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.

 

 


Rural round-up

October 29, 2018

Carbon cost shock – Richard Rennie:

Huge costs in New Zealand’s zero carbon goals that could set the country back more than a trillion dollars have been side-lined in Government calculations, seasoned rural economist Phil Journeaux says.

He calculates the policy will costing the NZ economy more than a trillion dollars by 2050 and shave billions a year off income.

AgFirst agricultural economist Journeaux said he has become increasingly alarmed about a failure to acknowledge what the aspirations to lower carbon emissions will really mean in economic terms to not only the rural economy but to all NZ.

Journeaux spent much of his career as an economist with the Primary Industries Ministry. . . 

Meaty topics for Fonterra meeting – Hugh Stringleman:

Fonterra farmer-shareholders have good reasons to make their way to the Lichfield processing site in South Waikato for the annual meeting of the co-operative on November 8.

Top of the list for interest will be updates from chairman John Monaghan and interim chief executive Miles Hurrell on the searching review of all Fonterra’s investments, major assets, joint ventures and partnerships.

That was promised and began after Fonterra announced its first-ever loss in mid-September, for the 2017-18 financial year.

Word on the future of its Beingmate shareholding and distribution agreement and the China Farms operation will be keenly anticipated. . . 

West Coast farmers doing it tough, as payout lags behind competitors

Farmers on the West Coast have had the lowest payout in the country for four years.  West Coast reporter JOANNE CARROLL talks to those doing it tough and what Westland Milk Products is doing to close the gap.

When Kokatahi farmer Terry Sheridan began in the dairy industry 42 years ago he didn’t expect to be still getting up at 4am to milk cows when he was 72.

“[Years ago] when farmers were at the end of their career, they sold up and bought a house off farm, had some money left over to do world trips. Now in Westland, you leave with nothing. Absolutely nothing. We can’t even afford a contract milker today. That’s why I’m out there. And I don’t get a day off. You don’t expect this at our age,” he said.  . . 

New methane emissions metric proposed for climate change policy:

A new paper published today has outlined a better way to think about how methane and other gases contribute to greenhouse gas emissions budgets. This is an important step towards evaluating the warming from methane emissions when developing strategies to achieve the goals of the Paris Agreement.

“Current climate change policy suggests a ‘one size fits all’ approach to dealing with emissions,” says Professor Dave Frame, head of the Climate Change Research Institute at Victoria University of Wellington.  “But there are two distinct types of emissions, and to properly address climate change and create fair and accurate climate change policy we must treat these two groups differently.”

The two types of emissions that contribute to climate change can be divided into ‘long-lived’ and ‘short-lived’ pollutants. . . 

NZ meat trade to Europe and UK faces potential logjam – Gerard Hutching:

New Zealand’s valuable lamb exports to the United Kingdom and Europe could get caught up in a major traffic snarl-up this Easter.

The UK is due to exit from the EU on March 29, just three weeks before Easter when volumes of Kiwi lamb jump 10 times for the festive season.

But New Zealand’s red meat sector Brexit representative Jeff Grant said the uncertainty over what sort of a deal the UK negotiates threatens the smooth flow of trade into the United Kingdom and Europe. . . 

Bull biosecurity at breeding time:

 As another cattle breeding season gets underway, farmers are being reminded to follow best-practice biosecurity management to protect their dairy and beef herds from Mycoplasma bovis.

Beef + Lamb New Zealand General Manager South Island John Ladley says farmers should ensure any bulls they use this season are from a known source and have up-to-date animal health and NAIT records.

Bulls should have been quarantined after purchase and any animal health issues dealt with before they are mixed with home stock. . .


Rural round-up

July 31, 2016

World trends that will influence future farming – Pita Alexander:

The oldest son in a farming family has returned home from a trip overseas after completing his degree at Lincoln University.

Before coming back to the farm and making a career of farming the son spent a year in Australia, North America and Europe. He wanted to obtain a picture of where farming might be heading during his tenure.

Among his many observations in a report he prepared for his family were the following:

– A formal licence to farm is looking like a certainty for New Zealand within the next 10 – 15 years and the banks may lend at lower interest rates with this certificate.

–  Killing farm animals before they are fully grown is getting some air time in some countries.

– Traceability from the farmer to the eating and buying consumer is already present, but is going to get more complicated and will hopefully bring more value to the farmer.

–  About 25-30 per cent of the world’s food production ends up being wasted and not eaten  – this will have to be improved upon well before 2050. . . 

