CGT deliberately harsh so won’t be implemented?

21/02/2019

The Taxpayers’ Union says the Tax Working Group’s recommendation for a capital gains tax is one of the most aggressive in the world.

Sir Michael’s group was supposed to deliver ‘fairness’. Instead, he’s given something Kiwi taxpayers should fear.

In our recent report, we outlined Five Rules for a Fair Capital Gains Tax, but any notion of fairness has been flagrantly disregarded by the Working Group. It fails most of our tests.

As expected, the Group is proposing a full-scale capital gains tax, among other measures such as environmental taxes.

The only assets excluded from the proposed capital gains tax are small family homes and art – commercial property, businesses, publicly listed shares, and every other type of enterprise will be slammed by this tax:

    • Capital gains will be charged at 33% for the majority of taxpayers – one of the most punitive capital gains tax regimes in the world, and more than twice the rate proposed by the Labour Party at the 2011 and 2014 elections.  
    • There will be no inflation adjustment – even paper gains will be hoovered up by IRD.
    • Revenue neutrality only applies for the first five years: while the group proposes changes to income tax thresholds (see below) most of the revenue from a capital gains tax is forecast to be collected after five years — after ‘revenue neutrality’ has expired.
    • ‘Valuation Day’ is imminent: taxpayers will be forced to value their assets within five years, or must rely on rough and ready evaluations (such as rateable value for land).  

Even though the Government explicitly ruled out taxing the family home, properties larger than 4500m2 will in fact be taxed. The message to regional New Zealand is that their lifestyle blocks, farms, and semi-rural properties don’t deserve the protection given to Wellington and Auckland penthouses and townhouses.

Iwi-owned businesses will pay a discounted rate (17.5 percent, compared to 33 percent for other businesses).

In short, the proposal is as bad as we could have feared.

It is a costly, bureaucratic, and seemingly envy-driven tax grab. It threatens New Zealand’s prosperity, drives up housing costs, and punishes responsible investors.

You can read the Tax Working Group’s final report here.

Proposed sweetener with changes to income tax appear to be spin rather than substantive

While the Working Group supports adjusting the bottom tax threshold, they propose coupling this with an increase in the second tax rate from 17.5% to 20.5% to increase ‘progressivity’.

From an economic incentive perspective, this is a terrible move. Even though many taxpayers will receive a small tax cut, middle-income earners would face a higher marginal tax rate on additional earnings, which reduces the incentive to take on more hours, skill-up, or take-on extra responsibility at work.

45.6 percent of earners fall within the second tax bracket, hundreds of thousands of earners could be affected by this distortion in incentives – the cumulative economic effect would be massive. . . 

What government in its right mind would introduce a tax to fear rather than a fair tax, one that is costly, bureaucratic, and seemingly envy-driven and a disincentive to savings and investment?

If I was a conspiracy theorist I’d say the TWG has deliberately made it too harsh so that it would be political suicide to introduce it, but that’s probably just wishful thinking.


CGT gets it back to front

21/02/2019

If there’s such a good thing as a good tax, it’s one that discourages things we don’t want and encourages things we do.

That’s where the Tax Working Group was handicapped from the start when the government ruled out any CGT on the family home.

A CGT hasn’t had any impact on keeping house prices down in other countries, but if, as we’re constantly told New Zealander’s over-invest in their houses, taxing other capital gains and leaving houses alone will only make matters worse.

We’re also told, with good reason, that New Zealand lacks savings and investments. Why then would a government introduce a tax which disincentives them?

If has been widely forecast the Tax Working group’s report recommends a CGT on savings, investment and businesses and not on family homes, it will be getting the tax the bad more and the good less rule back to front.

It will almost certainly get a lot more wrong.

The Taxpayer’s Union provided five rules for a CGT:

To be fair, a new capital gains tax must abide by the following:

  1. No Valuation Day: Any capital gains tax regime should exclude a valuation day approach in favour of grandfathering assets into the system upon sale, as was the case in Australia when it introduced a capital gains tax.
  2. Indexation for Inflation: Any capital gains tax regime must discount for inflation, so taxpayers are taxed only on their real capital gains, rather than nominal gains.
  3. Revenue Neutrality: Given the Government’s surpluses, any revenue from a capital gains tax must be used to fund tax cuts in other areas so that the total tax burden does not increase overall.
  4. Roll-Over Relief: Tax should be paid only on sale – not death. Further, there should be roll-over relief when capital raised from a sale is then immediately invested in the same asset class.
  5. Discounted Rate: Any capital gains tax should apply at a discounted rate, instead of at the full personal income tax rate, to avoid New Zealand having one of the highest capital gains tax rates in the world.

