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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    Why not have a tax on total net wealth?

    We tax income and consumption, but not wealth. A wealth tax, imposed unviversally without exemptions, would seem to me to be simpler and fairer. It would help reducing the gap between the top and lower economic strata. Many wealthy individuals at present quite legitimately pay little tax by careful tax planning. A net asset tax of say 0.5% per annum ($5,000 per $1,000,0000) seem reasonable to me. What are the arguments against doing this?

    Official response from completed

    This will answer your question http://www.top.org.nz/do_these_taxes_exist_overseas_how_do_other_countries_deal_with_this_problem

    6 reactions 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

    How is this different to Rates?

    Rates are a property value based tax and isn't this the same? I do really wish you had painted a big vision and then looked at pragmatic steps to get there. This policy has NOT provided me with confidence that TOP will be anything other than a ideas platform. Like the greens. I hope you do some strategy work with psychologists and organisational change experts otherwise the gap between ideas and implementation/action will remain (damn you democracy!).

    Official response from completed

    It is more broader than just your land and It targets all capital. 

    3 reactions Share

    Me & a few others are really interested in your thoughs on this thread

    http://www.top.org.nz/63114/a_simple_transactional_tax_that_can_t_be_avoided_or_claimed_back

    7 reactions Share

    Possibility could work but I see that you need to separate one home owners from multiple home owners

    Official response from completed

    See this FAQ - http://www.top.org.nz/why_don_t_you_exempt_the_family_home

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    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

    How would this policy effect Amazon, Google, Microsoft, Apple's NZ operations

    Amazon, Google, Microsoft, Apple and others operate substantial businesses in NZ and pay almost no corporate tax? As the world move digital the major providers of electronic goods avoid/evade tax. They want to trade into a society which they make no contribution. It is a big loss of income to the country.

    Official response from completed

    It wouldn’t directly. We have a special tax policy coming out to help those companies pay their fair share of tax here.

    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

    Since this is an equity tax, surely a loan on a house for example must be deductable?

    If this is the case, people would take out loans on their house and instead paying tax, they would pay interest to the bank. Yes, they could buy shares, and their capital becomes productive, but it wouldn't help the state directly rather the banks.

    Official response from completed

    No there are two ways you could apply the tax - tax the whole value of the asset and make interest deductible, or tax the equity only and don’t. The second is simpler.

    6 reactions Share

    How would the value of an asset be determined?

    How would the value of any asset (not just houses) be determined x years after aquisition?

    Official response from completed

    It’s the depreciated value so for businesses that’s easy - the same way as they do it now. For households the main asset is the house - we have market values, RVs and insured values. So long as councils get their act together then RVs will become more tractable and so between the 3 alternatives you can triangulate to get a value. Or you could just opt for the RV which I’m sure will have overs and unders over time compared to realised sales figures. 

    4 reactions Share

    How will this actually work

    Does this mean you will pay tax on value your home. In which case it won't win votes. Capital gains tax probably a better option

    Official response from completed

    It is a tax on the equity in your home among other things. Re CGT - they are totally ineffectual at halting speculation as we have seen overseas.

    3 reactions 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

    How would the income tax reductions be structured?

    I think that if a persons first $400-$500 per week was tax free, that would give low income people, beneficiaries and pensioners the extra money to pay a levy type tax on an average house, and would also provide an average wage earner with a similar break

    Official response from completed

    That is up to the government of the day but the idea is to distribute the reductions to make 80% better off.

    4 reactions Share

    Inflection point.

    Believe alot of people, particularly home owners such as myself, are struggling to understand the real cost/value implications of this policy. Do you have a projected inflection point of wealth/property value at which people switch from the 80 to the 20%? eg. 600k @ 3%

    4 reactions Share

    Is this an 'envy tax'?

    Some commentators have called policy #1 an 'envy tax', citing cars as an example: owners of expensive cars pay more tax than owners of cheaper cars, which amounts to differentially taxing people based on their consumer tastes (e.g. a preference for Mercedes over Toyota). What is your response?

    Official response from completed

    Well Paul Henry I’m sure you see it that way as you don’t care that your tax load is lower by virtue as opposed to any thing you can claim merit for. It is not a tax designed to “tax the rich”. I know many rich who pay an enormous amount of tax even relative to the asset base they control. What it is though is a closing of a major loophole in NZ’s income tax regime. That hole has seen a burgeoning class of property-woning elite who buy house not because they need them, not even because they want to be landlords, but because they know this loophole is making more and more people want to get the same tax advantage and that’s what’s driving the excessive demand for housing. They will want to change where they invest their money. 

     

    In regards to paying more tax on a Mercedes rather than on a Corolla, the benefit one receives from an asset is directly proportional to the value of the asset. That’s what markets do - they price assets as per what the next person is prepared to pay for them. That benefit of course is a form of income (not cash, but income) and we’re talking here about income tax. the more income you have the more tax you pay.

    9 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

    How does this target the richest 20% ?

    Like an elderly person, I have no income. I'm not going to get money soon from lower tax rates on wages. I'm a sole parent who has been able to begin fulltime study again. But, I've been in poverty for years. I now own our home (paid mortgages since my twenties), and got rid of the financial worry through the horror of two family deaths and inheritance. When I'm thinking of this policy racking up another debt as well as my student loan to contend with, I have no idea how I would be able to do it. I don't see myself as one of the rich 20% - I have always been in the lowest, at risk, percentile of income and statistically, my family is in poverty. I'm utterly debt averse. I've read all the q's and a's. So if I sold my house to try to get my family out of the violent neighbourhood which was the only one I could afford, I would owe for 'rent' (no accommodation allowance for me, unlike renters who are students/unemployed/sole parents/low income and that is perfectly fine) and I'd not even be able to buy a shit house in the same shit neighbourhood. Call this query 'self interested', because I've been protecting my family from going further down for decades. I'ved lived with debt over my head and I'm trying to bust out of it. I agree with addressing inequity, but I think an inheritance tax and capital gain tax would be preferable. Plus, why did I think you were against universalism? This isn't a rich tax. It's tax anyone who owns anything, even if they are poor...?

    4 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

    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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    What will be the economic driver to buy a house under TOP1?

    In purchasing a house I have already invested more than rent for the same service, so, under TOP1 I must be doing it for non economic reasons. I can't see why anyone would buy houses anymore and landlords wouldn't want to own houses either. So under your Asset Tax why would anyone buy a house - except for non financial reasons? And if you buy a house for non financial reasons, what is the rationale for suddenly classifying it as a financial asset?

    Official response from completed

    People will buy a house for accommodation reasons not an investment and that's the way it should be.

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