It’s a feast of New Zealand’s workers.
Waged and salaried workers are a tax rich environment. We’re the piñatas of the tax world. Give us a whack, some dollars will fall out.
If you are taxed, taxed, taxed every time you earn a dollar it is a reasonable reaction to think, maybe I won’t work so much. I won’t take a second job, what’s the point? And once I earn a certain amount, is it even worth trying to earn more?
This is one reason some were pushing for changes to our tax system, before the Tax Working Group started its work into looking at how our system works, right through the working group process, and are still saying to this day that New Zealand needs a tax refresh.
If we keep focusing tax on workers, it is obvious that earning other kinds of income becomes more attractive.
A tax note by big four firm KPMG published in the lead-up to the Tax Working Group put it this way: “Boiled down to a point of extreme simplicity we’ve heard the US approach to taxation described as “a buck, is a buck, is a buck” – i.e. it doesn’t matter how you made the money, if you’ve made money you should pay tax on it.”
But in New Zealand a buck isn’t a buck worth taxing depending on how it is earned.
This is a key unfairness in the system. Why can’t we stop whacking the workers?
Is it because those with assets and capital are too influential and powerful to tax, unlike the taxed wage earners?
Workers can’t avoid PAYE. We can only avoid GST by not buying stuff.
If we don’t buy stuff, we tank the economy. See the pleas to shop local, eat out, just get out, and spend, please.
And if we buy too much, we’re contributing to inflation and adding to arguments that wages rising is something of an economic curse, to be avoided at all costs.
It’s not the poor corporations, and their super pandemic profits. It’s you, all you.
Workers are damned if they do, and damned if they do more. There is no don’t, when it comes to paying tax as a waged worker.
Before you get paid, the tax department gets paid.
From April 1 of this year, for every dollar a worker earns up to $14,000, workers pay a rate of 10.5% tax.
For the dollars earned above $14,000 to $48,000 a tax of 17.5% is taken. For above $48k the tax on workers' wages rises to 30% up to $70,000, and once you hit that every dollar until $180k is taxed at 33c in the dollar.
Above that, for the big earners, it hits 39%.
These tax thresholds haven’t been changed for more than 10 years, although the top tax rate is new. Practically, this has meant that over time, as wages rose, more and more wage and salary workers have been paying more and more tax. How nice for the Government.
Treasury's Budget Economic and Fiscal update, published in May, found “source deductions,” yes that money taken from workers before they earn it, as a share of the total tax take are forecast to keep rising, outpacing growth in the corporate tax take.
The budget and economic update says we can expect tax from workers to rise by $18 billion by 2026. The GST take (also paid of course by workers) will rise by $9.1b in the same period, Treasury says, and the corporate tax take will increase by $7.7b.
The boffins at Treasury reckon though, that the corporate growth will largely be contained to the first two forecast years because of bumper profits and revenue filed to the tax department post Covid.
And those source deductions are going to keep growing. Treasury is forecasting they will rise on average by about $3.6b each year.
This growth is predominantly due to wage growth, that delightful fiscal drag (the increase in a person’s average tax rate as income increases) and employment growth, Treasury says.
The worker piñata gets another whack.
An Organisation for Economic Co-operation and Development (OECD) report about tax in New Zealand showed NZ’s takings from personal income, profits and gains outstrips the OECD average.
In NZ 40% of tax receipts in 2019 came from this category, compared with a 23% average across the OECD.
That made NZ the nation with the fifth-highest share of its tax revenue coming from personal income profits and gains, out of 38 countries.
In 2020 personal income, profits and tax take made up 39% of tax receipts. Again the OECD average was 23%.
The most recent available data, the OECD said, suggests that by OECD standards New Zealand obtains a relatively large share of tax revenue from taxes on income and profits (including company and personal income taxes).
And these taxes, on people's incomes, are among the taxes the OECD says are the worst for economic growth.
