Capital punishment


I really dislike Michael Cullen. He leads the pack in typical envious left wingers, even though he has done quite well for himself anyway. His branding of John Key as a ‘rich prick’ when he came from a humble background, worked his way up to become wealthy, and then decided he wanted to do something for his country, says far more about Michael Cullen than it ever did about John Key. But he’s back, unelected, as head of the Tax Working Group, and if you didn’t shake in your shoes when you heard that piece of news, you will when you have finished reading this article.

TheSpinoff has written a plainly sycophantic series of articles about taxation, sponsored by the Inland Revenue. That is probably all you need to know about the sincerity of the articles. This one includes an interview with Michael Cullen. I won’t bother to quote the fawning stuff, although you can read it for yourselves if you like. Make sure you have a bucket handy, however. Quote:

This interview has been edited and slightly condensed

Having a position where the income tax rates and low GST rates can’t be moved at all is a little bit of a constraint, but not one I find particularly worrying. The main constraint which everyone keeps pointing out is the possibility of any kind of capital gains tax or imputed rent taxation on the owner-occupied home and the land underneath it is ruled out.

The reality is if you made that recommendation anyway you know it’s going to be rejected. No New Zealand government is going to propose that, and very few countries have any form of capital gains tax on owner-occupied housing. We have a very limited amount of taxation on capital income compared with most countries but very, very few countries go as far as a totally comprehensive capital gains tax which includes absolutely everything at the same rate. End of quote.

Now, this is a very interesting comment by Michael Cullen. Effectively, he is saying that he would love to introduce a form of capital gains tax on the family home, but it would be rejected. But please note that he is putting the idea out there, just like he has put out ideas about a wealth tax. He may be saying it will never happen, but if that is true, then why is he talking about it in the first place?

Most of us who work in the area of taxation have known for a long time that the next Labour government would introduce a capital gains tax. Plain as the nose on your face. But the tax advisors also know that the capital gains tax in Australia took 15 years for any real revenue to be generated. A Labour government with a tax-and-spend agenda, together with a Green party that wants to spend a fortune on public transport, need results much faster than that. With that in mind, Michael Cullen floats the idea of some form of capital gains tax on the family home. Even if, in the next breath, he says it won’t happen. It might if the spending is big enough. Quote:

The problem is if you’re merely concerned with maximising economic efficiency and wealth then that may lead to behaviours which are quite destructive of other values. Which is why we’ve included the living standards framework that Treasury has developed, the four capitals of not just financial, but all the human capital, social capital, and natural capital. End of quote.

Well, we know what that means. If it is about living standards, then it is about improving living standards for all. And this is mostly going to be effected by taxing the ‘rich pricks’.

I don’t have a problem with improving living standards for all. The trouble is, I don’t want to have to pay more for it than I do now. But, because there is so much social inequality, and a complete lack of personal responsibility, we all know what will happen. Those who can will pay. Those who can’t will benefit. Quote:

I don’t think you could say IRD is at the forefront of looking at new forms of taxation, particularly in the areas like environmental tax and other behaviour-affecting taxes. As with treasury, they seem to be quite keen at looking at things like land tax and capital gains taxes across the board as they always have been.

The practical difficulties with some of those can be quite serious, not just the political difficulties. I mean take for example, land tax. If you were to levy say, half of one per cent of land value around the country apart from owner-occupied housing or the land under it, people in Auckland would be paying far more tax than people on the west coast for example – because their land values are so much higher. But that doesn’t reflect their actual income or capacity to pay. End of quote.

So, the Tax Working Group is looking at behaviour-affecting taxes. What does that mean? Sugar tax? Carbon tax? Bedroom tax? A tax on breathing? But never assume this means that the Tax Working Group is not going to recommend a capital gains tax. Of course it will. And land tax? Well, this was removed in the 1980s in New Zealand. But Australia has both a capital gains tax and stamp duty, which is a form of land tax. A tax when you buy property, and a tax when you sell it. Brilliant! Quote:

It would be lovely if we could work out some way in which, either through a combination of regulation or taxation, we could level off land value prices and get a gentle downward slope over time in some areas – but that’s going to probably require the power of a highly authoritarian government. It’s kind of easy in theory but fiendishly difficult in practice. End of quote.

You know very well that we now have a Labour government that are already making a lot of noises about extra taxes, and if they have to become highly authoritarian – well, I wouldn’t put it past them.

The Spinoff has tried to paint Michael Cullen as some kind of taxation saint, but the article presents a very different picture if you wipe away the froth. Politicians are very clever about floating an idea, but saying it probably won’t work as a way to soften up the public for something unpalatable. And that is what this article is supposed to do.

Michael Cullen is no benign grandfather of the nation. He introduced a tax rate of 39 cents on people earning over $60,000 in the year 2000. Even back then, $60,000 was not a high salary. He only increased it to $70,000 in 2008, as an attempt to bribe middle-class voters. Now he doesn’t have to worry about being elected. So prepare yourself for a whole new raft of taxes to be introduced at some point. The only really good thing about this is that governments who campaign on tax increases usually do badly at the polls. So, if Taxinda does actually stick to her promise of no new taxes before the next election, she can expect to be booted out really fast. Maybe there really is a God after all.

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Accountant. Boring. Loves tax. Needs to get out more. Loves the environment, but hates the Greens. Has been called a dinosaur. Wears it with pride.

To read my previous articles click on my name in blue.

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