‘Tax cuts for rich, paid for by the poor.’
That’s how Marty at The Standard (happy Lynn?) describes the working group recommendations. To me it looks more like tax cuts for the rich and middle class who pay income tax, paid for by the rich and middle class who use loopholes in the property and WFF tax laws to rort the current system. The working group recommends compensating low income earners for GST increases and I don’t think a lot of struggling families and beneficiaries are benefiting from, say, LACQ shelters or depreciation rebates.
The “true middle class” aren’t going to like this once the Herald actually works it out though – cuts to upper rates means “the rich” get a good personal income tax cut, compensation to lower-incomes means “the bludgers” don’t get affected; but that guy earning $60k a year paying the mortgage? Prices on everything he buys goes up and he has to pay a tax for the land on that house he bought.
They’ll go bonkers.
Comment by garethw — January 20, 2010 @ 3:03 pm
“To me it looks more like tax cuts for the rich and middle class who pay income tax, paid for by the rich and middle class who use loopholes in the property and WFF tax laws to rort the current system.”
That’s because you’re uninformed.
The TWG papers show that the cost of the taxes on property investment will be passed on to renters – most of whom are poor.
Oh, wait, Marty made that point… So, bascially you’re just misrepresenting what he said by providing the conclusion but ignoring the reasoning and substituting your own faulty reasoning.
Oh, and 79% of people get no income tax from aligning the top rates at 30%… So, no tax cut for the middle class here.
Comment by Informinator — January 20, 2010 @ 3:18 pm
Yes – thanks enormously. Its a co-op with some quite differing views amongst authors.
It is a interesting set of proposals, I’m just reading it now. It really does look like a merry go-around that doesn’t look likely to do much. The biggest impact on people who aren’t into running a business or into property investment is likely to be the GST changes.
I suspect that most of the impact will come through on those who currently have most of their personal tax below 33% and who are renting. They’re going to get hit with bugger all PAYE tax reduction, an increase in taxes for GST except for rent, and rental prices rises as the effects of fixing the loopholes. In practice they’re going to get an effective tax increase. That covers a very high proportion of taxpayers – in fact the majority. They won’t be happy with funding the tax cuts for the rich.
Comment by Lynn Prentice — January 20, 2010 @ 3:20 pm
You should look at the date of that article of the Standard. They wrote it last year. It’s their template: any change ot the tax system is the poor are giving to the rich. It’s so predictable. They would have more credibility if they showed us how their optimum tax system looked like.
Wait, they already did! From 2000-2009. Gap between NZ and Aussie widening, not back in the OECD top half, health care failing, 50% leave school functionally illiterate.
Before people start crying fool: National will end up with exactly the same record.
Comment by Berend de Boer — January 20, 2010 @ 3:25 pm
You’re right Danyl. And worse tax benefits for rental property will not simply lead to higher rents as Informinator and Marty G suggested – it is likely to lead to lower house prices (or smaller increases) as fewer property investors enter the market and existing ones get out. This will make it easier for renters to buy houses and thus dampen the potential for rent increases by reducing demand for rentals. The economy is dynamic, not static – that doesn’t mean that no rents will go up, but it is too simplistic to just say that higher taxes on property investors will lead to higher rents.
Comment by Dave Guerin — January 20, 2010 @ 3:30 pm
I’m confused. If changing the taxation regime for “rich prick” rental property owners will lead them to increase rentals, how come the “rich prick” rental property owners haven’t already jacked rentals up to the max achieveable?
It seems like the standard is simply applying the usual “National Bad” logic.
Comment by The Double Standard — January 20, 2010 @ 3:43 pm
Wow, Double Standard, you REALLY don’t understand basic economic principles of return and competition do you?
Comment by garethw — January 20, 2010 @ 3:49 pm
This isn’t benefiting the ‘middle-income’ earners – we are talking about the top tax bracket here, those earning over $70,000. That is not nurses, teachers, police officers, store clerks, administrators etc…this is the a very small portion of the population.
