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?

Leaving us with more

National is promising tax cuts to help us through the Covid crisis:

National’s massive tax stimulus package will put more than $3000 extra into the pockets of hard-working Kiwis on middle incomes, National Party Leader Judith Collins says.

You can read a copy of National’s Economic & Fiscal Plan here.

Ms Collins has announced the next National Government will let Kiwis keep more of what they earn by lifting the bottom tax threshold from $14,000 to $20,000, the middle threshold from $48,000 to $64,000 and the top threshold from $70,000 to $90,000.

These changes will be in place from December 1, 2020 until March 31, 2022. The total cost of this over the 16-month period is estimated to be $4.7 billion.

“Today we are facing the biggest economic downturn the world has seen since in living memory. But with the right leadership and economic plan we can grow our economy and keep Kiwis in jobs,” Ms Collins says.

“To keep our economy ticking, New Zealanders need money to spend. National will deliver temporary tax relief that puts more than $3000 – or nearly $50 a week – into the back pockets of average earners over the next 16 months.

“This will give Kiwis the confidence to go out and spend, which will be crucial for our retail, tourism and hospitality businesses to survive this economic crisis.

“New Zealand is facing a much longer and more painful economic shock than earlier forecast. We need a serious plan for economic growth to get us back on track.”

National’s Finance spokesperson Paul Goldsmith pointed to higher taxes as Labour’s only plan to get New Zealand out of this economic hole.

“No country has ever taxed its way out of a recession – and this is a big one we’re in now.”

As well as tax relief for households, National will double the depreciation rate for businesses that invest in new Plant, Equipment and Machinery over the next twelve months. This will bring forward the amount a business can claim in depreciation for new investments, which will stimulate investment by increasing the return on capital.

Doubling the depreciation rate is expected to cost $430 million a year for five years, while increasing tax revenues in out years.

“Our stimulus package has been fully-funded and costed, and is included in our independently reviewed Economic and Fiscal Plan released today,” Mr Goldsmith says.

“National’s plan carefully balances the need to drive economic stimulus, increase investment in core public services and restore government debt back to prudent levels.

“Labour, on the other hand, has announced it will increase taxes during a recession. The contrasting approaches to the economy at this election could not be clearer.

“Judith Collins and her strong National team will bring the leadership, experience and vision needed to get our country back on track.”

You can read a copy of National’s Economic & Fiscal Plan here.

You can view a copy of National’s Personal Tax Relief Policy here.

You can view a copy of National’s Double Depreciation Rate Policy here.

🚨 #BREAKING @JudithCollinsMP announces huge economic stimulus programme of tax cuts. See more here: https://t.co/2lmHuZlYUm pic.twitter.com/tuWpcig9qR

— NZ National Party (@NZNationalParty) September 17, 2020

David Farrar has worked out what the tax cuts mean for different income levels and conclude:

This provides New Zealanders with a real choice – a Government that will help people through the tough times by temporarily reducing taxes, or a Government that will increase taxes.

If you’re not sure which would be better, ask yourself who would make better use of the money you earn – you or the government?

If you’re still not sure, think about what’s more efficient, letting us keep a bit more of what we earn and giving us the choice about how, and how much we spend, or having the government take more and absorbing some of that in the bureaucracy before the rest can be spent and only then dribble through the economy?

Fiddling while country burns

Labour’s following its base instinct with its tax policy:

No country in the world has ever taxed itself out of recession, but Labour’s first instinct is to raise your taxes, National’s Finance spokesperson Paul Goldsmith says.

“Today Grant Robertson wouldn’t say if his tax policy is a bottom line in any coalition negotiations with the Greens, leaving the door wide open for other tax increases.

“If Grant Robertson is true to his word, then he will make no other tax increases a bottom line.

“This is just the beginning. Labour will eventually widen the net and come after middle income earners.

“Labour has predictably gone back to old habits after the failure of its Capital Gains tax this term.

“It opens a door for tax avoidance that we haven’t seen for many years, which brings into question Grant Robertson’s revenue estimates.

“National won’t increase taxes and won’t introduce any new taxes.”

Labour’s plan is to impose a new top marginal tax rate of 39% on income earned over $180,000.

