percent of total tax revenues is generated by those taxes. This means that even if our government decided to make a death tax revenue neutral by cutting income tax, the income tax cut would be nearly imperceptible.

Problem definition: A death tax, or indeed any kind of wealth tax, fails to address the actual causes of rising inequality: specifically the shortage of housing which has pumped up the value of assets held by the upper and upper-middle class.

Sigh.

If only the government put some effort into carefully managing the money it already gets rather than devising additional ways to part us from more of ours.

Instead of looking at ways to take more money from taxpayers the government should be analysing its own spending and reducing the burden of tax, reducing the amount needed in the public purse and leaving more money in the public’s pockets.

Rural round-up

Farmers tell government ‘enough is enough’ – Wyatt Ryder and Shane McAvinue:

Farmers across New Zealand have told the Government “enough is enough” and are giving it a month to address their concerns.

This afternoon, farmers, tradies and agricultural sector workers began protesting in cities and towns across New Zealand against several Government reforms.

Thousands turned out in the South, with huge turnouts in Gore, Dunedin, Alexandra and Wanaka.

Utes, tractors and farm dogs descended on towns across New Zealand, with a plane and four helicopters taking part in the Gore protest. In the aftermath of the protests traffic is moving slowly throughout Dunedin and in other parts of the South. . .

‘Just bloody over it’: Rural New Zealand makes itself heard – Alex Braae:

More than 50 protests are taking place around the country today, with rural people in particular getting out to oppose the government’s environmental policy. Alex Braae went north to Dargaville.

The roads get a bit more bouncy when you turn off State Highway 1 to head out to Kaipara. Perhaps it was just because I was driving what might be the worst van in the country, but all of a sudden the shallow potholes started to look a lot more threatening. 

Part of that is because the primary industries are succeeding. Milk tankers, stock trucks and logging trucks all put pressure on the roads, and constant maintenance is needed to keep them in shape. Locals believe these repairs have fallen by the wayside. 

The destination was Dargaville, to report on a protest – one of more than 50 taking place around the country, organised by a group called Groundswell. They were bringing together as much as they could of the rural world – “farmers, growers and tradies” – as they put it, to protest government regulation and highlight a sense that too many costs are being imposed on rural businesses too quickly.  . . 

Farmers protest across New Zealand against government regulations –

Traffic was disrupted around the country today, with convoys of tractors and utes with dogs on board arriving in dozens of centres around New Zealand, as farmers protested against government regulations.

Groundswell NZ organised the ‘Howl of a Protest’ in more than 40 towns and cities over recent environmental regulations, the ‘ute tax’ and a seasonal worker shortage.

Co-founder Laurie Paterson said the “ute tax” was the issue people pointed the finger at, but farmers were also unhappy with the bureaucratic approach to the national policy statement for fresh water management.

From July this year, people buying new electric vehicles (EVs) could get as much as $8625 back from the government. The scheme will be funded through levies on high-emissions vehicles from 1 January 2022. . .

And the award for best placard at #groundswell Timaru goes to…. pic.twitter.com/mLwPaYapiU

— Mike Porter (@mikeonthehills) July 16, 2021

Clear message for govt. – MP – Sudesh Kissun:

 MP for Southland Joseph Mooney, National, says farmers sent a clear message to the government by taking to the streets in huge numbers at Groundswell NZ protests across New Zealand today.

Mooney was in Gore with National’s agriculture spokesperson David Bennett where a big number of farmers took their tractors and utes to town to show their objection to the government’s unworkable regulatory approach in the farming sector.

“It is a sad indictment on the government that farmers felt they had to take their tractors and utes to town to be heard,” says Mooney.

“But with the government unwilling to listen to farmers’ concerns they’ve been left with few other options.

Farmers bring cities and towns to a standstill with mass protest over Government regulations – Nadine Porter:

In Auckland tractors drove down Queen St. In Christchurch they circled the cathedral.

