Finance minister Nicola Willis says she expects the outcome of policy work aimed at closing tax loopholes for not-for-profit businesses to be announced in the budget next May.
The government included a review of tax rules for charities and not-for-profit entities in its work programme. It will explore whether charities which run commercial businesses should have to pay tax on profits retained within the business.
Some examples of charities which operate commercial businesses include Weet-Bix maker Sanitarium, early childhood education company BestStart, and South Island iwi Ngāi Tahu.
This policy work, as well as a new requirement that infrastructure projects look for a user-pays model before seeking Crown funding, meant Willis was unable to promise no new taxes in the next two budgets.
During a Finance and Expenditure Committee hearing on Tuesday, opposition MPs repeatedly asked the minister if she could rule out revenue raising measures this term.
Willis said the government would rely on a package of spending, savings, and new revenues to stay within the annual operating allowance of just $2.4 billion.
“In the last budget, we did use revenue measures. We increased immigration levies for users… we also increased some fees in some areas, and removed commercial depreciation”.
“I intend to continue to take that umbrella approach which lets us stick to our operating allowances, while also giving us some new sources of revenue,” she said, offering up toll roads as an example of new revenue.
Earlier in the week, Infrastructure Minister Chris Bishop announced the cost of new projects should be covered by users wherever possible. This might mean congestion charges on motorways, road tolls on highways, water levies for new pipes, and targeted rates for residential developments.
These are in place of general taxes and don’t necessarily mean households will pay less overall costs for public services and infrastructure. It may even lead to higher tax-like costs for those who live in areas in need of upgrades, while those in well served areas save money.
User-pays models also make it easier for private developers to finance and operate public infrastructure. This saves the Government from having to rack up debt but can increase the overall cost of the project, as the private sector faces a higher cost of capital.
On the flipside, having that commercial pressure can mean projects are better managed and stay on budget — at least in theory.
In a press release, Labour’s finance spokesperson Barbara Edmonds said the Government needed to be more upfront with New Zealanders about how much “more expensive life will become”.
“Nicola Willis cannot pay for everything she has promised with cuts alone, but refuses to say what new revenue measures she will bring in. She must be upfront with Kiwis about what her sneaky taxes will be,” she said.
Speaking to reporters after the hearing, Willis said these toll roads and the possibility of charity tax reform meant she couldn’t promise no new taxes this term.
“I think it would be wrong to give a definitive no to that, when the truth is I will be looking at revenue from tolls. There could be tweaks to the charity tax regime. What I can rule out is a wealth tax or a capital gains tax,” she said.
On the weekend, the Labour Party membership voted to continue working on a tax proposal which could provide extra revenue to support Crown borrowing and fund social services.
Labour needs lessons
Opposition committee members became frustrated during the meeting, which is part of a new process called Scrutiny Week, and complained Willis was giving overly-long replies to simple questions and using them to attack the previous Government.
Asked about this, Willis told reporters she had to deal with the fallout of “six years of economic mismanagement” every day and Labour needed to learn from its mistakes.
“And so, when I hear people tell me that, it's all going to be simple and we'll just have more debt, and more tax, and it'll all be fine, I feel I need to remind them of those lessons”.
In the hearing, she agreed the economy would grow more quickly if she loosened her fiscal policy. “But we just did that, and the pain at the other end is not worth it,” she said.
58 Comments
It's about time someone finally got to grips with church based businesses making huge profits and paying less tax than other business. As someone who works in the Ag sector it creates a hugely unfair playing field, reduces competition and keeps money in the pockets of one segment of society.
This comment is beneath you Foxy.
I know the Churches argue (Or used to) that they represent God, and any tax on them is effectively a tax on God, but that is utter BS! Churches are not God, nor do they represent God. Rather they are more a political organisation formed to manipulate and control the population. They just use God to do this. Should they be taxed? If they run a commercial operation - damn right they should! Churches are some of the wealthiest organisations across the world because of politicians and others swallowing their BS, but mostly they do not practice what they preach when it comes to charity.
Yep, we are in the same boat, in the last couple of years they have merged into our line of work and taken a share of it and from what I hear, going for a lot more. Hard to quote when they avoid having to pay taxes on their profits. And then they send their profit over to America, not spend it in their local community.
Their businesses are normal registered NZ companies and partnerships and are taxed the same as everyone else. Feel free to check the companies register and ask your accountant if IRD would allow some businesses to not pay taxes on reported profits with no valid reason. The idea they pay no tax and can therefore be more competitive is an absolute myth!
