Ask a question about policy #1

Ask a question about policy #1

We are going to do our best to get back to as many questions about our tax policy as possible. If there is something you don't understand, ask question below and we will get back to you. Before posting a question please make sure you have read the FAQ's

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    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

    What's your current position on assets like boats etc?

    Hi Gareth. I read your "Big Kahuna" book over the Christmas break. In the FAQ section at the end of the book you said that, for pragmatic reasons, the tax would be limited to land, houses and business assets. But I get the impression from your recent blog post, and the Paul Henry interview, that you'd now like it to apply to other valuable assets too: luxury cars, boats, art works etc. Could you clarify your position on this and, if such assets would be included, clarify how they would be identified and valued? (Except perhaps as a mandatory surcharge on the insurance premiums for such items, but that seems like an unorthodox approach.) I ask because I can't imagine how the practical and pragmatic issues would be addressed if such assets were included.

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    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

    What would the impact on houses held in family trusts?

    From the FAQs it sounds like any property you have in a trust like your family home which could be a common case for company directors and small business owners would have to paytax at the company tax rate rather than the 0.5 to 1.5% suggested for a property not held within a trust is that correct?

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    Taxation policy

    Wouldn't it be necessary to increase the supply of affordable houses at some time as introducing this policy? otherwise you run the risk of costs being passed onto tenants. If there few alternatives for them, they will have to accept the increased rentals?

    1 reaction Share

    Varying bond rate

    Do you intend to use the 10yr or 1yr govt bond rate to set the rate of return? What arrangements are planned to incorporate the fluctuations in these rates that occur: over the last 40yrs the 10yr rate has fluctuated between 18% and 2%? Can you guarantee those arrangements will match the current rate rather than reflecting last year's rate? I note that up till mid year Govt was still using 8% for one of its capital return rates.

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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?

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    When are you going to provide some hypothetical examples to help us to understand better the policy?

    Official response from submitted

    If you are trying to calculate if this positively or negatively effects you it's 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?

    4 reactions Share

    How do you measure fairness?

    Official response from submitted

    There are a wide number of measures - ranging from income, wealth, discrimination, etc etc. The Graph Pack we published at the launch of Policy #1 on tax reform gives a pictorial summary.

    4 reactions Share

    Having you thought about simplifying the message

    Isn't this really just a move from income tax towards a resource based tax? Why should those having exclusive use of resources get a tax free benefit, while all the hard working people provide the tax? Surely this policy just tries to find a balance between resource and income tax to ensure no particular group in society is gaining at the expense of others?

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    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.

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    How to win an election 101

    Looking at the big picture , NZ does need another political party to counter balance the proliferation of right wing conservative parties . So I applaud Gareth for taking the bold lead here . But oh , what a disastrous start with this 1st policy . TOPs has hit rock bottom with this one . The political animal in me knows this is a total vote killer . This does nothing to win the hearts and minds of the people . Labour tried a capital gains tax on property in the last election . They lost . So there is a lesson there . Why repeat history by raising the tax spectra as the No1 policy ?. Its political suicide . There are so many other issues confronting NZ at this time to lead and inspire the populace with . If you want to go where no party has gone before Gareth there are a hundred more popular vote catching ways to start with . For instance start with putting more money in everyones pockets by reducing New Zealanders energy costs so that all Kiwis can benefit from the savings . We have some of the highest electricity costs in the world thanks in part to privatisation and deregulation of the energy sector . Follow Elon Musks example from Tesla by powering the economy with cheap affordable solar energy . Its easy . Make very roof in NZ a solar energy producer and pay households for producing energy for the national grid . Then bring in rebates and tax incentives for buying electric and hydrogen vehicles to power the transport fleet so NZer’s can begin to participate in and benefit from the world wide move away from more expensive polluting fossil fuels . Expensive for us and the environment . Its time NZ led the world in renewal energy and cheap clean energy transport systems . This is Tops’s chance so show they have a real vision that impacts us all in a positive way . Make NZ great again by leading with green technologies the world needs now . If Elon Musk ( Telsa ) can create 35,000 jobs doing just this , so can NZ . But wait .There’s more . If you want to gather more tax revenue for a fairer NZ the answer is simple . Do what Canada’s Prime Minister Trudeau has done for Canada . Last year he got voted in on a policy of legalising marijuana and taxing it . If Canada , Colorado , Washington , Oregon , Alaska California plus numerous countries around the world can , then so can New Zealand legalise and tax Marijuana . Here is your increased tax revenue to pay for free education including new universities and schools . More money for health with no more waiting lists for hospitals and free or subsidised doctors visits . Plus it would provide the revenue stream for building a new national electrified rail network throughout NZ so NZ businesses can transport goods more cheaply . Yes revenue from Marijuana sales is that good of a revenue producer . Just look at what its done for Colorado alone . I’ve been there and seen it . And thats just 2 vote winning policies for starters . Wanna hear another 98 or so ?. Simon Lynn .

    Official response from submitted

    All 7 of our policy priorities are about much needed reforms that will make New Zealand a better place for us all to live in. We haven’t formulated them with the purpose of offering election bribes or handouts to people just so they vote for us. In fact as I have said from Day One, The Opportunities Party is about making New Zealand a better place, giving more opportunities to more people because we don’t believe you can build sustainable prosperity on an unfair society. 

    What’s more I have said that I have a strong belief that when most people get full information they make totally rational, as opposed to purely self-interested, decisions. With the first policy on tax reform 80% of people will be better off so it would be against even pure self-interest for us not to be supported by 80% of people on that policy. For the other 20% I simply ask the question - do you care about the rise in inequality that has occurred over the last 25 years, does it concern  you at all that the way we’re going,  your children won’t be able to afford the rent let alone buy a house. There will be some in that 20% - like Paul Henry say - who reply they don’t give a toss. That’s fine they have one vote, just like everybody else.

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    Please summarize and share the evidence that shows why this is the BEST option

    What are the other ways that NZ might seek to solve the problems of mis-investment (particularly, but not exclusively, with regard to housing)? And why choose this policy over those?

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    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.

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    Should Secondary High Tax be charged when you are working part time and getting topped up by ACC

    Chat Conversation Start 5:52pm Hi there I saw the bit on Paul Henry about taxes needing to change. Definitly agree with this. My Husband was working and had an accident in 2009 he ended up having several operations so off work for a few years, He got himself a part time job in 2012 as he is not someone who wants to sit at home, He ended up getting his lower leg amputated last year and as soon as he could went back to work. The trouble we have understanding is that He is working part time, and gets a top up from ACC to his previous income. Inland revenue then charge him Secondary High Tax on his Jobs wages. Should it be happening like this as it is not a second job at all he is just getting topped up to full wages of the previous ONE job he had previously, He is slowly increasing hours back at work as he gets stronger. The secondary High Tax does not seem right. They are penalising him for wanting to get back to work. Do you have any advice on this thanks Thanks for getting in touch. Between phone, email , twitter etc. I get a stack of messages. I don't get time to reply to everyone. Don't be offended, there are only so many minutes in the day. Chat Conversation End Type a message...Hi Is it fair for someone who works part time while still recovering and gets a top up to pre accident wages from ACC to be charged Secondary High Tax? It does not seem right and even ACC have said that it does not seem right,

    2 reactions Share

    Needs punchier presentation

    So that people can get their heads around it, and to prevent them writing it off as "economist speak". E.g.

    What? A tax on imputed rent. Imputed rent is what you would get, to rent a house like yours, if you didn't already own it.

    Why? To fix the housing market, by putting property on a level tax playing field with the rest of the economy.

    How much will it cost? About x% of the value of your home. So for someone in a home worth $500,000 that's about $y per week. This will still be way cheaper than renting, because as an owner-occupier, the imputed rent will stay in your pocket just like it does now. You'll just pay tax as if it had changed hands

    How will I afford an extra tax? We'll cut your income taxes, so most people will come out about even

    Who will be worse off? Rich people who own property worth a lot of money (and yes, this includes Gareth Morgan)

    Who will be better off? People who pay rent to a landlord. These people won't have to pay the new tax, but they will get the same income tax cuts as everyone else. Also, young people and children will be better off, because this tax will gradually take the heat out of the property market. By the time today's young people want to buy homes, incomes will have started to catch up to property prices .

    Is this crazy? No. Five other countries around the world do it: Switzerland, Luxembourg, the Netherlands, Iceland, and Slovenia. The OCED says that it would be good for every country, but around the world most politicians are too gutless. At TOP, we're not.

    5 reactions Share

    Why not simplify it, to purely a "Tax on Imputed Rents for Residential Property"?

    As currently specified, it sounds complicated, both to understand and to implement. So why not narrow the net of this tax, to just be about residential property. That will make assessment and collection easier, because it could piggy-back on council rate collection (just like GST piggy backs on existing transactions, to obtain calculate its amount and obtain a channel for payment).

    Narrowing the focus to Imputed Rents also greatly reduces the burden on TOP, in terms of explaining and justifying this tax. Yes, there's the unfamiliar concept of imputed rent, to explain, but that has to be explained no matter how this tax is formulated. The problem is, that if the tax is formulated more widely than residential property, then the burden of explaination becomes much greater. E.g. if it applies to a luxury car, is that on the basis that its a tax on the amount you would pay if you rented a similar car? Or is it on some other basis? And what about how this applies to businesses, the concept of imputed rent doesn't really seem to work as an explaination for why this tax would apply to them.

    All in all, it seems much more likely to be understood by the public if it is collapsed down to just a tax on imputed rents. And that's its best chance of success, IMHO. Of the people who understand it, I don't know what percentage will support it. But I'm fairly sure that, of the people who don't understand it, virtually none will support it.

    Official response from completed

    The reason is because a major objective of the closing of the loophole in our income tax regime is to target the way businesses deploy their capital, namely to increase productivity. If you have a business that year after year makes lacklustre returns on the capital it owns, then that capital needs to put to work more productively - either by the existing owner utilising it better or by it being sold to someone who can. Productive capital is a scarce resource, this policy will raise the supply to those who can get a return on it.

     

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    Rationale needs to be made clearer, and more appealing

    Gareth I think it would help if you could be really clear about why this is proposed. Is it for fairness, or is it to fix the housing market?

    I don't think "fairness" will sell it. Why? Because only an economist could become outraged at the unfairness of people freely living in their own homes ;-) Yes, I agree with your logic that imputed rents should be taxed, but neither I nor most other kiwis will want to buy into this policy on the basis of "fairness". We may buy into it as a solution to the housing market.

    Official response from submitted

    Well it actually addresses both and better than that it also addresses (c) the shortage of capital flowing into our business sector (d) the problem around lacklustre productivity in NZ that is constraining our ability to lift GDP per capita (e) this obscene race to the bottom advocated by our Treasury to just keep cutting tax rates on corporates until we’re the same as tax havens - this is a craven position that arises because of our morbid dependency on foreigners' savings because we’re too bloody stupid to direct our own savings into productive endeavour rather than property speculation.

    OK having got that off my chest, here’s your answer. Inequality in New Zealand has increased enormously since Ruth Richardson’s Mother of all Budgets where she pulled the rug out from under the lower paid. The Trickle Down never eventuated and under John key’s regime rampant house price inflation has made it even worse. Now if you don’t care about fairness then such events don’t interest you, otherwise you should be disgusted. What the closing of the income tax loophole I propose achieves is it takes away the reason for rampant house price inflation and it gives tax cuts to lower incomes. So it does both of the things you asked about. More details here.

    4 reactions Share

    How are the top 20% defined - is there a level of assets that determines this?

    Official response from submitted

    They will more then likely be 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.

    3 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