David Cunliffe has re-announced old news about Labour dropping two tax policies that never took off. Labour has now officially dropped the income tax free threshold, and the proposed GST exception for fresh fruit and vegetables.
It's unfortunate that no-one could manage to sell the tax-free threshold in Labour. The policy would have largely benefitted Labour's alleged core constituents, as well as gone some way to repealing Bill English's paperboy tax, and more closely alligning with Oz's tax-free income threshold. Labour has moved away from a central part of any Guaranteed Minimum Income policy, throwing all its eggs into the unions' Working Living Wage campaign.
The fruit and vege GST loophole was never a winner, and should have never been approved by the Labour Council. All the policy did was confuse the audience, and show up Labour's brains trust to be fiscally illiterate. It was so poorly designed, it made Working for Families look relatively elegant.
More substantive tax policies are hinted at being foreshadowed in Cunliffe's State of the Nation speech next week. The progressive tax hike for high income earners is still in the mix. As is a capital gains tax on housing, excluding the "family home". Some changes at Working for Families are hinted at. It wouldn't be a Labour party that didn't whip the working classes with more sin taxes on booze and smokes too. No-one in Labour understands the term Tax Churn.
There's a simpler solution to tax reform which is now available to Labour which previously wasn't, due to severe internal consistency flaws. It doesn't require mucking about with entirely new tax regimes and all the grifting and upheaval that requires (Just look at the grief caused by the LVR restrictions). It would take some heat out of the housing bubble, while removing some incentive for short term investment property flippers.
Make all (residential and commercial) property sales subject to GST.
As far as George Orwell was concerned, the hallmarks of a totalitarian society can be summed up by bad cigarettes and compulsory fitness. The opening chapter of 1984 came to mind as I watched the first segment of TV3 ambitious new current affairs show The Vote.
The format seems robust enough, but the subject matter gave me reflux. Taxing 'bad' food is a mind-numbingly stupid idea, up there with Labour's aborted policy of exempting 'fresh' fruit and vegetables from GST.
But New Zealand has no shortage of bashers. Everybody needs somebody to hate, after all. The smokers are sufficiently marginalised, so now the puritans are after the drinkers and eaters. Can you spot the epicurean persecution yet?
No drinking in bars after midnight tonight. Blame the Christians.
[And lest you think I've dodged the 'Obesity Epidemic' argument, I put the temporary rise in fattery down to a combination of anti-smoking hatred (besides bulimia and cocaine, cigarettes are a model's best friend), Soccer Mum protectionism (e.g. stranger danger), the rise of imported cars in the '90s (especially in Auckland), the corresponding decline in cycling (especially when helmets were made compulsory), as well as added time pressures of modern life (e.g. fewer housewives chained to the stove). Access to fast food is at best a contributory factor.]
The Jesus Freaks have finally learned to read. The godbothering posse from last time has wisely skirted my property this time around. I threw in a death stare just to be sure. Judging by the neigbourhood dog chorus, other sleepy villagers aren't so lucky.
It must be something seasonal. It seemed to be Hug a Christian on NatRad's Panel show on Thursday, with Chris Trotter and Gary Moore, Otautahitan Catholic and Anglican bashers respectively. The former smugly announced that Godbotherers have a monopoly on human caring, while the latter rejoiced in vanilla traditions in public places. Chocolate and Hemp flavours need not apply.
I was angry before I realised just how scared and frustrated they sounded, not a bit like the RSA geezer up in Auckland. And I laughed.
Scared Christian White People are a minority, which goes some way to explaining how a Catholic squash player became the new Race Relations Conciliator. We'll see how minor once the first burst of data spews out of this month's Census.
Devoy's choice is ahead of its time. That is, in twenty years or so Scared Christian White People might well be a down-trodden minority, but not yet.
Indeed, Scared Christian White People have disproportionate voice presently. For every nutty Hone-ism or Joris de Bres-ticle, there's a dozen Gareth McMullah rants, a screed of narrow-minded bigotries from Family First's Bob McHuntly. For every militant atheist, there's a tax free haven like Sanitarium, a zero-rated piece of church land, and a meal ticket for government funds.