It says it will bring in $550 million a year.

It won’t.

Instead it will create work for accountants and lawyers as people find ways to get round it.

Even if it did, it would be a tiny contribution to the public coffers in contrast to the billions that are being borrowed.

We don’t need fiddling with tax rates while the country burns with debt.

We need plans for economic growth which is the only way to put out the fire.

No indexation = tax increase

Labour’s wrong on tax – again:

The New Zealand Taxpayers’ Union is slamming the claim by Labour Party finance spokesman Grant Robertson that the National Party’s policy to index tax brackets to inflation is a “tax cut”.

Taxpayers’ Union Executive Director Jordan Williams says, “It’s dishonest to frame indexation – adjusting income tax thresholds to inflation – as a ‘tax cut’, like Mr Robertson did today.”

“Adjusting tax brackets so that people are not artificially pushed into paying higher marginal tax rates isn’t cutting tax. By definition, it’s keeping the rate of tax paid the same.”

“Mr Robertson is trying to cloud the issue so he’s not held to account for the dishonest way he, and successive Ministers of Finance, have increased tax by stealth through wage inflation. It’s a shame he is choosing to be so misleading about tax at a time many households are facing fiscal crisis.”

Adjusting tax thresholds to account for inflation is not a tax cut but failing to do so pushes people into a higher bracket  and subjects them to paying more which is in effect a tax increase.

Given Labour’s big spending plan with borrowed money is not matched by plans to reduce spending anywhere, encourage growth nor to repay the debt it will almost certainly increase some taxes.

Even if it does nothing more, by refusing to index brackets to inflation it will be increasing tax for everyone who is pushed into a higher threshold.

Need to get NZ working

National has a plan to get New Zealand working:

National Party Leader Todd Muller has revealed the framework for the party’s Plan to create more jobs and a better economy.

At a speech to the Christchurch Employers’ Chamber of Commerce today, Mr Muller outlined the five elements of National’s Plan.

“All the components of the framework are designed to grow our economy and create more jobs,” Mr Muller says.

“The framework comprises five components: responsible economic management; delivering infrastructure; reskilling and retraining our workforce; a greener, smarter future; and building stronger communities.

“National will be releasing each of these components in a series of major speeches through this month and into early August to give New Zealanders time to scrutinise each element.”

The full plan will not be finalised until after the Government releases the Pre-Election Economic and Fiscal Update (PREFU) in August. It will be available by September 2 when overseas voting begins, to be followed by early voting, which starts on September 5.

It’s sensible to await the PREFU and good to know the timetable.

“National has a plan to rebuild our communities, get Kiwis back to work and deal with the economic and jobs crisis,” Mr Muller says.

“With Labour not having anything to offer except ‘borrow, spend and tax’, National understands that responsible government is about creating a deliberate and considered plan – and then following it.” 

Labour and its coalition partners are very good at spending but bad at good spending. In focusing on the quantity of the spend they forget the importance of the quality.

They are also very good at announcements although as Jane Clifton points out, a lot of these policies aren’t shovel-ready, many are only press release ready:

In the full speech here,  Todd outlines National’s commitment to:

• An open and competitive economy;
• A broad-based, low-rate tax system;
• An independent central bank with the primary goal of price stability;
• The Fiscal Responsibility Act, now part of the Public Finance Act; and
• A flexible labour market, underpinned since 2000 by good faith.

Our concern is that that basic macroeconomic framework is being diluted by the current Government – mainly through incompetence than the result of any plan. . .

Jacinda Ardern has admitted her party wasn’t prepared for government and it shows in all the over-promising and under-delivering before Covid-19 hit.

That failure to deliver then was bad enough, it is even worse now with their determination to borrow so much which is likely to deliver far more debt without the financial rigour necessary to ensure the quality of the spend and determination to get back to surplus as soon as possible.

Todd says National won’t panic.

Nor will National cut family incomes. National has already announced that, whatever lies ahead of us through the crisis, we will not raise the taxes you pay or cut the benefits paid to those who need help. We would like Labour to make the same commitment to New Zealand families too.

Nevertheless, National will work to keep borrowing as low as possible. Out of the $80 billion plus they spend each year, all governments have wasteful spending that needs to be trimmed. All finance ministers review all spending each time they bring together a Budget. And we will do the same.

