Taxing questions


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.




Rural round-up


Dairy product prices climb as whole milk powder gains – Margaret Dietz:

(BusinessDesk) – Dairy product prices rose at the Global Dairy Trade auction, stemming a decline that began in May.

The GDT price index gained 2.2 percent from the previous auction two weeks ago. The average price was a US$2,819 a tonne, compared with US$2,727 a tonne two weeks ago. Some 36,450 tonnes of product was sold, down from 42,966 tonnes two weeks ago.

Whole milk powder climbed 2.5 percent to US$2,667 a tonne. . . 

Dairy bosses are best employers:

In the first-ever Primary Industries Good Employer Awards dairy farmers Ben and Nicky Allomes won the top accolade, the Minister of Agriculture’s Award for Best Primary Sector Employers.

Woodville dairy farmers Ben and Nicky Allomes have been named the Best Primary Sector Employers. 

The couple, who own Hopelands Dairies, also won the Innovative Employment Practices award. . . 

Fonterra reaches provisional deal with Beingmate:

Fonterra Cooperative Group has reached a provisional deal with Chinese partner Beingmate Baby & Child Food to unwind their Darnum joint venture in Australia.

The joint venture – 51 percent owned by Beingmate and 49 percent Fonterra – produced infant formula products at the Darnum plant in Australia for Beingmate’s Chinese customers, and was a key component of Fonterra’s plan to expand its reach into China’s second and third-tier cities. . . 

Voting for the 2nd Fonterra Directors’ Election is underway:

Voting is now open for the 2018 Fonterra Board of Directors’ Second Election.

Only two candidates from the first election, Leonie Guiney and Peter McBride, obtained more than 50% support from voting shareholders. The Rules of the first election state that if not enough candidates obtain more than 50% support, there must be a second election. . . 

Dairy loan done on a handshake, details to follow:

It beggars belief that the Government has dispensed a $9.9 million low-interest loan to a dairy company without having finalised the terms, National’s Economic and Regional Development spokesperson Paul Goldsmith says.

“The Minister in charge of the Provincial Growth Fund couldn’t tell the House what terms he had in mind when he undercut commercial lenders to provide debt funding for a new processing plant.

“I wouldn’t blame any business like Westland Milk for accepting a cheap loan from a secure lender. . . 

Apple producer’s underlying profit looks to be at top end:

Apple producer Scales has had a bumper year with a record export crop lifting profits to the top end of guidance.

The company’s underlying profit was likely to be at the top end, or slightly exceed, the current guidance range of $58 million to $65m, in the year ending December.

Managing director Andy Borland said it was an excellent performance for the group, with all business units performing well over the year. . . 

New Landcorp chair appointed:

Dr Warren Parker has been appointed as Director and Chair of Landcorp, the Minister of Finance Grant Robertson and Associate Minister of State-Owned Enterprises Shane Jones announced today.

Dr Parker is a former Chief Executive of Scion (the NZ Forest Research Institute) and Landcare Research, and was previously Chief Operating Officer of AgResearch. He currently holds a number of board roles including on Predator Free 2050 Ltd, Farmlands Cooperative Society, Genomics Aotearoa and is the Chair of the Forestry Ministerial Advisory Group. Until recently he was Chair of the New Zealand Conservation Authority. . . 

Landcorp out of touch with real farmers:

Landcorp’s submission to Sir Michael Cullen’s Tax Working Group (TWG) is a kick in the guts to rural communities, National’s Nathan Guy and David Carter say.

“Landcorp’s sneaky submission to the TWG proposing a water tax, nitrogen fertiliser tax and not opposing a capital gains tax proves how out of touch the state-owned company is with farmers on the ground,” Mr Guy says.

“With 6700 other submissions, why was Landcorp pressured to put in a submission that was more than a month late? The reality seems to be that the TWG are hell-bent on introducing environmental taxes and a capital gains tax, so they leaned on Landcorp to submit supporting more taxes and levies. . . 

New president and vice president elected to HortNZ board:

The Horticulture New Zealand board elected Barry O’Neil as its new President and Chairman at a meeting today. Mr O’Neil replaces Julian Raine, who has been President and Chairman for six years and who has made a significant contribution to horticulture for New Zealand. Mr Raine has stood down to pursue other business interests.

Bernadine Guilleux was elected Vice-President, with both positions effective from 1 January 2019. . . 

Busy orchardist advises small businesses start payday filing:

A Hawke’s Bay orchardist is advising fellow small businesses to be ahead of the game on payday filing.

This is the mandatory requirement from April next year for employers to file their payroll information to Inland Revenue every time they pay their staff.

Te Mata Figs owner Helen Walker has been paying her five staff fortnightly and sending across their details using the online entry method in myIR. . . 

Positive engagement beats political posturing


Federated Farmers is promising to engage positively on new rules for the way livestock are treated for tax purposes.

Feds President Bruce Wills said:

“Federated Farmers will now examine Inland Revenue’s proposals for reasonableness and real-world workability. Let me also stress that farmers do understand the importance of paying their fair share of tax.

“With livestock, there’s been some concern at the ease farmers have switched between the Herd Scheme and the National Standard Cost scheme. This is especially the case when livestock values are extremely volatile.

“Broadly speaking, the Herd Scheme treats livestock as a capital asset using Inland Revenue’s national average market values. The National Standard Cost scheme values purchased livestock at cost plus associated costs of husbandry.