In cities and towns across the country, farmers brought traffic to a near standstill as they turned up in their thousands to demand the Government’s ear.

At the largest protest in Christchurch, curious onlookers smiled and cheered as 2000 farmers in utes and tractors filed through Cathedral Square.

Chants of “enough is enough” rang out and the sound of dogs barking reverberated through the square as protesters voiced their concerns.

Groundswell NZ protest co-ordinator Aaron Stark said he had earlier received death threats, but the protest was peaceful. . .

#groundswell #howlofaprotest #nofarmersnofood pic.twitter.com/y8ohVNGyAg

— 𝕊𝕒𝕘𝕖 🇳🇿❤🇳🇿✊ (@Soul_of_a_Sage) July 15, 2021

Howl of a Protest: Thousands of tractors, utes descend on cities as farmers rally against Government regulations:

Thousands of farmers and a fair number of their dogs descended on towns and cities across New Zealand yesterday to protest at increasing interference by the Government in their way of life.

From Kaitaia to Invercargill, convoys of tractors, farm vehicles, trucks and utes took part in the Howl of Protest event, organised by Groundswell New Zealand, against what they say are unworkable regulations and unjustified costs.

The protest was organised against policies like the Clean Car Discount, which will subsidise clean vehicles by charging fees on high-emissions vehicles.

Protesters were also anxious about the eventual pricing of agricultural emissions, which will happen by 2025 – a decade after agriculture was first slated to enter the Emissions Trading Scheme. . . .

Broken promise bad precedent

Labour doesn’t understand tax fundamentals:

Today we accepted a petition from Lindsay Calvi-Freeman signed by nearly 15,000 people. The petition calls for the Government to reverse their decision to remove tax deductibility of interest for landlords, National’s Shadow Treasurer Andrew Bayly and Housing spokesperson Nicola Willis say.

“Labour are misrepresenting interest deductibility by calling it a ‘tax loophole’. They make it seem underhanded and that is not fair to the thousands and thousands of mum and dad landlords who are entitled to deduct their costs from their revenue,” Mr Bayly says.

“This is a fundamental tax principle. New Zealanders should be able to trust that the Government will tax them on their profits. If costs cannot be claimed back, revenue is being taxed.”

There is no loophole. Interest is a legitimate cost of doing business regardless of what the business is. Singling out landlords in this way, breaks Labour’s pre-election no-more-taxes, no-tax-increases promise and sets a very bad precedent.

If the government can tax this legitimate cost, what other costs and businesses will it pick on next?

“This policy will be bad for tenants and landlords alike,” Ms Willis says.

“Ministers were warned by their officials that the changes to these tax laws could cause increased churn in the rental market, meaning there is a risk ‘that households may need to rely on transitional housing or emergency housing, special needs grants’, and that we could see an increase in ‘the numbers on the public housing register’.

Just like the new large vehicle tax, this will hit the poor hardest.

“Perhaps it is time this Government starts listening to the advice of officials and experts as they have proven themselves inept at delivering housing solutions.”

“We thank Lindsay Calvi-Freeman for bringing this petition to us. We wholeheartedly support this call to the Government and will continue to advocate on behalf of mum and dad landlords,” Mr Bayly says.

“The housing market needs rental properties and demonising landlords is unfair and counterproductive. They are selling a service like any small business and to punish them by removing interest deductions is a bizarre singling-out by the Government that does nothing to make house prices more affordable.”  

The government is attempting to paint landlords as villains but it’s the government that is being the baddy – breaking promises, distorting tax law and imposing costs that will feed through to rents and exacerbate the housing crisis.

Complicating tax won’t build houses

Norman Gemmell writes that New Zealand’s new housing policy is really just a new tax package:

Economists like to talk about “optimal policy instruments” – essentially, policies that achieve their objectives more effectively or efficiently than the alternatives, and have minimal unintended consequences.

Judged by those criteria, the New Zealand government’s recently announced package of housing policy instruments is a long way from optimal. You might even call it a shambles. . . 

