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

  • Martin Finkel
    commented 2016-12-10 18:10:50 +1300
    By the way, Gareth if you’re reading this, stop using Trump in any way to promote TOP. The man’s a menace; he’s a narcissist, a bully, gross and an embarrassment. He’s a symptom of populism, not its driver in the US, and if you don’t stop, I’m done with your party before you begin. Its why I haven’t yet actually joined. So get his meme off your page, seriously!
  • Martin Finkel
    commented 2016-12-10 18:04:37 +1300
    I’m thinking that 5% hurts the little guy worse than the 5% hurts the rich guy. Poor guy has no choice but to buy groceries. Rich guy pays the same tax rate? Feels lop sided. Maybe exclude groceries from the transaction tax. Or make up for it with Gareth’s UBI. Devil’s in the details.
  • Steve Cox
    commented 2016-12-10 17:56:55 +1300
    Hi Martin
    I replied on a different thread about the proportionality of TT which you may have missed. here it is; – a TT is a flat tax with a small bit of being a progressive tax. The poor person will only spend their money once, on rent, groceries and stuff. The wealthy person will have heaps of spare money after paying for the mortgage and groceries. So he buys some shares. At this point both persons have paid the same 1% TT. Then the wealthy guy decides he doesn’t like that company he’s bought shares in. So he sells them and gets some money back. He spends that money by going on holiday and pays TT. So that spare money has been TT’d twice, making it a small bit of being progressive.

    I’ve been googling around and it doesn’t appear that anyone has a pure TT like we are talking about. Some countries have tried to place one on parts of their economy, but they didn’t work. I would say because they were only targeting a part of their economy so ways were sought to evade it.

    Your question about having an overseas bank account. Yes it would evade the tax, but I have a question for you. As an ordinary Kiwi bloke where would you get the money to put in this account? If you transfer the money from NZ then that’s where you get taxed. If your rich old auntie in England has died then you get to evade the tax.

    But the amount you (and others) are going to be able to evade will be peanuts compared to multi-nationals trying to play the system. And they are the ones that IRD would chase under a TT regime.
  • Martin Finkel
    commented 2016-12-10 17:52:29 +1300
    …as long as charities and churches pay too. Tired of subsidising churches.
  • Martin Finkel
    commented 2016-12-10 17:50:42 +1300
    Good points…a large purchase overseas (car or boat imported here) would then attract duty, so get taxed that way. Small stuff (under $400) will avoid that, but you’re going after the big stuff anyway. OK, give it a try. Makes tax returns shorter anyway….
  • Earl Mardle
    tagged this with important 2016-12-10 17:49:17 +1300
  • Tim O’Donnell
    commented 2016-12-10 17:46:06 +1300
    You and the person you’re paying would have to have an overseas account for it to be hard to track. It would also have to be a service you were paying for or you would have to account for the stock that was “lost”. It could be lost stock could be charge with a transaction tax so it couldn’t be avoided in such a way, we wouldn’t want people writing off stock as a reason to avoid the tax (have to look into that). It would also be classed as tax avoidance since it’s bypassing the spirit of the law. You can try to avoid tax now but I think it would be a lot harder.
  • Jamie Brahm
    commented 2016-12-10 17:33:20 +1300
    For businesses this is part of why systems like this are attractive, because all the offshore microtransactions to tax havens are caught. I guess the answer depends which side of transactions your taxing and how the tax rate compares to the cost of transfer etc.
  • Martin Finkel
    commented 2016-12-10 17:25:38 +1300
    Here’s another question I just thought of: say I establish a bank account in a foreign country and pay for goods with that. It won’t show up in NZ as a taxable transaction, correct?
  • Tim O’Donnell
    commented 2016-12-10 17:24:52 +1300
    If you do agree with this type of tax system (or don’t for that matter)