ASB punts on Fonterra sticking with $4.25 milk price – Jamie Grey:

ASB Bank is punting on Fonterra leaving its 2016/7 farmgate milk price forecast unchanged at $4.25 a kg of milk solids when the co-operative releases a market update on Monday.

However the risks were “skewed” to a figure as low as $3.90/kg because of a consistently strong New Zealand dollar, ASB rural economist Nathan Penny said in a research note.

Penny said it was still early days in the season, which started on June 1, and that there was plenty of time for dairy prices to rise. . . 

More research is needed if farming is to progress – Jacqueline Rowarth:

Climate variability, farm gate prices for food and fibre, and increased concerns about the environment are combining to create unsustainable farm systems.

Alternatives need careful evaluation before decisions are made in an attempt to avoid unintended consequences.

The latter can be worse than the current state – Brexit, for example. 

Increased warm temperatures, drought, floods and long cold springs mean that farmers are adapting systems to cope. Use of supplementary feed has been part of the development of resilient farm businesses, but the urban perspective is that costs have increased without an increase in income. . . 

Resistance or resilience – which best characterises the red meat sector? – Allan Barber:

The Red Meat Sector Conference held in Auckland on Monday did not have one single theme, but a series of themes across the day, starting with the question ‘resistance or resilience?’ Past history suggests the answer might most logically be both rather than a choice between the two options.

In his introductory remarks MIA chairman John Loughlin said the volatile global situation contrasted with a relatively stable environment at home with a predictable meat industry, while Beef + Lamb chairman James Parsons highlighted the need to reduce on farm costs while achieving incremental gains across the supply chain. . . 

Queenstown tracks to get ratepayer funding:

Queenstown’s council has agreed to pay to maintain 11 walking and biking tracks being developed across two high country stations.

The Queenstown Lakes District Council yesterday agreed to pay $10,000 a year to maintain the existing and planned tracks, which will go across Glencoe and Coronet Stations.

The land is partially owned by the Crown under pastoral lease, and partially by Soho Properties, which has entered into an agreement with the Queen Elizabeth II Trust to protect the land. . . 

Better baits and better trapping – Kate Guthrie:

Peanut butter has long been used as a lure for rats. Possums have a fondness for the scent of cinnamon. But are they the all-time favourite foods of rats and possums? Researchers at Victoria University of Wellington used chew cards to check out what really tickles the tastebuds of two of our more common urban pest species. Home trappers might like to give these food lures a go too…

Many tests of trap lures are done with laboratory animals, but in this project the researchers compared food-based products on free-ranging, wild rats and possums. They assessed the chew card results for attractiveness and consumption and found that wild rats preferred cheese, milk chocolate, Nutella and walnut to the peanut butter standard. Possums statistically preferred apricot and almond to cinnamon. . . 

Farmers need to be bank ready:

With the dairy pay out remaining stubbornly low and equity positions becoming more precarious many farmers are seeing more of their bank manager, according to Crowe Horwath’s Head of Corporate Agribusiness, Hayden Dillon.

Dillon is quick to point out that this increased level of contact isn’t always a bad thing and proactive discussions between banker and farmer are an important step to take in dealing with the current financial pressures both parties are facing.

However, it can be intimidating for some and a recent Federated Farmers’ survey found that one in ten farmers were feeling an ‘undue’ level of pressure from their bank. . . 

#431AM top ten calving tips:

We asked our #431AM farming community how to get through #calving16.

Here are some of our farmers’ top tips for the calving season. Thanks to everyone who contributed!

We’d love to hear your #calving16 tips – hit us up on Twitter, Facebook or Instagram using #431AM. 

 

  • Eat well, sleep well, know your body’s limits. Good communication amongst your team and don’t let things get to you. It’s farming, it’s life and things go wrong. It’s how you manage the situation that counts. Being negative will make time go so much slower, and above all think of our girls. We get days off during the season but they don’t, without our girls we are grass growers. Richard H
  • We have 3 meetings a day. We have a work safe meeting to work out what safety gear we will need before we’re out the door. Yesterday with snow on the ground it was too dangerous for workers to leave the house. You have to have more meetings. 1 a day is not enough. Ann-Maree G
  • Take time to get off farm, even for an hour. Keep in touch with others, especially when things are at their toughest. Chances are others are also feeling the burn. Sue M
  • Set a roster, keep the fridge stocked with food snacks, have morning meetings with coffee and snacks and last thing at night after milking. Ask what people want to discuss at tomorrow’s meeting and what was their highlights and/or best achievements for the day. Geoff M . . .

