Govt can’t cope with CGT oppositon

March 8, 2019

The normal course of events for government working groups is to do the work, submit a report and leave what happens next to the politicians.

That this government feels the need to keep the chair of the Tax Working Group, Sir Michael Cullen, on at  $1000 a day to explain and defend the group’s recommendations is a sign the politicians don’t think they’re up to explaining and defending it themselves.

Paying a working group chair $1000 a day might be the going rate while he’s actually chairing for a day but continuing to pay him that to lobby is outrageous:

The Tax Working Group process has become blatantly politicised with the Government’s decision to pay Sir Michael Cullen to continue lobbying for a capital gains tax, says the New Zealand Taxpayers’ Union.

Taxpayers’ Union spokesman Louis Houlbrooke says, “The advertised purpose of the Tax Working Group was to deliver an expert-driven appraisal of the tax system along with a series of recommendations. That advice has now been received, but Sir Michael is still being paid over $1000 a day to argue for higher taxes. Funding for expert advice is one thing, but taxpayer-funded public campaigning is outrageous.”

“If the National Party set up a Steven Joyce led Working Group and paid Mr Joyce to get on radio and attack the Labour Party and advocate for lower taxes, the political left would rightly get up in arms. It’s the same principle here: expert advice should not be politicised at taxpayers’ expense.”

“Grassroots organisations like the Taxpayers’ Union campaign using voluntary donations. Proponents of the capital gains tax should try to do the same.” . . 

Paying Cullen is in effect a government vote of no-confidence in themselves and their ability.

Government MPs have had remarkable little to say on the TWG’s report, with the exception of James Shaw who asked if the government deserved to be re-elected if it didn’t introduce a capital gains tax (CGT).

That it needs to hire the group’s chair to speak for it, shows it doesn’t deserve to be re-elected anyway.


Rural round-up

February 28, 2019

Farmers tired of bearing blame – Hamish Walker:

Farmers are working hard on improving water quality and should be supported, writes Hamish Walker.

It’s all farmers’ fault didn’t you know?

Those fenced-off waterways, new sediment traps, wetlands, all the riparian plantings, not cultivating near waterways, strategically winter grazing and everything else farmers do on-farm to protect the environment, it’s still all their fault.

What is it, you ask?

Well, Fish & Game’s anti-farming crusade would have you believe it is the water quality issue, one solely caused by farmers. . . 

Farms firmly in taxman’s sights – Neal Wallace:

Agriculture will be firmly in the sights of the tax collector should the Government adopt the Tax Working Group suggestions, which propose a suite of environmental taxes and a broadened capital gains tax.

The group recommends including agriculture in a more tax-like emissions pricing scheme, introducing a nitrogen tax and taxing those who pollute and extract water, though it concedes establishing a mechanism to do that is problematic.

The report says more work is needed to develop tools to more accurately estimate diffuse water pollution and extraction but in lieu of such a system it recommends a general fertiliser tax. . . 

Applications open for Trans-Tasman agribusiness management programme :

Applications for the prestigious Rabobank Business Management Programmes have opened for 2019, with the Farm Managers Programme – the course for up-and-coming young farm leaders – returning to New Zealand for the first time in a decade.

Announcing the opening of applications for this year’s intake for the two residential programs – the Executive Development Programme (EDP) and the Farm Managers Programme (FMP), which are designed for progressive New Zealand and Australian farmers looking to take their businesses to the next level – Rabobank New Zealand chief executive Todd Charteris says it is fantastic news to have the Farm Managers Programme returning to Kiwis shores for the first time since it was last held in Christchurch in 2009.

Ahuwhenua finalists named:

The three finalists in this year’s Ahuwhenua Trophy for the top Māori sheep and beef farm have been announced.

They are Whangara Farms, Gisborne; Te Awahohonu Forest Trust – Gwavas Station, Tikokino near Hastings and Kiriroa Station – Eugene & Pania King, Motu, near Gisborne. . . 

