A simple % transactional tax that can't be avoided or claimed back

A simple % transactional tax that can't be avoided or claimed back

By taxing a simple % (i.e. 2.5-5%) on every exchange of money (or value of a traded asset) which has no way of being exempt, claimed back or avoided by any means. This one tax would take over income tax, company tax, gst & any other direct tax. Very easy to manage, simple to check & no hiding. Everyone & everything pays it's fair share. Business purchases, income, owner drawdown, bonuses, Charities, religious entities, inheritance, overseas purchases, house purchases, interest gained, donations & gifts ........ everything has a transactional tax. The hardest part is valuing a traded asset but this would also need to be done otherwise there would be a way to bypass the spirit of the law. Money only has value when it's spent & this treats everyone equally. The rich can't hide personal purchases as an expense & claim them back. Either way they buy, someone or something is paying that tax. Because this tax is charged at every point along products/services journey to the consumer it can actually be quite low & still gain a huge revenue for the government (which would pay for our social services). Whatever the % is, it needs to collect equal or greater tax revenue than we already collect.

Showing 104 reactions

  • Robert Murray
    commented 2016-12-12 23:54:18 +1300
    Earl, you may not know the background. GM came up with TOP1 over a decade ago and has been chewing on it ever since. TOP is his attempt to implement it. TOP is his baby – like Winston’s NZF – I don’t expect any input but will wait to see if TOP2 – 7 have any value. After the quality of TOP1 I don’t have high expectations.
    Your best bet to get this implemented would be to join the Labour Party in a small area branch, convince a majority of them that its worth presenting as a remit to the Labour Party Regional/Area conference then shepherd it through to National Conference. God Help them – they need a few good ideas. But I suspect that may be a three year project and require the same zealotry GM is exhibiting.
    The other problem with people is what I call the wheelbarrow problem. Generally an organisation is formed so that a lot of people can join together and push 1 huge barrow to its destination. What tends to happen is that many people have their own barrow which they want the organisation to push to a nearby destination. So the organisation develops into a talk fest. I haven’t figured out the solution to this – yet (maybe a charismatic leader or possibly good management)
    It would be nice to have the resources/skills to figure out the details of BTT – but like TOP1 it would be subject to human perversity if implemented – and that just ain’t predictable!
  • Tim O’Donnell
    commented 2016-12-12 23:53:52 +1300
    I have a different view of trading/gifting/swapping/barter. A number of the views I’ve read only consider a transaction a cash transaction, I don’t. The most basic of this TT uses the banking system (& similar means) but is not the total of this plan. I consider all transactions (like the examples above) taxable, Payment in Kind. If you don’t tax those then it’s an open door to abuse (a loophole). EVERYTHING has a value. This is where you may still need an accountant. Like now it is still up to YOU to ensure the accountant has done their job correctly & valued items accordingly. The IRD would probably spend more time reviewing & auditing these types of transactions than most other things. It’s the transactors choice weather they want to do business like this & cause themselves more work & costs. It also has a much higher risk of making mistakes that could cost in “avoidance” fines. This, as I was trying to point out earlier, would be the hardest to manage & would propbably need a lot more time & thought than that of a few people on a forum to decide. It would be time consuming, possibly value the transaction differently than what would be desired by the parties involved, but it would be their choice to continue to trade in this way. I would think the IRD would use market values when evaluating etc. Ultimately I would think it would push these transactions to become cash rather than the alternative. Should people seriously undervalue a transaction (so they could “swap” with little value) for the purpose of reducing their tax the avoidance clause would kick in. This is one of the areas the IRD would “earn their keep”.

    Earl, Techniquely any gift would be subject to a tax but I think common sense would come into play (similar to some of our current laws which have a blind eye when it becomes impractical & unreasonable to enforce). With the house scenario I would see it as 2, as you noted. Your purchase & your gifting. Otherwise I believe businesses would abuse it. Inheritance would use the same IRD valuation process. For family members living in a house with you common sense would probably come into play (techniquely not the right thing). I think people would be suprised by the amount of laws they techniquely break but it’s at the very low end of the scale for anyone to worry about. It has to be covered the same way or a business could use the same idea to pay people with a bed & food for work done. The same as what has been discussed on the news of late with foreign works being used “volunteers” when they were actually employed as cheap labour.

    Barter: The honey – wood scenario would probably come under the same idea as giving your child a small gift. If however you were a honey producer as a business & were using product to “buy” wood from a firewood business it’s a different matter. Better for each just to pay. The net result would be a couple/few dollars tax paid. If you run your business on barter then you would need to be paying a tax on every transaction. The admin costs would be a lot more than simple cash transactions.

    I did read somewhere here someone suggested that taking money out of the bank was a transaction. I don’t see that as a transaction as it’s not transferring between 2 or more parties. The bank is only holding your money. There maybe something I’m missing but I can’t see it.
  • Earl Mardle
    commented 2016-12-12 22:27:43 +1300
    Robert, thanks for that point. I wholly agree that the ease of admin is one of the most attractive points in BTT but I had no concept of the potential scale of the avoidance measures and the cost of making them visible. If you are right I would be happy to let a bit of slippage happen at the edges of Benefit In Kind deals rather than go after every last $ in the name of purity.