Since the Fiscal Responsibility Act, the economic and political debate in New Zealand has tended to be on the quantity of borrowing or debt repayment each year. These remain critically important. Getting back to fiscal surplus and then paying down debt to 20 per cent of GDP is necessary, not least because New Zealand will inevitably confront another natural, economic or health disaster in the next couple of decades or beyond. But just as important is to focus on the quality of spending.

Labour forecasts net core debt will reach 53.6 per cent of GDP in 2024 under their policies. That’s an eye-wateringly high level. We will work hard to try to keep it lower than that, which would put New Zealand in a better position to recover. But of far greater longer-term importance is that Labour projects that under its policies, but with a far stronger economic environment than we face today, net core debt will still be as high as 42 per cent by 2034. That means Labour intends a mere 11 per cent reduction in net core debt, over a decade. At that rate, we will not get back to the safe 20 per cent mark until perhaps the mid-2050s.

National does not regard Labour’s attitude as anything like prudent. It would leave an enormous debt, not so much to our children but to our grandchildren. And it would leave our children and grandchildren – and also ourselves – profoundly vulnerable were the global economic and strategic outlook anything other blissful for three successive decades. . . .

We learn two lessons from Labour’s economic and fiscal projections and their refusal to rule out higher taxes. First, they don’t have anything to offer except borrow, spend, hope and then tax. Second, and even more important, they don’t think any of their borrowing and spending will actually do anything useful to improve New Zealand’s productivity, economy or the overall wellbeing of every one of us.

I’m not hiding that my Government will borrow large amounts over the next three years, and in 2020/21 in particular. National will always be more disciplined in its spending than Labour. Yes, we will borrow what we need to, to support New Zealanders through the crisis – neither more nor less. But we will not just fling money around, the way the Labour Party is. Instead, we promise to spend it better and invest it better than Labour, in a way that does in fact improve New Zealand’s productivity, economy, the overall wellbeing of every one of us, and which, in turn, makes it easier to pay the debt off. . . .

Labour and its coalition partners have been flinging money round since they got into government.

National went out of office with the government’s books in surplus and forecasts of that to continue.

Even before Covid-19 hit, this government was taking us back to deficit.

If it couldn’t manage the economy well in reasonable times, it can’t be trusted to do it now we’re facing the worst of times.

That matters now more than ever.

It matters because we need a government that knows that taxing more in a recession is counter-productive – making it harder for people to look after themselves and making it harder for businesses to grow.

It matters because we need a government that understands that borrowing for hard times is only the start, it must also plan to pay back the debt, and have a plan that will work to do that.

It matters because we need a government that will get New Zealand working and the failures of this one to deliver on so many of its promises show we can’t trust it to do that.

Tax take vs tax rate

We have a choice.

We can vote for parties that want higher tax rates or for those that foster a higher tax take.

What’s the difference?

Higher tax rates are a hand brake on productivity and economic growth and, hard as it is for some to grasp, often lead to a lower tax take.

A higher tax take resulting from increased productivity and economic growth can, in time, lead to lower tax rates.

Higher tax rates are the equivalent of dividing up the same sized pie – some gain and some lose.

Higher productivity and economic growth, increase the size of the pie, and/or number of pies, providing more for everyone.

The bigger and/or more numerous the pies, the smaller the proportion of each slice that is needed for tax.

We have a choice.

We can vote for parties that want to take more or we can vote for parties that want to help us grow more.

 

We have a choice.

We can vote for parties that think they are better at spending our money than we are or for parties that leave us with more of what we earn.

Reds’ policy path to poverty

The Reds have announced an $8 billion tax grab:

The Green Party have unveiled a sweeping new welfare policy that would guarantee a weekly income of at least $325, paid for by a wealth tax on millionaires and two new income tax brackets on high-earners. . . 

The $325 after-tax payment would be paid to every adult not in fulltime paid work – including students, part-time workers, and the unemployed. The student allowance and Jobseekers benefit would be replaced. . . 

It would be topped up by $110 for sole parents, and the current best start payment would be expanded from $60 per child to $100 per child, and made universal for children up to three instead of two.