The aim of the policy is fine, but like so many of this government’s policies, it has several unintended consequences which will almost certainly make matters worse.

Arguably, the primary target of this policy package is stopping the inexorable upward march of (mainly Auckland) house prices. Failing to achieve that would simply put it among a long line of attempts by previous governments (National and Labour) over the past 20 years at least.

In all cases, the biggest problem has been insufficient political commitment to boosting housing supply. . . 

And in spite of its supposed focus on wellbeing, reducing poverty and solving the housing crisis, this government is not tackling the root causes of too few new builds.

All taxes cause “distortions”, mostly unintended, which need to be mitigated. Furthermore, policies that have conflicting objectives are “incoherent” and typically among the most distorting. This applies to the housing package’s removal of interest deductibility. . . 

That wasn’t, as the government claimed, closing a loophole. It was treating landlords differently from every other business which can claim interest as a tax deductible expense.

Making matters worse is extending the bright line test to 10 years.

It would be rare to find a liability based on transactions and timing among the principles of a good tax policy. But the bright-line test manages both – it incentivises delaying property sales to avoid the tax even when selling would otherwise be in the taxpayer’s best interest.

It was originally introduced in 2010 with a two-year threshold, without supporting evidence, supposedly to stop so-called speculators from flipping properties for quick profits. A 10-year threshold cannot be branded an anti-speculation policy, it is simply a back-door CGT.

As with most back-door policies, this CGT is inevitably less transparent and coherent than a policy designed to tackle the problem head-on would be. . .

It might, as taxes can, contribute more to the government’s coffers but it won’t build more houses.

If there are better alternatives, they do not lie in even more ad hoc fiddling with a coherent tax regime.

Instead, like the famous real estate mantra of “location, location, location”, the mantra for New Zealand housing policy should be “supply, supply, supply”. Specifically, supply in Auckland.

Successive governments have aimed policies nationwide when rapid house price inflation is almost exclusively urban and essentially an Auckland phenomenon.

Without policies that reform construction sector regulations and open up more land for urban housing, there is little prospect of Auckland house prices stabilising while current demand-driven trends persist. To make matters worse, the government’s first-home buyer schemes will merely raise demand without incentivising supply.

With too many objectives and the probability of numerous unintended consequences, the government’s housing policies risk being seriously incoherent.

What would help are policies which make it easier, less expensive, and less time consuming for new builds.

Complicating the tax system won’t do that but it will  increase rents thus making life even harder for the poor and those already struggling to save enough for a deposit to buy their own homes.

Stop tax increases by stealth

National is seeking to stop tax increases by stealth:

National is committed to letting Kiwis keep more of what they earn and has proposed new legislation that will end tax hikes by stealth, Tauranga MP Simon Bridges says.

Mr Bridges’ Income Tax (Adjustment of Taxable Income Ranges) Amendment Bill, drawn from the Member’s Ballot today, will require tax thresholds to be adjusted every three years in line with the cost of living. This will mean that within a year, after every election, Treasury will advise the Government on how much the thresholds should be adjusted for inflation.

“This will stop New Zealanders moving into higher tax brackets even when their income isn’t keeping up with the rising cost of living, putting an end to inflation being an annual tax increase by stealth.

“New Zealanders will be able to keep more of what they earn, helping them stay on top of rising costs for necessities like petrol, rent and electricity.

“The Tax Working Group advised the Government that bracket creep could lead to as much as $1.7 billion in stealth tax increases in a given year. The Government is taking more than it needs, only to waste billions on bad spending.

If passed into law, this change will make a real difference, Mr Bridges says.

“It will mean Kiwis can keep more their own money in their own bank accounts,” Mr Bridges says.

“This law change shows how committed National is to helping New Zealanders get ahead.

“There is widespread agreement that bracket creep is a hidden tax increase on hard working New Zealanders, and I urge Finance Minister Grant Robertson to stop taxing Kiwis by stealth and wholeheartedly support this law change through all stages.”