    The next question is how we get TOP, or anyone, to adopt it as a platform. Next stop is how TOP plans to manage policy development and how a bunch of opinionated people who are not called Gareth get to have a substantive say in a party rather than just being the sherpas and the cadre.
  • Robert Murray
    commented 2016-12-12 20:40:14 +1300
    To clarify: one of the advantages of this tax is ease of administration: as a deposit/withdrawal tax it requires little supervision. So, when I’m claiming things are transactionless, I’m saying the transactions are not visible to the BTT. Trying to make these transactions visible is not cost effective (especially fora 1-2% tax.) Also, that barter would occur within the current system – so things will still have an identifiable value: I can see shares becoming an alternate currency (especially because their value is published daily in newspapers – and constantly on the net). I too welcome the demise of all those nonproductive things you mention. TOP1 should also get rid of some of those.
    Gifts do not have to be of money (Earl was giving his daughter a house and a clapped out Corolla – neither would involve BTT though both are transactions.)
    Benefit in kind transactions tax is complied with because of IRD’s enforcement and punitive penalties – I thought we were all trying to do away with that approach. Insisting that transactions be visible may cost more than 2%.
    The house for wages example was just trying to show how widespread the problem could become.
    The Swedes implemented FTT a few decades ago but abandoned it shortly after as the financial transactions dried up and contributed less than 10% (from memory) of what was expected.
  • Earl Mardle
    commented 2016-12-12 17:12:14 +1300
    Robert Muurray, yes, that’s the question. If the tax is low enough, the avoidance costs exceed the tax costs so what’s the point. The other problem avoiders/barterers would have is that the “value” of a given thing is always expressed in $$ somewhere. Unless you do that, the value becomes totally subjective, I may believe that my 100,000 contact shares are “worth” your house but unless we can both agree on that we have no deal and we both have to want exactly what the other is offering. The great thing about money is that it is both fungible (you sell your shares for an amount of acash that i will accept for my house because I wont touch shares with your bargepole) and it allows price discovery (fancy my shares being worth twice what you would accept for your house, good thing I didn’t do a swap).

    And as for things that wont occur when the tax rate is higher than the profit, stuff like currency speculation, interest rate arbitrage and HST where machines front run a trade for parts of cents on the dollar would all come to a halt. My point is that that is a good thing.
  • James Turnbull
    commented 2016-12-12 16:39:16 +1300
    Hello Steve – yes, interesting that I cant find the MBs at all via the front pages and it’s only by coming to mail with links that I got here? Odd that a gloomy harbinger of that wot is to come?

    Anyways YES YOU SAID
    2) There is financial activity that would continue if the rate were 1% but would disappear at a higher rate.
    I REPLIED
    No, part of the beauty and simplicity is that there would be no exemptions from BTT and keep in mind that the plan would be that it has become the ONLY the ONLY tax in play !
    YOU SAID
    Sorry, what I meant was that there is business activity with very low margins. If I can make a profit of 1.5% then a 1% TT leaves me with 0.5% profit. Put the TT up to 2% and now I’m going to make a loss. Therefore I won’t make a transaction and the government receives no TT at all.
    I’LL REPLY
    Well, given the punitive nature of ToP tax if your business only makes 1.5% frankly mate, you probably don’t really have a viable business – but I’m open to hear what such a business might be – it would have to have unbelievably high volumes and incredibly low fixed/variable opcosts.

    Robert Murray – a gift of cash probably does involve a bank transact Granny takes $500 from the ATM and $5 is debitted her account and $100 goes to each to the grandchildren – as the grandees spend the money at businesses it all goes back into the bank and the traders pay 1% BTT Maybe she has cash in in a tin under the bed, that’s a big risk of total loss in a burglary but there’s still that the money is banked by the traders and they too pay 1% BTT

    Maybe I don’t understand stock transactions to well ,,, but isn’t that a sale of one and a purchase of the other ? If not then simplify things so that transactions that happen between people and businesses are made transparently. I know, Mick the Mechanic might service Bob the Builder’s truck in return for some property repair job, but then neighbours do do one another favours and that’s part of ‘just life’ maybe, not so much a big part that govt need to be involved in ? Besides, it’ in Bob’s interest to have a receipt as proof his vehicle is properly maintained and it’s in Mick’s interest to identify the scope of work and report any additional defects so that in the event of an accident he’s in the clear !

    The Council gets a New Town Hall and Fletchers et a new piece of land thus avoiding tax? No, that can’t happen … can’t be allowed to happen as the opportunity for bribery and corruption between employees of each organisation is too easy to see. Making such deals transparent surely has to be in the public interest …

    Benefit In Kind (BIK) Tax is routinely covered and seems to be rigidly enforced even on things like cars used for travelling to n from work … look at any big business car park out of hours … all the cars are stacked!