A 2014 report out of the Brookings Economic Studies programme found that the structure and financing of a tax change are critical to achieving economic growth, and income tax cuts encourage people to work, save and invest. Discussion documents from NZ's Tax Working Group echoed these ideas.
A June 2022 report by the US think-tank Tax Foundation found that "research almost invariably shows a negative relationship between income tax rates and gross domestic product (GDP)". Tax cuts for most workers (or the bottom 99% as the think-tank puts it) leads to economic growth, income growth for workers and decreases unemployment.
A much older report, from 2004, from the National Bureau of Economic Research found taxes on labour income and consumption spending encourage households to work in the black market or shadow economies, and see efforts go towards untaxed uses of time such as leisure or household production.
If we have outliers, like a lack of capital gains tax or land tax, where a buck earned isn't taxed like a buck earned from a wage, that affects how people and businesses make decisions, including about what they will invest in.
Broadening the tax base leads to efficiencies in the tax system, ensuring personal income isn't taxed too much ensures there is a fair reward for a hard day's work, and that taxpaying workers have the ability to take risks, maybe start a business, or to live their lives how they want to.
What might happen if we finally bit the bullet, and decided we were going to broaden our tax base, by introducing taxes on assets like land, or even houses?
The Tax Working Group reckons the first five years of a capital gains tax could bring in $8b.
A 2018 discussion document prepared for the Tax Working Group by Inland Revenue and the Treasury found (although it relied on work from another working group, in 2009) broad-based land taxes "are highly efficient, simple to administer, and difficult to avoid".
The 2009 report calculated that a non-deductible land tax levied at a 1% rate on all land, except public, conservation, and Māori authority land, could bring in tax revenue of $3.8b a year.
With this additional tax income, not coming from the ever-rising income tax revenue, could potentially drop all the tax rates, for everyone, tax experts say. Yes, even for corporations.
A truly broad-based tax system more evenly spreads the cost of the things we need as a nation.
Now that’s not so terrifying, is it?
93 Comments
What might happen if we finally bit the bullet, and decided we were going to broaden our tax base...
Not going to happen for one very obvious reason. Politics.
It doesn't matter if any alternative is better than what we have if it involves upsetting the cosy tax regime in place at the moment. It will be threatened with abandonment by the Opposition - whoever they are.
Not until we get more workers than tax farmers will we stand a chance of Change arriving. And that will only come after a significant upheaval in our economy to replace the Capital Farmers with Productive Workers.
Maybe the RBNZ has started us down that difficult path? Let's hope so, because relying on any political party to enact Change, is futility writ large.
The outdated belief within the Labour caucus that governments make better economic decisions than individuals, local bodies and firms underpins their drive to centralise everything.
Never mind the fact that the inefficiencies within our public sector has multiplied since Labour began beefing up their budgets without setting clear delivery expectations.
The regime for Crown entities to report on service performance has only just come into effect from 2022.
A large number of people cannot manage their own lives and do not want to be productive. They're attached to the idea of the govt paying all their basic costs. The billions the govt spends on these people both directly and indirectly outweighs other govt expenditure. We agonise over a few million here or there for much needed road repairs while hundreds of millions disappear everyday to prop up consumption expenditure. Clown stuff
All that also shows how taxpayer money is wasted on unproductive consumers by punishing productive workers and enterprises harder each year.
Since 2017, unemployment in NZ has fallen from 4.7% to 3.3% but there are 1.25x working age people receiving some form of benefit. MSD now has 160 site offices across NZ.
Robertson proudly stated in May 2022 that 80% of the NZ population received some sort of welfare payment since the start of the pandemic.
Here is a good website if you are interested in government tax income and expenditure.
Unfortunately it is quite old now (2013), but I expect the relative spend/income per department have probably remained roughly the same as today.
