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26. How do I calculate how I'm effected

26. How do I calculate how I'm effected

Answer

Not hard to do - add up the value of all your assets, take off your debt. That’s your equity. Of course the government might say don’t include anything worth less than $10,000, or $20,000 - who knows?

Now you need to guess an effective tax rate that will be charged every year. I’d guess anywhere between 0.5% and 1.5%. But remember that will be ultimately. Who knows how many years a government would choose to phase in this change in the tax base? They don’t want to collapse house prices, the aim is to take the sting out of house price inflation. And who knows whether they grant an exemption - that could be anything from no exemptions (like GST) to a minimum value of say $200,000 - or even the value of an average house. These are all choices for the government to make.

Thirdly you need to estimate what happens to your tax rates - remember all revenue raised is returned through tax cuts. Also remember the more exemptions they  grant, the less tax is collected, the smaller any cuts must be. And of course a government might decide to spend all the proceeds cutting the top tax rate, another government might decide to cut the bottom rate only, a third government might just cut all rates equally.

Hopefully by now you can see that how it effects you in particular is impossible to know unless all these factors are known. These are political choices. If they do it properly as I would - and remember we have no aspiration to be the actual government - then they’d collect enough to cut tax rates by a third. So it is a fundamental change in the way tax is collected - wage earners at long last get the tax relief that is only fair, and asset owners are flushed out from the bushes. But hey, that’s your choice.

I always ask people whether they think this enormous rise in inequality that has occurred since Ruth Richardson did her thing is in any way fair? If they don’t care we don’t need to talk on this any further. But if they think its unfair then I’m suggesting what the best (in terms of both economics and fairness) way to address is as I’ve outlined. Do it with no exceptions, cut income tax rates by 1/3rd and 80% of people will be better off. It’s a no brainer. The only issue is how many of the 20% (or those who aspire to be) care enough to support it. Your call.

I have to say it does amuse me to see people saying they’ll only support making NZ fair again if they are directly better off themselves. Makes them sort of prostitutes doesn’t it?

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    • Matt
      commented 2017-06-23 21:56:51 +1200
      So who is going to be calculating my assets and liabilities? Me? The government? Some sort of consultant that knows the value of everything? I can see wealthy and advantaged people devaluing assets on paper and increasing the value of liability the same way they avoid paying tax now.

      Yes, there would need to be a cut off value, $20k? but there would need to be some very watertight rules for how to calculate these values if it’s not just the equity in the house that’s being taxed, what about cars, boats, furniture, clothing… are these cumulative or singular? Again who’s calculating this?
    • Steve Cox
      commented 2016-12-12 20:18:25 +1300
      “Do it with no exceptions, cut income tax rates by 1/3rd and 80% of people will be better off.”
      That is a brave comment to make when no numbers are forthcoming to substantiate it.
      Can’t you release a basic table showing Gross income, Income Tax benefit from a 1/3rd cut and what sort of house net value that compares to at say 0.5, 1.0 and 1.5% property tax rates.
      We won’t hold you to it. Cover it in disclaimers; – A Rough Guide Only, Individual Circumstances May Produce a Different Result, etc.