The TU has also provided 19 details to look out for in the recommendation for a CGT:

Details to look out for include:

  • Rollover relief:
    • will the capital gains tax apply on death or just on sale of an asset;
    • will the tax apply if capital is simply being recycled within the same asset class (selling a smaller farm to purchase a larger farm, for example)?
  • The rate:
    • will there will be a discounted or lower rate, like in Canada, Australia, the United Kingdom, or the United States?
  • Revenue neutrality:
    • will the revenue be offset with tax cuts;
    • if so, who will receive them;
    • will revenue neutrality be maintained in the medium-to-long term as CGT revenue grows?
  • Family home exemption:
    • will there be exemption exclusions for large properties (will lifestyle blocks be subject to the tax?);
    • will there be a ‘maximum value’ for the family home;
    • how much tax will be payable if there is an exemption exclusion?
  • ‘Valuation Day’:
    • will asset owners be required to value their property and businesses;
    • if so, will it be at their expense, or will the general taxpayer be required to pay;
    • if the general taxpayer is required to pay, what will be the estimated cost of ‘V-Day’;
    • how much time will taxpayers have to obtain asset valuations;
    • if valuations are not obtained, will other ‘default valuations’ be used?
  • Exemptions:
    • are there any sectoral exemptions (e.g. racing, fisheries);
    • will Maori authorities pay capital gains tax, if so, at what rate;
    • how are vehicles, boats, antiques etc. treated?
  • Trusts:
    • at what rate are trusts taxed;
    • will they be taxed on accrued or realised gains?

Fairness, which is the supposed motivation for introducing a CGT, is very much a matter of opinion but if the proposals from the TWG don’t meet the five rules, it will be anything but fair and do more harm by disincentivising savings and investment.

 


What’s fair?

14/02/2019

The government and many of the groups supporting it put a lot of emphasis on fairness, but what’s fair?

National policy is to adjust tax brackets to take account of inflation which Professor Norman Gemmell, chair in public finance at Victoria University, says is only fair:

 Tax economists have long advocated that keeping income tax thresholds constant in real terms (by adjusting them upwards as prices rise) should be the norm. But this indexation is much less important for tax on wages than it is for tax on capital gains – a crucial point in the current climate. . . 

Capital income, such as capital gains from house sales or interest payments on bank accounts, are much more vulnerable to this “indexation problem”.

Consider a simple capital gain example. If house prices rise by 5 per cent but “general” inflation is 2 per cent, the real capital gain for homeowners is 3 per cent, not 5 per cent. Now suppose that a 33 per cent tax rate payer buys a bach for $100,000 and sells it one year later for $105,000. The CGT liability on the sale is $660, due to the general inflation of 2 per cent, plus $990 for the additional house price increase (the “real” gain).

So the extra tax levied on the inflation component is a whopping two-thirds as big as the “real” tax liability (or 40 per cent of the total). In other words, with a CGT, failing to allow for general inflation means a huge additional tax bill.

What does this all mean for the TWG advice and a Government concerned with “fairness”? First, adopting National’s indexing of income tax thresholds would be a good idea, and not just for transparency reasons. It is the fair thing to do for taxpayers right across the income scale, who otherwise pay more tax simply because prices have risen.

Also, if the Government decides to go ahead with a CGT, designing out the “inflation problem” is much more important, due to the size of the tax distortion it creates. It is also important for fairness.

Otherwise, what superficially looks like the same tax rate being applied to all income actually means that the effective tax rate on capital gains (and interest income) is much higher than the same rate on income earned as wages. 

Surely that’s not fair?

Even if a CGT is inflation indexed, would it be fair?

Only if you’re a socialist who think that people who work hard, pay the costs and take the risks,  forgo personal spending, to save and invest, and pay taxes on earnings from that work, savings and investment should then be taxed again.

A CTG is a classic envy tax, aiming to bring middle and upper income people down down rather than helping the poor up.

Is it fair that the government is looking at raising more tax rather than letting people keep more of their own money?

Leighton Smith shows a better way:

 . . . the Swiss government must get approval from its voters by virtue of referendum to give themselves a pay rise or change tax rates. In 1975, the voters declined a government request for a tax increase. A prominent Swiss citizen, responding to a question of what happens next, replied “the government will have to live on what it has, like the rest of us.” But it doesn’t stop there. The Swiss have a separation of powers between taxing and spending, in the belief that temptation to overspend is omnipresent. Unfortunately, we in New Zealand could be returning to the ideology of the politics of envy. The introduction of any tax policy that enriches the accounting industry is bad policy. . . 

A government that keeps telling us its a good economic manager should not need more tax, in fact the reverse is true.

Healthy surpluses are a clear sign it’s already taking too much for us. There is no need for new taxes, and certainly not one that would benefit tax accountants and lawyers most.

Better taxes are simpler taxes. A CTG would be complicated and in spite of the aim of fairness which is behind the motivation for its introduction, would not be fair.

 

 


Taxing questions

11/02/2019

What wasIRD thinking?

The taxman is researching the public’s views on globalisation and fairness in the tax system. Questions had included where respondents sit on the political spectrum, prompting questions of whether taxpayers are funding sensitive political polling. . .

After days of defending the research, Inland Revenue conceded on Saturday night that it was wrong to ask the political question.

“We should not have included the question about political spectrum,” group head of communications and marketing Andrew Stott said, adding that the department would not include the question in its research.

Inland Revenue was forced to reveal details of the $125,000 research project it is undertaking with polling company Colmar Brunton, after repeatedly playing down its significance. . .

A tweeter who was polled said she was also asked how much she trusts Air New Zealand and Fonterra and if large companies are paying their fair share.

IRD has admitted it was wrong to ask about political affiliation. Are questions about trusting two businesses and whether large companies are paying their fair share any better?

What relevance would that have to IRD’s business? Why would views on these matters matter to it?

IRD should be concentrating on policy and advice and leave politics and spin to the politicians.

 

 

 


Labour pains National delivers

31/01/2019

The National Party will put an end to tax bracket creep:

A National Government would link income tax brackets to inflation, ensuring income taxes are adjusted every three years in line with the cost of living and allowing New Zealanders to keep more of what they earn, National Leader Simon Bridges says.