My understanding, as you point out, is that they do function as 'normal' businesses (as opposed to actual charity/religious organisations running business activities). There is some element of their businesses taking profit and making sizeable donations to various charitable organisations that benefit their community, e.g. the school system they run or there's some emergency response organisation whose name escapes me.
However, from what I've seen you are right that there isn't some magic button they press that says to the IRD "we run a normal business but don't have to pay tax".
Where Brethren businesses are able to undercut competitors is because of:
a) Significant group buying power (if I recall, they are Air NZ's second biggest corporate customer after the government). A great deal of purchasing happens through a centralised company - which provides group buying and other services e.g. accountancy - and they get sharp pricing on everything from airfares to insurance to vehicles. This even happens with professional services e.g. I know some service providers for things like sales training who almost exclusively work with Brethren businesses because although they get a lower rate they are booked out months in advance.
b) Oftentimes in various industries their "community" businesses will be suppliers of critical inputs/components, and they will do more favourable deals to other community members. So if I start a competing business and have to buy one of my components off a Brethren company, I won't get as sharp pricing as the company next door that is in the community.
c) Usually they are family-run businesses and from what I have seen the family members are not always paid the market rate (they also have a tendency to be understaffed with the family members working enormous hours - not necessarily with the best productivity/output. I recall one telling me his working day started at 3am every day of the week, and he works until 10pm every night).
d) There seems to be some level of centralisation from the higher level of the church (and it's corporate extension - the aforementioned group buying/service company) to plan what sort of businesses are going to run where. And when a new business starts there is an expectation the other community members will support them.
Much like the definition of a tax 'cut' means 'just not letting inflation push up the tax even further once every 13 years', apparently.
Or alternatively, taxes Labour would not be philosophically opposed to but didn't suggest when in power and are objecting because National is more effective at being Labour than Labour is.
It's very simply really. A tax cut is any policy that results in someone having to pay less tax on the same income basis. A tax hike is any policy that results in someone having to pay more tax on the same income basis.
Thus National adjusting tax brackets was a tax cut, and National allowing landlords to write off mortgage interest is also a tax cut - Labour's policy of preventing landlords from writing off mortgage interest was a tax hike, and broke their own self-imposed rule of 'no new taxes'.
Anyone who thinks paying additional tax that wasn't required previously under legislation isn't a new tax is being wilfully disingenuous.
Remember that we are discussing tax deductible business loan interest. Further there was no mandate for the tax change put in front of the electorate. IIRC MBIE IRD & Treasury advised against the change ?
It's not a new tax. Even the mortgage interest deductibility changes were not a new tax, Landlords have always been required to pay tax against their posted profit.
The changes meant mortgage interest was no longer something they could claim as a legitimate expense. Did this result in landlords with no mortgages paying more tax? If you had 2 identical properties, identical rates/insurance etc but 1 was mortgaged and 1 freehold, did these changes result in one landlord paying more tax than the other?
I’d like to see whether we pay out more in deductions than what we actually gather in tax. Given that in 2019, half of all mortgaged investors were on interest-only and were highly leveraged, I doubt we are coming out with a net gain.
Most investors I know set themselves up to remain permanently debt-laden, and are designed to never return a profit (if there is risk of that they simply leverage to buy another place). A couple use the taxpayer as their own personal ATM to keep their own personal debt low and their tax deductible debt high. These same individuals, claim that without these deductions they wouldn’t be able to even break even. Well, seems like it’s no more than a generous subsidy for one group of society at the expense of another.
User pays is theoretically fine and fair, unless the revenue is solely invested in company dividends, overseas transfers of profits with insufficient asset maintenance. Alas - roading PPPs are just that.
In addition, the concept of polluter pays is great but is rarely enforced. As simplistic as it is, attaching a $$$ cost to the natural environment would allow better investment decision making and reduce “socialising the costs” of pollution cleanup onto the public purse. But natural capital must be free apparently…
https://newsroom.co.nz/2024/12/02/all-of-govts-2024-coal-earnings-spent… This isn’t anything unusual. The oil and gas sector want us to subsidise them. It’s a giant joke.
I remember reading about home-based ECE providers who targeted grandparents already looking after their kids and offered them a pak n save voucher for signing up, as well as use of the company accountant to start writing off a fixed percentage of living expenses via a standard determination. Meanwhile, the provider clipped the ticket making ten an hour per child. Whichever way you look at it. It’s always the taxpayer footing the bill.