This guaranteed minimum income plan would cost $7.9b a year – roughly half what is spent on NZ Super, but almost twice what is spent on current working age benefits.

Paying for all this would be a wealth tax of one per cent on net wealth of over $1 million and two per cent for assets over $2 million. The party expects this would hit only the wealthiest 6 per cent of Kiwis.

This would take the form of an annual payment and would only apply to those who owned those assets outright – not someone who still had a mortgage on their million-dollar home, for example.

That looks like everyone could avoid the tax by never paying off their mortgage, but the party wouldn’t be that stupid, would it?

Any party that thinks up this sort of economic vandalism could be.

The Taxpayers’ Union is slamming the Green Party’s proposed wealth tax as bureaucratic economic vandalism that would hammer job creators.

Taxpayers’ Union spokesperson Jordan Williams says, “The proposed wealth tax would mean the return of the dreaded compulsory asset valuations that made a capital gains tax so unpopular. A bureaucratic valuation scheme would incentivise people to hide their wealth, or shift it offshore. It would be a dream for tax accountants but hell for small business owners.”

“The policy also appears not to differentiate between asset types.  It would tax entrepreneurs creating jobs the same as someone sitting on an art collection. Ultimately it would cost jobs at the very time New Zealanders need entrepreneurs to create them.”

“Wealthy iwi groups sitting on often unproductive land would also be smashed under this scheme.  It’s bumper sticker type policy which is poorly thought through.”

“Any party that says you should raise taxes in the middle of a recession is divorced from reality. It is scary that all the work James Shaw has done to try and make the Greens more economically credible appears to be for nothing.”

Commenting specifically on the Green Party’s income support policy, Mr Williams says, “Under the Greens’ policy, a family of five with both parents on the dole would receive $1180 a week in taxpayer funds, assuming one of the kids is younger than three. That goes beyond generosity: it is using taxpayer funds to encourage long-term unemployment. Combined with the policies to tax job creators, this package would take a sledgehammer to New Zealand’s productivity.”

There’s no good time to increase taxes and a recession is an even worse time.

Recovery from the economic carnage wrought by the Covid-19 response requires investment, expansion and increased employment opportunities.

This policy will be a handbrake on all of those and an accelerator for benefit dependency which is a pathway to increased poverty.

This policy is typical of a party that’s more red than green and doesn’t understand that a greener country has to be well and truly in the black and you don’t there by taxing more.

New Zealanders gained a glimpse today of what a Labour Greens government would look like, and it involves a lot more taxes, National’s Finance spokesperson, Paul Goldsmith, said today. . . 

At a time when we need our successful small business people to invest and create more jobs, the Greens want to tax them more.

Rather than celebrating Kiwis doing well, the Greens seem to want to punish them.

The Greens never have the influence to get their way entirely, but they would push a Labour Greens coalition in the direction of higher taxes.

Labour have so far refused to rule out taxing people more if they win the election.

The very real fear many New Zealanders have is that this current government, which has $20 billion available for election spending, will spend whatever it takes to try to keep its poll numbers up until the 19 September election.

Then on the 20th, if they win, the smiles will drop and New Zealanders will be presented with the bill – higher taxes.

National has committed to no new taxes for Kiwis in our first term.

While the economy is going down, the Greens want to tax us more, and Labour haven’t ruled out doing the same.

That’s another very good reason to vote for a National/Act government that will focus on policies which foster the economic growth necessary to provide a pathway for progress.

About that fuel tax

The Taxpayers’ Unions is calling on the government to scrap the increase in the fuel tax which is due to take effect next week.

Union spokesman Louis Houlbrooke says, “The Government justified its annual hikes to fuel tax on the basis of funding infrastructure projects – the biggest one being Auckland Light Rail.”

“Now that light rail is canned, there is no excuse for next week’s hike to fuel tax. In fact, during an economic recession, hiking a tax on productive travel would be madness.”

“If Phil Twyford forges ahead with his planned tax hike, it should be seen as nothing more than a cynical revenue grab.”

And what about the tax already taken?

With plans for light rail from Auckland CBD to the airport abandoned. Gull asks what happens to the 11.5 cent per litre and an estimated $150 million annual tax take from the Auckland Regional Fuels Tax?