    PLEASE RATE IT & TELL ANYONE ELSE WHO CAN RATE IT

    I want Gareth to be overwhelmed with positive feedback so he may actually take a look.
  • Martin Finkel
    commented 2016-12-10 17:19:26 +1300
    OK then, the consensus seems to be more good than bad. Now, does anyone have data on any country or State that has tried such a scheme and the results? I still see this as having a greater proportional impact on the lower socioeconomic scale tax payers (and so flies in the face of TOP’s stated objective of equity) but willing to look at the results where its been tried elsewhere.
  • Tim O’Donnell
    commented 2016-12-10 17:19:00 +1300
    To be honest I think the only reason this type of tax was never implemented in the past was it would have been too hard to track. Because of the age we live in it’s probably the most efficient tax collector (potentially) available.
  • Tim O’Donnell
    commented 2016-12-10 17:13:27 +1300
    Martin, I have to agree with Jamie (though I may be bias). The pros, the extra money gained, far outweight the cons, a few minor cashies that don’t get picked up through simple audits. I would also say the vast majority aren’t going to be worried about paying a 2.5% tax, which is a damn sight less than the current 15%. There’s too much to lose for such little gain.
  • Earl Mardle
    commented 2016-12-10 17:12:13 +1300
    YES. This tax makes sense in so many ways. As for whether the “spender” or the ‘receiver" should be taxed is a slightly pink herring. At a rate that would be sufficient to fund the nation’s coffers nobody would care because the cost of avoiding it would be worth more than just paying it. It would also totally simplify the process, just as a withdrawal is a transaction and depositing it in another bank would be a second transaction. The state could even encourage non-cash transactions by defining a direct credit as just one transaction. Yes, some might choose to work only in cash but since I would have to withdraw money to pay you in cash, incurring the TT, I would also want to split the TT with you. And at some point, if you are doing well, the risk of carrying too much cash on your person or in your home becomes a real cost that is easily avoided by just banking the stuff.

    The whole point about TT is that it picks up all of the TradeMe transactions and any overseas purchases of real or digital goods at the same point, the banks. But it also picks up a whole host of other trades that are not currently taxed such as currency speculation, interest and exchange rate arbitrage, even money laundering that results in buying legitimate goods and services that lead to a bank deposit at any point. I recently saw the absurd state where an Australian superannuation fund was paid out as a lump sum and transferred to NZ without tax because it was treated as capital, but if the person had elected to receive the same amount of money over several years as monthly payments, they would have been taxed in NZ as income, the identical dollars taxed differently because of a label. TT gets rid of that absurdity. By removing the need/interest in “investing” in real estate for the tax benefits, we will at least apply a small brake to the rate at which those prices are being bid up.

    Such a tax would also mean we could send most of the IRD home because all it would need is a team of forensic accountants posted at each bank clearing house/HQ with full oversight of all transactions to make sure the banks are not scamming us.

    Above all, a TT takes all the morality and pearl-clutching out of tax policy. It will no longer matter whether you use that inheritance to take a world cruise or invest in unicorn poop futures or buy a house or start a business. Government wont be constantly offering opportunities for malinvestment or tax-dodging based on some preferred use of money over some other.

    While it wont solve the housing crisis, it will stop people like me demanding to know why, (when I have driven my old banger into the ground, avoided big screen TV and not taken overseas holidays so I can pay off my home), I should be taxed extra for my frugality, and therefore less resistant to a policy change. Under TT, it wont matter how I “spend” my money, my mortgage loan and my interest payments will all be taxed at the same rate as my cousin’s new car loan and her repayments and both of us will be able to sell our “assets” for whatever the market thinks they are worth on the day, and pay the TT in the process.

    Now, having solved that, how about an actual affordable housing policy Gareth?
  • Jamie Brahm
    commented 2016-12-10 15:12:15 +1300
    Well cashies would hardly outstrip the current top 1% tax evaders, and corporations, from whom we could get massive massive amounts of tax, but use taxhavens, trusts and other loopholes. I honestly think that will be a tiny sum next to whats already slipping through the cracks. And that’s basically the whole point at charging “till or bank”, so that huge sum of money is captured.

    I think that’s a very minor issue by comparison to the current system.

    Of course as you say there needs to be another approach for housing. But TOP’s strategy for housing is luke warm anyway. And a partial solution that people can agree on, is better than a complete solution that no one likes.

    IMO, the cost of housing should be halved at least, across the board – foreign investors banned, and limits put on lending for profit (like a cap). Something far more radical than a little tax on what, currently is basically an investment loophole, an exception to rates of return, and simultaneous a massive economic burden on the average person. Housing prices never should have been what they were before the housing crisis, let alone what they are now.
  • Martin Finkel
    commented 2016-12-10 14:30:48 +1300
    I’ve watched this thread and the concept is interesting. As I understand it, you are talking about the banks being the gatekeeper of this “transaction tax.” Yes? I may have that wrong, but cannot otherwise envision how the tax is going to be paid from each purchase (since there is no registration of the spender such as we have with GST).

    So, in such a scheme, I can see an underground of cash developing to avoid the transactions going through a bank. Much like tradies asking for cash payments for their work at a discounted rate like is often done today (but with actual cash). Cash will be hoarded and traded for goods/services, not withdrawn (and deposited) from bank accounts.

    Yes, large transactions like payroll will be captured by bank transaction fees, and as has been suggested, if you want to have a warranty in force you’ll go through the bank and pay the 2.5% fee or whatever for that insurance, but millions of smaller items won’t (just like small items traded on Trademe avoid being taxed today- too expensive to track each of those down to ensure they are reported as income).

    And, we still have the inequity with the housing market which this scheme won’t correct.