Do you really think that around 85% of the population who will receive NOTHING from this will think that that is okay? I don’t.
If they raise GST to fund it they are going to be in even more trouble.
It sounds to me like it is just a reward for those that have been dodging the tax that they should have been paying for a long-time.
Comment by Tim — January 20, 2010 @ 3:57 pm
This should be dead easy for Labour. Tax cut for Paritai Drive, GST up for Struggle Street.
Comment by Sanctuary — January 20, 2010 @ 4:04 pm
What’s really interesting is actually reading the paper! They really just provide options – the mix of those options isn’t really specified and would be left to the Govt. The aligned top rates at 27/27/27 with a comprehensive CGT excluding the primary home is one that I conceptually like (it basically just changes the way in which the wealthy are taxed without any major overall loss or gain anywhere). However it then says that most members considered this too difficult to implement, which is a shame!
Comment by garethw — January 20, 2010 @ 4:06 pm
This should be dead easy for Labour.
Sigh. More politics as spin soundbite, rather than anyone actually work out what might be good for the country. No wonder “the educated” prefer living offshore…
Comment by garethw — January 20, 2010 @ 4:09 pm
In case people don’t know. The “rich pricks”, i.e. 10% of NZ pay 76% of the taxes. I’m guessing that has to be 100% before The Standard is happy?
Comment by Berend de Boer — January 20, 2010 @ 4:10 pm
Ahhhh, Berend, the only way in which we can assess the fairness of that number is by saying what percentage of our income is made by that 10%. Not a hard concept.
See, if that 10% are making, say 65% of the income, then paying 76% of the taxes would suggest a pretty mild tax progression, no?
Comment by garethw — January 20, 2010 @ 4:12 pm
@garethw: “Sigh. More politics as spin soundbite, rather than anyone actually work out what might be good for the country. No wonder “the educated” prefer living offshore…”
If you know of a democracy where the politicians are focussed on the greater good, and stay away from spin and glib soundbites, then do tell..
Comment by Repton — January 20, 2010 @ 4:14 pm
Repton – there is no such absolute democracy that I know of. But the last 3-4 years have really depressed me in terms of the relative level of spin our Govt parties employ here compared to what I’ve experienced in the UK and Aus. I suspect that’s more about a slightly more robust 4th Estate that at least tries to present multiple biases and allows for a certain checking of the worst spin.
Comment by garethw — January 20, 2010 @ 4:16 pm
Tim if you read the report, you can see that most taypayers are receiving NOTHING (in your words)from this proposal because they already pay NO net tax. You want their tax reduced from zero?
Comment by vibenna — January 20, 2010 @ 4:18 pm
Actually garethw, any tax working group which uses a series of bumper sticker neo-liberal slogans as their starting point and fails to bother to consider the social and redistributive role of tax in a democracy was always going to produce outcomes that reflected the input. Bullshit input, bullshit output.
The tax working group approached the whole tax problem from a position of pure, dogmatic neo-liberal orthodoxy. It is revealing what wasn’t even considered – no mention of Tobin tax – good or bad – no discussion of anything like a payroll tax, no look at stamp duties to curb property speculation or as a method to control finance sector speculation.
This isn’t a “generational chance to create a world class tax system” (where have we heard THAT sort of bullshit language before?) it just another attempt to transfer wealth from the poor to the rich for ideological reasons.
Comment by Sanctuary — January 20, 2010 @ 4:23 pm
I can’t quite believe we’re listening to Labour Party supporters fight for the right of the landed class not to have to pay any tax, but here we are.
Comment by danylmc — January 20, 2010 @ 4:28 pm
So riddle me this Danyl: If this meant to be “fiscally neutral” yet at the same time deliver a massive tax cut to the richest 10-15% of New Zealanders, who the fuck’s pocket do you think the money is going to come from to keep it “neutral”, smart guy?
