By Gareth Vaughan
No sooner had the government appointed Tax Working Group (TWG) issued its interim report on Thursday morning than attacks from opposition National Party MPs started flowing.
On Twitter National leader Simon Bridges said; "Labour wants Kiwis to pay more tax, they are just working out how to do it." In a press release carrying the headline "Capital gains tax still hangs over New Zealand," National's finance spokeswoman Amy Adams concluded by saying; “In typical Labour style, this is a Government that clearly thinks it knows how to spend your money better than you do.”
And Paul Goldsmith, National's spokesman for economic and regional development, decried; "Govt won’t rule out tax grab on retirement savings."
TWG chairman Michael Cullen, Finance Minister in the Labour-led government from 1999 to 2008, would - of course - have expected this. So to what extent is Cullen conscious recommendations the TWG makes could give the Opposition ammunition with which to attack the Government?
"Yes, I know and it's a problem and [there's] the old saying 'no one has won an election proposing a capital gains tax'," Cullen told interest.co.nz.
"One of the reasons I've insisted that we've got to be as detailed as we can is that the less detail there is in any proposition, the more there is the possibility of creating mischief by misrepresenting what the likely outcome will be."
"So we can talk about what we're going to tax, but have you taken into account rollover relief, have you taken into account what would be deductible against that capital income gain...all those kinds of issues tend to get skipped over very, very lightly," says Cullen.
"I think to some extent opinion is shifting on some of these matters. People are beginning to realise there are genuine equity issues," Cullen adds. "You know somebody earning part of their income from capital income, somebody else fully from labour income, they've got the same income but the second person totally on labour income pays more tax than the first person. Is that fair? Well ...I think that's not actually fair."
"Because we don't tax very much capital income in New Zealand that reduces the extent to which our tax system is redistributive compared with most other developed economies we're right down the bottom end of redistribution through the tax system in New Zealand by developed economy standards," Cullen continues.
"So you've got the over investment in housing from the fact that it has been tax advantaged. There are lots of different issues that people are starting to come to grips with."
"I just wish the National Party people would take a bit longer to think about it and about the long-term sustainability issues of the tax system before pushing the short-term politics boat out," says Cullen.
He notes, however, the National Party in some cases - such as GST - has reversed its initial opposition, and in others - such as foreign dividends tax on investments outside Australasia - left changes made by Labour-led governments it opposed unchanged when National followed in government. As the political father of KiwiSaver, Cullen's also well aware of National's initial opposition to the savings scheme.
For its final report due in February Finance Minister Grant Robertson has asked the TWG to include measures that could result in a revenue neutral package.
The 'inequality-reducing power' of tax
According to the TWG interim report, the "inequality-reducing power" of the tax and transfer system has dropped over the past three decades, reflecting that the tax system and the transfer system have both become less effective at reducing inequality.
"It is difficult to make cross-country comparisons on this issue, because the outcome may be affected by choices about which taxes are included and which are excluded for the purposes of the analysis. Figure 3.4 [below] is based on the OECD Income Distribution database; it includes personal income taxes, employees’ social security contributions, and cash transfers, but excludes payroll taxes and value-added taxes (including GST)," the TWG report says.
"Figure 3.4 illustrates that New Zealand’s tax and transfer system reduces income inequality, but by less than is the case in Australia, or on average across the OECD. The progressivity of the tax system is also affected by the treatment of capital income. The incomplete taxation of capital income benefits the wealthy, whereas the absence of large concessions for retirement saving is a more progressive feature of the system."
The chart below shows three forms of tax dominate NZ tax revenue.
Below are Bridges' tweets.
Re the Tax Working Group & a capital gains tax: Labour wants Kiwis to pay more tax, they are just working out how to do it
— Simon Bridges (@simonjbridges) September 19, 2018
New Zealanders are already being hammered through higher petrol prices & rents, & cost of living outstripping wage growth under Labour. Yet more taxes on top of the new ones they've piled on are the last thing we need!
— Simon Bridges (@simonjbridges) September 19, 2018
Here's Adams' press release.