“New Zealanders’ incomes are struggling to keep up with the rising cost of living because this Government is imposing more red tape and taxes,” Mr Bridges said in his State of the Nation speech in Christchurch today.

“Over the next four years, New Zealanders will be paying almost $10,000 more per household in tax than they would have been under National. The Government is taking more than it needs, only to waste billions on bad spending.

“On top of that, by 2022 New Zealanders on the average wage will move into the top tax bracket. That’s not right or fair. So in our first term National will fix that by indexing tax thresholds to inflation.

“We will amend the Income Tax Act so tax thresholds are adjusted every three years in line with the cost of living. That 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 would prevent New Zealanders from moving into higher tax brackets even when their income isn’t keeping up with the rising cost of living. It would ensure New Zealanders keep more of what they earn to stay on top of rising costs of living such as higher prices for necessities like petrol, rent and electricity.

“We will include a veto clause so the Government of the day can withhold the changes in the rare circumstances there is good reason to. But it will have to explain that decision to New Zealanders.

It would take a very serious change in economic health, or a very stupid government, to do that.

“The changes would make a real difference. Assuming inflation of 2 per cent, someone on the average wage would be $430 a year better off after the first adjustment, $900 after the second and $1,400 after the third.

“A family with two earners – for example, one earning $80,000 and the other $40,000 – would be $600 better off a year after the first adjustment, about $1,300 after the second and $1,900 by the third.

“That’s more of their own money in their own bank accounts.

“The first adjustment would prevent Kiwis from paying an extra $650 million a year in tax based on today’s estimates. We can afford that by managing the books prudently and spending wisely.

“We will also do more on tax – but add no new taxes – and I’ll continue talking about our plans between now and next year’s election.

“National is committed to helping New Zealanders get ahead. This step means that as well as cancelling new taxes this Government has piled on, we won’t allow future governments to use inflation as an annual tax increase by stealth.” 

This is a very positive start to the political year from National and a stark contrast to Labour’s which featured what amounts to an admission of failure on their flagship policy:

KiwiBuild’s “interim” targets for this electoral term have been scrapped as the Government recalibrates the programme.

Prime Minister Jacinda Ardern and Housing Minister Phil Twyford told media from their caucus retreat on Wednesday that their commitment to building 100,000 affordable homes over the next decade remains intact, but the interim targets for this term did not.

The Government has been dealing with the fallout from an admission by Twyford that the Government would not be able build 1000 of the homes by July 1, its first interim target. Instead it expects to build just 300.

The KiwiBuild policy aims to build 100,000 affordable homes for first-home buyers over 10 years, half of them in Auckland. . . 

They expect us to believe they can build 100,000 affordable homes in a decade when they can’t build 300 in the first year?

Labour is planning to waste money on houses for a relatively few people earning well above the average income. National has committed to letting people keep a bit more of their own money.

It gives voters a very clear choice – Labour pains over housing or National delivering clear policy to end bracket creep.

 

 


Minister mincing words on meat tax

30/01/2019

Climate change and health zealotry have merged in a call to ban meat:

A report by The Lancet Commission on Obesity, released on Monday, said a tax on red meat was an example of the urgent action needed to address the greatest threats “to human and planetary health” – obesity, under-nutrition and climate change.  . . 

The idea that a tax on red meat will reduce obesity is ludicrous.

Lean protein, of which red meat is a good source, plays a very important role in a healthy diet. It has a low glycemic index so satisfies for longer and therefore helps in helping people eat less over all.

A meat tax will increase the price, forcing people to look for cheaper alternatives which will have less nutritional value, more calories per gram and be less satisfying.

It will do the opposite of what the Commission wants – contribute to both obesity and under nutrition.

Associate Minister of Health Julie Anne Genter​ said the Government did not plan to tax red meat “at this stage”, but an increase in awareness about climate change was affecting people’s behaviour. 

No plan to tax ‘at this stage’? That’s mincing words when she needs to put a steak stake in the ground for the sake of people’s health and our trade in red meat which not only helps finance first-world necessities, it helps feed the world.

This point is well made by National’s Agriculture spokesman, Nathan Guy:

“The red meat sector is worth around $9 billion of exports. Over 25,000 New Zealanders are employed and will be horrified the Government is not ruling out taxing the red meat industry.  . . “

Our red meat production has one of the lowest environmental footprints in the world.

Even the UK Department for the Environment, Food and Rural Affairs admitted in a report which found Kiwi lamb is reared at such a low intensity that, even after shipping, it uses less energy.

Genter should be championing our chops, not casting the shadow of yet another virtue signaling tax over our food and farms.


Tax cuts could cut strikes

17/01/2019

The Taxpayers’ Union has a simple way to reduce strikes:

Implementing tax relief would relieve the pressure of low take-home pay and resolve much of the current industrial action, says the New Zealand Taxpayers’ Union.

Taxpayers’ Union Executive Director Jordan Williams says “It’s understandable that junior doctors and the Wellington bus drivers feel under pressure – no Government has delivered a tax cut since the 2010 Budget. If the Government delivered tax cuts, take-home pay would increase and workers would feel welcome reprieve.”

“Tax cuts would help all workers. The Taxpayers’ Union is calling on our union allies to help back collective action for tax cuts. Acting together, the union movement could put pressure on the Government to boost pay for everyone and end the pressure of industrial action on our heath and transport sectors.”