Why should the CEO of Telecom get a huge tax cut when at the same time a new land tax forces a pensioner farmer of his land? You seem to spend a lot of your time being a concerned troll for Labour supporters, but the reality is a land tax will hit a shitload of low income people who are asset rich – i.e. someone who brought a house in a nice part of Remuera in 1954 and is now living on their super, or people who sunk an inheritance or savings into a dream lifestyle block – but cash poor. After all, the whole point of a land tax isn’t to raise revenue – they are meant to force a more “efficient” use of land. GST going up may see some compensation for people directly on benefits, but two income families earning, say, $60-65,000 won’t see any of that.
Comment by Sanctuary — January 20, 2010 @ 4:36 pm
My parents worked all their lives to rise from grinding poverty to the point they were able to purchase a lifestyle block with a lovely nice house on it. That land has accrued nicely and their wise investment and hard work has lifted a whole family up the class scale. They are pensioners now. A land tax will force them off their land. Is that fair? If defending their right to own their own land is “Labour Party supporters fight for the right of the landed class not to have to pay any tax” then I happily plead guilty.
Comment by Sanctuary — January 20, 2010 @ 4:43 pm
Sanctuary, there is something to be said about their fundamental desire to ensure a low corporate tax rate to match other countries but there aren’t a lot of hardcore “neo-liberal” talking points in there (and you’re the one who just decided it should be labelled Tax Cut for Paritai Drive, GST Hike for Struggle St, so perhaps accusing others of baseless talking points isn’t your strongest play here).
I ain’t no neo-liberal, from what I can see here neither is Danyl, there are some relatively balanced options in that paper (which I’m not yet sure if you’ve read?) considering it’s from a bunch of economists under a National Govt.
But I’m sure Labour will just try and negate the entire thing and we’ll see no attempt to actually take principled, analysed positions on the main points…
Comment by garethw — January 20, 2010 @ 4:44 pm
Ha, you really haven’t read it.
You know what their main modelled option was? A low, aligned top rate at 27% with a comprehensive capital gains tax. No where all the capital gains happen? Amongst the wealthy perhaps? Sure there would have been some movement but on the whole that option would just have changed where we got the tax from the rich from, not who.
Comment by garethw — January 20, 2010 @ 4:46 pm
No = know. Don’t blame me, I was educated under a National Govt
Comment by garethw — January 20, 2010 @ 4:46 pm
Anyhoo, just to four-post, I don’t want to have a go at you Sanctuary or anyone, but it gets me when rather than having a rational discussion about anything in this country, we just go into auto-oppose-what-the-”other”-guys are doing so will leave it there.
There are possible combinations of options in that tax paper that would actually see no net change in total tax paid (of all forms) while hitting those of the wealthy who are squirrelling money away through rental-homes-owned-by-the-trust-in-the-daughter’s-name. Labour should maybe think about encouraging and supporting that mix of options
Comment by garethw — January 20, 2010 @ 4:56 pm
Just for the record, four days ago I wrote this:
I assume Labour will take to the trenches and fight for the right for property investors and financiers not to pay any tax, but if they don’t there are some juicy options available to them: they could support the new levy but insist that so long as payments to the Cullen fund are suspended any tax cuts are illusory, since future super costs will require massive tax hikes furthur down the line. Or they could campaign for a tax free threshold – the first $4000 of income, say – this would benefit a LOT more people than a cut in the top tax rate.
http://dimpost.wordpress.com/2010/01/14/goose-plucking-revisited/
Comment by danylmc — January 20, 2010 @ 4:58 pm
I knwo you did Danyl, but you seem to often forget cynicism isn’t an attractive trait.
I don’t actually opposed to some form of CGT. It seems to me whacking people with an almighty stamp duty of they sell a property within five years of purchase would do wonders as well. However, any attempt to impose a land tax would be met with the same response maggie Thatcher got when she tried to impose a poll tax, and for the same reasons. The idea that the government can arbitarily change the rules and force an honest citizen off their land or out of their home to pay a tax they genuinely cannot afford and never wished to incur is an appalling attack on basic principles of fairness – hell, of liberty.