Capital Gains Tax still hangs over NZ
Today’s report from the Tax Working Group will do little to reduce fears that more taxes are going to be imposed on New Zealand households and businesses, National’s Finance spokesperson Amy Adams says.
“Despite being given the opportunity to do so, the Government has refused to confirm its tax plans will be fiscally neutral. But this supposed review of the tax system shouldn’t be used as a stalking horse for higher taxes.
“Costs of living are already going up through higher petrol prices and rents, and outstripped wage growth in the last quarter. New Zealand families and small businesses deserve to know if this Government is softening us up for more taxes like a Capital Gains Tax.
“National welcomes the TWG ruling out a land tax or a wealth tax and not tampering with GST but is deeply concerned that the group clearly plans to bring in a Capital Gains Tax.
“The report is a missed opportunity to consider better ways to have the tax system incentivise savings and investment, lift productivity and help small businesses to grow.
“It isn’t good enough for the Government to say any recommendations it takes up won’t come into force until 2021. Taxes already take more of our income than in almost any country outside of Europe, amounting to $50,000 a year on average per household. And the tax take is already set to double by 2032 even before new taxes are added.
“Rather than working out ways to take more money from New Zealanders, the better approach would be to stop the low-quality and untargeted spending we are seeing all too often.
“National believes New Zealanders should be able to keep more of what they earn. The tax system should encourage productive investment and savings, not penalise those who try to get ahead.
“In typical Labour style, this is a Government that clearly thinks it knows how to spend your money better than you do.”
And here's Goldsmith's press release.
Govt won’t rule out tax grab on retirement savings
The Finance Minister is refusing to rule out a tax grab on the retirement savings of hard-working New Zealanders, National’s Economic and Regional Development spokesperson Paul Goldsmith says.
“When asked directly in the House today if he could rule out putting more tax on Kiwi savings, Grant Robertson was unable to give a straight answer and was only prepared to say it was a work in progress.
“Taxing KiwiSaver more is the last thing we need. It won’t help Kiwis get ahead.
“There are now 2.87 million New Zealanders invested in Kiwisaver funds and their combined nest egg has grown to more than $50 billion. The Government should be re-assuring Kiwis that it won’t raid their long-term savings to bankroll its excessive spending plans.
“Currently the capital gains element of retirement savings isn’t taxed, which is an obvious part of the incentive to save.
“The working group has recommended a package of modest incentives to encourage low and middle-income people to save more for their retirement. But it would be disingenuous for the Government to appear to be giving with one hand while intent on taking much more with the other, via a tax on capital gains.
“Rather than devising ways to take more money from New Zealanders, the Government should be reining in its low-quality and untargeted spending.
“National believes New Zealanders should be able to keep more of what they earn. The tax system should encourage productive investment and savings, not penalise those who try to get ahead.”
Cullen responded to the issues raised by Goldsmith in this Newshub interview, saying there was still a lot of detail to be worked through, and the TWG would look at ways to offset taxes on KiwiSaver savings.
"We don't want to end up with a reduction in the returns to low and middle income earners in KiwiSaver. One of the best ways of doing that of course... is to look at much heavier regulation of the fees they charge in KiwiSaver schemes," Cullen told Newshub, adding there's no reason providers should be "clipping the ticket" to the tune of more than 0.5%.
*This article was first published in our email for paying subscribers early on Monday morning. See here for more details and how to subscribe.
42 Comments
I'd love to see Simple Simon post a few comments on Interest.co.nz and see if he was able to maintain a coherent argument with some of our commentators.. Little lamb!
This piece however highlights an earlier post I made on another article published on interest today. The tax working group need to just get on with this and stop the dilly-dally interference of vested interests.
Funny, are you saying you don't have a vested interest in pushing for measures to crash the housing market so you can take advantage of fellow NZer's misfortune? Typical leftie thinking... yes we want more tax as we think the government can spend our money better, increase the size of the government and bureaucracy but no, not from my own pocket.. Take it from someone else :)
Hi Stev-O.