If we have outliers, like a lack of capital gains tax or land tax, where a buck earned isn't taxed like a buck earned from a wage
You have to do some astounding mental gymnastics to convince yourself that taxing land is the same as taxing a buck earned from a wage. This sort of thinking is profoundly unpopular for a reason - people don’t want to be tenants on their own land.
Inflation indexation of income tax is what is needed.
Yes, increasing the holding cost makes you use it more efficiently. Say I'm a supermarket holding a plot of land in a city either because I might want to build one day or just to stop my competitors setting up shop. Add a land tax and this becomes a more expensive option - more likely to build a supermarket to actually earn an income or sell the land to someone else who will use it. Say I have a large city plot around my house, my cost to hold the property increases with a land tax making me more likely to sub-divide.
And yes, the same would apply to bikes. If I had to pay tax I'd probably downsize to just a couple of bikes (i.e. use them more efficiently). A good way to deal with scarce resources like land.
So logically you’d support a imputed income tax on every asset?
I currently make widgets by hand. I have the opportunity to increase productivity ten-fold by purchasing a widget-producing machine. You think that a yearly tax on widget-producing machine will not dissuade me from making this investment, but instead make me use such a machine more efficiently, despite the fact that the profit motive already makes me use it as efficiently as possible?
No, that doesn't follow from my argument. Land is special. If you had a job creating new land by hand, then yes a land tax would discourage you from doing so.
This is about managing scarce resources, not discouraging people from buying widgets. Except in very particular circumstances a land tax does not do anything to the supply of land which is essentially fixed. Maybe a port is marginally less likely to reclaim land? I'd have thought the land tax is barely a rounding error in the costs of that kind of project.
It's categorically different to bikes and your widget as land isn't manufactured, it just exists. Bikes are different in that they are manufactured - the same logic applies in that taxing bike ownership would make people use them more efficiently, but there is a difference in that this would impact the supply of bikes as you say. Land does not act like this - we don't end up with less land because we tax it more. We get the positives from the tax but without the negatives you identify if we apply it to widgets.
Georgism and communism don’t work in practice, but their advocates always come prepared with this sort of flimsy theoretical justification for them. Bunch of parrots.
Developable land is not limited in supply. Zoning and infrastructure release new developable land every day.
So you think we should tax factory machinery to improve its productivity? It is no more limited in supply than bicycles.
Land tax is not Communism, I'm not sure where you got that idea. I'm a share holding capitalist, but can still imagine land tax leading to positive outcomes when compared to income tax. I want to see a society that rewards hard work and allows people to keep more of the money they earn from work, rather than one where the benefits accrue largely to the property owners (even though I am one).
I don't think we should tax factory machinery. While it would improve its productivity (maybe you would run extra shifts or weekend work if the tax was high enough?), the negatives would be problematic. People would be less likely to build factories in NZ and we'd have to import more finished products.
Land tax, you get the benefits of encouraging productive use of land, and no risk of the land moving overseas to avoid the tax.
I thought we already had a land tax - rates. Also I'm not sure that not having a land tax will result in an entrenched aristocracy, nor that it would be a bad thing if it did.
Anyway people who own land better be good with investing their (other) money or they won't have it anymore.
Yes, Ms. Stevenson is constantly pushing socialist/communist ideology: more taxes. Ever noticed that we already have land tax (huge amounts of 'rates', effectively a land tax) and capital gains tax (ten-year bright line test)? Does Ms. Stevenson want to tax properties sold even beyond the ten-year bright line test? Does she realise 'capital gain's after many years of holding property do not completely represent an increase in value but a decrease in the purchase power of the Dollar, due to inflation?
Does she realise we already have 'big government' in the form of the Labor party? What would the government do with even more tax income? What has the current government achieved? Why take the hard earned Dollars away from the productive people and give them to a Labor government that engages in nanny-state control (e.g. vaccine mandates)?
What we really need is more freedom. A limit of how much money governments can print would prevent inflation. Lowering income tax and GST rates would keep funds in the productive sector.