Gull, New Zealand’s leading innovative energy retailer, today questioned what happens to the Auckland Regional Fuels Tax levied at 11.5 cents per litre including GST on each litre of petrol and diesel delivered into the Auckland area. This Tax introduced in July 2018 raises an estimated $150 million dollars per year and would be happily welcomed back into the wallets of stretched households and businesses.

If the $300 million Taken over the last two years hasn’t been spent on light rail, where has it gone?

Dave Bodger General Manager Gull New Zealand says “we support greater investment in public transport, but with one of the largest projects now reported in the media as abandoned what happens to the tax that was imposed on Aucklanders to help fund this infrastructure? In tough times is this an opportunity to halt the tax while there is no plan? To reduce the tax? If that is not on the cards, then can we have a plan as to where this significant slice of the motorist’s pay-packet is now being spent or planning to be spent? “

If a tax can be increased it can be decreased.

“All motorists are watching every dollar they spend and with a major economic slowdown looming, returning this into the economy would be a welcome relief for each family’s budget,” notes Bodger.

He continues “If the motorist has the opportunity to spend or save this money, people with better abilities than me and access to data could probably estimate how many jobs this type of stimulus boost may create. In our view Kiwis need every piece of help available right now. Can a change in this tax, that appears to be in the main not needed right now, be part of economic support packages? “

Fuel taxes are inflationary. They hit all goods and every service with a transport component, chief of which is food, and they hit the poorest hardest.

If a private business took money from a customer for a particular purpose and used it for another it would be guilty of misappropriation.

If the government continues to inflict the fuel tax for public transport when it’s major project has been canned it will be misappropriating money that every individual and business hit by the recession needs for their own purposed and to help with the recovery.

Taxing times

This is a very taxing time which is not the right time to increase tax:

National is calling on the Government to defer the 4c hike to petrol excise duty and road user charges scheduled for July 1 while its light rail project is on hold, Leader of the Opposition Simon Bridges says.

“Given the unprecedented economic pain this country is feeling because of Covid-19, the Government should give motorists a break rather than hitting them in the back pocket.

“The Government introduced three years of annual tax increases to pay for its beleaguered Auckland light rail pet project that has gone absolutely nowhere since Jacinda Ardern promised it on the 2017 campaign trail.

“Now that the Government has confirmed light rail is on hold while the Government deals with Covid-19, the tax grab scheduled for July 1 shouldn’t happen either.

We have been paying the extra tax for three years in which there has been no progress at all on the light rail project which was used as the reason for the extra tax..

“Kiwi motorists have already suffered enough under this Government. The tax hikes it has passed into law amount to a $1.7 billion tax grab, with Aucklanders the hardest hit because of their regional fuel tax.

“If the Government does not defer the July 1 petrol tax increase then it will be a clear signal that Labour’s plan to repay the massive debt it’s taking on is more tax.

“New Zealanders need to keep more of what they earn to cushion the blow of Covid-19. A National Government will repeal the Auckland Regional Fuel Tax and won’t increase fuel taxes in our first term.”

I filled my car with petrol on March 25th, a few hours before the lockdown was imposed. I didn’t have to fill it again until last Thursday and wondered as I did how big a hit the government had taken from less fuel used and therefore less fuel tax and GST.

Given the amount of tax levied on each litre it would have been significant.

The government will also be anticipating a lot less company tax and the most optimistic of forecasts are for big increases in unemployment which will result in less PAYE coming in and more benefit payments going out.

None of that is an excuse for another increase in fuel tax.

Almost all goods and services have a fuel cost component so an increase in fuel tax is an increase in production costs for just about everything. That is the last thing any business needs when so many are faced with the need to retrench at best.

An increase in fuel tax is also not what people need with recession a certainty and depression a probability.

It’s definitely not what the poor who will be hit hardest need.

Last week’s Budget had to feature a lot of borrowing but not nearly as much as it did.

It didn’t have a plan for helping the country out of the economic damage wrought by the lockdown and the government has given absolutely no indication it plans to be going through every single cent it spends to weed out the nice-to-haves nor does it appear to be asking any of its departments or ministries to make savings.