If the land tax was levied on NEW purchases after a certain date that might change my mind, but of course it won’t be. As it stands, these proposal will simply further cement the rich with the mostest and poor with nothing, and no way of ever afffording the tax even if they inherit enough money to buy their dream.
Comment by Sanctuary — January 20, 2010 @ 5:17 pm
“In case people don’t know. The “rich pricks”, i.e. 10% of NZ pay 76% of the taxes. I’m guessing that has to be 100% before The Standard is happy?”
You economic illiterate. They pay 42% of assessed tax on 32% of taxable income.
http://publicaddress.net/6414#post6414
Comment by georgedarroch — January 20, 2010 @ 5:24 pm
Quoting Public Undressed is hardly stunning research either George.
Comment by Wallace — January 20, 2010 @ 5:30 pm
“Quoting Public Undressed is hardly stunning research either George.”
His point was that he claimed that 10% pay 76% of taxes. My point is that he is wrong. In fact, only NZ’s top 10% and bottom 10% pay significantly different than they would under a flat tax regime (source – The Economist, “The Case for Flat Taxes” 25 April 2004).
Comment by georgedarroch — January 20, 2010 @ 5:36 pm
Georgedarroch – Box 1 on page 14 of the report is informative, showing that PAYE is 53% of the tax take. But then consider Working for Families – Labour were at pains to claim these as tax credits. So let’s add this back and the report notes then that 40% of households pay no income tax.
Yes. 40% of households pay no net income tax. How sustainable is that?
On Page 17 of the report, the working group note if tax credits and transfer payments are taken into account, then the top 10% pay 76% of net income tax. This is the estimate from our leading public servants, economists, and tax accountants.
Comment by vibenna — January 20, 2010 @ 5:40 pm
Before everyone leaps to conclusions across gulfs of disbelief perhaps we should look at what teh Gummint actually wants to achieve:
* smoothed tax revenue
* reduced tax leakage
* transfer of ‘economic effort’ from housing to business & productive investment
Land tax I believe is a red herring that will not be implemented for the very reasons outlined above by Sanctuary, political suicide. Key is astute enough to know which way is down and won’t go that way. We’ll see the land tax proposal replaced with a stamp duty on sales. GST will go up and the tax write offs & depreciation on retail property investments will be canned. Company and Trust rates etc aligned.
The leftist argument that this is rich prick tax doesn’t really hold water as anyone on a ‘high income’ ie higher tax rate benefits from fiddling the system as it stands to offset rental losses against income and then claim WFF. A state of affairs born from Labour & conveniently forgotten by the tub thumping unionista in blog land.
Comment by Wallace — January 20, 2010 @ 5:43 pm
George apologises to Berend.
Comment by Wallace — January 20, 2010 @ 5:48 pm
So let’s add this back and the report notes then that 40% of households pay no income tax.
Yes. 40% of households pay no net income tax. How sustainable is that?
That’s redistribution of the tax take. Most superannuitants pay negative tax… sounds _scary_ when you talk about it like that, doesn’t it?
How sustainable? Completely sustainable.
Comment by georgedarroch — January 20, 2010 @ 6:06 pm
From 2000-2009. Gap between NZ and Aussie widening.
Absolute bullshit. Between 2000 and 2009 the gap in median wages decreased. Because Labour and the Alliance were committed to raising the minimum wage.
Oh, and Don Brash can stuff his total-factor-productivity up his arse. Where the hell are people going to invest capital otherwise, if not in property?
Comment by georgedarroch — January 20, 2010 @ 6:18 pm
> Where the hell are people going to invest capital otherwise, if not in property?
* Well, not in property if the tax write offs are canned.
Comment by Wallace — January 20, 2010 @ 6:32 pm
“18.I can’t quite believe we’re listening to Labour Party supporters fight for the right of the landed class not to have to pay any tax, but here we are.”