This leads to allocation of capital where the demand is - it is called a market economy, as opposed to Ms. Stevenson's idea of a bureaucrat ran state economy. In East Germany, people had to wait 16 years for delivery of a new 'car', i.e. a two-stroke engine vehicle with two cylinders and 26 horse powers. That is how efficient socialist governments work. No, thanks!
Freedom, market economy, less tax, less nanny government!
Exactly, lower income taxes, raise LVT on the unimproved value of land (which we clearly do NOT have), and allow a market economy where property prices aren't protected and subsidised. You'll get more investment in productive enterprise by rewarding productive people rather than land speculators. Which will raise living standards.
Less nanny coddling of land speculators and more of an actual market would be good.
No capital gains tax for property, it will never be paid and will just create a game for accountants to earn more helping people dodge tax, as is the case in every other country with capital gains tax.
High land value tax, imposed universally with no exceptions (except deferrment for pensioners on a single property, which is effectively an inheritance tax. Defer from 65 till your death at 90, then 25*2% LVT for 50% of your house's value please).
Capital gains for shares doesn't stop buybacks. Buybacks are the primary way taxes are avoided atm. I am not sure on the right approach here.
The tax system has become a system of organized looting of the workers and completely lax on business for the longest time, we should not buy these bad solutions like capital gains on property.
So capital gains taxes on property and taxing worker's wages is looting, but telling OAPs we're going to sock your house for the value of a land tax (by the way we restrict the supply of land so watch us jack that up for our own benefit) somehow isn't?
If your solution is to tax people for living in their own homes that you can't collect until they cark, then maybe that's not a great solution and the actual issue is what you're pissing the money away on. No matter how absurd or unethical the tax is, an uncontrolled central government will always find some way to waste it and justify needing more.
Nope, not talking about that at all. I'm talking claiming some sort of moral high-ground and using phrases like 'looting' when it comes to PAYE on salary/wages but then advocating a plan like a land tax which would absolve those collecting the tax of any real responsibility because the expectation would be people would just 'put it on the house' rather than ever reigning in spending or showing some financial discipline by those in charge of the purse strings and who have the power of compulsion to fund it.
At least with an income tax, you can visibly see on your payslip what you are being relieved of and decide whether that's good value for money every three years.
Almost every economist of any note since Adam Smith has advocated for Land Value Tax due to the nature of land.
Owning land and making profit off it without improving it is ticket clipping.
You could lower taxes on productivity (working) and punish property owning parasites with higher burdens since they aren't working to make that wealth.
The reason it is effective is if LVT is universally applied, it incentivizes landlords and owners to use their land as best as possible and it imposes a cost on land ownership. It is an easy tax to collect, easy to enforce and administrate. Even Milton Friedman liked it.
Adam Smith on property parasites.
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"The rent of the land, therefore, considered as the price paid for the use of the land, is naturally a monopoly price. It is not at all proportioned to what the landlord may have laid out upon the improvement of the land, or to what he can afford to take; but to what the farmer can afford to give. "
-- ch 11, wealth of nations
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"As soon as the land of any country has all become private property, the landlords, like all other men, love to reap where they never sowed, and demand a rent even for its natural produce."
-- Adam Smith
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"[the landlord leaves the worker] with the smallest share with which the tenant can content himself without being a loser, and the landlord seldom means to leave him any more."
-- ch 11, wealth of nations.
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"The landlord demands a rent even for unimproved land, and the supposed interest or profit upon the expense of improvement is generally an addition to this original rent. Those improvements, besides, are not always made by the stock of the landlord, but sometimes by that of the tenant. When the lease comes to be renewed, however, the landlord commonly demands the same augmentation of rent as if they had been all made by his own. "
-- ch 11, wealth of nations.