I've always voted conservative but my views have changed a touch since I came to NZ and saw how the 'blind eye' was turned to issues that effected the country but not to those that had the inside track. Politics here has been so negligent it beggars belief. In my 'Tory' opinion, Conservatism in NZ has completely neglected regulation, (politics having an influence over powers that the Reserve bank should had a decade ago) whilst the selling of the family silverware has been to such a great extent that it may take a generation to recover from the financial imbalances it has created, particularly if they are not quickly addressed. Our productive economy has not diversified in 20 years from its core products and yet we have saddled ourselves with policies to prevent the proper allocation of capital to business. I'm sure that anyone with a business background and a conservative leaning would be able to see this as I do.
So you think it would be a better investment for a country of 4 mill to pour money into purely speculative "productive" businesses ? And then wonder why we can't compete due to our remote location, lack of scale/size, lack of capital - The banks won't lead 80% to some non-income producing business just because some propeller head says its "productive" - They know how hard it is to compete internationally. As the late great Paul Callaghan said - we are good at weird stuff that the big players cant be bothered exploiting https://www.nzherald.co.nz/opinion/news/article.cfm?c_id=466&objectid=1…
You're not the 'Simple Simon' are you?
'So you think it would be a better investment for a country of 4 mill to pour money into purely speculative "productive" businesses' ( You just hit the nail square on the head Mr. Simon) - blissful ignorance!
Our population is now almost 125% of your '4 mill' Why is there a lack of capital for business? Re-read your comments including 'purely speculative "productive" business' 'lack of capital' (why has that all happened?)
You borrowed into this idiocy in the last 3 years didn't you 'Simple'.... Was it a big loan to value?
Posting on here can't talk up a market or down a market for you to get over a mistake... Your kind are still spending a lot of time on Stuf though, but I reckon the youth are waking up to the reality that it is a Venus Fly trap rather than a search for Inca gold gettting involved in the debt for equity 'venus fly trap'
The problem is that Mr. Bridges is right. The Labour Party does want New Zealanders to pay more in tax. They have said this multiple-times so it's not a secret. Cancelling the tax band adjustments (more than 10 years since the last change now) shows that it is true. Whether NZers should or should not pay more tax is actually in play - let's not pretend otherwise.
Can we request Soimon Bridges to put his money where is mouth is and stop having the taxpayer pay him to rent his own house by having it stashed in a private superannuation scheme? Surely this would be a sign of genuine care for NZers and the amount of tax they pay.
These entitlements are stinging taxpayers in the pocket. There is no excuse for not ensuring that there is full transparency. - Jordan Williams, Taxpayers' Union
Grant Robertson's ' revenue neutrality' is silly and will come back to bite him. If you want to make the system more 'redistributive' then the tax system needs to gather more to pay out. Labour needs more revenue, probably National would, too. A lot of things need fixing. I would just note that we have very low income tax rates here, no compulsory medical insurance levy and no social security levy, either. Labour's problem is that it is a 40% party tops, Nats 40% bottom, with NZF possibly able to get 10% if there's a protest vote, as there would be against CGT. The Greens are an amorphous entity, indistinguishable from the mother ship, and will struggle to get 5%. Labour needs a lot of floating voters and they are easy to upset. I don't think many people will be too fussed if landlords take a hit, but retirement/savings funds would be another matter. And offsetting that by income tax cuts would make the rich richer anyway, and able to afford even better accountants. Why isn't a higher tax bracket for $120,000 plus earners and/or progressive GST rates in the mix? Plus a closer look at under-reporting by the self-employed. Income tax and GST are simple, easy taxes and simple tax is effective tax.
Exactly. An article a few years back said that many of those earning less than $50,000 pay no effective tax now. It’s the ‘rich pricks’ earning more than $150,000 that pay 24% of all tax and they only number 3% of tax payers. Be in no doubt, this COL is looking to put more burden on those paying the bulk of tax now. Lefties live to take from those that produce to those that don’t.
Lefties live to take from those that produce to those that don’t.
As does National and its dedicated disciples. They're not exactly rushing to stand on their own two feet, as per the above example. National campaigned on increasing redistribution to WFF and the Accommodation Supplement, and sat firmly in the camp of wanting to take from those who work from a living to give to those who no longer do, regardless of need. National was increasing the taking from you and I and giving to others. Meanwhile...National took more from those who could least afford it by increasing GST as they had promised not to.