    Deals like ‘I work for you ten years at min wage and you give me a house to live in for 20 … not really, there’s have to be a written tenancy agreement and a property that was occupied, costing rates and other expenses would soon be picked. But what employee would trust that the business employing him would still exists in 10 years… I doubt Fonterra would be doing such deals ( and even Fonterra might be owned by China in 10 yrs anyway) so, maybe too complicated… but absolutely these things have to be raised and answered !
  • Robert Murray
    commented 2016-12-12 14:25:13 +1300
    Earl, I would like to say both gifting and barter are transactionless (especially in your examples) but I see the problem. A stockbroker organizes between his clients to swap 1000 shares of Contact for 2000 of Meridian – its just a name change on the title and his “commission” is that 20 of the Contact and 40 of the Meridian go into his name. Then someone swaps 100,000 Contact shares for a house. Theoretically no money has changed hands so no tax
    If a gift is reciprocated: ie Fletcher Building gives Kaikoura Council a new Town Hall and Kaikoura gives Fletcher’s a piece of Council land then no money changes hands so no tax.
    This creates whole new occupations – Gift manager and Barterman.
    While I admire the anarchic feel of this, and would approve the move away from money, it does leave a huge hole in the taxation system unless there is massive policing and oversight – which we were trying to avoid.
    I suppose the questions are: do you go to these lengths for 1%? and if you do how do we detect it and do we need to detect it. What these systems may do is streamline our trading systems and thus improve our productivity: If I work for you for 10 years (at minimum wage) will you give me a house to live in for 20 years. I know these are theoretically covered by our current taxation system but I don’t know how well they’re enforced.
  • Steve Cox
    commented 2016-12-12 14:16:50 +1300
    Hi all.
    During morning tea at work I had a look for this thread to see how it was going … and I couldn’t find it. Gareth seems to have removed its accessability, Probably because we are “not on topic”.

    So I’ll just make a couple of replies here then go off and get into some mischief on the approved threads.

    James
    2) There is financial activity that would continue if the rate were 1% but would disappear at a higher rate.
    No, part of the beauty and simplicity is that there would be no exemptions from BTT and keep in mind that the plan would be that it has become the ONLY the ONLY tax in play !
    Sorry, what I meant was that there is business activity with very low margins. If I can make a profit of 1.5% then a 1% TT leaves me with 0.5% profit. Put the TT up to 2% and now I’m going to make a loss. Therefore I won’t make a transaction and the government receives no TT at all.

    Earl
    Gifting/Inheritance. You buy a gift (and pay TT). What you then do with that gift is not affected by TT. Similarly if you leave the house to your daughter in your will there is no TT because there is no cash transaction. But if you have a son and a daughter who get half each then probably the house gets sold at which point TT happens.

    Barter. Remember that it is the banks who will collect TT on transactions going through your bank accounts. If you swap some honey for some firewood no money is involved therefore no TT.

    It would be at the more complex level that barter may be found to be TT evasion, e.g. If A sells their house to B who sells to C who sells to A and they settle up by paying the price differences only. Now this sort of scenario isn’t going to happen very often so the value of TT lost isn’t going to be much – not worth IRD’s time to chase. But if a clever lawyer set up a system to use his Trust Account to filter transactions through then it may be deemed the lawyer was running a bank and should have been deducted TT. The lawyer gets fined for not deducting the TT and the people using this facility get fined for evading TT.

    I’ll keep an eye on this thread but probably switch my commenting to Gareth’s Property Tax.

    It’s good to have met y’all and maybe we’ll meet again on other policy announcements.
  • Earl Mardle
    commented 2016-12-12 10:51:14 +1300
    Since there are some seriously good brains at work here I want to ask a couple of questions that have arisen in passing but not really been dealt with.

    1. Gifting/inheritance. If I buy my daughter a Christmas present and give it to her I doubt anyone would want me to declare the gift and pay the extra 1%. If I pay for a house that goes directly into her name (I wish) I can see that as either one or two transactions and we need to be clear about that. Am I, in effect, transferring money to her (trans 1) so she can buy the house (trans 2)? Probably with something like a house or car where ownership is registered that might not be too hard to keep straight once we agree on how many transactions there are. But what if my gift is not the house but the use of the house? I buy it and pay the tax, but she lives in it and I charge her nothing for the privilege. If she and her family share it with me and my wife? How long each your do I have to “live” there for that to qualify as sharing etc? Who monitors and enforces that? How is that dealt with now?

    I don’t know the potential scale of this kind of deal so I don’t know if it will be much more than a rounding error and a swamp full of weeds that we can let slide because, after all, the tax on the house purchase has been paid. And when I die and she inherits the house/farm/clapped out Barina, what kind of “transaction” is that and how does it get taxed?

    2. Barter. A couple of people have talked about asset swaps and net transfer systems and they will no doubt crop up in dealing with a TT, how should we deal with that? At one level, I swap some honey from my bees for some firewood from the neighbour is not worth the effort, but at what level does it become worthwhile? I assume there will be a level at which barter/asset swap systems will become too cumbersome and open to argument and lawyerly intervention that paying the tax will be preferable, but how big will be the grey area between and what, if anything could be done about that?
  • Earl Mardle
    commented 2016-12-12 08:14:57 +1300
    James, Tim, Robert and Steve, thank god, you are making all the points that I have been trying to get through other heads for 20 years and failing. Maybe there is progress.

