CGT based on dodgy stats

April 5, 2019

Assertions about the impact of the proposed capital gains tax are based on dodgy numbers.

Troy Bowker writes:

The Tax Working Group (TWG) used an unreliable survey by the Department of Statistics as the basis for its argument that the majority of the proposed capital gains tax (CGT) will be paid by the top 20 per cent of households measured by wealth.

Repeatedly, since the final report was published, Sir Michael Cullen has quoted the “statistic” to the media that 82 per cent of the assets that will be subject to CGT are owned by the top 20 per cent of New Zealand households measured by net worth.

He goes on to state (as factual) the second 20 per cent of wealthy households will be responsible for another 11 per cent , then only 4 per cent for “middle” New Zealand.

In reality, this information is based on what most reasonable people would describe as little more than guess work.

It has been used for political purposes to argue that the majority of the public have nothing to worry about, and it will be mostly the “rich” that will pay CGT.

If it is correct (which it isn’t), it’s a very good argument for Labour and the Greens who desperately want to see a comprehensive CGT implemented.

The problem for those wanting CGT is that the data is completely unreliable and should never have been used. We need to know why public officials used it in the first place when they knew, or ought to have known, it was dodgy statistics. . . 

The stats came from the annual Household Economic Survey (HES) carried out by Statistics NZ.

It was done by conducting interviews of 8000 households, out of approximately 1.7 million households, in New Zealand. That’s only 0.47 per cent of households — s a ridiculously low sample size.

The other reason it is unreliable is most of the information provided is unverifiable. The Department of Statistics asks all sorts of questions about the assets and liabilities of each household and records the answers given. People can guess, underestimate or overestimate or not even volunteer information.

As you can imagine, it’s an extremely invasive and intrusive process that attempts to delve into the most personal financial information of New Zealand homes.

By the Department of Statistics own admission, it contains data that is so unreliable they cautioned against its use. . . 

In spite of the caution Treasury used them in its report to the TWG.

It beggars belief that Treasury decided to use this information in its report to the TWG.

Senior Treasury officials who wrote this report to the TWG obviously knew the information couldn’t be safely relied upon.

Hidden in the fine print of the Treasury report, it states “care should be taken when interpreting wealth estimates because the confidence intervals around any point estimates vary widely”.

In layman’s terms, this is like Treasury saying to the TWG: “You probably shouldn’t be using this information as we really don’t know if it’s accurate and some of it’s completely unreliable.”

This raises some very serious questions about the probity of the process that need answering by Finance Minister Grant Robertson, and the TWG chair Michael Cullen (who is still on the Government pay roll). Hopefully he’s still being paid to answer the question of why the TWG used this data.

Did the TWG specifically request Treasury to dig up statistics to support the political argument that only the top households would pay CGT? Did the TWG know the data they were using was largely unreliable? Treasury obviously had concerns about using it and told the TWG in its report. So why did the TWG use that data? Does the Finance Minister now accept this data is unreliable and shouldn’t have been used for political purposes to justify Labour’s proposed CGT?

These are very serious questions that need to be answered and answered publicly.

The reality is, we don’t have enough reliable information to draw any conclusions at all about which households will pay the most from the proposed CGT.

We do know, however, that there are hundreds of thousands of farmers, business owners, lifestyle block owners, bach owners and sharemarket investors who will pay a lot more tax if Labour are successful in implementing CGT.

There are an awful lot of hardworking ordinary Kiwis who don’t consider themselves wealthy who will pay CGT if Labour are successful in convincing Winston Peters to support it.

For Labour to use these dodgy statistics to mislead the public would be to underestimate the intelligence of the voting public of New Zealand.

The CGT debate has a long way to go. But Labour need to come clean and be honest about the many hundreds of thousands of middle income Kiwis who will pay CGT. They also need to answer some serious questions about how, and why, the HES was used to support the main argument on fairness by the TWG.

This proposal is the most significant tax reform in many years in New Zealand and we deserve better than public officials using dubious and unreliable data to support a preconceived political agenda.

Significant tax reform should not be based on dodgy stats for both ethical and practical reasons.

Ethical because it’s wrong to base assertions on wrong numbers, and practical because if the stats are dodgy there can be no certainty about the outcomes.

It’s not just who would pay how much that matters, but how much tax a CGT would raise.

If the stats on which the assertions of who would pay what are dodgy the conclusions on how much that would raise are also completely unreliable.

The TGW was told any proposals must be revenue neutral – that is, the amount raised by any new tax would be offset by cuts to old ones.

There can be absolutely no certainty about how much it would raise and therefore how much other taxes could be lowered if the whole proposal is based on numbers based on guesswork.

Almost all those favouring a CGT do so based on an ideological and political idea about fairness. 

There is nothing fair about assertions based on dodgy numbers and a tax full of loopholes that would disincentivise investment and sabotage the economy.

 


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.

 


%d bloggers like this: