Ask a question about policy #1

Ask a question about policy #1

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    2 Questions: Jobs and ethics.

    First of all, thanks for doing this. Jobs: When you raise taxes on the rich, aren't you risking having them move overseas? Where we can no longer tax them. Where they might impact our GDP. That might result in them hiring fewer people? Result in them taking jobs overseas? Ethics: You seem to be a generous patriotic philanthropist. Why do you want government to force the extra money out of the wealth when you could independently and voluntarily put money towards causes you believe NZ will benefit from?

    1 reaction Share

    Aren't smbe's and tradies already taxed enough?

    A small business or tradesman already pays a mountain of money. Any margin has 15% taken for gst, followed then by income tax for the operators, business tax for the profit margin, then a bunch of other stuff like acc etc. For every dollar earned, pretty much another dollar goes to the government. An extra levy would be a huge disincentive wouldn't it?

    Official response from completed

    There is no additional tax collected. Whether you are taxed too much compared to the taxpayer standing next to you who knows, I’m sure that’s a matter of personal opinion and not much else. There is certainly a lot of evidence that tradies do cashies to avoid tax altogether, that simply is fact. Expanding the tax base as proposed squeezes the ability to do that a bit but certainly doesn’t stop cheats totally. In the second phase of our tax reform - that will not see the light of day unless this does - we have that dealt to through a combination of  single tax rate, tax deductibility of home repairs and far better reconciliation of GST receipts. But that’s for the future. I think the important point here is that loopholes and tax cheating simply puts the burden on someone else. By hitting those really hard society is way better off.

    3 reactions Share

    Aren't you attacking the 'legacy building' motivation that drives humans to strive?

    If I work and sacrifice harder than usual throughout my life in order to build up what I hope is an enduring legacy for my family, paying tax on all that productive output, why must the legacy also be eroded away by tax? Wouldn't I contribute less to the economy of what it takes to earn that legacy if I knew it too would just be taken away in the end, as a sort of final gesture of contempt on top of having 40% of my working life's time and energy already 'harvested' in tax of one form or another. Yes, property values are far too high, and yes what is proposed is probably more economically efficient, in a sociopathic sort of way, and yes, to an extent things like rates and maintenance/depreciation costs also work in the same direction of eroding capital, but on a human emotional level level doesn't this policy mess with something pretty fundamental about the reason we work so hard all our lives and have much of an economy at all? After a lifetime running the taxation gauntlet, what we want is a finish line after which what a person has worked and sacrificed to build is finally safe from the demands of others. Why would we embrace the prospect of watching the product of all this work evaporate away to suit the agendas of other people, as soon as we are no longer harnessed to the treadmill ourselves? Why would society not continue to see as reasonable and desirable, a sense that something of tangible and permanent value is achievable as a reward for that life of hard work? a sense of fair play where there is a time limit on the demands it places on it's productive individuals? If property values and housing accessibility are the primary drivers of this policy, why not institute a near 100% capital gains tax on the unimproved land component of property value (with adjustment for general inflation and the current population in the country who arguably compete for the same land). That would allow a legacy to remain and be passed on, not penalise the economic activity surrounding home improvement and maintenance, yet eliminate the incentive to land bank, or hold property in anticipation of passive gains generated by the home improvement and economic activity of neighbours

    Official response from completed

    So as I read it the basic question you are asking is: 

    Are you attacking the drive of people to leave stuff for their kids?

    Possibly given that this loophole has been here so long now we have people investing inordinate amounts to accumulate the unearned gains from merely holding a particular asset type - housing. With that incentive removed those folk will need to put their money to work elsehwere. Investing in businesses that grow and employ and make profits and pay higher wages would be a fine thing don’t you think?

    This tax will make houses more affordable you your kids won't need the inheritance to get ahead.

    8 reactions Share

    Are there any quantifiable metrics that prove your tax policy will actually work?

    Or did you just pull everything out of thin air? I have read your FAQ and your policies, but found it hard to find literature of precedent and proof. How do you know they will work? Has this been done before in any other countries? Have you done any economic modelling? Have you consulted with economic experts or do you have a 'screw the experts' mentality?

    Official response from completed

    Many governments try other tactics to close this loophole like estate duties, inheritance tax, wealth tax, land taxes, capital gains taxes etc. They are all aimed at the same thing - the untaxed return owners of capital make over time. Most of the taxes above impact as a one-off hit, often at the end of life. This is a political choice but the consequence of it is that capital is mis-allocated (ie; allocated according to tax impact rather than economic return) right through the life of the owner. You can think of the approach we propose as aimed at the same thing by impact in an as-you-go basis. That’s the logic.There are a number of very successful economies who have not had the runaway house price inflation for example that we have facilitated. What they have in common is that unlike New Zealand they all try to address the issue rather than ignore it. Is pay-as-you-go tax on income than an end-of-life, or event-triggered one-off tax? If you don’t want to distort markets along the way it’s just logic.

    8 reactions Share

    Are you actually going to answer any of these questions or is it just for show?

    Where are you answering these questions. I haven't seen any answered yet?

    3 reactions Share

    Better to spend earnings on fast cars and holidays than improving or maintaining a house?

    Would this tax system not create a slew of distortions of its own? To minimise taxable market value as a rental, I would become motivated to make and keep my own house as unappealing as possible to others. A generation or two of this and pride of ownership would be lost and our built living environment would spiral downwards. Look at Egypt, Mexico and other places where there are tax advantages in having an (ugly) incomplete house, with bare concrete slabs for roofs, and rusty exposed reinforcing , piles of bricks and sand and rubble left for years etc. There is no doubt that people will sacrifice personal amenity when being taxed on it - the hated window tax in the UK, and all the bricked-up window openings being another case in point. This raises another question - how should we as taxpayers acknowledge the public benefit created by urban environments that generate more amenity for the public than would result from tax optimised buildings?

    Official response from completed

    Depends what you’re doing the improvements for. If they’re for you to enjoy then that’s a benefit or income and should be taxed. If you’re doing it because you dressing it up to sell well yes there’s not much point if house prices aren’t rising (in real terms) which is the whole objective here - to let the price of housing reflect whatever those who wish to own their own home simply to enjoy it. Not to let the price of housing reflect the vale of the tax loophole.

    5 reactions Share

    Calculator makes it clear how the 80% would benefit!

    You need to include a calculator to demonstrate the benefit to the 80% that will benefit. Love your thinking Gareth, and the juxtaposition of launching the policy out side Keys mansion. Nice format you have developed.

    Official response from submitted

    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?

    10 reactions Share


    Can you define the 20% who need to pay more tax by one's total income?

    It is easier for the 80% to support this policy if you define the 20% who need to pay more tax based on their total income (which is direct income plus indirect income plus the notional rent based on say 3% of their rateable value).

    Official response from submitted

    Not that clear cut. The people with high income are already paying their fare share

    The 20% we want to target are the 20% who are the most wealthy, indeed the tax cuts can be designed to ensure that. What wealth level does that cut in at? Who knows, wealth data in New Zealand is pretty sparse to be polite. It doesn’t matter in terms of policy design, you can implement the package so that the 20% point happens no matter what the actual wealth numbers turn out to be. If you think about it logically you could take all the revenue of one person and distribute a fraction of it to each and every other person. We each wouldn’t get much of course. So the question is a bit futile. It does amuse me however when I come across people who love the idea so long as they benefit - tells you a lot doesn’t it? The question is pretty simple with this tax reform - do you want a fairer New Zealand or not? Closing the loophole will achieve that.

    6 reactions Share

    Can you explain TOP's tax policy with a graph?

    All economic policy should be readily explainable with a graph, otherwise it is simply too complex.

    1 reaction Share

    Can you please clarify these few questions for me:

    In your policy, TOP says: "Our proposal is to deem a minimum rate of return on all productive assets, including housing and land", and that "All productive assets […] produce income each and every year, not cash necessarily but income nevertheless." 1) How is the 'annual productive asset tax' any different to taxing an unrealised capital gain? 2) Wouldn't taxing all capital gains be a more efficient, determinable and transparent tax policy? 3)You say capital gains taxes don't work toward the goals TOP wants to achieve, why so? 4) How does your policy propose to determine the value of return on a productive asset with no cashflow or assessable income related to it? 5) What if the asset actually made a loss that year? 6) How will this policy avoid the chances of double taxation for people who intend to accept a capital gains tax on sale of their property? 7) Have you purposely avoided the 'elephant' of capital gains tax because of its hot political nature, or because you really don't believe it would be effective?

    5 reactions Share

    Can you please outline a scenario example showing how this would work?

