CGT will hit everyone

April 4, 2019

The Taxpayer’s Union has launched a campaign to axe the capital gains tax (CGT) :

New Zealand’s tax system is admired around the world for its simplicity, affordability, and fairness. The capital gains tax proposed by Sir Michael Cullen’s Tax Working Group would put all of this at risk.

It is bureaucratic, costly, and would be the harshest in the world. It will curtail entrepreneurship and investment, meaning a reduction in all New Zealanders’ economic prosperity.

The rate is one of the world’s highest, it would be unfairly levied on inflation, it would require costly and fraught asset valuation, and in many cases it would break the Government’s promises by targeting the family home.

New Zealanders deserve better than this unfair tax.

    • It unfairly taxes people with assets for inflation
    • It will unfairly tax 350,000 home owners who live on a lifestyle block even if they only have one home
    • It will unfairly impose billions of dollars of compliance costs on 500,000 small businesses
    • It will unfairly tax farmers who sell a farm in order to buy another farm
    • It will unfairly lead to higher rents for over a million tenants
    • It is an unfair double tax on 500,000 business owners who already pay company tax
    • It will unfairly benefit tax lawyers and accountants who can exploit American-style loopholes
    • It will unfairly advantage foreign owners of New Zealand shares and disadvantage 800,000 New Zealand investing in local companies

Who will be affected by the CGT?:

Anyone who owns a business, including a farm, shares, bach/crib/holiday home, lifestyle block bigger than .45 hectares,  or rental property; anyone who claims expenses for a home office; has intellectual property, anyone who owns a home and moves into a rest home without being able to sell it within a year, or buys another and can’t sell the first within a year, or goes overseas for a while; anyone who buys a section for a new home that isn’t completed within a year;  any homeowner who forms a relationship with another homeowner;  and anyone who has taxable assets and migrates.

A lot of people would be hit by the tax directly but everyone will be hit indirectly when costs go up and the economy slows.

Even Inland Revenue advised against it:

Tax officials advised the Government 15 months ago that our small companies, start-ups and innovators were better off without a Capital Gains Tax, Leader of the Opposition Simon Bridges says.

“Even before Sir Michael Cullen and others were named to the Tax Working Group in December 2017, Inland Revenue officials told the Government that the absence of a Capital Gains Tax in New Zealand was ‘potentially advantageous to start-ups’.

“Not having a Capital Gains Tax is ‘advantageous’ to every Kiwi willing to give it a go by starting a small business and creating jobs. People who take risks with smart ideas and build something bigger than themselves shouldn’t be discouraged.

“Governments should encourage innovators because smart people will take us to a better future. We need people who take risks and stretch themselves because the ones who succeed create more jobs.

“The Government was also told that the lack of a Capital Gains Tax ‘indirectly incentivises’ people to put more of their own money into a venture because they have the chance of a better return when they sell. That could be somebody who wants to stop working, sell the business and retire. . . “

That’s another consequence that would hit a l9ot of people – disincentive to invest and carry out succession as aging farm and other business owners hang on instead of selling.

The economy is slowing.

If it’s going to reverse that the government must take a much more frugal approach to its own spending and axe the CGT.


Politics changed, facts haven’t

March 28, 2019

Sir Michael Cullen is being paid $1000 to sell the capital gains tax.

It’s a task made more difficult by records of his views on a CGT  which the parliamentary library holds from his time as an MP:

Stuff reported that although the chairman of the Tax Working Group once called a capital gains tax “extreme, socially unacceptable and economically unnecessary”, he has since changed his mind.

New documents compiled by the Parliamentary Library for the ACT party reveal just how far he shifted since leaving Government in 2008.

The 84 pages of research included every reference Cullen ever made in the House in reference to a CGT between 1987 and 2008. . . 

They include:

. . . “I think it is extremely hard to make that connection between a capital gains tax and the affordability of housing, insofar as there has never been a theoretical argument put forward about a capital gains tax on housing. It is more in the direction of a level playing field around investment; it is not around the notion that it will make houses cheaper. Indeed, it is very hard to see how it would necessarily make houses cheaper,” Cullen said at the time.

On June 20, 2007, when Bill English asked Cullen about explicitly ruling out a capital gains tax, he responded saying: “One of the problems with a capital gains tax – apart from the fact that if it were done, it should apply to all asset classes—is that countries overseas that have capital gains taxes have significant inflation in house prices on occasion”.

Then on June 21, 2007, he was asked about the possibility of combining ring-fencing with a capital gains tax on all investments except the family home, and more Government investment in low-cost rental housing.

He responded saying: “I think it is fair to say that, if one was looking at a capital gains tax, which I am certainly not, it would apply to all asset classes. I think the arguments in favour of such a tax, which probably 20 years ago were quite strong, become much, much less strong in the intervening period of time, for a whole host of reasons. So I think that that is actually not a very worthwhile avenue to explore, not least because it comes, in effect, at the end of a process, rather than trying to address the over-investment at the start of the process”. . . 

He says he was Finance Minister at the time and following the government line.

When asked why he changed his mind, he quoted John Maynard Keynes: “When the facts change, I change my mind”.

What facts have changed? It wasn’t a good idea then and it still isn’t, for the same reasons.