    Another point for Martin about “tax residency”. The perfect tax residency would be to be “registered” in NZ and live somewhere else since, if you don’t live here you don’t pay any taxes, unless you have transactions here. In fact, apart from have a system to decide whether you are entitled to work here, there would be no need to register with IRD at all. TT doesn’t care whether you get your money from an employer, TradeMe, a farmers’ market or day trading online, it only applies to the transactions and the vast majority of those go via the bank at some point. In fact, TT should be embraced by anyone wanting to keep the government from snooping on your life.

    It should also appeal strongly to all businesses, but especially small ones, no more accountants, no more accounting packages (Sorry Xero) and no more GST reconciliations, ever.

    As a (mostly) loyal Kiwi I am also keen that it would destroy all speculation against the currency because buying and selling NZD would attract the tax every time and you have to have big moves to offset even 2% or whatever twice the rate would be.

    I suspect it would also have the effect of lowering ALL prices/wages to a degree because both sides would want to, in the short term anyway, optimise the difference between the old and the new tax rates an d in te longer term everything we buy and sell on a daily basis would be cheaper by at least some of the difference between the tax rates. That might also boost tourism to a degree because, again, generally tax costs would be 14% lower. We already have firms advertising that “we pay your GST”, I’m guessing the day after the switchover there would be a HUGE “byebye GST” sale everywhere.

    As others have suggested though, getting those who have the real influence on government policy (ie those who proportionately pay the least at the moment) to agree to this will be a hard road. Which is where Gareth comes in. He has the wealth and the voice and the ear of those in power, if he came out swinging for a TT, backed by a political party of people who, like me, have never been party members before (I’m not one YET) we might have some level of chance of getting something done. Good luck folks.
  • James Turnbull
    commented 2016-12-12 00:55:57 +1300
    Steve Cox commented 2016-12-09 19:36:28 +1300 · Flag
    • Hi Steve, thanks for the considered teply and to make life easier than scudding up and down Ive CnPd yours and Ill edit in my reply beginning and closing each time with *
      Hi James
      Agreed – a Transaction Tax (TT) is a Bank TT. The only businesses required to collect this TT are the banks.
    • Yes, we’re both absolutely agreed on this point and for the same reasons I think *


    We disagree though on both ends of the transaction being taxed. I believe it should only apply to the “spender”. Firstly, the point Jamie raised about people trying to evade the tax. If both parties are taxed then both parties are incentivised to avoid it rather than just the payer. Secondly 1% on each leg of the transaction equals 2% on one leg only. Why double the record keeping for no gain. Thirdly – if you’re paying to a foreign bank account then the second leg wouldn’t be taxed. By catching the payer you catch the payment regardless of where they’re spending their money. That levels the playing field between overseas and local competitors.
    • Not necessarily a big disagreement so far as I’m concerned. My opinion is that 1% each is easier to swallow than one party paying it all. and if it’s correct that the number would in fact be 1% then sharing becomes easier maybe on big transactions such as 500,000K for a house each party bears 5000 rather than one bears 10,000 alone.
      The idea is that it’s a TRANSACTION tax, whereas many people have gotten hung (I think) on the idea that it’s some sort of a sales tax?
      But the beauty (IMHO) of BTT is that it’s universal, has no exceptions and no reclaims of any kind … because it’s all of those that give rise to financial fraud which then results in high compliance costs. Sure a retailer COULD dodge a little by buying goods for his business in cash … but seriously, how many wholesalers deal in cash – to them its a costly nuisance that involves security companies for carting it and increases the risk of armed robbery on site. Maybe they’d easily see through those customers motives and actually charge an additional 1% as part of the terms of trade *


    I like cash too. Where did it come from though? I withdraw cash from an ATM and use that rather than eftpos. So I’d be paying the TT when I withdrew the cash. It is only when you’re in a situation of getting cash from elsewhere do you avoid the TT.
    • Gotcha … so, say you withdraw $300 from ATM then $3 is debited to your account on the next line as BTT in the same way as a foreign currency fee is shown. This is the ONLY tax you pay – your income was only subject to 1% BTT when it entered your account and you will be paying 1% on your spending no matter whether its cash, credit card, debit card or even cheque if you still have those. You spend your 300 as 100 each cash at the butcher, baker and candle stick maker. YOU will not be paying any tax on those transactions as they are NOT BANKS, However on the day in question you were the only customer at those three outlets and they bank daily … each parts with $1 BTT . YES those are silly low figures but in reality it shows that BOTH parties will be paying equally and that there is ( as is the principle) absolutely no ‘exempt transactions’. It would be of no consequence whether you spent 300 in cash, card or internet transaction there;s NO ESCAPE and at 1% its so trivial that who would bother trying to evade it anyway ? *
    • Ive inserted numbers to separate the next three points Steve *


    1) Whether the rate would be 1,2, 5 or whatever % is something left to Treasury or the Reserve Bank to calculate.
    • First part again we’re agreed that the % rate needs to be studied in accordance with the needs of the government of the day and others smarter I for sure would do that work *


    2) There is financial activity that would continue if the rate were 1% but would disappear at a higher rate.
    • No, part of the beauty and simplicity is that there would be no exemptions from BTT and keep in mind that the plan would be that it has become the ONLY the ONLY tax in play !