The world turns and this too shall pass. In twenty years time, I doubt Sanitarium will dodge its due taxes, churches will pay rates on their buildings and land, and secular protocols clean out all the loopholes such as integrated schools. God will pay tribute to Caesar.
While Labour have caught the Nats off guard and unbalanced on the Capital Gains Tax thing, might I humbly suggest another front alongside this policy to further strengthen their hand. Nationalise KiwiSaver and fold them into the NZ Superannuation Fund.
1) KiwiSaver funds are Too Big To Fail.
Make no bones about it. When some of those piddly KiwiSaver funds fall over, what will become of the retirement investors? Sure as finance companies is eggs, the government will find a way to mitigate the damage to these government mandated retirement schemes rather than risk displeasure at the voting booths.
This is one thing the Key government has made abundantly clear. The NZ government will underwrite catastrophic failures in civic welfare. Yeah, technically the Allan Hubbard write-off was under Labour's deposit guarantee scheme from 2008. But AMI getting caught on the hop is a clearer example of the point. The Leaky Homes Bailout is a particularly seasonal example.
The NZ public believe in this KiwiSaver guarantee implicitly. Why not, y'know, admit that point and go from there. And if the KiwiSaver funds were to be individualised yet maximised, you could do much worse than the one that looks after the senior civil servants and politicians. Which segues nicely to Point the Second...
2) Why the Nats can't trump it.
Well, it's a policy that Roger Douglas could love. A nationalised superannuation account was Third Labour Government policy, the one wrecked by Muldoon all those years ago. Singapore has Temasek. NZ would have the KiwiSaver Fund. Can you really imagine Key selling nationalisation to his electorate?
3) The honey-glazed carrot stick.
Everyone's got a billion ways to spend money. Raising money is bloody hard. Crack that nut and the rest comes easy. While the public attention is mulling over a capital gains tax, why not give them a no-brainer sweetener?
No-one really understands KiwiSaver. Interest.co.nz is mining a rich vein of ignorance here. While you're up-skilling Kiwi financial literacy, why not put them at ease with their ignorance with a singular scheme run by trusted experts?
4) A coded acceptance to the public that Labour 5 wasn't perfect.
Michael Cullen might have had the best of intentions with KiwiSaver, but he really cocked up on the launch and delivery. The mechanism for KiwiSaver is a dog like Working For Families is a dog. Good intentions poorly executed. Tidy up after that incontinent mutt and give the public a new puppy to adore.
Congratulations to Labour on discovering the first ideological bone in John Key's head.
"On de Cleene's suggestion that the government should introduce a capital gains tax in its second term:
'Well, if he wants a second term he would be well advised to shut up about that.'
Told that de Cleene had predicted the Prime Minister would pour cold water on the suggestion:
'Cold water? I would open Lake Waikaremoana on him.' - Press Conference 15/8/85"
From Gliding Across the Lino; The Wit of David Lange.
The old man was particularly fond of this particular line of Lange's disparagement. Partly due to the wit of course, but also there was perhaps a bit of smugness that one day he would be proven right.
So, a mere 26 years after the fact, Labour is talking of a capital gains tax. Against the wishes of Lange and Clark, Goff's Labour has staked out a bit of its own turf, distinct from his deposed predecessors. Unfortunately, this is still Goff's Labour, so a half-decent idea is presented with the usual compromises and half-measures that would render the policy impractical, even if it is a leak.
No CGT on the main home and a minimum threshold before CGT kicks in, sez the whispers. If there's a minimum threshold, why exempt the family home? Most of the growth in house prices isn't due to shoebox apartments or the poverty zones of Otara and Cannon's Creek. The lift is in the nice suburbs of Remuera and Oriental Bay. Why should Kerry Prendergast's, John Key's or John Banks' residences be excluded if their sales turn a profit?
In 1999-2000, smokers paid $950 million in excise, according to Treasury's 2001 Tax Review, and it is now more than $1.1 billion. Treatment, by comparison, is estimated at $225m. About 70 per cent of the price of tobacco is tax.
The dairy owner told me it's closer to 66 per cent. Either way, it's the largest tax rape on any good or service in NZ.
