What’s fair?

February 14, 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.

 

 


Craig’s press secretary leaves in tears

September 18, 2014

Conservative leader Colin Craig has just lost his press secretary of two years:

Rachel MacGregor has told Newstalk ZB she’s left the party as of this morning.

Our political editor Barry Soper says she is very upset and has taken public relations advice.

“Colin Craig does campaign on being this wholesome, out there sort of a bloke, that’s all encompassing, that really is the sort of person we should be looking up to.

“Now if he can’t get his own house in order in terms of staff in the Conservative Party then you’ve got to ask questions.”

Barry Soper says this will damage the Conservative Party brand.

Soper just told Leighton Smith he’d talked to her and she was in tears.

Whatever the truth of this is, it will do the party no good.

It is on 4% in Colin James’ poll of polls.

If  it doesn’t make the 5% threshold those votes will be distributed to parties which do.

A friend was talking to a woman about this yesterday. When she realised her vote for the Conservatives might end up helping Labour and the Green Party get an extra MP she was horrified.


Media need thicker skin

May 17, 2012

Quote of the day:

The media’s role is often to be “hostile, aggressive and antagonistic” to governments and politicians when they merit it. That comes with the job of being the “Fourth Estate”. I was once so hostile, aggressive and antagonistic” that Prime Minister Jim Bolger banned me from his press conferences.

It is the media’s job to apply scrutiny, to critique, and to commentate on events and individuals. It is just a shame that it cannot stand it when others do the same to them.

Message to Media: Stop being so pathetically thin-skinned and get on with the job. Bill Ralston

He was commenting to the reaction to Prime Minister John Key’s observation that the media is tougher on a second term government.

He made the comments during an interview with Leighton Smith:

He is quite clear he is making observations, not complaining, that he wasn’t ” bent out of shape by that” and he expected it.


Question of the day

October 31, 2011

A caller to Newstalk ZB this morning said he didn’t own shares and never would because they were too risky.

Leighton Smith responded by asking why, if shares in a company are so risky anyone would want the government to own the whole lot?


No need to bother with policy

October 17, 2008

“Show us your policy,” they’ve been saying for months.

But does policy really matter?

Leighton Smith played this tape on his show yesterday which demonstrates people not only don’t know what McCain’s and Obama’s policies are but they’d vote for their preferred candidate even if he had the other’s policies and deputy.

Yet more evidence that some people would be performing a public service if they didn’t vote.

Hat TIp: SOLO


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