Is anyone clamouring to increase income tax? Seems the discussion is about better ways to tax earned income less and unearned income more appropriately - so its not all on the backs of you (formerly) and I. I'm not seeing the tax group recommending yet more load be put on those who work for a wage.
Your comparisons of left and right in New Zealand seem a bit cartoonish, not resembling the reality of the major parties or their disciples. Might be nice to bear some resemblance to the reality of politics in NZ.
ExExpat. One in three pay no income tax after tax credits are factored in. 40% of households.
The naive proposition from the comrades seems to be that we 3 percenters will continue to take the risks, carry the stresses and invest in businesses no matter how much tax is levied. The pie will magically still be there and keep on growing. Confiscate the Kulaks farm and agriculture will continue to flourish.
Cullen knows CGT’s are complex and costly to administer and deliver only modest additional tax. Yet on he ploughs, committed to the socialist fantasy that those liable will not divert significant effort to avoidance nor will the diminished lure of capital gain depress the risk appetite that is essential to a thriving business investment community.
He repeatedly cites other jurisdictions that have a CGT, as evidence we should have one as well. Apparently oblivious to the obvious difference that NZ inc, perched on our two tiny remote bits of rock is, kind of, not the same. Our attractiveness as an investment destination is fragile. Tilting the tax playing field between NZ and offshore equity investment to something closer to level is a risky play that will deliver little benefit.
Yes we all subsidise poor people who nevertheless decide to have a lot of children. While those of us who wait until we can provide our children with a proper up-bringing are punished by the taxman. As are traditional households where the husband works and the wife stays at home - can't split that income for tax purposes.
And then we wonder why we have so much youth crime and poverty. It's almost as if traditional families are best for children.
Not at all, you just need the wealthy to be bearing more of the burden through something like land taxes or capital gains taxes. And the poor and working classes to be shouldering less through GST and the bottom brackets of income tax. The first $15k should be tax free.
Not only tax rates above 120,000 but also another one above the million mark. Its just a few lines of code in a tax class method or just another row in the tax table list or queue where the loop does or LAMDA does the calculation depending on the software language you are using include a new very powerful language created in new Zealand to handle business.
If you tax ownership of multiple houses that's fine when sold. I imagine that another option is to invest more in your primary dwelling. This will result in the wealthy simple building BIGGER HOUSES on larger land blocks. This is already happening in the Waikato and will be spreading all over the country.
Money will be invested in lawns, gardens, sheds, garages, drive ways, pavers, pools.. ect
Cullen’s casual announcement that some sort of CGT offset exemption for KiwiSavers is likely, is scary. The playing field tilted against direct and non KS investments into the same markets and categories. Independent provision for retirement to be discouraged in favour of state designed and supervised schemes. His social engineering instincts evidently undimmed by the passing years.
His proposition that KS provider fees be regulated downwards to offset CGT tax liability is a weasel attempt at evading the very real issue of the significant negative impact of a CGT on investment fund balances. He would be well aware that any such reduction would achieve only a modest offset.
No. Regarding, NZ and Oz shares, only dividend income is taxed at the PIR, and interest on bonds. Capital gains on shares and bonds are exempt, to the best of my understanding. Shares outside Australasia attract tax on a deemed rate of return of 5% of book value, taxed at your marginal tax rate, not PIR. This deemed rate of return is what I suspect Cullen and Robertson would love to introduce on all capital assets as it gives a yearly revenue stream, which CGT on final sale doesn't. And it does away with the problem of providing tax credits if final sale price is less than initial purchase price. Assessing deemed rate of return is problematic given fluctuating values and currencies. So accountancy fees would be another cost. Term deposits anyone?
The existing FIF regime is simple and easy. I have filed FIF returns myself for a number of years. All you need is the value of the asset (for shares these are listed and freely available) and the exchange rate (published on IRD website). The only calculation you need to do is multiply exchange rate and by 5% - no accountant needed. It would also be simple to automate this as part of the IR3 filing.