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"RENT, considered as the price paid for the use of land, is naturally the highest which the tenant can afford to pay in the actual circumstances. In adjusting the lease, the landlord endeavours to leave him no greater share of the produce than what is sufficient to keep up the stock"
-- ch 11, wealth of nations.
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"[Landlords] are the only one of the three orders whose revenue costs them neither labour nor care, but comes to them, as it were, of its own accord, and independent of any plan or project of their own. That indolence, which is the natural effect of the ease and security of their situation, renders them too often, not only ignorant, but incapable of that application of mind"
-- ch 11, wealth of nations.
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"[Kelp] was never augmented by human industry. The landlord, however, whose estate is bounded by a kelp shore of this kind, demands a rent for it"
-- ch 11, wealth of nations
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"every improvement in the circumstances of the society tends... to raise the real rent of land."
-- ch 11, wealth of nations
Yea, something about using citizen's homes as reverse mortgages for governments who aren't prepared to dial back spending or who can ever master basic tax administration like indexing tax brackets doesn't sit right with me.
Our authorities have already proven their ability to strangle land supply completely by accident. I shudder to think what the effect would be if the revenue was almost entirely reliant on it.
I don't inherently disagree with you, but I think we need to be realistic about the pitfalls present in our current system that aren't just going to magically disappear, especially if we load up on agency issues.
Rebecca like many fail to understand we have already reached peak taxation and the taxpayers are revolting quietly by minimising their income to what they require to live and avoiding jumping the bureacratic hoops of fire to do anything risky that the bureacrats don't approve. If the same effort was put into improving productivity and removing the obstallces to progress and eliminating the wasteful expenditure so loved by communistic Govt and obstructionist bureacrats NZ would be a shining light globally on how to fix the myriad problems we all face!
Maybe tax rates wouldn't need to be so high if the gov didn't give my hard earned tax dollars away like candy on Halloween with little to no accountability. Just look at how much was handed out through the wage subsidy and there is ZERO accountability about where that money has gone. It is therefore reasonable to think this is how all departments in gov are operating and it makes me sick thinking about how much is spent on consultants, advisors, projects, etc that don't add a thing to the country as a whole.
Seems like the money that falls out of the pinata goes into a slush fund and the people putting it in are not getting value for money - especially when essential services are in such a poor state (healthcare, fire, etc).
Pretty sick of it to be honest.
Not sure how much capital gain we're going to see in property for the next few years. Probably better we didn't pivot our tax system to be solely about this, given we'd now be on the hook for that and whatever temporary (snort) shortfall adjustment the government needed to boost their coffers.
What is needed is for the tax brackets to be moved upwards so that each bracket has been inflation adjusted to match what they were (or would have been) 40 years ago but adjusted for inflation.
That way the tax brackets would be in the same relative position that they were in back then.
That might go some way to removing the need to have middle class folk receiving "working for families" "tax credits". Middle class folk should be earning enough to not need taxpayer subsidised assistance.
Fair point, it's above my pay grade to figure out which would have a more significant impact on the economy for the same amount of tax raised. In general though, I'm not a big fan of stamp duty or similar as I think it is good for the economy for people to be able to move for opportunities, and this is a strong disincentive.
Offshore shares outside Australasia have a 5% deemed rate of return which is then taxed. Another Govt steal from peoples assets, no offset when the shares drop 20% this year.
The Govt takes more than enough of people's money, the issue is that they don't spend it wisely & waste it on their vanity ideologies.
I believe along those lines, simplify it.
I've more looked at it as a gross income tax meaning profit and deductibility is irrelevant (as would be a large proportion of accountants). My guess is it would be around 5% meaning a big win for wage earners, the losers would be low margin companies. Biggest losers would be profit transfers to overseas entities.
Yes , income tax would obviously reduce, quite significantly hopefully .
First home buyers can instantly claim back the gst , banks can accomodate . Rules around relocating to make it you only pay the difference between the cost of houses if you buy and sell.