The alternative to that is more tax, a lot more tax.

The increase in fuel tax will just be the start.

 

 

Mixed messages

The government is introducing a bill it says could lead to a drop of up to 30 cents a litre in petrol prices.

But, as the Taxpayers’ Union keeps reminding us, around half the contributor to fuel prices is tax, including the one that is supposed to make us use less to reduce carbon emissions.

They’re sending mixed messages.

They’re talking out one side of their mouths by taxing us more to increase the price of fuel to encourage us to use less and then the talk from the other side is a threat to legislate to force  fuel companies to bring prices down because fuel is too expensive.

Rural round-up

Avocado trees killed in Far North orchard :

An avocado orchard in the Far North has been vandalised – alongside the words “water thieves” – in an apparent protest against water usage in the parched region.

Windbreaks have been slashed and graffitied, water pipes have been cut and about 20 trees have been killed over the Christmas period at Mapua Orchard, near Houhora.

Orchard manager Ian Broadhurst said it wasn’t the first time this had happened, but it was definitely the worst.

He said Mapua was part of a wider group of 17 orchards in the region that had applied to the Northland Regional Council for consents to draw water from the Aupōuri aquifer. . . 

Federated Farmers: Mycoplasma Boris tax hit unfair:

Federated Farmers is seeking Ministerial support for a change to tax legislation so farmers whose breeding stock are culled as part of the Mycoplasma bovis eradication effort are not disadvantaged by the tax regime.

“Currently farmers whose dairy or beef breeding cows are valued on their books under the National Standard Cost scheme and whose cattle are culled as part of the Mycoplasma bovis response will most likely end up with a hefty tax bill. This is not a fair outcome for affected farmers and we believe it’s an unintended consequence of the tax legislation,” Federated Farmers economics spokesperson Andrew Hoggard says. . .

Summer is back today! pic.twitter.com/hMmmyXYrIX

— ᖇOᗪ ᗰᑌᒪᒪIᑎ 🌱🐄🥛🥩 (@RodMullin) January 16, 2020

All work and no play for southern food producers – Jacqui Dean:

For most of us, the first days of the New Year are spent resting, reflecting and rueing the excesses of the Christmas period.

The ham on the bone is being whittled away, the recycling bin is housing a few too many empty bottles and we’re all hoping that someone else will take the initiative and tidy away the Christmas decorations for another year.

But for a great many people, the early weeks of January are all about work.

With Central Otago accounting for nearly 60 per cent of planted summer fruit orchards in New Zealand, it’s fair to say that all eyes are on this neck of the woods as the country hankers after its fresh produce. . . 

Native trees supply looks tight – Richard Rennie:

The nation’s Billion Trees target by 2028 might be missed by a quarter because of a lack of capacity and resources to meet it.

The goal includes having 200 million native trees planted by 2028. 

However, a survey commissioned by the Forests Ministry survey indicates only 160m native seedlings can be supplied by then. 

That is based on a sustainable growth rate of 7.5% a year for a sector that has had 12-15% growth for the past three years but that has been described unsustainable over any length of time. . . 

‘Unusable’ plastic sitting at Smart Environmental has future in fence posts –

Change is on the way for the classic Kiwi fencepost, with a new venture making them out of recycled plastic.

Future Post has joined forces with Smart Environmental’s Kopu site, collecting bales of recycling which will then be turned into fence posts.

The Smart Environmental plant services Thames-Coromandel, Hauraki, Matamata-Piako and Waipā, and Future Post is expecting to save around 15 tonnes of plastic a month.

“It means there’s a reasonable percentage of plastic now being reused; however, there’s still a hell of a lot that is unusable and still has no market,” Smart Environmental’s Waikato and BOP regional manager Layne Sefton said. . . 

It’s sunflower season again @FARarable and @pureoilnz high oleic crop pic.twitter.com/3UaBsGPU9Z

— Ivan Lawrie (@IvanLawrie_FAR) January 15, 2020

Food made from ‘bacterial dust’ is ‘ludicrous’, beef group says :

British beef producers have called a proposal to feed the population with synthetic lab food made from bacteria as ‘ludicrous’.