The Government surplus is running ahead of forecasts which means it’s taking more tax than it needs.

Tax cuts would boost take home pay for workers and increase pensions which are based on after-tax income.

The government should be letting us all keep more of our own money.

It should throw out whatever suggestions the Tax Working Group has for introducing any new taxes – especially a Capital Gains Tax.

It should end wasteful spending.

And if it can’t bring itself to cut taxes, at the very least t should increase tax thresholds so modest pay rises don’t push people into higher tax brackets.

 

 


Govt should look in mirror

04/12/2018

Fuel prices are coming down which ought to be good news for the government.

But as they drop, the percentage we pay in tax gets higher which only reinforces the knowledge that the government’s impost is too high.

It has confirmed that it’s ordering a market study into the retail fuel market.

This will be an expensive exercise and the Taxpayers’ Unions says the government could save the money by looking into a mirror, not the market:

Taxpayers’ Union spokesman Louis Houlbrooke says, “The recent spike, and now drop, in petrol prices shows that the market’s influence on petrol price varies. What is constant, however, is the Government’s fuel tax, which makes up close to 50 per cent of current prices.”

“The Government’s conspicuous hand-wringing over the conduct on petrol companies looks like an attempt to distract from its ongoing tax revenue grab – set to escalate with further petrol tax hikes in 2019 and 2020.”

“The Prime Minister is playing loose with the truth when she says tax revenue goes straight into improving our roads. Her Government has pursued a strategy of raiding excise tax revenues to fund projects motorists don’t use – like trams and cycleways.”

This last point is particularly galling.

High fuel taxes spent on roads would be a form of user-pays which is  a a bit less difficult to swallow than higher fuel taxes for public transport and cycleways.

High fuel prices flow on to the cost of all goods and every service for individuals and businesses.

They also impact on not for profit organisations that provide social services and hit the poorest hardest.

If the government was serious about reducing poverty, it would acknowledge the high cost of fuel is one of the biggest contributing factors and the part tax plays in that.

Reducing, or at least not increasing, fuel taxes would be a simple way to reduce the cost of living and therefore help the people it purports to want to get out of poverty.

 


CGT & death tax by stealth

29/11/2018

The Tax Working Group wants a Capital Gains Tax:

The Tax Working Group has reached a consensus on introducing a capital gains tax, but it is not supported by all members of the working group, chairman Sir Michael Cullen has revealed.

“We have got to the point where we have a central package around the extension of capital income tax which is supported by a clear majority of the 10-person working group,” he said. . . 

I am not opposed to a CGT per se, but to be fair and efficient it must be comprehensive and replace other taxes. This one is likely to fail on both of those counts.

If it’s not comprehensive it will be expensive to administer and full of loopholes making it ripe for avoidance.

If it doesn’t replace other taxes it will be placing an even greater burden on individuals and businesses and act as an even stronger hand brake on productivity.

Cullen said the working group had discussed an alternative option of an inheritance tax, despite an instruction from Finance Minister Grant Robertson that should be off the table.

“We are not supposed to be looking at inheritance taxes but a majority of my colleagues on the tax working group appear to have a found a partial way around that,” he said. . . 

National finance spokesperson Amy Adams says:

“The Government already takes about $50,000 a year in tax from the average New Zealand household and has worked quickly to increase that burden with more taxes on everything from fuel to residential property.

“A Capital Gains Tax will see New Zealanders pay more tax on their small businesses, baches and investments and are known to be very difficult and expensive to apply. . . 

“National believes extra taxes that hit New Zealanders in the back pocket are wrong. If the Government cut down on its wasteful and poorly target expenditure we wouldn’t need any more tax. National are committed to repealing any capital gains tax brought in by this Government.”

On top of a CGT, there’s also the threat of a death tax by stealth:

If the Tax Working Group recommends an inheritance tax in all-but-name, the Government should declare it dead-on-arrival, says the New Zealand Taxpayers’ Union in response to comments made by Sir Michael Cullen in Wellington today.

Taxpayers’ Union spokesman Louis Houlbrooke says, “The Government ruled an inheritance tax out of scope in the Tax Working Group’s Terms of Reference, but Sir Michael Cullen says a majority of the Group has found a way to include it. Warping a capital gains tax to implement a death tax by stealth would be a betrayal of those terms.”

“Taxpayers were told the role of the Working Group was to modernise the tax system. It’s actual task appears to be preparing the country for an ideological tax grab.”

One of the TGW’s aims was to make the tax system fairer.

A CTG which isn’t comprehensive and a death tax by stealth will do the opposite.

But perhaps the mention of the death tax is merely a diversion to take attention away from the CTG.

 


Why not less tax?

27/11/2018

The Tax Working Group is trying to find out ways to make tax more fair.

Imposing not just a Capital Gains Tax but the costs of complying with it on individuals and business is anything but fair and, as Hamish Rutherford shows, the attempt by the group’s chair Sir Michael Cullen to shut down discussion in it makes it worse.

. . .After a critic raised concerns of the implications of proposals in the working group’s interim report, Cullen was dismissive.

Critics should wait for the tax working group’s final report in February, he said. The interim report may be the only thing the public has to work off, but Cullen said that the Tax Working Group’s own work had moved on and all the problems are being solved.