    Nice try, but I just don’t think this will work as you hope.
  • Martin Finkel
    tagged this with impractical 2016-12-10 14:30:48 +1300
  • Tristan Kiddie
    commented 2016-12-10 14:19:58 +1300
    Really liking this idea!!! It would have to be around 1-3%, but as you guys have mentioned, that math can be done by someone who knows better than I, and adjusted over time.
  • Tristan Kiddie
    tagged this with good 2016-12-10 14:19:58 +1300
  • Jamie Brahm
    commented 2016-12-10 12:57:04 +1300
    Well, it doesn’t address the housing crisis. But it’s certainly a fairer tax plan than we have currently, and that I believe was one of main objectives.
  • Tim O’Donnell
    commented 2016-12-10 12:04:10 +1300
    LOL, I just wish the man would pick my plan to pieces or say something. I’m happy to be proven wrong. Anyone know how to contact him?

    I had another thought on cashies. You get no guarantee from a person doing work as a cashie. Pay 2.5% & you have that guarantee. Even more people wouldn’t bother….. it’s just not worth the hassle for such a small fee.
  • Steve Cox
    commented 2016-12-10 11:26:02 +1300
    Hi Tim, James and Jamie

    So the four of us are agreed that TOP1 should be replaced by TOP1a which will be a Transaction Tax to replace GST?

    Ah … Tim. Seeing as you started this thread I nominate you to be the one to tell Gareth what he should do.

    Do I have a seconder? :-)
  • Tim O’Donnell
    commented 2016-12-09 21:09:46 +1300
    I’m of the opinion that it should only be the spender that paids the tax. If evidence showed otherwise, fine. Like mentioned earlier, money appearing out of nowhere is going to be glaringly obvious & will need to be accountable/explainable. The money is so easy to account for that you can follow it back to a source. Transaction Cards (eftpos, credit cards etc) would end up being the prefered means of transaction because it’s easier to account for. If cracking down on cashies was the most costly part of this idea it’s a small price to pay considering the reduction in costs in every other aspect of implementation.

    REMEMBER Payment in kind would still require taxation & not declaring this would be breaking the law with heavy fines (I like the 10x rule plus court fees but it could be more) to both parties. Most parties would not want to be on the wrong side of the law. It’s better to pay a small amount than take the risk. It would only be small transactions people would try this with because large values would be to hard to hide. It only takes one side not to cover their tracks correctly to be found out. I think this would be the most complicated part but I’m sure it’s not insurmountable.

    I’m please this is getting good discussion as it’s bought up new ideas that have been both problems & solutions. So far I haven’t seen anything that crushes the basic idea or makes it too hard to implement.
  • Steve Cox
    commented 2016-12-09 19:36:28 +1300
    Hi James
    Agreed – a Transaction Tax (TT) is a Bank TT. The only businesses required to collect this TT are the banks.

    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.

    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.

    Whether the rate would be 1,2, 5 or whatever % is something left to Treasury or the Reserve Bank to calculate. There is financial activity that would continue if the rate were 1% but would disappear at a higher rate. 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).

    And thank you James. This back and forth might be described as fun.
  • James Turnbull
    commented 2016-12-09 18:34:51 +1300
    Hi Steve … sure I can live with that.

    My logic for the suggestion is that if its a Bank Transaction Tax and there’s no exemptions at all then would you agree

    1) Transaction No 1 takes place when the money is taken OUT of the account of the person making payment ?
    2) Transaction No 2 takes place upon the money being paid IN to their account ?

    But perhaps it was not clear that I’m referring to a BANK TRANSACTION TAX and not any sort of tax collected ‘at the till’ … the advantage being that there would be universal collection and no opportunity for anyone in trade or business to defeat the system as tarders would never be holding onto GST for X number of months as the current system allows.

    The other thing is that it’s probably closer to 1 percent than 5 and those numbers were just used for ease.

    Looking further at your reply re ‘Paying a Tradie’ … That $500 cash that you withdrew ‘is a transaction’ and therefore would be subject to transaction tax ( if we say 1% you’d withdraw 500 cash and a further $5 would be debited from your account ) Your explanation following is as I also understand it, and as we make more and more card payments and net payments and so on a person who regularly paid cash …. might easily be spotted ‘and questions asked’

    Personally I like cash, handling the ‘substance’ of cash money as notes and coins give peoples (especially young people) a tangible experience … whereas a plastic card … maybe less so in literally "handling their money … it’s real vs the notional figures on a screen???’

