By Bernard Hickey
With a month to go until the September 20 election, here's my daily round-up of political news on Wednesday August 20, including the Green Party releasing its fiscal policy of running bigger Budget surpluses and repaying debt faster than National, which it said would reduce upward pressure on interest rates.
Also, the Dirty Politics saga has elbowed its way back onto the front pages.
The Inspector-General of Intelligence and Security (IGIS), Cheryl Gwyn, announced an inquiry into allegations the SIS might have released official information to Cameron Slater for political purposes.
She said the Inquiry would look at whether the SIS acted within the law and in a politically neutral way when it responded to an OIA request from Slater in July and August 2011. It would also look at whether the documents were properly declassified and whether other similar requests from mainstream media were treated the same.
Labour MP Phil Goff welcomed the Inquiry and urged it to be wide-ranging and completed urgenty. He said Key regularly dismissed requests for information or comment on the SIS.
"Therefore questions must also be asked about why John Key brought this case into the public arena, what communication he had directly or indirectly through Jason Ede or other staff with the Whale Oil blogger and what expectations he placed on the director general," Goff said.
Green Co-Leader Metiria Turei welcomed the Inquiry she had formally requested.
“John Key can no longer say these dirty politics allegations are ‘baseless’ and a ‘conspiracy’," Turei said.
“John Key’s strategy of attacking the claims and denying wrongdoing has failed because now an independent authority has found them worthy of investigation," she said.
Whaledumps continue
Meanwhile, Whaledump resumed the release of raw documents on the conversations between Cameron Slater and others. Today the document was a stream of messages between Slater and Auckland National Party member Aaron Bhatnagar, who has since been appointed to the Real Estate Agents Authority.
The discussion includes comments about various committees and official bodies that they thought National supporters should be appointed to. It also includes a discussion they had about Rodney Hide and texts which Slater said he had. Hide has denied any wrongdoing.
National up in poll take partially after book
Roy Morgan released results of an opinion poll taken from August 4 to August 17 (Dirty Politics was released late on August 13) showing support for National rose 2% to 48%, support for Labour fell 2.5% to 27.5%, Green support fell 0.5% to 11.5%. New Zealand First rose 1.5% to 6.5%.
Green Fiscal policy
Co-Leader Russel Norman released the Green Party's 29-page Fiscal policy in Wellington, including a review by Infometrics of the figures which used the Treasury's forecasting model updated with the new figures from yesterday's PREFU.
The plan includes:
Surpluses that would be NZ$2.2 billion larger than National's by 2017/18 and gross government debt being NZ$6.6 billion lower than National by 2017/18,
- A new top tax rate of 40% for those earning over NZ$140,000 to raise NZ$591 million a year by 2017/18,
- An increase in the trust tax rate to 40% from 33% to raise NZ$620 million a year by 2017/18,
- A capital gains tax at the marginal income tax rate to rasie NZ$300 million a year by 2017/18,
- Increasing spending on tax compliance to raise NZ$250 million a year by 2017/18,
- Introducing a NZ$25/tonne carbon tax to pay for a cut in the corporate tax rate to 27% from 28% and to make the first NZ$2,000 of income tax free,
- Raising oil royalties to international averages to raise an extra NZ$180 million a year by 2017/18,
- Ring-fencing income from rental property that stops landords from offsetting their rental property losses against other income to raise NZ$135 million a year by 2017/18,
- An unspecified extra NZ$770 million in revenues from policies yet to be announced,
- Increased spending of NZ$2.144 billion a year by 2017/18 on health, education and environmental protection to avoid real cuts in spending relative to inflation and health cost inflation,
- NZ$894 million of spending on measures to reduce child poverty, including insulating homes, building school hubs and extending Working For Families to beneficiaries,
- NZ$490 million a year of spending on research and development tax credits and to fund an extra 1,000 places for students of engineering, mathematics, computer science, and the physical sciences.
"The Green Party budget will be more fiscally robust than National’s, but it will also be more responsible by lifting investment in our people and our environment and not leaving New Zealand with a commodities-based economy," Norman said.
"The Green Party is the only major party going into this election offering 97 percent of New Zealand households and all businesses a tax cut," he said.
Norman said during a briefing for reporters that the Green Party had assumed contributions to the New Zealand Superannuation Fund would not resume until 2020/21, as specified in yesterday's PREFU.
He did not specify which of its policies would be preferred in any government-forming negotitations with Labour, except to say Labour's own budget policies would need to be audited first.