    3) As a for instance if I had some spare funds and bought a $10,000 bond; at 2% that’s $200 in TT. If the bond is only paying 6% then in the first year my return is only going to be 4%. Should I then need some money urgently and sold the bond I would be out of pocket if that sale happened within 4 months (e.g. 10,000 × 6% x 2/12 = 100 – 200TT = a loss of $100).
    • IT’s late but I think ,y head is up to some simple maths here … and you’ve used TWO % because you think the tax ought not be shared … in this case its a big difference to YOU as saver!


    Yes 10000 transaction thats 200 (0r 100 my way)

    IF the bond pays 6% then you receive $600 income and pay $12 or ($6 my way) BTT on the transaction when it hits your account.

    So what …even if you were a 10.5% income tax payer you’d NOW be paying $60.50 in income tax deducted at source and if you were a 33% income tax payer you’d have pennies short of $200 deducted EVERY year!

    Yes indeed you have a purchase BTT of 200 (100 my way)but keep in mind that you bought it out an otherwise tax free income. Under current rules even if you only paid 105% you would have to have earned $11,050 to have that 10,000 so in every way and at every stage you ARE better off you bean the game better off.

    So under this BBT you were $1050 better off at the beginning of the game as you had no income tax to pay and YES sure, if you cashed in early you’d pay a second BTT – even if as in your scenario you lose $200 for early redemption you still would be 850 UP plus between 60.50UP to $200 UP as you;d have no Income tax to pay!

    BUT against that if you kept your bond full term and bonds are intended as longer investments as they’re a traded commodity and the price of ’pre-owned bonds go up and down anyway you would each year save the income tax that you;d have lost under current scheme

    Besides bonds are intended as longer term investments and if you cash in earlier theres often some penalty / gain anyway just on the market price that day … isn’t there ?

    It IS late now so if there’s a flaw in my maths I’m open to having it pointed out … I think I got right but certainly with BTT and no income tax you begin the game ahead … a current 10.5% taxpayer by 1050 ( as they would have to have earned app $11050 to have 10,000 to invest. And a 33% taxpayer by close to $5000 ( as they would have to have earned $15000 in order to have $100 to

    If anyone cries thats unfair to the 10.5% tax payer – the current Inc Tax band is up to 14000 and if anyine only has $14000 pa income they probably have NOTHING to save anyway so they still score better! *

    And thank you James. This back and forth might be described as fun.
    • Thank you Steve and many others who are contributing here. Personally I think a robust debate can be a great thing and yes fun too so long as ‘minds are open’ and no one is getting hyped up, defensive or is clinging tenaciously to something they have previously placed emotional investment in and so refuse to consider anything different might have merit !


    Part of the problem is that we’ve had adversarial systems in place for Millenia … whats called for to create change in the present environment is CO-OPERATION.

    For how much longer do we have to bear the cost of RED party lose and BLUE party make costly ideologocal changes … the BLUE party gets too cockly lose the election ans we waste more billions as the RED party undo everything and install their own ideology based schemes … and then they get too cocky and lose and …. it all begins again every 8 tp 12 years … if national win I think 4 terms is a record ? Dunno how likely that is with Bill (the GreyMan ) English at the helm and Pulla benefit as his second in command and that ignore the effect that Crusher Collins will have by backstabbing and internally sabotaging ( given her stated opinion that SHE IS THE ONLY PERSON WHO CAN TAKE NATIONAL TO VICTORY I can’t see her playing nicely so FATHEAD OIL must be chuclking at all the fake news opportunities eh !!!! … Sound like a shipowner planning a wreck to you … well, looks that way to me ! *
  • Tim O’Donnell
    commented 2016-12-11 17:14:53 +1300
    Martin, Steve is correct. All interest & dividends would get taxed. Shares aren’t guarenteed so the “richman” can “bottom out” as well as increase. Still when he buys in or sells up he’s getting taxed. He wasn’t before so isn’t this better. I completely disagree with it effecting poor people more than rich. The facts of the current system are, if you are rich enough you can pay someone to find the loopholes in the system to reduce your tax (there by disproportionately paying less tax than the poor person). With this system it virtually insures everyone & everything pays their tax equally thereby reducing the tax collected by the middle & poor. It’s well known that middle NZ pay the most tax & the poor are helped with benefits. As for the Australian arguement (even if it was possible which Robert disagrees with) are you suggesting we have to let you claim the tax back from what you spent here in NZ? It’s my thoughts that what you spend here in tax stays here. There sure wouldn’t be a tax exemption at the till. Regarding IRD, the IRD would probably spend more time following up on tax avoidance (what little there should be) & ensuring the middleman tax collector was doing there job correctly (which shouldn’t be hard because it would be done automatically). This may not be the perfect system, though I haven’t found problems with it yet, it’s a heck of a lot better & fairer than the current system. Also, the expiry date on cash is an idea like all of this. If you have better ideas please share them.