Our tax system may be broken, but the middle class addiction of property investment is being ignored. Meantime, the working class suckers are looking at getting hit by a GST rise and tax spiking on tobacco.
Bernard Hickey seethes on Nine to Noon, saying that John Key has left the big property rort in place. He also notes the Tax Working Group reckons an increase in GST will only bring in around $200 million a year, after compensation has been awarded to low incomes. That's a lot of political pain for stuff all gain.
It had to happen sometime. One of John Key's blurts has come back to haunt him. Grant Robertson posts a John Key promise from before the election saying National will not increase GST:
I think John Key just had a "Deep Dark Secret" moment. In Beltway-speak, I'm referring to former Labour president Mike Williams' overselling of Michael Cullen's bland budget talking up some deep dark secret that the Budget contained that would Make Everything Better. Of course, there was nothing of the sort. A few hay bales of straw were added to the camel's back. In Palmy, the DDS analogy might be translated as "Big Fucking Deal."
Yes, the speech was verbose. So verbose, John Key didn't even read the speech out in full at Parliament. Bah! Marathons are for Finance Ministers on Budget Day. I attempted to stick it through Wordle, but my OS and Java aren't speaking to each other for some reason, and I've got better things to do than puzzle it out. If anyone else has a go at parsing it, please let me know.
Anyway, Key makes clear where his antennae are tuned:
Only by lifting our country’s economic performance can we deliver New Zealanders the jobs, increased incomes and better living standards they aspire to and deserve.
Jobs, incomes, living standards. Luvvy-duvvy. Goff can say that with a straight face too. Further down, there's a reality iceberg. But no worries:
While unemployment is higher than any of us would wish it to be, it is encouraging that the loss of existing employment almost completely halted in the last quarter. But every person out of work is one too many. That is why the Government’s focus remains on the economy and on jobs.
OK, so it's economy first, then jobs, income and living standards, in that order. That explains the DOC estate dig, as well as the dig at Double Brown Bollard laying out the facts on Q&A the other day. Bollard sez:
I don't think we can catch up with Australia, Australia's a most unusual country, Australia has been blessed by God sprinkling minerals across the top of the surface in very easily accessible areas in places where it doesn't annoy people to mine them. China's there buying all that, it's not rocket science, they've run the economy well, but we just don't have those advantages, but that's all good news for New Zealand because there's a lot of crumbs come off the Australian table that we can take advantage of.
I'd blame comets, geology and joss before blaming God for us getting Pineapple Lumps, but that's just me. I realised not so long ago that NZ is also not Singapore and never will be. Wired has the GPS plots of last year's shipping lines. Long story short, yellow is the route of ultimate ticket clipping:
It's why Singapore has the biggest goddamned fleet of ghost ships in the world right now. NZ is a freaking backwater in a global recession. There's pluses and minuses to that. And John Key doesn't get it. In fairness, neither does Labour.
Back to the blab:
We are keeping a tight lid on new spending over the foreseeable future, which will enable us to get the budget back into surplus and keep public debt under control. Tight control of spending will also help to keep pressure off interest rates, which means lower mortgage costs for New Zealanders.
Overall, our economic policies are aimed at shifting the economy more towards exports and productive investment, and away from consumption and borrowing.
Key wants lower mortgage rates AND lower borrowing. OK. How does that work? Does that mean you'll be tilting the investment field closer to level? Actually, no. No CGT, land tax, or in fact any tax on the half trillion dollar property sector. Key might end up paying the US government more tax money for his apartment in Hawaii than he pays for his four or whatever properties in NZ (Owned by a family trust, actually. Including his own home. Trusts, PIE and top tax rates are not being levelled). Full shields to the property sector. Rest easy, Rick Barker!
The Government’s other priority this year is to make significant reforms in social sectors like the welfare system, education, the justice system, health and state housing.
OK, so the priorities are economy, jobs, income, living standards, the welfare system, education, the justice system, health and state housing. Bloody hell, you do have a full plate, mate!
Fast forward through blah on 2009...
None of this would have been possible without ACT, the Maori Party and United Future, and I want to acknowledge their ongoing collaboration and support.