This Kafkaesque shutdown came after Wellington businessman Troy Bowker made alarming claims about the possible costs introducing a tax would have on small business, predicting the cost of compliance would be billions of dollars.

Bowker claimed the tax working group’s preferred method for introducing the tax – creating a “valuation day” after which all assets captured by a new tax would immediately be taxable – would create huge compliance costs, with all businesses needing to be professionally valued on a given day.

Valuing things like commercial property is as easy as valuing your home – just look up the rateable value. But valuing businesses, especially small businesses, can be much harder. Much is tied up in the knowledge and contacts of the key employees, which is tough to put a price on.

Although Bowker’s assessment of the possible costs was guesswork, the tax working group’s own interim report appears to back up his argument. . . 

While the exact cost might be debatable, that there will be a cost and it will be high is not and nor is who will pay it – everyone directly or indirectly.

Anything that adds to the cost of doing business and reduces profit, as a CGT will, decreases productivity. That in turn makes the businesses less able to expand and could lead it to contract, threatening jobs and the businesses’ viability. Should the businesses survive, the added cost will sooner or later be passed on, at least in part, to everyone who uses the goods or services that business provides.

Meanwhile, the question that ought to be asked, is what’s fair about more and higher taxes when the government is running a very healthy surplus?

The previous government took the quality of its spending very seriously aiming for better rather than more.

This government is sprinkling money here and there like fairy dust in the mistaken belief that quantity is better than quality.

There is a case for more spending in some areas where spending was too constrained but there is no case of profligacy with public money.

A government with money to waste is a government that’s taxing us too much.

More care about how and on what money is spent would reduce waste and allow us all to keep a bit more of the money we earn.

Instead of looking at ways to impose new and more tax, the TWG ought to be working out how to tax us less.

 


Bridges talks tax – less and lower

26/11/2018

Simon Bridges is talking tax – less and lower while increasing funding for core services:

His commitment is to prioritise good outcomes over good intentions.

While the government has a working party to look at how to tax us more, National provides a very clear commitment to let us keep more of the money we earn.


Petrol pain pressures policy on hoof

25/10/2018

The pressure from the pain of petrol prices has forced a government backdown:

National Party Leader Simon Bridges has welcomed the Prime Minister’s forced backdown on her regional fuel taxes, and called on her to overturn her excise increases and remove the regional fuel tax imposed on Aucklanders.

“After pressure from the National Party over her Government’s decision to impose more and more new taxes on record petrol prices the Prime Minister has today finally backed down and ruled out rolling the regional fuel tax out beyond Auckland while she is Prime Minister.

“This is in spite of her Government introducing legislation which would have enabled the 11.5 cent per litre regional fuel tax to be rolled out around the country from 2021. It has already been imposed on Aucklanders.

“Fourteen other councils had already started discussions with the Government saying they wanted the tax and will be surprised to hear about the Prime Minister’s backdown today.

“Her Transport Minister was also be surprised at his Prime Minister’s unilateral decision. This was forced policy made up on the hoof by a Prime Minister under pressure over her disregard for the costs her Government is imposing on New Zealanders.

Policy on the hoof is becoming a habit. This time it’s doing the right thing but it’s not a good way to govern.

“New Zealanders will be relieved. These taxes on top of record petrol prices are hitting them hard and pricing them out of their cars yet this Government was blindly forging ahead with new taxes because it can’t get its spending under control.

“The Prime Minister needs to go further, do the right thing and throw her numerous new taxes out completely. She should remove the regional fuel tax from Auckland as well as her first four cent national excise tax increase, and pledge not to impose any more new taxes.”

 She can cast blame on fuel companies but nearly half the cost of a litre of petrol is tax.

It was bad enough when all the money collected was spent on roads, it’s much worse now some is being spent on cycleways and public transport most of us will never use.


Value for tax $s isn’t partisan

22/10/2018

The Taxpayers’ Union is encouraging people to celebrate Labour Day by joining them:

 The Union’s Executive Director, Jordan Williams, says, “With the events of the last seven days seeing the Opposition distracted, and the Government using the opportunity to rule out tax relief for New Zealand workers, external pressure groups fighting to hold the Government to account are as important as ever.”

We are using this important day to step-up our efforts fighting for Lower Taxes, Less Waste, and More Transparency.”

Tax is by far the largest cost imposed on New Zealand workers and their families. Every dollar wasted by politicians and bureaucrats is one less for the hard working taxpayer who earned it.”

The Taxpayers’ Union relies on support by its members and subscribed supporters to fund its work. Becoming a supporter is free, with membership from as little as $5 at http://www.taxpayers.org.nz/join.

The NZTU is often described in the media as right wing it’s not, and working for lower taxes, less waste and more transparency is not politically partisan.

I don’t buy into the line that parties on the right of the political spectrum don’t care about the poor but parties on the left purport to champion them.

The poor have most to gain from lower taxes and less wasteful, more transparent governments.

Wealthy people don’t like higher taxes but they don’t have to worry about every dollar the way poor people do and every dollar taken in tax and wasted by government misspending is a dollar they need more.

The NZTU was launched when National was in power and held it to account. It is continuing to hold this government to account and that brings benefits to us all.

I joined the NZTU when it was launched and continue to support it as the only organisation that seeks to ensure better value for taxpayers’ money.


Taxing too far

19/10/2018

The petrol tank was around a quarter full when I stopped for more fuel.

It cost more than $100.