For offshore shares / investments the govt enters into agrreements with all major exchanges etc , much like it has for amazon , zinio etc for offshore purchases.
It would be inflationary , so now not a good time , unless phased in gradually. .
It is likely if the brackets dont change then from 2023 we will see the brain drain to Aussie increase.
Fort he first time in over 50 years Australia's tax rates will be lower than NZ's for wages for anybody who earns between $70- 200K a year.
Currently only for those who earn less than 70K a year pay a higher PAYE tax in NZ vs Australia. Once a persons salary is over 70K then they pay less tax in NZ than Australia
The reason for the higher tax under 70K is a result of NZ not having a tax free threshold - which Australia has.
The reason for the higher PAYE tax in Australia over 70K is due to them having their 32.5c tax rate kicking it at $48000 and them having a 37c tax rate at $120K and then a 45c tax rate at $180K
Next year the 37c tax threshold will be removed completely and the 45c tax threshold moved to $200K meaning for all workers that earn between $70K and $200K they will pay less tax in Aussie than in NZ.
Add then the benefits of 10.5% superannuation (kiwi saver) on top of your salary and higher wages and it starts to become much harder to convince Kiwis not to move across the ditch.
It is well overdue for NZ to consider a tax free threshold - something that will benefit all income earners in NZ and by the same amount. More importantly it will help make NZ a lower taxing nation vs our neighbours - something that will be needed if we wish to retain talent.
Aust wages + Super: Higher.
Taxes: Lower.
Living Costs: Lower.
In NZ you get sneered at for asking if we could please maybe adjust our tax brackets just for inflation maybe more than once a decade, while continuing to jam in more and more people so the supposed lifestyle benefits (beaches, skifields, etc) get more and more oversubscribed and inaccessible to all but the very well-heeled.
Yes absolutely - and I get that NZ and Australia have "other taxes" such as CGT and a different rate of GST all of which can contribute to a different "effective tax rate".
However 70% of Aussies will never have a CGT requirement ie they dont invest in shares or housing. if they do then with the 50% rebate on CGT - the maximum rate they pay is 22.5c in the dollar. NZ currently on the brightline test (applicable to housing only) charges up to a maximum rate of 39c and for the majority 33c in the dollar
NZ has a higher GST and it applies to all goods- Australia has a lower GST and it applies to approximately 80% of peoples disposable income as food and health are exempt.
Australians pay stamp duty on cars, houses and insurance - Kiwis dont. However Kiwis pay significantly higher land rates - which is probably acting as a defacto property tax on housing and pay 5% more in GST on Vehicles.
Australians Superannuation (kiwisaver) including CGT is taxed at 15% - in NZ its the persons tax rate so likely 33c - except for earning which cap at 28%
So in the washup- the effective tax rates a between both countries is probably very similar. However next year based on PAYE - Australians as individuals will have lower PAYE tax rates than Kiwis for the first time in 50 years.
Australia's headline tax rates don't include a medicare levy of 2%, and an extra medicare levy surcharge of 1.5% over an individual income threshold of $90,000. On the other hand, the tax free threshold is applied to everyone in Australia - so effective PAYE / PAYG tax rates are substantially lower in Australia across almost the entire income distribution up to 200,000. So anyone that's moving to Australia next year purely due to a change to the headline tax threshold doesn't understand how progressive tax works. The easiest way to check this out is to compare using a tax calculator that reports effective tax rates at your projected income level.
You can test this by yourself by putting your current income into these calculators:
https://www.paye.net.nz/calculator/
Depends on what we're arguing I guess? An argument on how much a Government taxes income is completely different to how much a loaf of bread of a bunch of bananas costs.
Should a Government tax income less when consumer items cost more? i.e. Our income taxes should be lower than Australia because the grocery bill is higher?
Should a Government tax income less when consumer items cost more? i.e. Our income taxes should be lower than Australia because the grocery bill is higher?