Hat Tips to coalition partners, or Majority Gatekeepers as I call them. Who needs a bicameral parliamentary system when you can have minority parties at half the price and twice the convenience? On to tax:
The Government agrees with the Tax Working Group that New Zealand relies heavily on the taxes most harmful to growth, particularly corporate and personal income taxes; that there is a hole in the tax base around the taxation of property; that the tax system lacks integrity and fairness because of differences in the treatment of entities; and that there are significant risks to the sustainability of the tax revenue base.
But Key intends to do absolutely nothing about it. I can understand Key telling the 2025 Taskforce to get fucked, but the Tax Working Group gave wider options than them and all that Key hints at here is tinkering. John Key the Tinkerbell?
National have quite clearly missing the Education bus, what with Business NZ's Phil O'Reilly bitching about the lack of training options on Nat Rad last week. The Poly-Wolys are closed shops, the unis have limited restrictions, it's all a big fat nothing.
Holy Fred Dagg, I'm not a quarter way through Key's speech and I'm bored. Here's Kiwiblog with the guts of the rest of it. Bernard Hickey here. David Slack is veritably scathing here. TVHE here, etc.
Just one more thing about the raising of GST to 15 percent. Key's dreaming but that's the expendable one. The price is not right. All in all, it's an opportunity wasted.
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.
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.
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.
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.
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.
The Tax Working Group has handed in their homework to the cabinet. The public have to wait a few more weeks before seeing their workings, but there's selective leaking from people within such as NZX's Mark Weldon:
Investment property should be the target, such as dumping loss attributing qualifying companies (LAQCs) which allowed some wealthy people – including some on the Government's own Tax Working Group – to pay no tax at all, Weldon said. Weldon is a member of the Tax Working Group.
I'm curious. I wonder how much tax each member of the Tax Working Group paid under their own names last year. Of course, it's none of my business and it's an OIA too far for this arm's length review. Still, even a collective figure would prove illuminating.
It has been a good week for porridge recipes. Earlier in the week, Don Brash unveiled his porridge of the future, which is based on a predictable twenty year old recipe he copied off Roger. Porridge judges John Key and Bill English commented that this recipe was too politically hot for the body politic. Cactus Kate had to present an even spicier dish just to make the 2025 Taskforce's 48 declarations seem insipid in comparison.
There are a few points of interest in the 2025 report that might bear closer inspection, moments of lucidity if you will. But the unrelenting zeal of means and ends has been so mangled with benny bashing, 90s Russian Roulette sell-offs, added pork flavouring and a sprig of gerrymandering, it makes it all too easy to dismiss as the bizarre and disjointed ravings of rich old white men hankering for devilled kidneys.
WTF = Russian Roulette sell-offs? Well, that whole sell-off of SOEs for the hell of it, offload all the furniture and hope this thing floats with nothing left in it. Selling TVNZ right now would get nothing more than chump change. Shutting down the long con of the Cullen fund right now and paying down debt at the worst possible part of the cycle is also counter-productive.
Pork flavouring, you say? What has Zespri's monopoly on kiwifruit marketing got to do with enriching the masses? Didn't Turners and Growers, well known associates of certain Taskforce 2025 compilers, merge with former apple and pear monopoly Enza not so long ago? That isn't a productivity strategy, that's special pleading.
The gerrymandering is obvious for what wasn't considered by the taskforce as pivotal to NZ's future. There's the stunning omission of any form of land and capital tax. They lost the argument right there. In the face of the finance company implosions, there's no sign of corporate regulation. Even Alan Greenspan admits that that argument is lost.
And quite how you hack off some 15 billion dollars of government spending in three years without setting off an internal economic shock, I don't know.
So, dismiss that bad bowl of porridge from the Goldilocks menu. While we're waiting for the Tax Working Group to put the finishing touches on its porridge, Gareth Morgan has put out an appealing, tax neutral recipe sketched on the back of a napkin. This one looks much more appetising.
First, let's exile all the B Ark Golgafrinchans. Introduce a Minimum Guaranteed Income of ten grand a year and screw the other paperwork. Kill the overhead non-jobs right there. Introduce a tax free threshold of $40,000 per annum for every man, woman and child. Slap the equivalent of a 25 percent flat tax on everything. Including the family home, LESS the average indexed home price.