Gold and silver found on conservation land in Coromandel – Gerald Piddock:

OceanaGold​ has discovered gold and silver buried under conservation land on the Coromandel Peninsula.

But a local environmental group has vowed to fight the multinational company every step of the way if it decides to mine the precious metals.

The discovery after exploratory drilling at Wharekirauponga, inland from the holiday resort town of Whangamatā lies near the Wharekirauponga Track in the Coromandel Forest Park, which is classed as Schedule 4 land. . . 

 

Farmers launch ‘Mission 4 Milk’ to help promote the white stuff

A new campaign has been launched by dairy farmers to promote the health benefits of milk to the public.

Mission 4 Milk is a campaign which sets to raise awareness about how milk can be part of a healthy lifestyle.

The campaign states: “With the rise of plant-based alternatives, the reduction of free milk in schools, and the shift away from milk marketing, the average shopper doesn’t know why they should drink milk.

“But cow’s milk is packed full of essential, natural vitamins and nutrients – many of which you won’t get anywhere else. It’s great for your bones, it’s great for your teeth, and perhaps most importantly – it’s great for your brain.”


What’s fair?

February 28, 2019

Definitions of fair include: treating people equally without favouritism or discrimination and: without cheating or trying to achieve unjust advantage.

By either of these definitions attempting to make the tax system fairer is doomed. To take a lot more from some people than from others in very similar circumstances is not fair.

There’s rarely a tax the left doesn’t like and it is particularly enamoured of capital gains tax.

A CGT might be fair in theory but as one of the three dissenters to the Tax working Group’s recommendations, Robin Oliver, said, he’s against it in practice.

There’s a strong argument for taxing capital gains, as you put it, in theory, the problem is the practicality and of making it work. . .

Kathryn Ryan asked him if, all things being equal and as a tax expert would it be good to do it and her replied:

In the actuality of what you have to do to get such a tax in place, no.

Oliver is a former deputy head of Inland Revenue, former Treasury advisor and an expert on the tax system whose views should be taken seriously.

He gave several examples in the interview of how the CGT as recommended would not only not be fair but would lead to perverse consequences including making it more attractive for foreigners to invest in New Zealand and for New Zealanders to invest overseas, and for people to hold on to assets and businesses when without the tax they would be better to sell them; and that it would have made little difference to the housing boom.

He also said that the current law on the bright line test has low compliance and we should make current rules work before starting to think of highly punitive  ones.

That would be fair.

 


What’s fair about this?

February 27, 2019

A comprehensive capital gains tax that was inflation indexed and set at a modest rate could be okay.

The CGT proposed by the Tax Working Group fails on all three points.

One of the motivations for contemplating a CGT at all is fairness.

But Liam Hehir gives some examples that show how what’s proposed is anything but fair:

John is a supermarket manager and Alice has a small business as an in-home childcare provider.

They deduct part of their mortgage interest and outgoings from her taxable income, which helps them make ends meet.

Because they do this, however, they will have to pay Cullen’s tax when they sell their home.

Justin and Dana also have a house and children. Dana has a well-paying job as a dentist, which enables Justin to be a stay-at-home dad.

They have no need to use any part of their home for business purposes so will reap capital gains on their home untouched by the Cullen’s tax.

Terry is an IT contractor who worked hard to get on the property ladder.

Because house prices are expensive, he needs rent paying flatmates. He dutifully includes the rent in his tax return and claims a deduction for expenses.

When he decides to move he will become liable to pay Cullen’s tax on part of the sale proceeds.

Nick has a master of fine arts degree. It hasn’t led to a well paying job, but he is lucky to be supported by a family trust fund.

This has enabled him to buy a house and a number of paintings, some of which have become valuable in their own right. Nick decides he wants to travel the world on a voyage of self-discovery. He sells his property and art and incurs no liability to pay Cullen’s tax. . .

He gives several other examples which show how arbitrary and unfair the CGT proposal is.

There are plenty more, for example: Sue and Sam are lower order sharemilkers who save enough to buy a block of land on which they graze young stock. They get the opportunity to go 50-50 sharemilking, would have to sell the land to buy cows. Having 33% taken off them for CGT wouldn’t leave them enough to buy the stock without taking out a sizeable loan.