    To help us understand how this will affect us as individuals ... especially since you're saying 80% of people would be better off, can you please give some scenarios showing what the tax would be using current tax rules vs these proposed tax rules? e.g. Dad earns $70K, Mum earns $20K, they own their family home worth $600K, mortgage $400K. Second example - Dad earns $90K, Mum doesn't work, they own family home $600K, mortgage $300K, plus a rental worth $400K, mortgage $300K. Third example - Couple, both earning: Husband $80K, Wife $90K. Own a home worth $1m, mortgage $400K.

    Official response from submitted

    Giving an exact response is hard because we don't know the exact numbers the government will choose

    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?

    8 reactions Share

    Can you share projections of how this tax would affect farmers?

    I imagine this could become a politically-sensitive issue, depending on whether the average farm usually exceeds the threshold rate of return (6% or whatever it may be set at).

    1 reaction Share

    Deemed rate

    I know you're open to what the deemed rate should be but just wondering if you think it needs to be lower than say the return people can get on a TD with a bank? If not, it will mean savers are penalised slightly correct? But if so, then won't the rate be too low to make a big difference when interest rates are so low? I also realise most savers will benefit from an income tax reduction but not all. Thanks very much and keep up the good work.

    1 reaction Share

    Does this mean every home owner will now have to file a tax return?

    Currently if your only income is from PAYE wages/salary you aren't required to file a return. Wouldn't a simple land tax billed with the rates notices be easier to administer, more efficient to collect, and not require a whole lot more people to file tax returns? The land tax rate could be based on the regional or national average amount of time the value of the land doubles. I understand your proposal is a tax on a deemed rate of return rather than a tax on capital gains. Does your proposed deemed rate factor in the usual capital gain as well as the annual "market rate" rental? If not, I'm afraid there is still an incentive to gear up on property.

    Official response from completed

    Not really - its very easy to get your house value from the local council, your insured value from an insurance company, and your mortgage from a bank. The IRD has many rights. You don’t need to do anything if it’s just the home that’s involved. If there are other assets you might need to fill an online form, sign a statutory declaration. Very simple really, no accountants needed that’s for sure.

    4 reactions Share

    Do you have a back up tax policy if this one fails miserably with the public?

    Will you scrap it or will you stick to your ideological dogma and go down in flaming glory at the election? You said you may not contend the election if you don't get enough support so that's telling me if people don't like your ideas you will pull the pin rather than adapt and change the policies.

    Official response from completed

    Flames. We are not here to propose weak and ineffective policies to buy votes like establishment parties. We want to fix things, make a difference, make NZ fair again. 

    The people will either indicate they will vote for that or not. Completely up to them

    7 reactions Share

    Elderly with no income have to mortgage themselves?

    why cant you exempt the elderly that only own one home? it seems a bit unfair to force an old retired person to have to mortgage the family home to pay a tax. It sort of defeats the purpose of owning a home. or am i misunderstanding this?

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    Farms?

    How does this policy affect farms. eg what happens with a farmer who owns a $5mill farm that this year returns $100k. Tax is assessed on the asset value and say it comes to $300k (6%). Next year the farm makes a loss of $100k but is still assessed to owe $300k. The farm would need to clear $400k+ every year just to pay the tax and show a tiny return. Few farms make returns like this

    Official response from completed

    http://www.top.org.nz/how_would_farms_be_treated

    9 reactions Share

    Forecast for policy to fulfill its promise?

    Hey Gareth, if this tax passed into law, how long would it be before an impact is seen? Will there be an immediate depreciation of house values & raise in incomes...or is it more of a long term strategy? If it's the latter what sort of time frame are we lookin' at. If it takes a while, 10 years or more, how will it help those in need now? I'd also like to ask what guarantee would the homeowners of New Zealand have that your proposed income tax cuts intended to blank out the tax wouldn't be rescinded by a future government, ie they keep the house tax in place but remove the income tax cut. Cheers.

    Official response from submitted

    There’s never any guarantees with tax. A government could raise them tomorrow and not tell you they’re going to. The closing of the loophole will not be fully achieved for some time. This is on purpose because we don’t want to collapse house prices, we want to have them tread water so incomes can catch up. The way to do that is to make the deemed taxable income on capital only small to begin with and wind it up over time until fairness is restored. How long would that take? Depends on the reaction of house prices.

    4 reactions Share

    Have you considered a longer levelling time frame for forestry

    See my coment in FAQ "How would farms be treated". 3 years is too short for forestry where the income cycle is at least 28 years.

    3 reactions Share