In one fell swoop, Gareth Morgan has done what seventy-odd thousand taxpayer dollars on the 2025 Taskforce took months to accomplish. Something realistic, novel and lateral-minded at bugger all public expense.
The 2025 Taskforce can blab all it likes about property rights, but they never talk about the price of property freedom. Taxes. The opportunity cost of holding onto vacant land here right now is sweet FA. As far as I understand matters, vacant land and buildings is actually a tax write-off.
That's not right, especially when housing affordability it at the usurious levels they are at present. I'm not talking interest rates here, but the glutinous appetite of the NZ small investor in haggling each other up into absolutely stupid prices on property. Wars have been fought for less.
The Romans, the British and the Maori have this in common; a use it or lose it principle to property rightsholding. A land tax makes landholders think twice about holding onto under-utilised land when others go wanting. A land tax is certainly much more politically palatable than the other alternative; legalising squatting.
I'm not kidding. Every time I walk past the old Molesworth Tavern, I'm reminded how absolutely mental our property rights are in this country.
Yeah, it's Thailand government land technically, and probably beyond NZ law to do much about. But awful fucking eyesores like this, right down to For Lease signs elsewhere on empty shop fronts, makes me grit my teeth. Call it a broken windows policy for tenancy, but something has to be done to leverage the landed gentry to yield to more productive usage.
Gareth Morgan has made a better porridge base for the Tax Working Group than Brash's mob. Clean, bold flavours without the bitter after taste that permeates Brash's corned beef palette. I have high hopes that the Tax Working Group will find a porridge recipe that will taste just right for the voters.
A group of seriously wealthy businessmen and entrepreneurs are challenging their peers by signing a declaration asking for a wealth tax. Unfortunately, it's not the Tax Working Group or the Business Roundtable suggesting the idea, but a consortium of German rich pricks.
The group say they have more money than they need, and the extra revenue could fund economic and social programmes to aid Germany's economic recovery. Germany could raise 100bn euros (£91bn) if the richest people paid a 5% wealth tax for two years, they say.
Lehmkuhl, since he has this ability to read: on income distribution, taxes, capital gains.About the American Fair-Tax Network, a "social business", where profit maximization is banned as a corporate goal and determine the success of social goals. He dreams of a German equivalent of the American Organization UFA, "are United for a Fair Economy", where 700 "organized Responsible Rich... He has rearmed itself with numbers that prove that there has been in Germany a significant redistribution from bottom to top, and that it here to share surprisingly little.
So, how has NZ fared over the last thirty years? Here's the MED:
Click image to embiggerate
The UNDP have released the latest figures, showing NZ as the 20th 6th least equal income share in the world, at 36.2 (Edit: thanks to BH's TTaT). Under Clark's Labour government, the gap between rich and poor grew faster than any time since Rogernomics. This is what the NZ Labour opposition must contemplate if they are ever to have a chance of regaining their support base.
The UNDP NZ report is a very interesting read too. All that high churn immi-emigration keeps NZ treading water.
I wish the MSM would stop saying that the purpose of a Capital Gains Tax is to help prevent housing bubbles. It's not. It's like saying the purpose of journalists is to cure cancer. CGT, like journalists, have their uses but neither are miracle cures.
CGT is one way of widening the tax base to include more forms of wealth creation. The hard yard at present is being done by labour taxes (PAYE), capital (company and witholding tax), and consumer consumption (GST). One way or another, land and buildings will have to be included in tax reform to stop distortionary effects on NZ investment. Land tax is another angle on the same CGT skim.
NZ must stop bingeing on residential property development without paying their dues. I know it's hard to make a living in this country, what with the small domestic market and all. With the red tape, risk and tax on other forms of small scale investment, buying rental accommodation to pay off their mortgages seems perfectly reasonable.
However, it's domestic cannibalism. It's turned the Mum and Dad investment funds into Loss Attributable Qualifying Company vampires feeding off those who cannot afford to own the roof over their head. Heck, they've even bred the property management leeches that, for a discreet premium, allow the owner to wash their hands of actual live tenants.