It may even lead to higher tax-like costs for those who live in areas in need of upgrades, while those in well served areas save money.
The problem is this isn't fair. You're typically well-served if a prior government got to your issue before the money ran out. Transmission Gully isn't tolled, but the Otaki to Levin road will be. That's the kind of distortion you'd generally hope to avoid, given the people further north generally have less means to pay a toll. Similarly, Tauranga has had really crap luck with the Nats coming in with toll road solutions consecutively. Just because your needs were overlooked for decades doesn't mean you should now have to stomach a user-pays road. Especially while you're also paying fuel excise to subsidise other people's roads.
At least when they bring in electronic RUC there'll hopefully be the option of not charging RUC and tolls on top of each other for the same stretch of road, because that's double dipping in the extreme.
It's time organisations set up as charitable trusts were examined.
Particularly the ones where administration and salaries chew up a disproportionate amount of income in relation to disbursements, or where monies are retained in what are patently for-profit businesses. I think the IRD's lawyers are going to be very busy over the next few years, and we'll have to see if government gets cowed by protest.
I'd hope not.
We could do with a site like charity navigator in the USA, so we have some idea of what kind of organisations we donate to.
Conversely, larger charities tend to get bogged down in administration costs and end up getting further away from the coal face. They lose sight of what they were set up to do.
Some smaller ones can be very much direct-to-customer and so a larger percentage of gross donations go where the donors think they are going.
Another corollary would be gangs. Quick to highlight the annual bike ride collecting toys for sick children whilst making millions in drug sales and inflicting violence and crime ad infiniutm. A point of distraction.
Surprised no one challenged the Maori Trust tax rate, 19.5% IIRC. I guess it is sacrosanct. A bit like the Church. Yawn.
The Government needs to look at not-for-profits like Best Start. With most of their revenue going towards paying off a loan (given to themselves and therefore deductible). Like 20 mil a year to loan servicing and only 2 million a year to charitable activities. As they only have to report on charitable funding, the rest of their income becomes a black box.
But on the other side of the ledger there'll be some one gaining/making a profit from the gains of that loan (interest). Unless the loan is never actually dispersed to Best Start, instead spent on other things like houses/cars with Best Start lumped with the repayments from the """"loan"""".
In that instance, a tax audit may have the IRD reclassifying those repayments as income.
I'm not sure that's true, and I don't think interest (and therefore tax) comes into it.
"Best Start – the country’s largest childcare provider, with more than 260 facilities nationally – was controversially converted into a charity in 2015 when owners the Wright Family Trust sold the business to the Wright Family Foundation for $332m.
The purchase price was settled with a vendor-financed loan to be repaid to the private family trust out of spare – and now tax-free – cashflow."
It reads to me like a related party transaction where the "Charity" can pay out the $332m it owes the family trust with future (tax free) operating profit. The "Charitable" status allows it to avoid tax on profits, while there has been no effective change in beneficial ownership - shady as hell.
A lot of related party, holding company/subsidiary transactions are shady as hell. The debt/interest, management fees are the big ones, but accepted practice. They've abused the debt leverage, as we all have, and it demands more and higher returns. It's one of the biggest drivers of inflation but we don't want to know this.
Woolworths had some of this restructuring when they recently pleaded poverty.
Problem is most journalists don't have the competence or knowledge to read financial statements, and simply accept the company's propaganda as truth.
We have very few real charities at all in New Zealand. In the social services etc what we have is government contractors. I have vast experience with these characters and my rule was the more virtuous they claimed to be the more self interested they behaved, client by client.
In twenty five years in the town I worked I never saw the Salvation Army do one thing they were not paid for. Except for their TV adverts.
Any cent these government contractors receive to provide a service. Tax it.
How much would those services have cost at commercial market rates?
It's great to be generous, however there's got to be an income stream if there's to be any kind of consistent quality of service provision. Whether that's via government or some other funding pathways is a secondary point
Congestion charges and tolls are convenient solutions to an artificial problem. NZTA and local authorities have done everything they could to create congestion. It seems too convenient that the new govt now has "solutions" that will involve giving loads of public money to their private partners.
Despite her high and mighty attitude Willis doesn't appear to fully understand how 'money' works either. Using new taxes and charges on people to fund infrastructure is just removing more money from an economy that is already struggling to function properly.
All infrastructure could be fully funded with deficit funding (this is not borrowing) to build economic capability. But any plan that has that must be broader and more complex to build the economy. It doesn't look like the NACT coalition sees that. Possibly better than the Labour government though.
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