 

South Island Wool Bounces:

New Zealand Wool Services International LTDs CEO Mr John Dawson reports that despite a strengthening NZ dollar, the varied selection at this week’s South Island auction attracted strong support.

Of the 7700 bales on offer 85 percent sold.

The weighted currency indicator was up 2.06 percent compared to the previous week’s auction.

Mr Dawson advises that a selection ranging from 21 micron merinos to 42 micron coarse wools with a cross section of styles and lengths provided attractive options to buyers which overrode the possible negative impact of the stronger dollar compared to the similar South Island offering on 14 July. . . 

Fine wines of New Zealand revealed:

Six of the nation’s leading independent wine experts have come together to create “The Fine Wines of New Zealand” – a list of the country’s most prestigious wines.

A selection panel comprising Masters of Wine Alastair Maling, Michael Brajkovich, Sam Harrop, Simon Nash and Steve Smith along with Master Sommelier Cameron Douglas has agreed on the list for 2016 which includes 47 wines representing seven varietals.

This group of leading New Zealand wine experts met several times in late 2015 and in the first half of 2016 to define the criteria that had to be met for a wine to earn the prestigious Fine Wine of New Zealand status. One of the key criteria is consistency, with a wine having had to have been produced to an exceptional standard for a minimum of five consecutive years. . . 


If you thought balancing the books was easy . . .

July 16, 2013

If you thought balancing the country’s books was easy, you can try your hand at doing it.

An online calculator that allows people to have a go at addressing the Government’s long-term financial challenges is being launched today by Victoria University’s Chair of Public Finance, Professor Norman Gemmell.

The long-term fiscal calculator, developed in conjunction with Treasury, is one of the first tools available on a new website, (www.nzpublicfinance.com) also launched today by Professor Gemmell, which provides a hub for public finance research and policy debate.

The calculator shows how a range of different choices in spending and taxation can help to address the challenges facing the Government’s financial position over the next 40 years. These challenges result from factors such as population ageing and increasing demand for services.

“The pressures facing the fiscal position over the long-term mean that some adjustments are going to be required,” says Professor Gemmell. “This calculator lets people choose which options they think are best.

“For example, you can choose to spend more on health or education but, at the same time, the calculator forces you to think about the trade-offs involved with this.

“It gives people more information about the range of options we have, and allows them to say ‘How, if I was going to balance the books, would I do it?’” says Professor Gemmell.

People will be able to submit their choices online and those submissions will contribute to a picture of preferred options for closing the gap between spending and income.

Professor Gemmell says the long-term fiscal calculator is the first of a number of web tools that will be available on his new public finance website.

“The website will bring together research and data that will be useful for academics, analysts and policy makers. But it’s also aimed at the general public and at stimulating debate and discussion on a whole range of public finance questions around public spending, tax rates and saving schemes like Kiwisaver.”

Professor Gemmell says engaging with policy makers and other organisations on public finance issues is an important part of his role. He is talking with economists and other universities about including a variety of research from around New Zealand, and from around the world, on www.nzpublicfinance.com.

The calculator is here.

It’s a very blunt instrument with limited options but does give an idea of the complexities involved in balancing a Budget.


August 27 in history

August 27, 2009

On August 27:

1877 Charles Rolls, co-founder of Rolls Royce, was born.

 

1899 C.S. Forester, English novelist, was born.

1904 English author Norah Lofts was born.

1904 the foundation stone for the first building at  Victoria College (now University) was laid.

1908 U.S. President Lyndon B. Johnson was born.

 

1932 English writer Antonia Fraser was born.

1991 Moldova declares its independence from the USSR.

Sourced from Wikipedia & NZ History Online.


Putting possums on the pill

April 13, 2009

A contraceptive for possums  has been successfully trialled at Wellington Zoo.

The treatment makes possums infertile for up to two years.

Associate Professor Doug Eckery, of Victoria University, said he hoped to have field trials underway by 2013.

“It was an exciting result, but delivery is the key,” he told the Dominion Post.

The challenge was to find a way to distribute it to wild possums, possibly using bait.

The estimated 50 to 70 million possums  in New Zealand compete with native birds for food, eat young growth of trees , destryoing forests, and sometimes dine on birds’ eggs and chicks. They also carry tuberculosis which is a danger to beef and dairy cattle and deer.

North Otago is a low risk area for TB but we  had several outbreaks in our dairy herd. It took ages to find the carrier,  a cow which had come from the West Coast. Testing isn’t 100% reliable and it wasn’t until she was culled after drying herself off that we discovered she was riddled with TB.


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