Pam and Pete are lower order sharemilkers on her parents’ farm. They save enough to buy a small block of land on which they graze young stock. Her parents give them the opportunity to go 50-50 sharemilking and gift them the money to do it.

It’s not hard to think of many more examples where the CGT will stop people getting ahead and it would also be far-reaching.

Contrary to the Prime Minister’s assertion that a CGT would affect very few people it will hit a lot and David Farrar lists those who will have to pay.

The list of 20 is only those who will pay directly. It doesn’t include everyone who will be affected indirectly, which will be everyone who buys goods or services from any business i.e. everyone.

There would be small tax cuts but they wouldn’t go far once costs start rising because of the CGT.

Whether you call it fairness or politics of envy, the motivation behind the CGT is to reduce inequality but it won’t do that.

The wealthy will find ways to avoid it and even if they don’t would still have plenty left.

Middle income people will have a third of their modest savings and investments eaten by the tax and they, like the poor will be hurt further by rising prices.

The CGT as proposed will not reduce inequality. It will provide a perverse incentive to over-invest in owner-occupied homes and it will apply a hand brake to the risk taking, innovation and investment which promote economic growth which creates jobs and – the government’s new word of the moment – wellbeing.

 


Sunday soapbox

February 24, 2019

Sunday’s soapbox is yours to use as you will – within the bounds of decency and absence of defamation. You’re welcome to look back or forward, discuss issues of the moment, to pontificate, ponder or point us to something of interest, to educate, elucidate or entertain, amuse, bemuse or simply muse, but not abuse.

Image result for quotes tax

There can be no such thing as ‘fairness in taxation.’ Taxation is nothing but organized theft, and the concept of a ‘fair tax’ is therefore every bit as absurd as that of ‘fair theft.’ – Murray Rothbard

 


Better taxes

February 23, 2019

Better taxes are simple taxes.

The Tax Working Group’s capital gains tax proposal is complicated with all the costs and opportunities for avoidance that go with complications.

Better taxes encourage what we need more of.

The TGW’s CTG proposal would tax savings and investment.

Better taxes discourage what we want less of.

The TGW’s CTG exempts the family home which would encourage even greater investment in housing.

Better taxes reward hard work, thrift and delayed gratification.

The TGW’s CTG would tax businesses and exempt art, cars and yachts.

The TGW’s CTG is a bad tax.

 


More than a CGT

February 22, 2019

The proposed capital gains tax (CGT) has got most of the attention, but worryingly there’s more, including the proposal of a water tax that would affect everyone:

IrrigationNZ says a proposed nationwide water tax would affect all Kiwis, and there needs to be more discussion about how this would impact households, farmers and businesses.

“The Tax Working Party has recommended the government consider introducing a water tax on all types of water use including hydro-generation, household use and commercial water use,” says Nicky Hyslop, IrrigationNZ Chair.

“This would result in higher power and food prices for households and businesses and higher rates bills to pay for the irrigation of parks and reserves as well as direct water tax on household and business water use.”

An increase in the cost of production inevitably leads to an increase in the cost of what’s produced.

The working party is proposing that the water tax could be used to fund the restoration of waterways.

“While we all want to see cleaner rivers, often the solutions to improving rivers require people to change their existing practices both on farm and to prevent urban wastewater discharges into rivers. Just allocating money will not be the most effective solution,” says Mrs Hyslop.

This was proposed before the last election and was rightly criticised for taxing the good to clean up after the bad.

“We need to think about whether a water tax is equitable as water use varies hugely across regions based on rainfall. For example a Christchurch resident uses an average of 146,700 litres of water per year, while the average for a New Zealander is 82,800. Someone living in Christchurch would pay nearly twice as much in a water tax as someone living elsewhere and would also pay more in rates because in a dryer climate the Council will use more water to irrigate their local parks. Is taxing dryer regions such as Canterbury, Otago, Hawke’s Bay and Marlborough more heavily with a water tax a fair way to fund river restoration nationwide?”