Joyce comments
Economic Development Minister Steven Joyce said Labour and the Greens appeared to be at odds.
"Given that on current polling these two parties would both be big players in any post-election left wing government it's amazing that they can’t present any sort of united position on tax policy, spending or borrowing," Joyce said.
(Updated with SIS inquiry, Labour and Green welcoming the Inquiry, Roy Morgan poll results, latest Whaledump documents and Steven Joyce's reaction to the Green plan)
I'll update this regularly through the day.
See all my previous election diaries here.
See the index for Interest.co.nz's special election policy comparison pages here.
32 Comments
Oh, lummy. I repeat the tail of my previous comment....
The poor naifs have overlooked the most obvious behavioural response to this widely signalled mare's nest:
the fact that accountants, lawyers and other clevver brains, can move an awful lot faster and smarter than Gubmint laws and their enforcers. So my prediction would be for a tax take realisation of maybe 15-20% of the budget, and yet the spend is locked and loaded.....at 100%+
Look out, Cap'n - them's Rocks ahead!
And as for the "An unspecified extra NZ$770 million in revenues from policies yet to be announced" - well, Ralph Willis had it nailed back in the early '50's (Income Tax Blues):
"Tax on my electric, tax on my gas, I'll soon be paying tax on my yes, yes, yes"
My mum used to say, waymad, that cheaters never prosper. Time we had a government with the will to ensure that tax minimisation loopholes (i.e. as you refer to them the "clever" strategies) get closed down - they are the biggest impediment to on-going, healthy capitalism. They will be its downfall unless governments around the world act in a similar manner.
Nevah gonna happen, Kate. The point is that Gubmints of any democratic persuasion are duty-bound to signal their intentions via elections, submission periods for law changes, and so on.
Whereas the structural specialists, the Legal Eagles and the like - why, you can bet your last red cent that their phones are off the hook right now, and that Defensive Measures have already been discussed and will be ready to rock'n'roll by Sept 19th. They always move faster than Gubmints, think OOTB better, have several jurisdictions to choose from (e.g. tax domiciles for entire businesses)
It's called Risk Minimization.
Unless, of course, you are wishing Gubmint by Fiat upon us? Overnight Capital Controls? Which dinnae sound Democratic.......
waymad, you are running a line of thought that suggests that the current situation is inevitable, out of the control of the world's citizens and their democratic governments. This narrative is a classic "globalism" or "globalization" ideological musing. See;
http://mams.rmit.edu.au/es4cefpg6ifj1.pdf
Basically, your above argument is part and parcel of two of the ideologies six core claims:
Claim two: globalization is inevitable and irreversible
Claim three: nobody is in charge of globalization
You are wrong - those interested in a just society are pushing back and growing in number. Capitalism must change in order to survive - and if capitalism does not survive then neither will democracy. You are putting up barriers to capitalisms own survival - although what I don't know is whether you are conscious of this, or just a victim/subservient to the globalism narrative.
You are wrong - those interested in a just society are pushing back and growing in number.
Yes indeed Kate, and the NZ journalist doing his utmost to highlight foreign owned NZ corporate tax avoidance has reinforced his story yet again:
Why would an overseas buyer pay more for an asset than a New Zealander? Is it because they can accept lower returns on capital? Perhaps. Is it because they can sweat the asset more? Again, perhaps. But Chalkie reckons one reason stands out - tax.
Chalkie reckons owning New Zealand farms through a Caribbean tax haven may have tax advantages - or is that xenophobic? Read article
Load the local operation up with in-house related-party foreign debt at 12½% interest rate and whaddya got - where do borrowings cost that much - anywhere in the world?
No surpise, I been telling you it was a tax-play for the last 2 years
Only thing I didnt know was the BVI registered parent until you brought it up
Seems the cognoscenti take a little while to cotton on
Oh, Kate, you have attributed such lofty provenance for my simple maunderings.
Yes, I am a Burkean conservative. I believe (as did Burke re the French Revolution) that incremental, fitful change, respectful of the past and sieving babies out of bathwater, is the way forward.
I read much history, evolutionary biology, and have watched GoT assiduously for its insight into what, with very little backsliding, we could all be facing again.
I believe with Shakespeare that humans are made of crooked timber, and that a substantial core of our nature is hard-wired (by evolution) duality: capable of immense love and adherence to 'ours' however that is currently defined, but also capable of unblinkingly wiping out the neighbouring buncha male chimps, to get at their fruit and their females. A bit like ISIS.
I somehow don't think that the phrase 'globalisation' quite encompasses this ........