    Robert, We deal with internet & power outages the same way we do not. The horrid manual system (the zip zap card machine which is still used on these occasions) & I don’t think cash will completely disappear. We will just move even more onto the electronic side which we’re doing anyway. I believe the vast majority will find it’s much easier electronically so will naturally shift that way.
  • Robert Murray
    commented 2016-12-11 15:16:47 +1300
    Martin, you automatically become a tax resident of NZ when you have been in the country for 186 days so you can’t live here as an Australian tax resident. We have an IRD because tax is still linked to persons – but it doesn’t matter to the govt where they get the tax from – and if tax is no longer linked to persons there is no need for anyone to be assessed. Perhaps IRD will be able to make a case against their redundancy.
    It is true that people who have non performing assets (eg land bankers) may be joined by more who keep their money in the bank and don’t spend it – I’m sure the satisfaction the get from knowing they have millions in the bank will overcome their inability to spend it without paying tax.
  • Steve Cox
    commented 2016-12-11 15:01:05 +1300
    Martin, I understand where you’re coming from, but …

    Currently the people on the lower side of NZ society pay 15% GST on everything except their mortgage or rent. The rich though don’t pay it on any “good stock or property” or that holiday in Fiji. GST is a very regressive tax system.

    A Transaction Tax (TT) replaces GST. Gone is the 15%, replaced with 1%.

    When you go into the supermarket and buy a can of baked beans for $1.15 you are paying GST of 15 cents and $1.00 for the beans. Under a TT the importer would pay 1% on the payment to the overseas manufacturer; then the wholesaler would pay 1% on his payment to the importer; then the retailer her 1% and finally you the purchaser another 1%. So staying simplistic that can of beans now costs $1.04.

    But where does the government make up the difference between the 15 cents and 4 cents you ask. By charging 1% on everything that is currently GST free: – financial activity, residential rent, business costs, that holiday in Fiji, etc.

    Let’s use your example of a good stock. Mr Fatcat buys $1 million worth of Meridian shares. He’s just paid TT because he “spent” $1 million. Meridian are a good stock and make profits. They pay a dividend of $100,000 to Mr Fatcat. Meridian has now paid TT because they “spent” money paying the dividend. Mr Fatcat spends that dividend on something – more TT. Say 5 years later those shares are worth $1.5 million and Mr Fatcat decides to sell them. The buyer of those shares has just paid TT. Unless Mr Fatcat is going to leave that money in his bank account it is going to get “spent” and there goes another TT. (Depending on other laws he may or may not have to pay tax on his shareholding profit).

    That $1 million in the hands of low wage workers is going to get spent once and earn the government $10,000 of TT. In the above example the government earns $50,000.

    Will some people try to avoid it. Yes, no doubt about it. Probably the same people who today avoid Income Tax.

    And that is where the detail of the tax is worked out carefully to try and avoid loopholes. Do NZ tax residents have to declare their overseas holdings every year? Do they have to declare their usage of bitcoin? How well funded will IRD be to chase cheaters. As I’ve suggested elsewhere make the penalty if caught something like at least ten times the TT avoided.

    And I agree 100% – our MP’s are entrenched in the status quo.

    Until a political party comes along and says to hundreds of thousands of businesses – YOU need never do another GST return.

    Until a political party comes along and says to ordinary hard working NZers – we will tax property speculators.

    Until a political party comes along and says to the homeless – we will cut back on immigration to ease the demand for housing.

    And maybe that same political party also says – we will introduce a property tax and offset it with income tax cuts.
  • Martin Finkel
    commented 2016-12-11 13:28:36 +1300
    This is sounding less doable all the time. There’s a reason that we have an IRD and audits and its not because the populace cannot properly figure their GST or Income taxes on their own! Put uncertainty around our currency?That is going to work, sure it will! Why print cash at all? Just go to a cashless system (but there are reasons that we do continue to have cash in society). What about bitcoin? And it is still a trickle down system that hits the poor harder than anyone you want to capture. The rich will hold the majority of their assets in untaxed investments (no tax until there’s a transaction right? Buy good stock or property, pay going in, and just leave it there to grow). Oh, and if you actually do make it possible to tax the rich proportionately, they will simply move to Aussie as a tax resident and can still live here in the future. There are reasons upon reasons this “simplified” approach hasn’t been introduced before, not least of which is the fact that our MPs are entrenched in the status quo, so good luck in actually making this policy. I don’t see Gareth signing on in any case.
  • Robert Murray
    commented 2016-12-11 13:15:49 +1300
    If we tax the transaction at the point where the money enters or leaves the bank then we can abolish tax returns and the IRD. This would immediately give earners ~ 20% pay rise. For simplicity’s sake, let’s not worry about evasion until it becomes a problem: if we set the tax at 5% and warn people that it will go up if they try to cheat it. I’m sure most goods would be priced to reflect an even price. The idea of restricting currency supply or changing the currency sounds attractive. If the population were aware that, any day, the currency they hold might become worthless as it is replaced, that would be a strong disincentive to trading in cash to avoid the tax. We would end up with a seamless almost invisible tax system.
    How do we deal with an internet or power failure?
  • Steve Cox
    commented 2016-12-11 12:08:22 +1300
    Hi Tim
    In one job I had we did the net payment thing all the time. It is actually more efficient because a) neither side is left fearing the other, i.e. if I pay you how do I know you will pay me. b) It helps your debtors and creditors to be kept up to date. And c) it helps resolve queries – to agree the net figure you have to sort out any issues.
  • Tim O’Donnell
    commented 2016-12-11 11:32:53 +1300
    Robert, There could be a way that it’s effectively taken inbetween the spender & reciever (i.e. Collected at the middle man, the bank or other) since it’s a transaction fee. Since it is a transaction tax there is room for this to be the case. Visually I find it would easier for the seller to account for the TT (similar to GST) but I don’t think it really matters which side pays. E.g. I buy goods online from a local NZ source priced at $100, $100 leaves my account & the seller recieves $97.50 in their account. Same item to an off shore account $102.56 leaves my account $100 enters the sellers. Or you could just have in on the buyers side in which case it always takes $102.56 from the account & you have a simple calculator program when paying where you input the amount of the item you are purchasing & it gives you the amount to be deducted from your account. If money comes in from a foreign source, overseas payer sends $100 to your account & $97.50 turns up (same type of calculator can show the amount that turned up & what that was actually worth, it would be one extra column on a statement).

