While the TWG's list of Band Aids was a bit disappointing, it was a great public service to see it clarify what we all know, that our tax system is an incoherent patchwork of tax regimes that amount to facilitating far too much tax avoidance activity, ensnare too many folk in poverty traps through poor integration of the tax and benefit systems, and exert undue influences on economic decisions by making some wealth-augmenting activities taxable and others not (property speculation).And fair go too. The TWG did not look too hard at the Working for Families gimmick, aside from the loopholes such a complex welfare tool provides for the savvy. It was beyond its remit to look at externality or Tobin taxes (Jim Anderton's Financial Transactions Tax under another name), nor excise taxes.
But the group's conclusions leave a gerrymander of cop-outs. Exclusions for this, that and the other. You're trying to flatten the tax base, not bias it ever upwards to the wealth holders with the requisite quorum of lawyers and accountants. As Morgan says:
A selective tax on just the equity in rental properties. Such a measure would encourage a raft of tax dodging responses as investors used different entities to lend money to themselves, ensuring that their property-owning entity minimised equity in its properties.As far a tax schemes go, Gareth Morgan has raised his Big Kahuna Flag up the pole, and it still looks a superior design compared with the Brash 2025 Report and the TWG. To mix metaphors, Morgan is revving his wonkacycle and preparing to play chicken with competing policies.
It's because the partial, ad hoc nature of their recommendations leave largely intact the colander of tax leakages from our current broken tax system that the TWG deserves four out of 10. It failed to provide a roadmap to a more sustainable, fairer and efficient tax system.
In another corner, Bruce Sheppard is donning cycling armour and wielding his bike lock at the land tax, complete with a short history on its long existence in NZ:
The first substantial tax ever introduced in NZ was land tax. I don't know exactly when but I assume it was in the 1860s. By the time I was a thinking person, maybe the mid-1970s we still had land tax. It was thus one of the most enduring and successful taxes ever created. It was abolished in the mid to late 1980s. I recall one of my first jobs in the IRD was to issue land tax assessments, mind numbingly boring work.Boring work is unavoidable for tax minimisation purposes. Boredom means simplicity. Until there's a loophole:
Soon political pressure was brought to bear to abolish land tax on residential property that was owner occupied. Then on all residential property as it was believed to be forcing rents up and hurting the poor. Then on farm land as the poor farmers were struggling to make a return. All that was left was commercial and industrial property as public land was always exempted. This tax, if introduced, will have to go the same way.
Taxing homes will not be acceptable. Farmers are a major political force and taxing farms won't be politically acceptable either so the rate will not be 0.5% on all property. It will be a higher rate on a smaller base. At least that is my bet when the political survivors of Polliegrad (Wellington) decide what they want to do.
Taxing homes is unacceptable to Rick Barker over at Red Alert, even when it comes to rental properties:
These people have all worked hard. They have saved hard, forgone big holidays and other excesses in order to pay off their first house and then save for their second property, their retirement income.An income without a tax. Boo hoo.
The 1987 stock market crash made him justly nervous about investing there. He remembers Ariadne and Mr Judge: Gold Corp and Mr Smith and November 1987 when people appeared to him to be dumping share script by the rubbish bag.Yes, the 87 crash was shit. One of my high school mates lost money on Goldcorp and Ariadne too. Boo hoo. That's risk for you. It you can't hack it, stick with Lotto. OK, that's a bit harsh. What NZ investors need is a nice easy tit to hang off, like Ron Brierley was in the 80s. Our sharemarket is nailed together by about a half dozen decent sized companies and a swarm of ticks. That needs to change.
Leaving the money in the bank on fixed deposit didn’t seem good enough, as the rate of return was less than inflation, so it was being eaten away over time.Not since the Reserve Bank Act. Since then, deposit interest have been above inflation. This is the very same monetary policy beam that Goff and Co are keen to saw up in their pursuit of a populist policy. Oh lordy, don't give me that Mugabe scrip again.
This man is no bludger, no rack rent landlord, he is not highly leveraged gambling on capital gain to off set other costs, he is a hard working Kiwi and a saver.
No, your case study is more like a vampire feeding off the blood of the less fortunate. LACQULA. It's a sad state of affairs when this is the only way that the Boomers can satiate their need for income without work or tax, but that's loopholes for you.
Until we can turn off gravity and have communities living in mid-air, people will have to live on the ground. And in NZ, that land is very bloody expensive relative to per capita income. And if Labour think they are rebranding themselves with random policies out of the remit hat as the defender of the working class, they'll just have to wait until the middle classes have been weaned off the tit first.
I'm still supporting Gareth Morgan's grunter. Flatten the tax landscape. No bloody exceptions. If someone's farming on marginal land which might better be converted to residential, so be it. Granny living in a big old empty house in Remuera? Downsize. A land tax might be the only way to extract money out of that Bridgecorp director in Paritai Drive.
If those renters who make up one third of NZ households didn't spend so much on rent, maybe they'd have enough to spend on necessities or save towards that first elusive deposit for a roof of their own.
But all those hard-working, ordinary New Zealanders that Labour are trying to milk need somewhere to stash their cash. Which is where Securities and NZX reform needs to come in, as well as some public listings of some serious performers.
Partial floating of some SOEs would fill the latter objective. Labour couldn't bleat about it as former SOE Minister Trevor Mallard was waddling towards just that idea when they got ditched by the voters. It's a bit like Gareth Morgan's Guaranteed Minimum Income isn't a million miles away from Ruth Dyson's Universal Benefit scheme that was mooted on the never-never.
She's going to be an interesting chicken dash.