Closing down the tax minimisation loopholes, my dear chap, is indeed incremental change - so will satisfy your Burkean nature.
Haven't watched GoT - I avoid MSA. And I thought the 'crooked timber of humanity' quote was Immanuel Kant?
And no, globalisation doesn't encompass this, but this post of yours is 'much ado about nothing'.
You seem to be getting a bit worse at obfuscation.
Its a big jump from being perpetually in opposition to actually running the country.
Let not the name fool us , the Greens are a real threat to all New Zealanders , Labour are timid in their appraoch as they have actually expereinced running this place, and know how hard it is.
The Greens are stuck in what can be termed an opposition mindset , and as a result they are opposed to everything rational.
God Help us all if the devil incarnate in the form of the Greens are part of the next Government .
While you may not agree with them, these are perfectly defensible policies and make as much sense as some others proposals.
Still a lot of untaxed income eg Auckland Airport, Ryman Health revaluations that should be taxed to provide additional revenue.
There is no logical reason why these organizations should be able to build retained earnings that are untaxed.
JB do you have even a basic understanding of Retained Earnings?
These are AFTER TAX retained earnings , so tax on the profit has been paid , and the retained earnings are "savings" , just like your and my savings after we have paid our PAYE or income tax .
Retained earnings can be used for a number of things :-
- Used for expansion and new investment like a new airport terminal
- Paid to shareholders as dividends
- To reduce debt
- To return Capital to shareholders
- To buy back sahres on the open market
To have some Retained earnings on a Balance sheet are a very good sign of a robust well run business , usually able to grow or invest and meet unexpected costs .
We need more businesses with strong balance sheets with actual money , not fluff like overvalued goodwill etc
Sorry Boatman - you have totally missed my point.
I agree with everything you say but my point is these two build retained earnings without paying tax on their revaluations.
Their retained earnings are substantially built on revaluations which are not taxed. Nor are they cash - so the only way they can pay these out or invest as you suggest is to borrow.
Every suggestion you list requires cash - so revaluations address none of these.
After Tax can mean very different things for different companies.
Retained earnings are of course defined as after tax - for businesses whose primary activity is not property - they are able to revalue their properties and pay no tax on those very substantial revaluations which then flow to their balance sheet.
I see no reason why if these are used to build equity they should not be taxed.
Compare AKL Airport with Air NZ's Balance Sheet.
The ability to revalue property and pay no tax offers a distinct advantage over traditional companies without property.
Additional thughts on properrty revaluations:
A common theme throughout the NZ economy is excessive debt which is what gets us, and everyone else for that matter, into trouble and precipitates the gross misallocation we have seen into property over the years. Housing and now farms and commercial property.
Following up thoughts on capital gains tax I took a look at Auckland Airports latest interim and prior year financial results which highlight I believe another side of this debate – often forgotten – is that corporates are also into tax free capital gains on property in a big way.
Forget the accounting numbers – go to the Statement of Cash Flows which is better at reflecting reality. ( Even though Hanover were able to claim capitalized interest not yet paid under NZ GAAP as cash ).
The interim results are available here at:
Go to page 22:
If you take the cash from operations, minus the depreciation or CAPEX to maintain the existing business ( about the same +/- $ 5 million ), minus the dividend you will see that they have retained no cash in the business.
Basically $ 95 – ( $ 31 Depn or Capex = $ 26 ) – $ 82 Dividend = Minus $ 13 - 18 million retained in the business.
Now go to page 26 - where by the miracle of revaluations they have managed to increase Retained Earnings by $ 206 – 178 or $ 28 million !
What they have done is pass tax free revaluations of property to the retained earnings in the balance sheet. Having done this for some years they now have a balance sheet where their very minimal cash equity ex shareholders net of repurchases ( $ 349 – 172 = just $ 177 ) and special dividends is basically entirely supported by tax free revaluations.
The notes to their accounts show the tax free nature of these revaluations. Not a bad way to finance a balance sheet of close to $ 4 Billion. Too horrible to consider a fall in property prices. Can’t happen – unless your Japanese or German of course.
In addition they have recently actually borrowed an additional ~ ½ $ Billion to distribute to shareholders for the simple reason that debt is deductible as a “ cost of business “. Given our current shortfall of savings over investments by definition this incremental borrowing must find it’s way offshore further inflating the exchange rate.
I would suggest that these types of transactions must call into question the whole concept that debt is a cost of business – as here it is simply a way to pass in effect a component of tax free earnings to shareholders at the expense of taxpayers.