As I paid I said to the woman serving me, “I’m pleased this doesn’t mean I can’t buy the groceries, it must be hard for a lot of people.”

She agreed, said her children were on the minimum wage and one sometimes had to toss up between fuel for the car to get to work and food for her family.

That is now the reality for too many people.

The government can cast blame on fuel companies but it has to take some responsibility.

The extra taxes it has already introduced and the additional tax in the pipeline makes the government’s share of the price we pay at the pump too big a proportion of the total cost.

Just like tobacco tax, the extra fuel tax (and GST on top of it) is taking tax too far.

It’s not just that people are now having to toss up between fuel and food, it’s compounded by the inflationary impact of fuel tax because all goods and every service have a fuel component. The extra taxes are making that fuel too expensive and inflating the cost of everything else.

That doesn’t just impact on households and businesses. It is over-stretching budgets for hospitals, schools and the myriad providers of social services, whether or not they are not-for-profit.

The politicians’ encouragement for people to use public transport more doesn’t help these organisations.

They can’t get their supplies delivered by foot, cycle or bus and their staff can’t use those modes of transport to carry out their work.

They’re not an option for many people on shift work nor for anyone who  lives or works too far from bus routes.

When you live in the country you can do your best to minimise the times you need to go somewhere, but some travel is necessary and that requires driving your own vehicle.

When the government has a $5 billion surplus – even if big-cost items in this year’s Budget aren’t included in it – it shouldn’t be introducing any extra taxes.

It should be having a very careful look at its spending, taking a very sharp knife to every excess, and not just forgetting any more fuel tax, it must remove the extra it’s already imposed.

 

 

 


Two taxes missing

13/10/2018

On Monday Jacinda Ardern told us fuel companies were fleecing us.

Yesterday we learned two taxes were missing from her numbers:

Prime Minister Jacinda Ardern’s calculation of how much extra tax Kiwis are paying at the petrol pump on Monday did not include the recent excise tax or Auckland’s Regional Fuel tax.

National Leader Simon Bridges said the Prime Minister has got this “badly wrong,” and has made a “staggering mistake.”

But a spokesman for the Prime Minister said her comments were “based on the most accurate information Ministry of Business, Innovation and Employment (MBIE) had compiled at that time.” . . 

Between October 27, 2017 and September 28 this year, petrol prices have risen 39c, according to MBIE data – Ardern said just 6.8c of that increase was due to “taxes and levies.”

That 6.8c increase is made up of a 1.77c increase in Emissions Trading Scheme (EST) taxes and 5.04c of GST over the same period, MBIE data shows.

But the 10c a litre Auckland Regional Fuel Tax and 3.5c a litre fuel excise tax, introduced on September 30, were not included in the “taxes and levies” side of Ardern’s equation. 

What’s worse: a Ministry that doesn’t know what almost every motorist could have told them, or a Prime Minister and staff who don’t ensure the numbers are right, which means right up to date?

 


Who’s fleecing us?

10/10/2018

Jacinda Ardern reckons fuel companies are fleecing us.

The Motor Trade Association says that isn’t so:

. . . MTA Chief Executive Craig Pomare says the biggest influences on prices at the pump are the landed refined price of petrol and diesel, taxes and the value of the NZ dollar against the USA dollar.

“Competition also has a big effect in New Zealand. It is well recognised that the deregulation of the market and the emergence of Gull, and other smaller independents such as Challenge and G.A.S. have affected prices in the areas where they operate. So too has the widespread use of discounting.”

Mr Pomare says the independent fuel retailers have minimal control over their daily pump prices.

“Most of these small businesses have contracts with the oil companies which give them very little wriggle room when it comes to setting their pump price.

“We take issue with the Prime Minister for suggesting that service stations, or oil companies are ‘fleecing’ motorists. Last year’s review of pricing by MBIE found no evidence of this. Like others in the sector, and the public, we support a further detailed market study to give us all more information on pricing structures.”

He says if the Government is seriously concerned, there is plenty of precedent for reviewing fuel taxes and either lowering them, or holding off on further increases.

Michael Barnett, chair of the Auckland Business Chamber has no doubt where the blame lies:

The tipping point for fuel consumers has been the blunt and ineffective fuel taxes imposed by local and central government. The margins identified by media today are less than most retailers would seek and have not changed.

It is worth noting:

• The major fuel companies welcome the proposed investigation from the Commerce Commission

• Of the 1,500 service stations in New Zealand, over 1200 are mum and dad running their small businesses, employing people and trying to make a profit. They deserve a return on the risk

• There are 20% more fuel providers than 5 years ago – does this signal a lack of competition?

The currency and additional Government taxes have created a price point consumers find unacceptable.

Consumers don’t only find the price unacceptable, Many also find it unaffordable.

The National Party has called for the tax increases to be dropped.

The Government should axe its fuel tax increases to provide immediate relief to motorists, Opposition Leader Simon Bridges says.

“Instead, the Prime Minister’s response to record high fuel prices is to announce yet another inquiry.

“She’s saying consumers are being ‘fleeced’ while her Government is driving up fuel prices and taking hundreds of dollars from Kiwi households through higher taxes on fuel.

“The inquiry will take months and any resulting changes could be years away. Meanwhile New Zealanders are paying record prices for petrol and the Government is collecting hundreds of millions of extra tax from them.

“Unlike petrol, talk is cheap. And the Government is a big part of the reason why petrol prices are so high.

