Taxation in 2020: my thoughts on a socially taxing matter


Tax. A three letter word of a thing whose collection was the job of someone Jesus apparently had sympathy for when nobody would. A thing loathed by libertarian and right wing parties, but seen as essential by many on the left. So, about this interestingly controversial thing called tax, that gets peoples hackles up for different reasons without fail at every election. I believe New Zealand needs to revisit that Tax Working Group report and make some serious decisions.

But before then, we have an election campaign approaching and I think in light of the Green Party tax announcement on Sunday, it is time to state my thoughts.

Goods and Services Tax (G.S.T.) is one tax that people from all parts of the political spectrum seem to agree is a hindrance. For the low income earner the few extra dollars that is paid as a result of G.S.T. is possibly the difference between being able to afford an essential item and having to scrounge around for a couple of extra dollars. Lower income earners also as a result find it much more difficult to invest and/or save. I personally believe G.S.T. should be cut to 10%. I will explain later where I believe the other components of the tax system can make up for the subsequent loss of revenue.

Every election, National and A.C.T. have campaigned on doing something about lowering income tax. One can be fairly confident that the 2020 election will be no different. Not surprisingly they will target the upper income tax brackets – shown below – and say that the tax cuts will benefit all New Zealanders. The current brackets are:

  • $70,001+ = 33%
  • $48,000-$70,000 = 30%
  • $14,001-$48,000 = 17.5%
  • <$14,000 = 10.5%

Instead of further cutting the top tax bracket and giving higher income earners an even bigger slice of their incomes, I propose broadening the income range across which the tax brackets are applied. I would support something similar to the brackets below:

  • $150,000+ = 37.5%
  • $67,001-$150,000 = 30%
  • $33,001-$67,000 = 20%
  • <$33,000 = 10%

But simply fiddling around with the income and goods and services taxes is not imaginative and ignores other potential tax instruments that may assist this country. At this point, I give New Zealanders four options from which one needs to be chosen:

  • A Capital Gains Tax. Prime Minister Jacinda Ardern has already ruled it out under her watch, but would she have second thoughts if Labour found themselves reliant on the Green Party for support or in the improbable position of governing alone? And this is certainly not to say there are no supporters for a C.G.T. The New Zealand Herald explored some of the arguments they were putting forward.
  • A Wealth Tax. Graeme McCormack of the Human Rights Commission wrote an article for Noted last year in which he explored how a wealth tax might work in New Zealand – his suggestion was for a 1% tax on citizens net assets (excess of assets over liabilities), exceeding say N.Z.$10 million
  • A Land Tax. Bernard Hickey wrote a column for Newsroom which looked at how a land tax could work in New Zealand. He envisaged a low level broad-based one as being the fairest method. Mr Hickey thought that it would cause an immediate 10-20% drop in land prices. Thus if a section were worth $200,000 land only before applying a land tax it might now be worth $160,000-$180,000.
  • A Luxury Goods Tax. I would assume luxury goods to include vehicles worth over say $150,000; boats worth more than $100,000; any privately owned helicopter, aircraft that is used for non-work related; jewellery worth more than $100,000.

I acknowledge a C.G.T. is a double-edged sword and even if one did get introduced, if it was poorly planned then the wrong parts of the tax payer spectrum might be unfairly targeted. Having a politician no encumbered by coalition partners might be a prerequisite as well. Whilst for reasons of levelling the playing field enough that low income players enter drive a C.G.T., its complexity may be its undoing. The McCormack article article examines a wealth tax, which could be set on net citizen assets exceeding $10 million. This along with the potential land tax explored by the Bernard Hickey article seem to me like the most promising ways in which tax reform could contribute to a fairer society. A luxury goods tax is perhaps the most vulnerable tax to critics who claim it is about envy since the chattels involved will be specifically items that the lower and middle class can only dream about, never mind trying to save enough for one.

 

Government will regret abandoning C.G.T


This afternoon, Prime Minister Jacinda Ardern made a stunning announcement.

It was stunning for all of the wrong reasons, but perhaps first and foremost how it seems to have caved into the lobby group with the loudest megaphone, namely the Tax Payers Union, which is a right leaning group. It was a stunning announcement, because it was a complete u-turn to the image that the Government has been cultivating as one that wants to address poverty, the huge wealth imbalance in the country and the social disparities that it is causing. The Government will regret its move to abandon the C.G.T.

I saw this article from Craig Elliffe and Chye-Ching Huang after the failure to do anything about enacting such a tax in 2009-10. I cannot help but wonder what they would say now.

Not surprisingly the Green Party is disgusted. A C.G.T. was to be the corner stone of any plan to address poverty, which is high their agenda.

I am disgusted myself. New Zealand is the only country in the O.E.C.D. not to have a C.G.T. and possibly for as long as the next 18 years – with the exception of the Keith Holoyoake-led National Government of 1960-1972, and the war time Savage/Fraser-led Labour Government, no government has lasted more than 3 consecutive Parliamentary terms. And no National-led Government is going to introduce such a tax. Before then they would prefer to cut income tax or raise goods and services tax (G.S.T.).

How much did New Zealanders honestly know about a C.G.T.?

My guess is probably not a lot. I wonder how many of them have learnt to critically evaluate something, instead of just reading about the pros and cons. I never took accounting or economics at school and only did a first year economics paper at University that immediately screamed “give it up, Rob – you’re not an economist!”. Which I heeded – I haven’t touched an economics paper since.

So, what do I believe the consequences of this are?

In a purely political sense, provided they do not do anything dumb between now and the 2020 General Election, the Greens stand a good chance of enjoying a bit of a surge in support. It will come from those on the left flank of Labour who are not quite in the Green Party camp, but do not really feel as though they belong with Labour.

In a financial sense, Labour has squandered perhaps its best chance to enact something that addresses a long standing and well known problem – our treatment of capital gains is inconsistent, unfair and inefficient. The Government has indicated that most of the other 100+ recommendations made by the Tax Working Group in their report will be implemented or examined further. The question, though is whether the sum of these apparently lesser measure will be noticed. Nor is C.G.T. a new idea, having been examined by Governments in 1967, 1978, 1982, 1987, 1988, 1989, 2001 and 2009-10.

In a social sense, the potential support for those trying to get on the property ladder for the first time has been taken away by failing to address those who buy multiple properties to use as a money making scheme. It also sends an improper message to those who do indulge in this behaviour that the Government does not care much for making sure you pay due tax.