The Taxpayers’ Union applauds the Bill:

. . . Union spokesman Louis Houlbrooke says, “From a taxpayer perspective, this is one of the most important private members’ bills we’ll see in our lifetime. For decades successive governments have exploited inflation to sneakily increase the average tax rates levied on New Zealanders. It’s a stealthy, dishonest tax hike that makes a liar of any politician who promises ‘no new taxes’.”

The Taxpayers’ Union has campaigned against bracket creep since 2016. In a submission to the Tax Working Group, the Union highlighted bracket creep as the ‘under-arm bowling of our tax system’, explaining: Inflation sees taxpayers’ nominal incomes, but not real incomes, increase. Because income tax thresholds are fixed, taxpayers face a higher proportion of their income lost to income tax, without any corresponding increase to their real income.

“Take our 30 percent income tax rate. When it was introduced in 2010 for income over $70,000, that was the equivalent of $83,000 in today’s money. That meant only high earners were hit. But today, $70,000 is an unremarkable salary. It’s atrocious that middle-income New Zealanders are forced to give up 30 percent of any pay rise to the taxman.”

“Labour has no good reason to block this bill. They’ve already rushed through unannounced taxes on housing, so they don’t need extra revenue. In fact, under Bridges’s bill, the Minister of Finance could still veto bracket adjustments on a case by case basis. Of course, he’d have to explain himself to New Zealanders, but he shouldn’t be afraid of accountability.”

Having no good reason to block the bill might not be enough to stop Labour doing that.

But if it is serious about its quest for wellbeing and the need for kindness, it will do the right thing and back this bill to stop the stealthy tax increases by adjusting thresholds in line with inflation.

First they came for the landlords

Business NZ asks: will my sector be next?

BusinessNZ has warned a removal of tax deductibility on interest payments for residential property has other sectors worried whether they will be targeted, likening it to the uncertainty created by the 2018 oil and gas ban.

Kirk Hope, chief executive of the influential lobby group, also accused the Government of being “misleading” in the way it is describing the issue as a “loophole”, because in all other sectors of the economy business expenses are tax deductible.

Defenders of this policy change have tried to justify it by saying home owners don’t get a deduction for the interest they pay.

There’s a reason for that, they aren’t businesses and that difference applies across the board.

It’s just like farms or racing stables being able to claim vet bills as legitimate business expenses but no-one can claim a deduction for vet bills for their pets.

Hope said the move had clear and significant implications for property investors, but now people were left wondering whether it affected other parts of the economy and was likely to see investment decisions paused.

“They’ve removed deductibility [of interest payments] from this group of people. Would that happen for a different sector for a different purpose, in terms of businesses being able to deduct particular types of businesses expenses? 

Now the government has opened the door, what else might they shove through it?

“There are certainly going to be some people thinking about how they make investments, and it will have a stalling effect; there’s no doubt about it,” Hope said.

“The last thing we need right now is probably a stalling in business investment because of a decision made around housing.”

Investors would be worried about whether deductibility more generally was being targeted by the Government, given the lack of signalling on the issue.

“If there are other areas they really need to be upfront about that. There’s no doubt they should have signalled it in advance. It’s a really substantial change.”. . 

It’s a change to tax policy, it’s not as the government claims, closing a loophole.

Tax expert Robin Oliver, a former deputy commissioner at the IRD, described the Government’s move on interest payments by landlords as “out there”.

Oliver, who sat on the Government’s tax working group in the last term said he could not think of an example of a sector being unable to deduct an expense which was available to all other sectors of the economy.

It would amount to “a massive tax penalty on renting out property,” he said.

“You’re taxed on income that you don’t actually have, because your profit is your income minus your expenses, but they just ignore the expenses part,” Oliver said.

“You could have almost no profit, maybe a loss, but you still have to fork out thousands of dollars to the IRD. It’s not an income tax, it’s just a penalty.” . . 

It’s a penalty that will push up rents, hitting the poor the hardest and making it harder still for renters to save for a deposit to buy their own homes.