All Kiwisaver funds pay FIF tax on overseas shares - this is a tax on capital so no CGT would be payable on these. All NZ shares and grey-listed AU shares (most of the individual listed companies) pay only tax on income. NZ shares also get tax credits but AU ones don't. There are a few AU shares yielding above 5% that pay more tax via income than they would under FIF.
Complicated? Yes. Fair/Equitable? No
Sir Michael Cullen's use of data is occasionally curious. According to the OECD, in 2016 New Zealand obtains a greater fraction of GDP as revenue from taxes on corporations than any other country in the OECD.
https://stats.oecd.org/index.aspx?DataSetCode=REV
Category 1200 - Taxes on income, profits and capital gains of corporates
According to the OECD. someone on an average labour income pays the second lowest income and social security taxes in the OECD, while someone on an above average income pays the third lowest. This is because we don't have specific social security taxes to pay for retirement incomes which in other countries are only applied to labour incomes.
https://stats.oecd.org/index.aspx?DataSetCode=TABLE_I5
So NZ actually has relatively low taxes on labour incomes and relatively high taxes on capital incomes compared to most OECD countries. NZ may not have a tax system that is very progressive, but it is hard to claim it is because its taxes on capital income are really low. Sir Michael Cullen is of course correct that we don't tax some types of capital income and this is likely to distort investment patterns towards types of investments that have low effective tax rates.
Incidentally, if he has said "You know somebody earning part of their income from capital income, somebody else fully from labour income, they've got the same income but the second person totally on labour income pays more tax than the first person. Is that fair? Well ...I think that's not actually fair."
it should be pointed out that he is potentially in a small minority around the world since almost all other countries tax capital incomes at lower rates than labour incomes. This is because in most countries social security taxes are imposed on labour incomes but not capital incomes. New Zealand really is quite unusual by trying to have low taxes on labour incomes and high taxes on capital incomes - and by his own admission it does not seem to have generated a particularly progressive tax system. Indeed, since the 1990s, the four Scandinavian countries, which all have more progessive tax systems than the OECD average, have deliberately adopted a tax system in which labour incomes are taxed at higher rates than capital incomes, in part because they do not want to risk capital flight to other countries.
Our tax system really is unusual by world standards, because of the way we fund and tax retirement incomes. Strangely, the implications of these differences are underplayed in the TWG interim report.
SO THATS IT FOLKS !
We now know without a shadow of doubt that Michael Cullen is 100% committed to a Capital Gains Tax .
This resentment tax actually involves turning the whole tax system on its head with really severe implication for those of us saving for retirement .
Hopefully Winston Peters stops this in its tracks ................. unless of course that secret " side agreement " allows for it
Labour will have to try quite hard to lose the next election in my opinion, but they might just manage it if they campaign on a capital gains tax.
Would be nice if they did campaign on the extraordinarily unpopular land and “wealth” taxes (taxing imaginary income) to guarantee they don’t win the next election.
Labour will continue to gain ground while igits keep encouraging an open door on immigration to service their debt levels. Another 63,000 future labour voters just entered the country in the last 12 months!
a couple of hundred thousand labour voters were added in the last 3 years......... and I'm a Tory.
Can't eliminate them in one hit.. their would be bankrupt people everywhere.. from the tenants that couldn't afford their bills to the landlords that suddenly found 2/3rd of their rental income gone.
But they could freeze the payment levels in place and let inflation eliminate them over time.
Yep, I agree. But we need to remove the distortion that is WFF and accommodation supplement, and the easiest way to do it without ending up with people homeless on the street is gradually. And apparently "bidness" doesn't like uncertainty, so nothing is more certain than saying these are the numbers, and they aren't changing.
Interestingly we already have a deemed return Capital Gains Tax, in the form of the FDR regime for taxation of foreign investments (shares). Under this regime you pay tax on 5% of the opening value of the portfolio, regardless of actual return.
In fact Cullen was the architect of this regime, which makes you wonder if he'll be promoting a broader roll out to capture domestic share investments and more.
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