George Monbiot claimed in the recent documentary ‘Apocalypse Cow’ that conventional farming will end in 50 years time.

Instead of food produced from farms, the human diet will eventually rely on synthetic food made in laboratories, the environmental activist claimed in the show.

Monbiot visited a team of researchers in Finland who unveiled their process for food production – made out of bacteria and water. . .

Higher wages fewer jobs

The  increase in the minimum wage costs jobs:

Confirmation that the Government’s unbalanced minimum wage rise could cost 17,000 jobs and lump taxpayers with a $125 million bill is an alarm bell for small businesses, National’s Workplace Relations and Safety spokesperson Todd McClay says.

MBIE’s recently-released Minimum Wage Review 2019 reveals the Labour-led Government’s proposed change to $18.90 per hour on April 1 will cost the economy 6500 jobs and increase Government expenses by $62m a year, as well as drive up inflation.

Moving to a $20 an hour minimum wage by 2021, which the Government is proposing, could cost the economy 17,000 jobs and increase expenses by $125m a year.

“The minimum wage changes will see small businesses struggle more at a time when the Government should be supporting them, not working against them,” Mr McClay says.

“The Government is making it harder for small businesses to employ people, harder for them to invest in training and development, and harder for them to get ahead.

“These projections could prove to be much larger if our economy continues to slow and the labour market weakens, as it has already under the Labour-led Government.

“Everyone wants high wages for workers, which is why National increased the minimum wage every year in Government. But we believe the minimum wage should go up in a balanced way that doesn’t go too far, too fast.

Employers expect modest increases in the minimum wage but this government’s fast-tracking bigger increases is too much too quickly, at too high a cost.

“Hard-working Kiwis are already doing it tough because of the Labour-led Government’s poor policies, which are driving up the price of petrol, rent and other living costs.

“The best way to put more money in workers’ pockets is to let them keep more of what they earn. What good is raising the minimum wage if workers are being taxed to the eyeballs?”

Would tax cuts be better than increasing the minimum wage?

An orchard owner in Central Otago is rallying against minimum wage increases, arguing reducing the income tax of a portion of low-wage earners would help them more and do less harm to small businesses.

But a tax expert says it makes more sense to give low-wage earners more social support than to ‘‘tinker’’ with the tax system. . .

The business owner said she did not want to be named out of concern people might react angrily to her view the minimum wage should not be increased.

‘‘I’m all for people getting more money in their pocket.

‘‘The Government needs to look at how they can ensure lower-paid people get more in their wage packet, without damaging especially smaller companies.

‘‘What is the point of more money in a pay packet if the result of that is that it is going to cost jobs, and it gets swallowed up by higher prices for the basics, like fuel and electricity and rents and groceries?’’

Wage rises are a cost to business . If they’re not at least matched by a gain in profit businesses have to increase prices to compensate. That feeds into the economy and soon eats into any increase in pay. If people are paid more but have to pay more for goods and services they’re no better off, and if there are fewer jobs those who lose, or can’t get, a job are worse off.

She said she had a better idea of how to get more money to low-wage earners.

‘‘If they’re going to up wages all the time why don’t they bring the PAYE [rate] down?

‘‘Lower-paid people can have an immediate solid increase in their take-home packet.’’

If you follow the principle of less tax on things we want to encourage and more on things we don’t, tax cuts on wages is good. The trouble is most lower to middle income people pay little or no net tax.

Tax specialist and managing partner at Findex in Dunedin Scott Mason said he had a lot of sympathy for business owners struggling with the increasing cost of wages.

He agreed with the orchard owner the increase in minimum wages could lead to employers not hiring new staff.

‘‘They’ll defer taking an employee on for a longer period of time. Which then has a counterintuitive impact on the economy, accepting of course we’ve got pretty full employment at the moment.

But reducing the income tax low-wage earners paid was ‘‘tinkering with our overall tax settings’’.

‘‘The reality is those on minimum wage — when you take into account their tax rate and their social benefits — aren’t generally net taxpayers anyway.

‘‘We’re basically using the tax system, the people who are net taxpayers, to subsidise [low-wage earners] further.

‘‘It may or may not be right — it’s just a much wider debate is the point I’m making.’’