    Thanks :-)
  • Jamie Brahm
    commented 2016-12-09 17:25:50 +1300
    Fair point, your right. As much as this would happen more than happens now, it would be tiny compared to the massive tax take lost by current wealthy tax evaders.
  • Steve Cox
    commented 2016-12-09 14:28:58 +1300
    James and Jamie

    james – in an earlier comment you mentioned a transaction tax applying to both the payer and the recipient. No, it should only apply to the payer – the one “spending” money. Applying it to the recipient also just sets up a higher probability of what jamie has raised.

    jamie – of course you are going to get some people who want to avoid the system but the value would be insignificant to the overall tax take. Say I’ve agreed with a tradie to do a cashie. I go down to the ATM and withdraw $500 and pay tax; the tradie gets the cash and spends it (no tax); then whoever gets that cash next banks it and when they pay their bills it gets taxed. Only one step in the flow of cash has avoided a small tax on it.

    There are going to be incidents where there is a non-cash swap (your hospitality industry providing free accommodation example) but they are only going to work to the extent there is a an agreed swap of equivalent value. Your hospo worker (sorry, volunteer) is only going to work till he has earned the cash equivalent of the accommodation. Any work beyond that he is going to want to be paid for and have TT deducted, unless it is paid in cash out of the till.

    Just to encourage everyone to play by the rules you make those rules include the bit about anyone caught evading TT liable to a fine not less than 10 times the tax not paid. Fine, the small operators who avoid a couple of hundred dollars worth of TT a year probably aren’t going to get caught by IRD, but a bigger business who has maybe discovered some way of evading say $50,000 a year would be looking at a fine of $500,000 or more once discovered.
  • Jamie Brahm
    commented 2016-12-09 13:08:59 +1300
    What about paying people in commodities? Like rental housing, or gold? If you didn’t tax also at the till, it seems like it would encourage the sort of cheating we see now, but even moreso (Like the hospitality industry claiming people are volunteers, but giving them housing)
  • James Turnbull
    commented 2016-12-09 00:57:15 +1300
    Tim and Steve

    Tim _ yes, I used 5% as an easy figure to work with but I think Ive seen 1% floated in other arenas – of course the lower the figure the more money that would remain in circulation for trade ( ie buy things with) and that itself leads to more transactions and more tax for the Treasury each night!

    Thinking a little further / deeper if there were absolutely no exemptions then high value property transactions would net a slice of revenue for the Treasury that they don’t currently get ( even 1% of a million is 10,000 ) and it would do away with the need for any Cap gain tax … if the property were sold at a higher price then treasury get 1% of the selling price again… And overseas buyers would have some of their current advantage removed … 1% Transaction Tax when the money came into NZ and 1% on the purchase transaction. That might do something to deter offshore investors, cool the housing market and help NZ residents to have homes to live in?

    Steve _ Totally agree – day traders don’t add any real value to the economy. they just buy and sell the same stocks amongst one another, and if 1% was the number ( and keep in mind that both us realise that we’re just using simple numbers and not equipped to know what the actual rate would need to be ) then that might also help to stabilise the stock markets – I’m thinking that the focus might change to ‘real value’ as opposed to ‘quick cash from speculating’. And it also might to some extent discourage bigger funded investors who realise that dumping a chunk of stock leads to a price drop at which point they back the same stock for less money. Forgive me a biblical reference here … it might drive the corrupt money traders out of the temple ? ( at least for a time )

    The more I think about this the more I like it … however, I know how easy it is to get ‘blinded by one’s own brilliance’ … hence the request for someone, anyone, Gareth even to tell me ‘whats wrong with this idea’ … OK, there’s a few jobs lost in the taxation and benefits beaurocracy (sp) but I;m sure an expanded economy could find real jobs for them … ie jobs that actually add value as opposed to sapping money from the system ?

    The benfits appear to be so many and obvious … people who have good ideas but are fearful of getting into trouble with IRD would be relieved of that. ALL businesses would be freed of taxation compliance costs, Bigger company profits might encourage small investors to buy share (and they’d actually have some money to invest as their wages would be taxfree. It would be much easier for companies to pay a proper living wage as their profits increased as a result of efficiencies made. Parents would benefit as there’d be no GST on computer devices that kids need for school, ratepayers would benefit … no GST on rates ?

    And ( sorry Gareth) unlike your plans we’d need a gazillion dollar IRD Computer upgrade and another gazillion spent on IRD Officers to ‘ensure compliance’ and / or waste vast somes on court cases to argue about IRD Translation vs Taxpayer translation.

    Just think … the Finance Minister could arrive, log on to his computer and see EXACTLY how much money was in the account each morning! And given that banks now make ‘instant payment’ on customer internet banking … theirs really no reason why it could not be instantaneously updated ( other than the FM would get dizzy looking at the speed of increase in the account – small problem, easily solved by an update ever 100,000K or million ?
  • Tim O’Donnell
    commented 2016-12-08 22:43:09 +1300
    I’d like Gareth’s opinion on this. I may not like his option but I know he’ll understand the pros & cons of this idea. Does he actually read these? I don’t think I’ve seen him answer or question anything