Bryce Wilkinson explains why the policy is shambolic:

Suppose you have an apple orchard. You hire labour to pick and pack your apples. You sell each box of apples for $40. You deduct labour costs of $30 and earn a profit of $10. After paying tax at 33 cents in the dollar, you have $6.70 per box to live on.

Now the Government announces that it is rushing legislation through Parliament to remove what it calls the wage deductibility tax “loophole”. After this Friday, anyone buying your business will pay tax at 33 cents on the dollar on the $40 per box revenue.

This raises the “income tax” on the business from $3.30 to $13.20. Costs now exceed revenue by $3.20 a box. You no longer have a buyer for your business. Worse, in four years, you will be in the same tax situation. Your business will be bust. Your workers will have to find other work or go on welfare. Your former customers will have to do without apples.

The government is pleased you are gone. Orchardists are speculators; they are hoping that the market value of their business will rise. Speculation is bad. Speculators should be driven from the apple market.

Does this sound far-fetched? Not if you are a landlord. This week the Government closed the “interest deductibility loophole” in rental housing for new investors, effective from this Saturday. For existing investors, it is being closed over four years. The Government explained that it wants to remove incentives for speculators, equating them with investors. . . 

He lists what’s wrong with the policy:

First, an income tax should tax income (ie profits), not revenue. Income is what is left of revenue after all business-related expenses have been paid. The apple orchard case illustrates why it is wrong to tax revenue. If there is little or no after-tax profit, there is no business.

In the extreme, if landlords cannot make an after-tax profit, there will be no houses to rent. Those who cannot afford to buy a house are at the mercy of the only remaining landlord – the government. Former East Germans have experienced that situation. . . 

Second, how can it be that landlords are speculators, but owner-occupiers are not? How many recent home buyers paying high prices have not been expecting prices to go even higher? Why discriminate against rental accommodation?

Third, the tax system was already seriously biased against the supply of private rental housing. Owner-occupiers do not pay any tax on the income they receive in the form of forgone rental payments. . . 

Fourth, speculation is a symptom, not a cause. The Reserve Bank has lowered interest rates and flooded the banking system with liquidity to an unprecedented degree. It has jawboned the banks to lend more freely since Covid-19. These actions must have boosted house prices. Imprudent borrowing is the only game in town, with the Government leading by example. . . 

Perhaps the worst aspect is the signal that the Government cares so little for sound income tax principles or prior public debate or scrutiny. If interest deductibility can be wilfully declared a tax loophole, what category of business expense is not a tax loophole?

This tax change will do nothing at all to address the cause of the housing crisis – a shortage of supply that has several causes, not lest of which is the long, slow and expensive consenting process which didn’t even get a mention in this week’s announcements.

It will also worry other businesses. Now the government has made landlords a special class by preventing them deducting interest costs from their income as all other businesses do, there’s very real fears over what other legitimate costs they might declare loopholes.

There is no good time for this sort of anti-investment tax policy and doing it when the country is in recession makes it worse.

If more tax is the answer . . .

Sigh:

The Treasury says the Government will need to raise taxes to keep providing health and education services, which are becoming more expensive by the year.

It also warned that house prices will continue to rise for some time yet.

The department’s briefing to returning Finance Minister Grant Robertson said the Government’s books weren’t sustainable thanks to rocketing public service costs.

The Treasury warned that the Government’s finances would be “unsustainable in the medium term if the costs of public services continue to increase at historical rates”.

That is unless tax revenue was “increased as a share of the economy”. . . 

If more tax is the answer, have they asked the right questions?

A business faced with this scenario would take a very careful look at every cent it spent, cut out luxuries and reassess exactly what were necessities.

This is what National did when it led the government through the GFC.

Can anyone point to any time since Labour was elected in 2017 where it so much as hinted at doing anything like that?

Despite its warnings about spending, the Treasury warned that the scale of the Covid-19 crisis was so big that in the short term the Government needed to spend more to stimulate the economy.