He said it would be a better idea to increase social welfare to help those more in need.

‘‘If you were going to use the tax system to do it, you’d be better off tinkering with the likes of Working for Families or those sorts of things rather than changing tax rates.

‘‘If you change the tax rate then it affects all taxpayers.’’

If you increase WFF it affects all taxpayers too because that’s who pays for it.

What we need is increased productivity and profits and a reduction in business taxes could help that.

That in turn could lead to sustainable growth in the economy which would, in time, lead to sustainable increases in wages.

That would be much better than wage increases by government decree which have nothing to do with the value of the work employees do, nothing to do with a businesses ability to pay that additional cost and a lot to do with job losses.

 

 

 

 

 

Mixed messages

The government is sending mixed messages on fuel prices.

It’s imposed a carbon tax as part of its climate change strategy while it’s also criticising fuel companies for charging too much.

In doing the latter they are conveniently ignoring the fact that nearly half of the cost of fuel at the pumps is tax.

The Government’s fuel hoax in one graph. (Credit to @MBIEgovtnz and @dbseymour) pic.twitter.com/XK4LjSKL5f

— Taxpayers' Union (@TaxpayersUnion) December 5, 2019

Fact check on tax

Some people think the tax rate and the tax take are linked so if the rate increases or decreases the take follows.

That isn’t always the case.

A cut in tax rates can lead to less effort put into avoidance so productivity improves, a cut can also lead to more spending and both feed into a higher tax take.

Some people think more is better when it comes to taking tax and spending it.

That isn’t always the case either.

The quality of the spend is often, maybe always, more important than the quantity.

Some people are confused about the relationship between tax and services. For example, Associate Health Minister Julie Ann Genter says tax cuts would come at the expense of the fight against measles.

Is she right?

Fact-checking @JulieAnneGenter's false claim that lower taxes cause measles. pic.twitter.com/OCzxy38B5u

— NZ National Party (@NZNationalParty) October 22, 2019

Too much of a good thing

The government has posted a $7.5 billion surplus:

The Government has unveiled a bumper $7.5 billion surplus and the lowest debt levels in almost a decade, the latest Crown accounts reveal.

That level of Government surplus has not been seen since at least 2008, just before New Zealand felt the full effect of the global financial crisis. . . 

It’s taking all that money yet failing to deliver on its promises.

Almost two years in and Labour has well and truly failed to deliver on its promises to Kiwis.

You can't trust Labour. pic.twitter.com/4XKyscQz1C

— NZ National Party (@NZNationalParty) October 8, 2019

Surpluses are good, but $7.5 billion looks like too much of a good thing.

The government is either taking too much, spending too little, or both.

National’s Economic Development spokesman Todd McLay says:

“The Government should be looking to stimulate the economy by letting New Zealanders keep more of what they earn.

“Instead, it has piled on more and more taxes to the point where Grant Robertson is sitting on a big surplus while those living outside Wellington’s beltway struggle with rising living costs.

“One of the reasons debt is lower than forecast is because the Government is failing to invest in the infrastructure New Zealand needs.

“It has cancelled or delayed a dozen major new roading projects right across the country and replaced them with projects that weren’t ready, and won’t be ready for some time yet.

This isn’t just taking more tax and doing less with it. Stalling new roading work risks a loss of skilled people who will head overseas if there’s a gap between current projects finishing and new ones starting.

“Meanwhile, the Government has been piling on taxes. It has legislated to milk an extra $1.7 billion from motorists through fuel tax hikes and extra GST, while its misguided housing policies have pushed up rents and burdened landlords with extra costs and regulation.

“National legislated for tax relief that would have put more than $1000 a year extra into the back pockets of New Zealanders. This Government cancelled that. 

“We will index tax thresholds to inflation so that New Zealanders aren’t taxed more by stealth every year because of the rising cost of living.”

Sound economic management requires much more than creating surpluses.

The government must take enough, but not too much, and it must scrutinise all its decisions to ensure its spending effectively and prudently.

The large surplus suggests the government could be investing more in infrastructure and filling some of the gaping holes in the health system.

It also shows it is taking far more than it needs and it could be leaving us all with a little more of our own money by way of tax cuts.