Jesus, Danyl. The Left isn’t against the taxes on property investment. They’re fine in theory. The problem is with who gets the offsetting tax cuts.
It’s like you don’t even bother to read what people are saying sometimes, like dealing with the bloody righties.
Comment by Marty G — January 20, 2010 @ 10:16 pm
Bernard Hickey gets to the nub of the issue:
The key factoid in the report and the one that shifted the debate is this: NZ$213 billion is invested in rental property and those assets made a combined loss of NZ$500 million in 2008, reducing tax income by as much as NZ$200 million. This is clearly unsustainable. The amount invested in rental property is four times that invested in the stock market and it is essentially untaxed. Decisions are being made for tax reasons, not because they make economic or business sense.
The TWG proposal closes an elephantine loophole in the tax system. Despite fearmongering from the Left, rents will not go up any more than the market can sustain, as is presently the case in the rental market anyway. If the govt is really serious about cooling the housing market, we oughta curb immigration and foreign investment in NZ property!!
Comment by ropata — January 21, 2010 @ 12:21 am
So George, if tomorrow National changed the WFF benefit to a WFF tax credit (same amounts) you and Keith would be able to accept that we have a progressive tax system and be able to sleep better?
Comment by Expat — January 21, 2010 @ 12:38 am
Garethw: “13.Ahhhh, Berend, the only way in which we can assess the fairness of that number is by saying what percentage of our income is made by that 10%. Not a hard concept.
See, if that 10% are making, say 65% of the income, then paying 76% of the taxes would suggest a pretty mild tax progression, no?”
Depends: is it fair for these productive folk to pay for all the rest to consume “free” services? Services such as the families commission and advertisements extolling the virtues of side curtain airbags and electronic stability control?
I agree increasing the rate of GST is madness. I suspect National want to be re-elected, so will steer clear of it. Re-election seems to loom large in decisions made by this gummint.
“But the last 3-4 years have really depressed me in terms of the relative level of spin our Govt parties employ here compared to what I’ve experienced in the UK”
We, Alistair Campbell may be history, but the level of spin in the UK is still orders of magnitude worse than here. Are you still reading UK newspapers, reading about all El Gordo’s initiatives? About his saving the planet? His single-handed rescue of the world financial system? Do you not remember the dossier that implied Saddam as good as has teh nuclear?
“I suspect that’s more about a slightly more robust 4th Estate that at least tries to present multiple biases and allows for a certain checking of the worst spin.”
Eh? The fourth estate that at first tried to ignore the Climategate affair? That treats news about the European Union’s institutions as, effectively, foreign news? That put no resources into actually reading, analysing and then explaining the Lisbon Treaty? That left it up to bloggers to research the business affairs of Dr Pachauri, head of the IPCC?
I guess, too, that you have forgotten the Herald’s courageous stance on the EFB.
Comment by Clunking Fist — January 21, 2010 @ 5:12 am
Sanctuary, wake me for the local body elections as we already have a land tax and then it’s suddenly the greatest thing since sliced bread. Just try opposing land tax or broadening the tax base at that level and see how the lefties go after you.
Comment by Berend de Boer — January 21, 2010 @ 6:26 am
Sanctuary: A land tax will force them off their land.
Remember that Labour minister for Auckland who said that people who couldn’t afford the increase in local rates, i.e. land tax, should leave Auckland?
For the past 9 years Labour has shown absolutely NO concerns for the effects of land tax on people with fixed income. Don’t start crying now, because your credibility was lost 9 years ago.
Comment by Berend de Boer — January 21, 2010 @ 6:29 am
Interesting. We have a situation where the proposal is to simplify the tax system, and remove the incentives for people to hide income in trusts etc. And the lefties are whinging about it as being “tax cuts for the rich”. I have to ask – with the ridiculous distortions that the Labour govt put into the tax system, where are we on the Laffer curve?