As Robin Oliver, former deputy head of Inland Revenue, former Treasury advisor, an expert on the tax system, and one of three dissenters on the Tax Working Group said:

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

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

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

Most of the arguments in favour of a CGT are theoretical ones based on a notion of fairness, whatever that is.

Most of the arguments against it are practical based on facts including that it has done nothing to rein in house prices elsewhere and has led to overinvestment in housing, underinvestment in business, and acts as a handbrake on succession.

The politics have changed but the facts haven’t.

A CGT with exceptions as recommended by the TWG would be expensive to administer, contain loopholes which would only provide work for lawyers and accountants, promote over-investment in housing, stifle investment in productive assets, and result in lower tax revenue in tough times when capital gains fall.


Landcorp pays ERG $1500/day

March 6, 2019

An OIO response to questions from Rural News shows that members of Landcorp’s environmental reference group are earning $1500 a day :

Landcorp is paying members of its contentious environmental reference group (ERG) $1500 a day each – far more than other government body payments.

This has been revealed in answers to an Official Information Act (OIA) request by Rural News to the Government-owned farmer (trading as Pāmu Farms).

“Each ERG member and the chairman is paid a flat fee of $1500 per day they attend the ERG meeting,” Landcorp’s OIA response says.

“In addition, the chair is paid an hourly rate for meeting preparation.”

During the 2017-2018 year, the state farmer also paid $2740.11 in travel costs and another $2451.43 in accommodating out-of-town ERG members for the four meetings it held in Wellington. . .

Meanwhile, it looks like members of Landcorp’s ERG are on a pretty good wicket at $1500-a-day, compared with other Government-paid bodies. Members of the Primary Sector Council are paid $500 a day, with chair Lain Jager earning $800 a day. The Tax Working Group members earned $800 a day and chair Sir Michael Cullen earned $1000 a day.

Are members of the ERG worth three times as much as members of the Primary Sector Council, nearly twice as much as members of the Tax Working Group and half as much again as its chair?

What does the group do and what has it achieved?

Is Landcorp getting value for money from what looks like significant over payments, and given we own the company what’s the value to taxpayers?


CGT & death tax by stealth

November 29, 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?

November 27, 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.

 


Simple taxes better taxes

November 24, 2017

Former Finance Minister Sir Michael Cullen will chair the working group which is taxed with finding a fairier tax system:

Finance Minister Grant Robertson and Revenue Minister Stuart Nash announced the terms of reference for the group, which will come up with a series of recommendations by February 2019 which the government will then use to inform its policy direction at the next general election. Robertson said he isn’t making a grab for cash. Reforms could be fiscally neutral and he had an open mind on whether a capital gains tax would be necessary.

“The main goal here is to create a better, balanced and fairer tax system for New Zealand,” Robertson said. “Our belief at the moment is that we do not have that.”

The group has been told to consider the economic environment over the next five-to-10 years and how that’s affecting changing business models, demographics and business practices; whether some form of housing, land or capital gains tax would improve the system; whether a progressive company tax with lower rates for small businesses would improve the system and business environment; and what role tax can play in delivering environment benefits. . . 

The group has been told not to look at increasing income tax rates or the rate of GST, inheritance tax, a tax on the family home, or the adequacy of the personal tax system and its interaction with the transfer system. It has been directed to look at technical matters already under review such as international tax reform targeting multinational profit shifting, and the tax department’s business transformation programme.

While the issue of applying GST to goods and services bought online from overseas could be dealt with separately and was not part of the working group’s brief, Robertson said the group could examine exemptions from GST for particular categories of goods. Labour’s coalition partner in government, NZ First, has campaigned for years to remove GST from fruit and vegetables.

Robertson said the group will be able to look at the tax treatment on savings and investment, which has cropped up in previous reviews as an area in need of reform.

The best taxes are simple taxes.

Taking GST off fruit and vegetables sounds simple but it isn’t. If it’s all fruit and vegetables it will include processed ones which might have lots of sugar and salt added. But if it’s only fresh fruit and vegetables luxury imports like pomegranate will be exempt while frozen vegetables won’t.

Our GST is lauded around the world for its simplicity. Once you introduce exemptions it gets complicated, inconsistent and more expensive to administer.

National’s Finance spokesman Steven Joyce says the working group is underwhelming:

“Its Terms of Reference is written so that it will propose one significant thing at the end of it, a Capital Gains Tax,” Mr Joyce says.

“Yet Mr Robertson’s assertion on the current taxation of capital gains in the property market remains incorrect. People who buy and sell houses for a profit have those profits treated as income for tax purposes under the law today.

“So people can only assume once again that his unspoken desire is to introduce a Capital Gains Tax on farms and small businesses.” . . .

“Nothing will come out of this group that Grant Robertson doesn’t want. And all he wants is a recommendation for a Capital Gains Tax.

“Mr Robertson would be better to dispense with the expense to taxpayers and write out his tax policy for the next election when the time comes in the normal manner.”

I’m not opposed to a CGT per se, if it was fiscally neutral through reductions elsewhere. But as with GST, a simple CGT would be a better one.

Once there are exemptions there are loopholes which will be very good for lawyers and accountants but much less so for the aim of balance and fairness.

 


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