“Farmers, as small and medium sized businesspeople, are heavily reliant on their accountant for tax advice. It’s a complicated area and you do rely on your advisors to interpret it for you.

“Federated Farmers will now start consultation with our membership to develop a position to take back to Inland Revenue,” Mr Wills concluded.

The conciliatory tone reflects the recent change in leadership of Feds and the reasoned response is a pleasant change from the political posturing which is too often the first reaction to new proposals.

The paper on proposed changes to taxing livestock was one of two released by the government yesterday.

The other is seeking feedback on proposals on the tax treatment of mixed-use assets such as cribs which are used for private purposes and also let for financial return.

The issues papers and a fact sheet are available here.

Oh for a department that takes less


Federated Farmers president Bruce Wills says fewer taxes will help the economy grow:

The best translation I’ve found for Te Tari Taake, IRD’s Maori name, is “the department which takes”. “Taking” is the existential truth about taxes, including Labour’s proposed capital gains tax. Given taxes take money off people after they’ve earned it, is it possible taxes can directly grow an economy? Of course not.

While taxes support economic and social endeavours, economies grow by people taking risks and being rewarded for those risks. Right now, we need to grow our economy and that means exporting goods and services. The challenge we all face is how to expand the economic cake so that everyone can get a slice, whether that’s a farmer, a factory worker or a primary school teacher.

More taxes and higher tax rates don’t necessarily mean a higher tax take but they do hamper productivity.

Conversely fewer taxes and lower tax rates can lead to a higher tax take because people are rewarded better for working and risk taking and don’t waste time and energy trying to avoid taxes.

What’s now before us all is a clear choice. In the “red corner” Labour has gone where David Lange and Michael Cullen feared to go. Lange was blunt, saying a capital gains tax “is the sort of tax you introduce if you want to lose not just one election, but the next three”.

Over in the “blue corner” is the partial privatisation of state assets and a gradual reduction in the Government’s overall size. Perhaps Chris Trotter was right when he suggested we are a nation of socialists, but it’s also a question of degree.

Even Labour voters own properties, businesses, shares and even farms.

Labour doesn’t appear to understand that and also underestimates the large number of people who don’t own assets yet but aspire to in the future.

For farmers, the prospect of yet more asset taxes on top of taxing agriculture’s biological emissions is fairly unattractive.

Farmers are already included in the Emissions Trading Scheme (ETS) and like everyone else are paying extra for fuel and energy.

Labour’s plan to fast-track agriculture into the ETS is something else, though. While New Zealand may be the odd one out in the OECD for not having a capital gains tax, this logic equally applies to the ETS; New Zealand is the “odd one out” for bringing biological emissions into such a scheme. Strangely, all this talk about gleaning tax income through the ETS seems to have skipped right past its intended purpose, to reduce emissions.

It would be bad enough if Labour’s policy was intended to reduce emissions, but it’s not. It’s a simple tax, imposed on farmers to be redirected elsewhere.

A capital gains tax, central to Labour’s revenue model, doesn’t raise much money until 2018. To meet what could be seven heavy budget deficits, the choice is either to borrow more or to cut spending. Greece, which has a capital gains tax, remains “Exhibit A” as to why borrowing is extremely risky.

Meanwhile, a close examination of government spending is notably absent from Labour’s policy.

Of course it is, they spent up large through the good times and have no idea how to cut things back now there’s very real need for restraint.

We also hear much talk from politicians about building an entrepreneurial culture but, to do that, risk-takers need to be rewarded for those risks they take.

No capital gains tax and reasonable personal and company tax rates are big positives in attracting people, ideas and capital to New Zealand. Shouldn’t we be extolling this internationally?

This proposed capital gains tax includes foreign currency transactions making it like a financial transactions tax on exporters.

Labour’s proposed tax will make things a lot worse for exporters already struggling with a high kiwi dollar. It will hit them hard, whether that’s a dairy company or a movie studio.

Exporters buy currency hedges in order to smooth exchange rate volatility and their overall financial risk. Taxing this is baffling and will only increase risk when exporters least need it.

Exports are one of the major ingredients in the recipe for recovery, holding them back will hobble economic growth.

The United States also has a capital gains tax and while it benefits accountants and lawyers, it did not prevent or minimise the sub-prime-fuelled real estate bubble.

As the fallout from this continues today, all a capital gains tax does is create added compliance costs and complexity. In a financial version of “Whac-a-Mole”, regulators move on one side while an army of expensive advisers counter that move on the other.

A CGT didn’t stop Australia’s housing bubble either. Does anyone know of any country where it did?

So perhaps the biggest question voters need to ask themselves is one of trust. If a capital gains tax is introduced by any party, there’s absolutely no guarantee a future government won’t widen its scope. As the GST increase shows, a proposed capital gains tax of 15 per cent is not cast in stone.

All it takes is a regulatory amendment. With more loopholes than Swiss cheese to make it electorally palatable, it seems more like a bureaucratic throwback to the 1970s.

Oh yes, once the tax is established, it could easily be increased.

Rather than believe a tax will save the economy, it is time to have a discussion about growing the economic cake for all New Zealanders. On current evidence, that is the one discussion we’re not having.

A department which takes less would help.

So would more of what National is doing – encouraging savings, investment and export-led growth.

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