Now the only way you retain profits for reinvestment in a normal business without revaluations is to earn NPAT – Dividends with the remainder going to the Balance Sheet as CAPEX or retained earnings.
Air NZ’s accounts ( their largest and much poorer customer ) show the striking contrast of how retained earnings are built up from exactly the traditional route outlined above.
The dichotomy in their share prices pretty much says it all. Over the last 20 years Air NZ has required a $ billion bailout while Auckland Airport’s shares are now ( Post 1:10 split ) $ 36 despite their largest customers travails. Investors have no problem in working out what huge advantages tax free revaluations deliver as a way of retaining equity in the business vs actually putting in their own or earned cash in as equity - as businesses without property assets on their balance sheets have to do.
Is this not the same racket the NZ energy generators employed to justify higher returns, hence higher electricity costs to consumers?
Geoff Bertram;
Specifically, I pointed out that “New Zealand’s regulatory regime to date has been spectacularly lax by the normal standards of regulation in other countries, and any investor taking up shares in the pending floats of electricity SOEs will have to bear in mind the likelihood of a future policy shift that will more effectively remedy the obvious failings of the industry to date.”
I drew the committee’s attention to more than $10 billion of asset revaluations that the generator/retailers had credited to their books.
That sum, which had risen to $12 billion by 2012, represents the present value of the amount by which those companies’ profits are above what would have been needed to give them a fair return on all the money they have paid out, both to acquire their generation assets back in the late 1990s, and to install new assets since then. Read more
MRP's profit announcement today confirms the reality;
Mighty River Power will pay an increased dividend of 13.5 cents a share after this morning reporting a sharp increase in operating earnings and a $97 million lift in full year profit to $212 million. Operating earnings (EBITDAF) grew 29 per cent to $504 million. Read more
yep quite common in small business too. Although in small business you use insurance rather than property. hollows out the cash position of the business to line the (admittedly tax paid) owners. Hopefully there's enoough trade to keep the holes filled - or related-party borrowing. Its very similar to ponzi schemes.
Borrowing vs future revenue to pat dividends is very common. Theory being it's better to spend the money in something with good IRR, and borrow for outgoings; than it is to miss out good projects and have no profits.
Yes , Zoltuger , I was wondering about this , it looks like Dynamo the UK Magician has his hand in how this works.
I cant imagine how the numbers will work .
I earn under $140 k so I will get a tax cut !
I have no capital assets that I intend to sell anytime soon , so they get nothing from me there .
Whatsmore , I dont need a tax cut , and I am not sure how they will fund the lost income from my tax cut along with the 97% of people who will also get a tax cut
True , except being in power is diametrically opposite to being in opposition , and it will take a massive shift in mindset for this green mob to realise this .
There is no unlimited food or money supply , and for every action there is a reaction , or consequence , often unintended or unexpected , to bite you on the backside when you turn around .
The predicted returns from the tax increases are pie in the sky and will be lucky to realise 20% of those amounts. Not from any dodgy trickery pokery. Just using the disparity between the company tax rate 28% and the proposed 40% top individual rate and trustee rate. When the gap is that big and the tax goes over 33% people resent paying it and will restructure investments. Look for company ownership of assets again and shareholder salaries for small companies maxing out at 140k. (A large number of high income earners are employee shareholders or sole traders with variable incomes and not straight PAYE earners ). They will retain income in companies until a more favourable regime gets back in. Also look for more beneficiary distributions from trusts rather than trusts retaining income to get around the 40% rate. The Greens have very little understanding of how businesses or taxation operate and are naive to think their proposals will not change behaviour. They won't be able to increase the company tax rate as that would make us uncompetitive internationally. Why don't people call them on their fairy tale projections? Do the Greens actually know any business people? It is great for lawyers and accountants who have had very little restructuring work over the last 9 years.
Exactly. A whole lotta economic deadweight (sorry, fmr ca, but that's what this amounts to) will be created as the redescription engines get fired up again.....
The LabGreenManiacs certainly don't understand that business is a complete ecosystem - interdependencies everywhere. Tug on one appealing loose thread at one corner (switching metaphors now, we're on the Magic Carpet) and the whole shebang unravels slightly......
Short version (switching metaphors again): there ain't no Magic Money Tree to shake.....
Taxing Capital Gain at the marginal rate will do so much damage to Capital formation in New Zealand that we might as well sell all our farms and houses to the Chinese right now , and become tenants , because we will not have the capital avaialble to buy them oursleves
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