That cash should be going into enterprising companies earning their bread and butter on the offshore markets. But between the volatile dollar, dodgy companies, lousy management, etc, it's all a bit too much like work. Perhaps those seeking low-risk, low-yield returns could be more helpful and stick it in the bank. Oh yeah, they get taxed on that interest more than on residential property. That's not right.
PS.
Another thing that's not right, Phil Goff on excluding the main home from CGT. Exclusions breed distortions, and the whole point of introducing a CGT is to flatten the system out not add to the bumps. Ask Bill English about the loopholes surrounding the definition of a main place of residence. Somewhere overseas, I forget where, there's a CGT exclusion on uncompleted houses. Unsurprisingly, there's whole neighbourhoods of houses with unfinished chimneys that have been lived in for years without paying CGT. No loopholes, OK?
There's a bit of steam being raised here about the various tax dodges that allow the wealthy to claim Working for Families. You think that's bad? Over in the UK, Romanian child trafficking is another form of welfare for families scam. It can be quite profitable if the kids learn Fagan's Ropes:
In many cases the children are trafficked with the complicity of their parents. They are trained in street crime and placed with unrelated adults to enable fake benefit claims to be paid into accounts controlled by the trafficker.
No extra borrowing, and the price tag is transparent enough. Anyone arguing over these esoteric costs are on a hiding to nothing. Even I/S sees sense in eliminating the KiwiSaver employer tax credit. The 2 percent minimum entry to KiwiSaver is correcting a serious blunder that Cullen should have fixed right from the get go. The R&D credit has been cashed up, but that's got me thinking about what's going to appear in the Tertiary Education policy. I've got a hunch that university research will get a boost.
The thresholds and tax levels are gradually adjusted over 3 years. Whilst I/S contends that the big winners from this will be the top income bracket, it's only a 2 cent retreat from the 39 cent rate that Cullen introduced, and can be dismissed as a long overdue fiscal drag adjustment. Everybody gets something, and it's noticeably more than what Labour have managed to return.
But wait! There's more! Instead of fiddling with Working for Families and asking for trouble, the Nats have turned the tables with the Independent Earner rebate. Starting at $24,000 (37 hours at minimum wage per week) and abating above $44,000, a significant chunk of voters got an extra little tax cut. The only criteria is that the recipient is not on any form of government welfare.
It's a policy that looks like it's aimed at all those responsible non-breeding taxpayers, as well as those Kiwis overseas who might want another reason to return to these shores. And it does that. But it's not just for singles and no-kids couples. It's for everyone. The policy is cleverly aimed at weaning families off welfare and back onto a simpler and cleaner tax code.
From 1 April 2009 the rebate will be $10 per week. From 1 April 2010 it will increase to $15 per week.
What happens in 2011 and 2012 with this rebate is left unsaid. It's fair to say that the incentive to continue on Working for Families will decline. In the long term, it will be scrapped not because the Nats want to, but because the dwindling recipients of state largesse make it unfeasible to continue. The policy will inevitably die through a lack of popular support, or be replaced with a more effective delivery vehicle.
But more curiouser still, and the most salient point I've found, is this little note in the KiwiSaver policy just before the "what's in it for me" charts :
National remains committed to continuing the New Zealand Superannuation Fund in its current form and with the current rules that determine annual contribution rates.
National firmly believes that security, stability, and predictability are vital in the area of retirement incomes. Bipartisan support and long-term commitments to the Superannuation Fund will ensure this.
Despite the recently announced losses from the fund, National believes it will make returns over the longer term that are adequate to fulfil its objectives.
In the longer term, National’s plan for the economy aims to generate the sort of investment opportunities that may enable more of the fund to be invested here in New Zealand.
"There is quite a strong view building in New Zealand that at some stage we want to do an income tax reduction," Mr Mallard said. "I've got no doubt that it will be addressed in the next budget."
In the comments - published last week - he said he favoured changes to tax thresholds as the best way to cut personal taxes rather than dropping rates.
But Finance Minister Michael Cullen today said the comments were Mr Mallard's personal opinion.
Adjusting the tax thresholds is not a tax cut, it is an admission of reality. When you have the Reserve Bank buying $USD as a favourable policy as opposed to reducing government spending, you know you have a problem. Get real and cut taxes across the board. Dagg knows, we've earned it.