Do you want my weapons-grade, bullshit fantastical futurist answer to this? Because it's probably 'yes'. Some recognition of the fact that people have to survive on net wages, not gross earnings, would be a damned sight better than the inflation-driven swifty governments pull with increases in earnings, even if they don't keep up with increases in living costs.
It is common practice in the capital these days as a means to get around the public sector pay freeze. Workers leave and rejoin the same role as contractors at a higher rate plus the perks of tax deductions and GST claw backs.
Even their managers benefit from not having to shell out ridiculously high and often unjustified corporate overheads from their budgets per FTE.
This a confused piece of analysis.
Firstly, the focus on capital gains on housing - you don't pay tax when your shares go up in value - you pay tax when they generate dividends (and the brightline test doesn't relate to how long you have owned the shares). The issue about run away housing prices isn't that we haven't had a capital gains tax it is about stopping the boom bust of our housing market - which is starting to be introduced by less restrictive zoning laws. If we can fix the boom bust we will go back to houses being affordable.
And there is no appetite from those who claim an interest in capital gains/land value tax such as the Greens. In fact we have a very good mechanism for wealth tax - which is actually focused on housing - it is called rates. Yet despite rates being an effective 'wealth tax' we see a pattern of moving costs from land owners onto income tax. This is highlighted by, for instance, three waters which means future infrastructure are paid by income earners rather than property owners
I’ve got a surprise for you, foreign share holdings (ex AUS) are taxed on Capital gains
https://assets.kpmg/content/dam/kpmg/pdf/2015/07/Offshore-Share-Investments-FIF-2015.pdf
I think you miss the point, the tax 'rate' is not as important as the 'when it's applied'...
PAYE earners $1,000 minus tax rate of ~20-23% = $770-$880 in hand, (expenses are taxed with GST on top)
Businesses $1000 minus expenses (likely $400 to >$1000) = $0 to $600 in taxable income minus 28% = $1000 to $876 kept in business (expenses are untaxed, GST is passed onto consumer)
True company tax rate varies 0% to 12.4% not the advertised 28% at IRD
Tax is more complex in business, but if their smart and deduct a lot then the tax percentage is small relative to revenue
From several people I know, it isn't hard.
Tradies/Sole traders:
Run the business at a loss to avoid ACC levies and tax, have the vehicle as the company vehicle to claim 10.5% tax back on fuel costs, funnel as much through expenses as possible to keep the available cashflow higher and taxes to a minimum.
Land & business owners (assuming the business is run from the building on the land):
Have the land in a trust and the building on it owned by the business, lease the land to the business form the trust, declare as much as you can from the building as company use, claim expenses and as much tax deduction as you can and wallah, low tax, fast business growth and soon enough pay someone to run it for you while you spend your time doing whatever you please.
Accountants make their money buy TELLING people to do this to avoid the most tax possible, the more they can save someone, the better their business will be.
You would be amazed the number of folk out there doing this, not me as I'm a simple PAYE worker, but the number of self-employed that do it is staggering. And they say housing is the only way to make money.....
As the Boomer retirement wave really gets goings we have a shortage of tax payers, and a massive rise in tax takers. The tax base will have to be altered or NZ will run the risk of endless massive deficits, and more of our productive youth heading to lower cost but higher wage locations.
The sacred cow of a land tax is surely inevitable...?
Oh yes, another thought. I don't imagine many pensioners stuff their cash under the mattress. Most of it is no doubt spent on living costs, at which point the gov immediately repossess 15%. The rest? Rates, healthcare, repairmen, food. Maybe enough left over for a loaf of bread to feed the ducks?
Millennials are now in their 30s and 40s. They own family homes. If the expectation is that they pay a land tax, some form of PAYE, underwrite pensions for boomers AND be expected to save for their own in the face of likely means testing (i.e. if you've actually worked and saved, you won't get anything, while those who pissed it away get it no questions asked) then you might also find a fair chunk of middle-aged Kiwis - at the peak of their income earning lives, no less - decide to give it away in NZ and see if the grass is greener somewhere else.