    For the most part it’s unlikely the buyer of a house is going to be selling theirs to the other person (a swap). In any case it would come under the payment in kind rule which would make the transaction harder (possibly a third party like the IRD to calculate). I did say transfer of assets would need more thought. Like Steve says it starts heading towards tax evasion.

    Steve, my understanding is you can’t have 2 parties dealing with each other & someone pays the difference at the end of month even now. Even if it is done now it’s not supposed to happen. Each party must pay their bills separately from the other. It’s the same as when one party hasn’t paid their bill, it’s not a reason for you to withhold your money (unfortunately). Again, it will get picked up when the debt is paid on paper if not through the normal channels.
  • Steve Cox
    commented 2016-12-11 09:13:33 +1300
    Tim
    Sorry, i missed the first part of your earlier comment “There is no way landlords aren’t going to make a profit from their investment (I know I would).”
    Actually there are many landlords who don’t want to make a profit from renting. They are more interested in the tax free capital gain.
    Say a Member of Parliament wants to reduce their tax bill. They buy a rental property and load it up with debt. The rent isn’t enough to cover the insurance, rates, interest, etc. That loss they make comes off their other income and they get a 33% tax refund. Now as long as the property’s value is growing by more than the losses then they are on to a winner because when they sell that profit is tax free.

    I read somewhere that over 80% of MP’s are in the property game. Which helps explain our high immigration which puts upward pressure on property prices, and why we continue to have tax free capital gains.
  • Steve Cox
    commented 2016-12-11 08:51:26 +1300
    Hi Martin
    A TT is more a spending tax than a sales tax.
    Spending is any event where money leaves your bank account; be that a coffee on the way to work, transferring money to your kids bank account, buying shares, donating to charity …
    As long as no exemptions are allowed then the only way to avoid the tax is to just keep your money in your bank account and do nothing with it (which isn’t going to make you wealthier).
  • Martin Finkel
    commented 2016-12-11 08:38:41 +1300
    Since what you propose is really a sales tax, which traditionally is collected by the seller, like GST is now, wouldn’t it be easier for the Gov’t to administer by taxing (and collecting from) the selling side? I’m also still unconvinced that the wealthy will be spending their cash on “things” rather than investing to grow their wealth even further (so that one day they can, for example, fund a new political party). Assuming they will put that money into circulation sounds a lot like the disproven “trickle down” economics that underly the conservative bent toward lowering income tax rates at the upper end. Just saying- your tax will disproportionately hurt the little guy. A person who now votes Green Party will be unlikely to vote TOP with this tax policy.
  • Steve Cox
    commented 2016-12-11 08:29:07 +1300
    Hi Robert
    Only the spender should pay the tax. If payer and receiver are both taxed 1% then that is 2% on one leg of the transaction only.
    The main argument I’d put forward for that is the receiver may not be a NZ bank account. Have you seen those occasional news items where a NZ retailer bemoans their inability to compete against direct imports? If a TT replaced GST then most of that foreign competitive advantage is lost, but to give them back a little by charging a NZ retailer without also being able to charge the foreign retailer …

    Your other point about swapping and paying the difference. I don’t see that as being a big factor dollar-wise. And many businesses do that today. A & B buy and sell to each other. Then once a month they do a wash up and whoever owes more pays the difference.

    But if someone tried doing it with three or more parties then it is becoming tax evasion as they are effectively acting as a shadow bank. And my suggested 10 times the evaded tax penalty would kick in.
  • Steve Cox
    commented 2016-12-11 08:09:16 +1300
    Good morning Tim
    Here in Christchurch where I live property price increases have slowed right down. Also rentals have been dropping slightly. Because we’ve caught up with replacing the houses destroyed in the 2010 and 2011 earthquakes.

    This scenario is going to make it hard for landlords to push up their rentals. If a landlord was faced with a PT of $2,600 could he really increase the rent by $50 per week? Something, maybe; $50 no. Which is why I said that some renters would be losers because their tax cut wouldn’t cover their rent increase. But I would suggest the majority would fall into the winners camp.

