A reader emails:
In response to a post by Blueburd in the Daily Roundup tonight I have crafted my submission to the tax working group and encourage other Whale Oiler’s make their opinions known to the TWG. Rather than lose this post in the Daily Roundup thread, is it good enough for ‘A Reader Writes’ or some such post?
Happy to oblige and I encourage readers to likewise make submissions (via email):
Here is Ferginator’s submission in full:
I am a NZ tax agent and a qualified accountant. I have some recommendations for the tax working group (TWG).
My view is that New Zealand is a not currently a high value economy, as evidenced by the relatively low median wage compared to the more well developed countries in the OECD (18th per here: https://data.oecd.org/earnwage/average-wages.htm). The only country of note behind us is Japan but they have a number of systemic issues that differ to New Zealand. Similarly sized countries like Ireland, Norway, Sweden, Finland and Denmark are all ahead of New Zealand. We also have a relatively low rate of saving being 19th in the OECD. Why? In my opinion it is because the cost of living in New Zealand is expensive. For example, the consumer is expected to pay international prices for locally produced milk products and yet we do not earn international wages! For some years we have had a struggling middle class that cannot get ahead. I believe there are too many middle men adding extra costs onto products and we have ‘leakage’ in our tax take.
However, New Zealand is in an enviable position of being a net exporter of food products and the Government should be doing all it can to ensure New Zealand becomes a high value economy by supporting high value food production and exportation. I say ‘enviable’ because not all countries are in such a position of being able to feed themselves. When this is combined with an increasing global population, it provides a very rosy outlook for the country as a whole. Accordingly, Government surpluses, low unemployment, higher wages, robust social services and increasing OECD rankings will become the ‘norm’. Investment should be encouraged into such parts of the economy without penalty for succeeding, i.e. penalties such as wealth taxes.
Increased OECD rankings and increased all-round wealth cannot be achieved via wealth distribution by implementing an increased tax burden on, as Sir Michael Cullen says, the “rich pricks”. Any such targeted taxes will result in intended consequences. Such individuals have the means, advisers and motivation to avoid any highly targeted taxes and the burden will, once again, be borne by the struggling middle classes who do not have the same means and motivation to structure their affairs to avoid things such as a “wealth tax” (souuce: https://www.stuff.co.nz/business/industries/101970814/new-taxes-could-change-bad-behaviours-suggests-sir-michael-cullen). I believe badly designed taxes will encourage even worse behaviour. There are a number of things that can be done to ensure the tax take is complete, fair and simple.
So what can we do that will make a difference?
1) ALL international companies MUST pay their fair share of tax. I realise this is out of scope for the TWG but this statement is not just limited to the obvious examples like Google and Facebook, but other large multinational companies that tend to fly under the radar within the FMCG industry. These companies often export profits to low tax jurisdictions such as Ireland. How many business are paying over-inflated prices for ‘secret’ ingredients and consulting services as a method of transferring profits out of New Zealand?
RECOMMEND the TWG advises the Government to “plug all holes” in the international tax take before introducing new taxes on local taxpayers.
2) Secondly, Government should also address it’s own spending. Rather than imposing new taxes to cover additional spending, is the Government doing all it can to address inefficiencies in it’s own spending? The taxpayer should not have to pay for inefficiencies. Inefficiencies can take a number of forms over and above the obvious frivolous spending and entitlements – it includes areas such as “do we need 120 MP’s in a country of 4.7 million?” Why do we need 13 city councils and 53 district councils? I believe taxpayers are paying for inefficiency.
RECOMMEND the TWG insist local and central Government review it’s own spending for inefficiencies before introducing any new taxes on local taxpayers.
3) Thirdly, in the interests of transparency and fairness the TWG must recommend the elimination of taxes on taxes & levies. Where a consumer or taxpayer is required to pay a levy or a tax of sorts, then such levies or taxes must be exempt from GST. For instance, GST is levied on property rates – the homeowner has no choice by to pay this levy imposed by local Government, on which another tax (i.e. GST) is then imposed by central Government. From the perspective of the ratepayer this is a tax on a tax. Another example of a tax on a tax is ACC levies. Where the levy is distinct and separately charged then removal of GST will be simple. However, where the levy is buried within other costs (such as fuel taxes and alcohol & cigarette duties) then it would be impractical to do so and I do not recommend the removal of GST on such products.
RECOMMEND the TWG propose removal of taxes on levies.
4) Lastly, I do not support a general capital gains tax (or a wealth tax which is a CGT by stealth) over and above the current provisions for CGT as contained in the Income Tax Act. After all, taxes have been paid through the process of creating this wealth and the country as a whole has benefited from investments made into productive parts of the economy. For example, by investing in farming numerous taxes are paid over many years (PAYE, ACC, Income tax, fuel levies, GST and so forth) but the transfer of the farm from one generation to the next may result in unintended capital gains and, I fear, capital gains tax. If such a risk exists for business owners, who are the backbone of wealth creation for the country, then will such taxes discourage entrepreneurs from establishing businesses in New Zealand?
In some cases the wealth has increased due to the impact of the inflationary policies of central Government. Given the spending power of money diminishes with time due to inflation, if the TWG is going to recommend a capital gains tax then I strongly urge the TWG to recommend that any such gains be adjusted for the effect of inflation over the term of the investment. For example, if an investment (e.g. business, farm, property, shares etc) increased in value at the rate of say 3% per annum and the average CPI inflation over the same time period was say 2% then any CGT would only be imposed on the difference being 1%. For the Government to enact policies that drive up inflation and asset prices, only to then tax such gains is, to put it mildly, no better than daylight robbery.
In addition, if the TWG are to recommend a CGT then it should only be due and payable once the asset has been sold and/or liquidated (i.e. ‘realised’). There are a number of taxpayers who are asset rich but cash poor (e.g. retirees) – they will not have the income or cash to pay CGT on unrealised gains. Given banks will not lend to people without an income, who is going to fund CGT on unrealised gains in a non-predatory manner?
Lastly, if the Government is prepared to tax capital gains, then it must give tax refunds for capital losses.
DO NOT RECOMMEND a blanket CGT.
RECOMMEND the TWG apply inflation adjustment to any new capital gains taxes.
RECOMMEND the TWG only apply any new capital gains taxes to realised capital gains.
RECOMMEND the TWG advise the Government to treat capital losses in the same manner as capital gains.
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