“At present, the risks of fiscal policy doing too little outweigh the costs of it doing too much,” it said.

The Treasury said carrying higher debt was the right thing to do as it would keep unemployment low and improve people’s wellbeing.

“Too little support will result in more job losses, firm closures and a permanently poorer economy.

“While the economy remains weak, higher debt from expansionary fiscal policy is likely to be welfare-improving, if expenditure is temporary, targeted and timely.” . . 

Temporary, targeted and timely are very important qualifiers.

When so much is being borrowed it is absolutely essential to ensure every cent is spent wisely.

Now more than ever the government should be focusing on the quality of its spending and doing every thing it can to reduce the burden of debt and repayment that future governments and taxpayers will face.

In doing so it should be mindful of Winston Churchill’s observation:  We content that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.

Stick to your word

The Taxpayer’s Union is calling on Grant Robertson to keep his word :

The New Zealand Taxpayers’ Union has today launched its ‘Stick to Your Word’ campaign calling on Grant Robertson to keep his promise made six weeks ago not to touch the bright line test.

Union Campaigns Manager, Louis Houlbrooke, said: “Despite promising prior to the election not to change any taxes beyond what was in Labour’s election policy, Robertson is now asking Treasury for advice on an extension of the ‘bright-line’ test.”

“Extending the bright line test is effectively imposing a nasty capital gains tax – at a rate of up to 39% – for property owners who sell within ten years.”

“Taxing houses will not make them more affordable. What it will do is hammer people who need to cash out of property for personal reasons. It would reduce liquidity in the market, and could even incentivise politicians to drive up house prices further in order to reap tax revenue from the capital gain.”

“If the Government decides it’s okay to break its tax promises, it won’t stop at the bright line test. A Green Party-style asset tax or even a Michael Cullen-style capital gains tax could be back on the agenda. That’s why we’ve set up a tool for New Zealanders to tell Grant Robertson to keep his promises.”

The campaign advert can be viewed here .

New Zealanders are encouraged to write a postcard to Mr Robertson via the website StickToYourWord.nz

 

More debt or higher taxes?

Labour policy is offering voters two bad choices:

Labour’s inability to control their spending means they will either drown New Zealand in a sea of debt or burden hardworking New Zealanders with higher taxes, National’s Finance spokesperson Paul Goldsmith says.

“Labour have a track record of failing to control their spending. When they came to office they said they would spend an additional $1.9 billion in Budget 2019. In actual fact, they blew their Budget and ended up spending an extra $3.8 billion.

“That one failure alone means Government debt will be more than $20 billion higher by 2030. That is irresponsible and reckless.

“A Government that can’t control its spending will inevitably come after New Zealanders for more tax.

“The choice under Labour is clear: higher taxes to pay for all of the uncontrolled spending, or an economy that drowns in a sea of debt.

The sensible course for individuals and businesses facing tough financial times,  is to look at what’s essential and what’s not. Governments should do the same.

There hasn’t been a single sign from this government, or the election policies of the parties forming it, that recognise that let alone plan to do it.

“There is a better alternative.

“National will take a more disciplined approach to Government spending. We will eliminate waste such as Fees Free and KiwiBuild, we will be more careful with new spending each year, and we will put a halt to nice-to-have spending such as contributions to the NZ Super Fund.

“Our plan will restore debt to 36 per cent of GDP by 2034, compared to 48 per cent under Labour. And we will balance the budget and return to surplus by 2028 compared to never ending deficits under Labour.

“Future generations do not deserve to inherit an economy crippled with higher debt and higher taxes because Labour can’t control its spending.

“We need to stop the waste, stimulate the economy with short term tax relief, and trust Kiwis to grow their businesses and create jobs.”

This government wasn’t able to deliver most of its pledges from the last election when it had surpluses and before Covid-19 struck.

Why would anyone trust them to do it now debt is high and growing and while Covid-19 is still very much part of the problem?