    And in Auckland if the rent goes up too much then more people are going to shift into their car – all part of National’s “Brighter Future”.
  • Robert Murray
    commented 2016-12-11 00:30:33 +1300
    Yes this is similar to my TAX suggestion. I need to think about the merits of both withdrawal and deposit being taxed and whether its worth chasing the traded value. Property brokers, for example, might be able to set up a chain: if a buyer has a property to sell for $500k and wants to buy one for $700k it may be possible to only pay the tax on the $200k. This actually wouldn’t work for property because you could catch it when changing the title but could apply to vehicles or other assets.
  • Tim O’Donnell
    commented 2016-12-11 00:06:44 +1300
    Apparently Gareth will be answering some questions. Any chance you lot can add your voice in getting him to reply to the thread below. There’s a “I want to ask the same question” box to tick.

    http://www.top.org.nz/63114/me_a_few_others_are_really_interested_in_your_thoughs_on_this_thread
  • Tim O’Donnell
    commented 2016-12-10 23:49:21 +1300
    i mean … I don’t see things improving under the first policy
  • Tim O’Donnell
    commented 2016-12-10 22:36:46 +1300
    I have a problem with the renters part. There is no way landlords aren’t going to make a profit from their investment (I know I would). Which means the total loss from tax is going to be shifted from the landlord to the tenant. That means all the income tax reductions the tenant first received are going to be voided by the rent increase. Nett result is no change to the poor. Any loss is going to be passed on wherever possible. The markets aren’t going to soak it up. If anything it seems even more important to own your own house. You’re going to be paying the tax one way or the other, why not have an asset to sell should you need too.

    I still wait to hear the rest of the policies which may be more impressive. I have no doubt Gareth is intelligent but I don’t actually see things improving.
  • Steve Cox
    commented 2016-12-10 20:15:07 +1300
    Subject change time – just to make Gareth happy I’ll talk about his policy.

    His Property Tax (PT) is charged on net worth; that is valuation minus mortgage.
    The policy doesn’t say what the valuation method will be so let us say it is Rateable Value.
    Income Tax cuts will be introduced so that all the money received from the PT will equal that Income Tax cut.
    80% of people will be better off and 20% worse off.
    All property will be subject to PT – home, rental houses, factories, farms, …
    Business gets to claim PT against their Income Tax.

    I’ve tried (and tried) to construct some numbers to demonstrate the above. Here is what I’ve got for housing only.

    Lets say it is decided that all people get an Income Tax cut of up to $10,000. On current tax rates that means everyone earning $56,600 or less would pay no Income Tax. Now if the PT was set at 1% then a $1 million net worth home would incur a tax of $10,000. Break even; woohoo.

    A single person on National Super living in a mortgage free home earning 20,000 (Super plus some interest) pays $2,520 of Income Tax. If their home is valued at more than $252,000 then they are worse off. You’re one of the 20%. And this is why Gareth has had to offer an IRD mortgage.

    Anyone with a house net worth greater than $1,000,000 will be worse off at an Income Tax cut of $10,000 and a PT of 1%. Move either the tax cut or the PT and the numbers get to look better or worse for you.

    About half the houses in NZ are rented. if we say then that about half the population rent their home then all these people are going to get a tax cut of up to $10,000. Yay, some winners. But your rent may go up as the landlord tries to recover some of his PT. Renters will mostly be winners with a few who’ll lose.

    Starting with 100% of people we deduct the 50% renters who are winners. That leaves 30% more who are winners and 20% as losers. Or to put it another way, if you are a property owner there is a 40% chance you’ll be worse off. Better off property owners will mostly be where a working couple each get the tax cut and combined they exceed the PT.

    The effects from farm and business PT may shift those numbers, but by how much I’ll leave to Gareth to explain.

    Technical issues: –
    a) How will IRD know what your property’s net worth is?
    b) Does every home owner have to file an annual return telling IRD what size their mortgage is?
    c) Is it a lump sum tax or will it be paid monthly, quarterly?
    d) is it paid as you go or in arrears?
    e) Will the current capital gain loophole be closed as well? OK, this one is changing the subject but more than anything else this will do the most to stop the current rampant speculation; not a PT.

    Now lets get back to talking about a Transaction Tax.
  • Tim O’Donnell
    commented 2016-12-10 18:35:21 +1300
    Sorry Martin, we can’t have exemptions otherwise it opens the door to loopholes we can’t even dream of yet. It’s the “rich” that will find those loopholes & find a way to exploit it. The best way to think of your “Richman” “Poorman” problem is that the “Rich” spent more & more often. They don’t NEED to buy luxuries but they will. This way they won’t be able to hide that purchase behind some avoidance loophole (like they currently do). Money only realises it’s value once it’s spent, they won’t leave it idle for long. I’m not sure what the best % is but by using a single % it’s the fairest way.
  • Tim O’Donnell
    commented 2016-12-10 18:22:41 +1300
    Agree Martin. Sanitarium I believe is one of those using the guise of a charity/church or some such. Their revenue from an NZ Herald report shows them at $191.6m in 2014-15. There are others that use this loophole as well which is one of the main reasons I want no exceptions. Shouldn’t charities & churches be helping the community anyway. This way forces the ones that don’t. It also why I noted donations.

    http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11406105

    The TT should even pick up the payments overseas under $400 as they leave your NZ account. Not as you pointed out if it was from a foreign account. It keeps NZ business on a level playing field with overseas offerings (at least as best as can be done since both will pay the same tax)