Even more so now that many are sitting on houses which are rapidly unwinding in value after they spent years saving for a deposit while all and sundry wagged fingers in their faces about 'spending responsibly'.
Broadening the tax base leads to efficiencies in the tax system, - sure but probably an inverse relationship with govt expenditure where "poor bang for our buck" is a prime driver of citizen frustration
Match this with a tax take climbing much faster than inflation and it is a hard sell made worse by past govts implementing new tax bases which have the result of increasing overall taxation despite the promises of neutrality
Is it because those with assets and capital are too influential and powerful to tax, unlike the taxed wage earners?
Yes,yes and yes again. If a labour government with a working majority won't touch a comprehensive CGT never mind an Inheritance tax(IT), then what is the chance of a National government touching it? Somewhat less than zero perhaps.
I spent much of my working life in the UK dealing with both CGT and IT and society somehow didn't collapse.
I have been here 19 years now and this is home and I enjoy life here at the Mount, but when you look hard enough, sadly there is a lot wrong with NZ. Our insane predilection for property, while rational for individuals, is bad for the country and what's more, many of them are badly built piles of crap.
There's a lot with the UK despite having both of those taxes too! But realistically if we cannot manage basic tax admin like adjusting brackets for inflation then wholesale tax reform is unlikely.
And the dumb thing is you wouldn't even need to tap inheritance taxes if you actually did it properly.
A land tax is a great idea. But firstly we would need to exclude Maori owned land and other assets owned by Maori entities as I am sure this would conflict with the Treaty? Also would need to be careful how we taxed productive rural land as this generates a very low economic return and this sector is our most important export earner, so we don't want to put them out of business correct? Probably also need to make exceptions for the elderly on the pension and of course it wouldn't make sense to land tax state owned assets. So pretty much just a tax for middle NZ whom the majority own a single house. I've changed my mind. I think this is a terrible idea.
No reason to make an exemption for the elderly. Have an option to roll up the tax and pay on death/sale of the property, just like rates at the moment.
Rural land could be taxed at a lower rate, and could be somewhat corrected for by other compensating tax cuts.
Maori assets, I have no idea how this would interact with the Treaty.
It is impossible to design a fair and equitable tax system without first understanding how the governments finances operate and what the purpose of taxation is for.
All government spending involves the creation of currency in the form of new central bank reserves and so taxation has nothing to do with financing the governments spending. The government spends first and then it taxes back. Taxation limits the quantity of currency on issue and so maintains its value. Taxation also creates the space in the economy for the government to spend for the public purpose without it causing inflation.
Standard and Poor's gives us a description here of how the system works.
https://www.hks.harvard.edu/sites/default/files/centers/mrcbg/programs/…
What would happen? Myself, and a large number of my fellow Kiwi's would simply pack up and move to another country, taking not just our assets but our income taxes with us. Pretty much the only thing NZ has to offer wealthy Kiwi's is no capital gains tax. Whack one on and suddenly NZ is competing with Australia, the US, UK, Europe and Singapore - and I tell you, it will lose. I trade a lower quality of life in NZ in return for being able to build an asset base faster than in another country. Take that away, and I would rather pay tax and live somewhere with a decent nightlife, great beaches, better weather, and a short plane ride away from a dozen other countries for holidays.
People are already fleeing NZ for Australia, not just for higher wages, but because investing in property is now far more lucrative in Australia than in NZ as they still have depreciation, negative gearing, interest deductibility, a discounted CGT (whereas Brightline is a 100% tax) and the ability to rent your principal place of residence out for 6 year without attracting CGT. Not to mention the major tax advantages of being able to purchase property through a self managed super fund. Bottom line, for those who want to get ahead in life, NZ is rapidly becoming an anchor around people's feet.
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