Comment by Spam — January 21, 2010 @ 7:47 am
Thank you, Spam. You echo my thoughts as well. The reports I have read indicate that most the the top earners put large parts of their income through family trusts (taxed at 30 %, not the top rate) or other vehicles that are taxed at 30 % (not the top tax rate). The changes proposed would hit MOSTLY the top tax earners who are using specially designed tax avoidance schemes. Why is there a problem with that?
As someone who is in a top tax bracket but (perhaps foolishly) simply pays the PAYE and doesn’t bother with the ins and outs of tax avoidance, I would welcome the changes. Oh, and the land tax changes that are being discussed seriously are for ADDITIONAL properties, not the primary residence. So those parents on their lifestyle block mentioned earlier would not be affected. Only those who bought additional properties as investments.
Comment by David in Chch — January 21, 2010 @ 8:30 am
Oops. “most OF the top earners” Had a bit of a typographical stutter. sigh. Still too early.
Comment by David in Chch — January 21, 2010 @ 8:31 am
[...] it is not satire, but a couple of useful posts. First he rebuts a cliche: Tax cuts for rich, paid for by the [...]
Pingback by Dim-Post on Tax | Kiwiblog — January 21, 2010 @ 9:38 am
Despite fearmongering from the Left, rents will not go up any more than the market can sustain, as is presently the case in the rental market anyway
You’re right. Rents have gone up to near limit of what people can sustain, and as a result the increases in price have been speculative for quite some time now. And the higher that bubble inflates, the harder it crashes. I’d hate to be the government who dared to risk it (no matter how sane the policy, and how reasonable the instrument).
Comment by georgedarroch — January 21, 2010 @ 9:50 am
As with all proposed tax changes, people all in cahoots about what’s in it for them. I just have a couple of questions which seems to be lost on many people here.
1) Are most people happy that the true wealthy people, Telecom CEO included, are hiding the upper end of their earning by investing in loss making vehicles, like residential property, in order to pay “less” tax and distort income redistribution?
2) Are most people happy that the said loss making entities do little for economic growth, employment growth and wage growth?
3) If the rich were better, or had better incentives in channelling their capital into growth and income earning assests, would that not broaden the tax base, so that the governement could lower income and investment earning taxes?
4)Surely economic growth contributes to wage growth and employment growth which benefits lower income earners?
5)Surely reducing demand for homes by property investors will lower house prices so more people can live in their own home?
6)Do people here not want cheaper homes? Are they happy to be held back by large mortgages?
7)If people borrowed less, then surely we would borrow less from overseas, thereby improving the current account deficit?
8) Do people not see that tax reforms are not about making “rich pricks” pay less tax at the expense of the poor, but about getting the economy working better so the whole country can benefit?
9) Am I missing something here, do most of the posters above want to live in a zero to negative growth utopia, while continuing to be poor, being seen as a laughing stock situated at the arse end of the world?
Comment by Grizz — January 21, 2010 @ 9:38 pm
Grizz asks: “1) Are most people happy that the true wealthy people, Telecom CEO included, are hiding the upper end of their earning by investing in loss making vehicles, like residential property, in order to pay “less” tax and distort income redistribution?”
I don’t think those sorts of folk tinker with residential investment. I’m not part of that rich club, so don’t deal with the issues on a daily basis, but mostly what they do is put their accumulating wealth into trusts. This ensures that future gains, dividends and interest are tax at the trust rate and/or their children’s marginal tax rate. There is also extensive use of something called “offshore”.
Most residential landlords I konw are older builders, firemen, assorted other tradespersons and others with the “handiness” to ensure cash maintenance costs are minimised*. Dirty rich bastards they are (/irony). Being a landlord is a shitty job involving dealing with shitty tenants and their shitty demands. It can be quite time consuming, esp compared to an alternative such as the Rabo on call account.
*The main exception seems to be folk who have moved overseas and haven’t severed all ties yet: they have their old family home managed by an agent. Sometimes this “agent” is a relative who had no idea what they let themselves in for when they agreed to the request.
Comment by Clunking Fist — January 22, 2010 @ 5:34 am