“The importer margin, the profit petrol companies make on every litre of fuel sold and which the Prime Minister wants more information on, is 31 cents per litre and around the same as it was last year. The amount the Government makes is $1.25 – and that keeps increasing.

“The average New Zealand household is now paying $200 a year more in petrol taxes than this time last year, with Auckland families paying $324 extra as a result of higher petrol prices and this Government’s decision to hike fuel taxes. It’s pricing Kiwis out of their cars.

“There are a number of other reasons behind record petrol prices and National supports another look at the practices of fuel companies, something we also looked at in Government, but the Government should also be looking in the mirror.

“While the Government passes new legislation and waits for yet another report it should provide immediate relief to motorists by putting a stop to its relentless imposition of new taxes.”

The Taxpayers’ Union agrees:

Taxpayers’ Union Economicts Joe Ascroft says “When the Government was legislating for fuel tax hikes, we argued that these taxes punish hard-working families – especially those that live in the city-fringe and are forced to commute for work. The Government should back the call from the Opposition and provide much-needed relief to family motorists who are struggling.”

“Now that National has called for fuel tax repeal, it must meet that commitment if it goes back into Government in 2020, 2023, or later. It’s easy to argue for tax cuts in opposition, but walking-the-talk in Government is much harder. The Taxpayers’ Union will be watching closely
.”

Who is fleecing us?

The government that is taking nearly half the price of fuel in tax and worsening the pain by spending the increases not on roads but public transport and cycle ways most of us will never use.


$2.63 and rising

08/10/2018

Is this the most expensive petrol in the country?

Regular petrol in Wanaka yesterday cost $2.639, premium was more than $3 and diesel was $1.999.

The lower value of the New Zealand dollar is contributing to the rising price, but so too is the government’s new fuel tax.

It’s supposed to be levied only in Auckland but it’s appears to be spreading throughout the country.

And whether or not the tax is spreading north and south of Auckland, the pain of higher fuel prices is being felt nationwide.

All goods and services have a transport component, when the price of fuel increases, it put pressures on every single thing that is transported.

And the virtue signalling about the environment is cold comfort for those of us who will rarely if ever use Auckland’s public transport and have no public transport available locally.

This will be a tax too far for many people.

A government that talks about caring about child poverty needs to act to reduce the costs their parents can’t avoid.

 


$1 in 3 wastefullly spent by govt

19/09/2018

The New Zealand Initiative’s Fit for Purpose? Are Kiwis getting the government they pay for? shows we’re not getting value for money.

Dr Bryce Wilkinson explains:

Taxes in New Zealand have risen four times faster than incomes in the 20th century. Taxes now take more of our income than in almost any country outside Europe. We have become a high tax country.

We, the public, need the government to spend our tax money well.

Government is a dominant provider of many activities, including health and education. Poor performance here would harm current and future New Zealanders.

Government also dictates much resource use through ownership and regulation. It is a major landowner, and there are 50 times more Parliamentary Acts now than in 1908.

It should aim to get the best possible outcomes for New Zealanders from its assets. It should also regulate wisely and administer those regulations well.

The report’s focus on value for money is not ideological. Who would not want to see government doing the best possible job for New Zealanders?

This shouldn’t be ideological or partisan, but the left does too often mistakenly equate more spending with better spending.

How well is government spending our tax money?
The quality of much government spending is poor. The Productivity Commission’s inquiry into public sector productivity showed why. Public sector agencies are not focused on productivity. Measures are too often lacking or neglected.

A 2013 report published by a Canadian think tank, the Fraser Institute, assessed outcomes compared to spending in 192 countries. South Korea came out on top. Its government was spending 27% of GDP to achieve a performance score of 7.5. In New Zealand, government was spending 38% of GDP for a score of 5.5.

Perhaps, one-third of New Zealand government spending is wasteful. That represents around 13% of GDP, or $20,000 per household, annually.

Every cent not wasted is a cent more to spend on something we need, or to leave in taxpayers’ pockets.

Imagine the positive impact of that money being spent where it has a positive impact instead of being wasted and/or of each household keeping more of what they earn.

A 2009 OECD report similarly assessed spending efficiency in school education. The indicated level of waste in New Zealand spending on education was one dollar in six.

Less waste would mean more money to improve outcomes. Currently, around 17% of 15-year-olds can barely read. The government has likely spent more than $130,000 on each of their schooling. Few would regard this as an acceptable outcome.

Nearly a fifth of children getting through school unable to read and write is appalling. There will be many reasons for this failure and wasting a sixth of the budget will be one of them.

That extra dollar in six spent well could improve pay and conditions for teachers and support staff, provide extra help for pupils who need it and/or do away with at least some activity fees and fundraising.

In health, even official reports acknowledge a lack of focus on productivity. The OECD has also assessed the efficiency of health spending across member countries. A 2010 report indicated that New Zealand could spend 2.5% of GDP less a year for similar outcomes. Of the order of one dollar spent in four looks like waste.

One dollar in four wasted – that’s 25% of health spending that’s not getting spent where it should be.

Such findings from international comparisons are only motivational. They do not show what New Zealand would need to change or whether such changes are plausible. Their value is in inviting us to learn from countries that seem to be doing better.

In some cases, government providers would be more focused on productivity if users had more choice of providers. Government providers can fail to give value for money when users are captive. Users will be more empowered if they have a wide choice of providers and if state funding follows them. The funding of pre-school education has this feature.