Mrs Hyslop says there are similar equity issues for farmers and growers.

“Some regions receive a significant amount of rainfall and farmers don’t need to use irrigation. Central Otago receives less than half the rainfall of Auckland, so farmers and growers rely on irrigation to grow stonefruit, wine and for pastoral farming to provide feed for animals. Only 7% of farmers use irrigation nationwide – why are those farmers being targeted to pay a tax which 93% of farmers won’t pay when there are many regions which have very poor waterways but little use of irrigation?”

Generally waterways with more irrigation are cleaner than those with less or none.

Mrs Hyslop says that a water tax on hydro-electric power generation would also add to power bills for households and businesses and this tax doesn’t make sense at a time when the government wants to encourage the use of renewable energy to meet climate change targets.

The poor already struggle to pay their power bills, why make it worse for no environmental gain?

“Currently a number of regions are suffering from very dry conditions and we need to be developing more water storage as climate change is predicted to bring more frequent droughts in the future,” she adds.

“We disagree with the suggestion in the report that introducing a water tax will encourage greater investment in water storage. If you look at the most recently approved water storage project – the Waimea Dam – a price increase for the dam construction nearly resulted in it not being built. Introducing a new tax on water use will add to be long-term costs of this and similar projects and make them less viable and less likely to be built. We really need more investment in these projects to ensure we have enough water to supply our growing population and get through more frequent future droughts.”

“We also have concerns that farmers and growers in many regions may face significant water tax costs in excess of $10,000 a year which will make it more difficult to fund the environmental improvements we all want to see to improve waterways,” she says.

“The report discusses how a water tax will encourage more efficient water use. There are already a number of existing incentives that encourage efficient water use including electricity costs and regulatory nutrient limit rules which require farmers to only use water when needed. The biggest improvements in water use efficiency come from modernising irrigation systems.Farmers and irrigation schemes have already invested $1.7 billion to modernise their systems since 2011, resulting in significant improvements in water efficiency. Introducing a major new tax will reduce farmers ability to replace an older irrigation system with a more water efficient model.” 

The capital gains and water taxes aren’t the only monsters unleashed by the TWG .

The Tax Working Group has gone much further than a Capital Gains Tax with a raft of new taxes targeting hard-working New Zealanders, National Leader Simon Bridges says.

There are eight new taxes including; an agriculture tax, a tax on empty residential land, a water tax, a fertiliser tax, an environmental footprint tax, a natural capital enhancement tax, a waste levy and a Capital Gains Tax.

“This is an attack on the Kiwi way of life. This would hit every New Zealander with a Kiwi Saver, shares, investment property, a small business, a lifestyle block, a bach or even an empty section,” Mr Bridges says.

“For farmers, who are the backbone of our economy, this is a declaration of war on their businesses and way of life. They would pay to water their stock, feed their crops and even when they sell up for retirement.

“Labour claims this is about fairness, but that’s rubbish. The CGT would apply to small business owners like the local plumber, but not to investors with a multi-million dollar art collection or a super yacht who won’t pay a cent more.

“The TWG has recommended one of the highest rates of Capital Gains Tax in the world. The Government would reap $8.3 billion extra in its first five years from ordinary Kiwis – small business owners, farmers, investors, bach and lifestyle block owners. After 10 years it would be taking $6 billion a year from Kiwis.

“It will lead to boom times for tax lawyers and accountants and even Iwi advisers, given recommendations for exclusions that include Māori land in multiple ownership.

“We believe New Zealanders already pay enough tax and the Government should be looking at tax relief, not taking even more out of the pockets of New Zealand families.

“National says no to new taxes. We would repeal a Capital Gains Tax, index tax thresholds to the cost of living and let Kiwis keep more of what they earn.”

The government keeps trying to counter the accusation it’s not a good economic manager.

Introducing new and higher taxes is not the way to do it.

It should be aiming for higher quality spending not more spending and reducing the burden of tax to allow us all to keep more of our own money.

 


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