Choice tends to improve competitiveness and performance but this government isn’t keen on it.

How well is the government doing as a regulator?
The Crown’s performance as a lawmaker and regulator is flawed. There is widespread dissatisfaction among regulators with the quality of the law they have to administer. The statute book has become too prescriptive and too detailed. Parliament cannot hope to keep it up to date and fit for purpose.

It needs to be easier for lawmakers to resist the pressures to legislate poorly. Greater reliance on simpler laws of a more general nature is desirable. Prescriptive law quickly becomes out of date. Change is unlikely as matters stand.

Bad law leads to added costs and unexpected consequences.

What about our high international rankings?
Many international agencies assess countries’ outcomes for aspects of wellbeing and economic performance. New Zealand enjoys top-tier world rankings in many of these measures.

Does this mean government is doing a great job? Yes, and no.

We rank among the best for many but not all aspects. The report identifies 20–30 government-dominated areas of weakness. Some are no surprise. These include overseas investment and aspects of labour market laws. Infrastructure quality is another weakness.

Labour law changes on the table now are going to make matters worse and the redirecting of fuel taxes from roads to public transport and cycleways will too.

More surprising is the weakness in our legal system. We rank poorly in the ease of enforcing contracts and resolving insolvency and the quality of judicial processes.

There is no excuse for our 54th ranking by the World Bank for the quality of our judicial processes. Gallingly, Australia is ranked first.

The bottom line is there is compelling evidence of much government waste. It is occurring for many reasons, but a major symptom is a lack of focus on efficiency.

Were the state to do a better job, it could use the savings to raise wellbeing by:
• maintaining government outputs, while cutting tax revenues; and/or
• increasing government outputs from unchanged government spending.

Those options are outside the scope of this report. The first task is to achieve the savings.

National managed to get some improvement in some areas during the GFC – requiring the public service to do more with less.

Under Bill English’s social investment regime the government focused on treating causes, acknowledging that sometimes you have to spend more in the short term to get savings later.

It also set measurable targets and reported on progress towards them.

But all parties need to focus on getting better value for taxpayers’ dollars.

It would help if all of them acknowledged that the government isn’t always the bet option for providing services; that governments aren’t good at picking winners and that the quality of their spend is far more important than the quantity.

It would also help if more of us didn’t think of the government as the first or only source of support.


Government’s don’t have magic money tree

10/09/2018

The Taxpayers’ Union correctly points out that doling out public money will destroy jobs not create them:

Shane Jones’ spending in Kawakawa will destroy jobs, not create them, says the New Zealand Taxpayers’ Union.

Taxpayers’ Union spokesman Louis Houlbrooke says, “Taxpayers might think that $2.4 million for three jobs is a bad deal. Actually, it’s far worse than that. Taking this much money out of the private sector destroys jobs. It’s $2.4 million fewer dollars that taxpayers could have spent in their communities.”

That’s money that individuals could have used to create, expand or support businesses; provide for their futures, give to charity or simply choose to spend as they wished.

“What’s most terrifying about the Provincial Growth Fund is that, so far, Shane Jones has only spent four percent of his $3 billion. There is so much more spending to come that the public risks becoming desensitised to Shane Jones’ flagrant waste, when we should be outraged.”

“It looks like Shane Jones actually has far more money in the Provincial Growth Fund than he knows what to do with. In that case, he needs to simply give the money back.”

Councils and businesses in the provinces are doing their best to come up with ideas to get their share of this money and they can’t be blamed for that.

If money is being given away, why wouldn’t they try to get some for their pet projects?

But government’s don’t have a magic money tree. Every dollar a government spends comes from taxpayers.

The $2.4 million being splurged on the Kawakawa cultural centre in Northland will create just three jobs.

It could have been spent on health, education, crime prevention, infrastructure or any number of other ways that would give better value for money and a better return on investment.

It could also have been left in the pay packets of the people who earned it.


When tax goes too far

04/08/2018

The theory of higher taxes to discourage and lower taxes to encourage is a good one.

Thus higher taxes on consumption and lower taxes on income and investments are generally to be encouraged.

However, taxing the bad can go too far and it has with tobacco.

I am anti smoking to a point just short of bigotry and don’t have a problem with taxing tobacco per se.

Price increases do generally push some smokers to quit and act as a disincentive to starting which is positive.

But tobacco tax has got so high it’s incentivising crime. That doesn’t justify the thefts but the benefits of the higher price are being outweighed by the rewards of the black market and the dangers which come from that.

The campaign for a smoke-free country needs to come up with another strategy than yet another tax increase.

More help for those who want to give up including easing restrictions on vaping would be a good start.

It should also take another tack by making smoking even more difficult.

It’s already not permitted in enclosed public spaces. That could be extended to outdoor venues such as pavement cafes, parks  and beaches.

It doesn’t have to look like Nanny-statism. It could be done not to persecute smokers but simply to safeguard the right to clean air and water for the rest of us.

Environmentalists are rightly concerned about the problems of air pollution and plastic in oceans, surely cigarette smoke in the air we breathe and butts that end up in lakes, rivers and the sea are at least as much a problem.

The government won’t be altogether keen on holding or reducing the tax because the it generates a lot more revenue than smokers cost in smoking-related health problems.

But if it is really serious about the smoke-free target it has to look beyond higher taxes.


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