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Gareth Morgans And TOP's Policy Launch Speech Notes

I'm standing outside Prime Minister John Key's mansion because in launching TOP's flagship policy, I want to make a point about inequality in New Zealand. 

John Key and I are both wealthy people, but we don't pay our fair share of tax, only because we don't have to. TOP's flagship policy aims to fix that. A premise of The Opportunities Party is you cannot build sustainable prosperity on a base that is inherently unfair. Fairness and prosperity are soulmates.

 

Our tax policy is radical, it sets the scene for NZ to break free from the grip of the post-Rogernomics/Ruthanasia era where, the much vaunted, much promised “trickle down” is little in evidence.. The inequality that deregulation spawned remains 30 years later. The graphs illustrate;

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Real, 2015 equivalised household income, after housing costs

More recently it is getting worse thanks to our long held refusal to address the steadily deteriorating affordability of housing. This is the legacy of the John Key era

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There’s nothing wrong with inequality so long as it is based on merit, not privilege, protection and discrimination – which sadly has been the driver in New Zealand for quite some time now.

What we’re proposing is not radical by global comparison, but it certainly is in the NZ context, where deep-seated inertia from Establishment parties and their career politicians has resulted in fearful refusal to admit, let alone confront the gaping loophole in our tax regime that has left so many people worse off.  No wonder that over the last 30 years more and more New Zealanders have become disenchanted with our so-called democracy and no longer participate – voter turnout has steadily declined. These folk feel helpless and ignored. 

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It is normal now in New Zealand for just some of the income to capital to be taxed. Because we tax only a few forms of effective income from capital, surprise, surprise many of us invest, not on the basis of the economic return, but on whether or not the asset is taxed. This is entirely logical and explains why many people, including John Key, Winston Peters, Kevin Hague, Judith Collins, Amy Adams and myself own a number of houses. But it has harmful economic effects, capital is misallocated, economic growth, jobs and wages suffer as a result.

Most developed countries address this tax loophole with a variety of taxes such as inheritance tax or estate duties which are 40% in the USA, so long as you’re “rich”; wealth taxes that prevail across Europe; land taxes, stamp duties, gift duties and of course capital gains tax as in Australia.  I have to say most of these taxes do not do their job that well – politically inspired exemptions being the culprit.

If we are elected to parliament in sufficient numbers, The Opportunities Party intends to put undue pressure on whichever Establishment Party forms the next government, to plug this hole in our income tax regime and plug it properly.

Note carefully, that our tax proposal will not take one extra dollar in taxation – every dollar we raise by plugging the current loophole will be returned in cuts to existing income taxes.

Our tax policy will leave 80% of people either better off or unaffected; the remaining 20% will pay more tax. But don’t worry those of us in the 20% can well afford to lose our tax privilege.

We want to bring all income generated by assets or wealth into the annual income tax collect. For far too long the far too much of the income tax burden has been borne by wage and salary earners subject to PAYE. Their tax load will fall.

What do we propose?

The definition of annual taxable income will be expanded to include as assessable income, a minimum return on the equity an owner is deemed to have in all productive assets they own. This is an extension of the regime our government already applies to overseas shares owned by New Zealanders under the Fair Dividend Rate regime.

If you don’t understand that, think of it as a kind of wealth tax – but one with conditions. If you already declare a taxable income on your assets above this minimum rate of return you will actually be better off – because of the lowered income tax rate.

But assets that continually report a taxable income below this rate will be taxed on the basis that they return this minimum deemed income. The loophole will be closed for ALL taxable entities (businesses, individuals and trusts). Assets affected will include (but not be restricted to) property, equipment, structures, brands, goodwill and Intellectual Property. Land and homes are included – and, yes, that includes the family home.

Financial assets (deposits, bonds, shares) are excluded, as unlike the assets above they are already fully subject to income tax.

The tax will be phased in over time to avoid a marked reduction in the value of assets such as houses. Introduced carefully our tax policy will put a lid on house price inflation and lead to a steady restoration of housing affordability – in other words, allow income to catch up.

The details of tax rates, minimum taxable income rates, asset value thresholds, the distribution of the income tax rate cuts, and importantly the transition rates to fully closing this loophole – will be negotiated between The Opportunities Party and the ruling Establishment Party that wins the 2017 election.

The impact of closing this loophole in our income tax regime and delivering a fairer income tax regime to New Zealanders include

(a) improved affordability of housing over time

(b) increased flow of capital to business, boosting employment and incomes

(c)  better use of capital (productivity)

(d) reduced reliance on foreign capital inflows, saving our political leaders from trotting around the world with the begging bowl out

(e) ending this race to the bottom that sees NZ providing more and more tax privileges to foreign firms as we compete with tax havens

And remember it immediately makes 80% of New Zealanders better off, with the 20% who are not, well able to afford the loss of their privileged tax position

Finally you may wonder why we’re holding this policy release event at this particular location. This modest pensioner pad opposite will come within the tax base, as will all the properties I own. But I can say with confidence that the folk in this house and my own family are within the 20%. I can also say with confidence that us paying our fair share will not significantly degrade our standard of living, our quality of life.

So my question to New Zealanders is

  1. do you actually care that New Zealand society is unfair?
  2. do you actually care that we are performing below our potential because we waste so much investment just bidding against each other for the same houses?
  3. are those of us who are in the top 20% - actually prepared to give anything up to fix this?
  4. or is our immediate self-interest so all-consuming, that ours are mere crocodile tears?

Our Inequality Graph Pack illustrates for you the issue, and we are also publishing an FAQ pack, and over the next few weeks we will be streaming live Q&As online to assist public understanding.

Remember, this is not about collecting more tax but rather making the tax system fairer. 80% of people will be better off. If you’re not one of the 80% then think of this tax revolution as your investment in a fairer and more prosperous New Zealand. 

I’m asking New Zealand to do the decent thing and make our country fair again

Thank you

 

Showing 20 reactions

  • Chris O'Halloran
    commented 2016-12-14 09:48:48 +1300
    While I prefer the more radical approach of taxing all property, I suspect this kind of wealth tax would be more palatable (and hence more likely to have some chance in the political realm) if there are was a tax free exemption of say the first $300K. This, like the UBI, would be a ceiling. Your income cannot drop below the UBI and your property assets cannot fall below the tax exempted status.
    It would allow parents to pass on assets to children, knowing that if their children were not doing well in life, there was one final act they could help them out with after they went. If those children were doing well, those inherited assets would then immediately start incurring the CCIT or ‘wealth’ tax.
  • james mudge
    commented 2016-12-13 19:02:53 +1300
    I think the extra taxes that you are imposing should only be on property speculators and those who do not live in New Zealand itself and leave houses empty such as they are doing in Auckland. You are risking a backlash from the middle class by proposing a tax on their home car and boat.
  • Norman Cates
    commented 2016-12-13 13:08:53 +1300
    VIRTUAL INCOME BASED ON NETT WORTH
    -——————————————————————————————-
    Why is it considered that if I have equity in my house, that it’s wasted investment opportunity. Am I not investing in my future and the future of the country by trying to make myself (more or less) self sufficient so that I don’t need to drag on the government? Indeed it’s a virtual investment in me not being homeless…

    If I own rental properties, then being taxed on that income seems just fine, so long as I can offset my expenses like maintenance and interest. My understanding is that we simply don’t have negative gearing anymore. ie I can’t claim losses on my investment properties against my own income. (Maybe you can in come other financial structure, but when I’ve asked, I’ve been told that an individual NZer simply doesn’t have this available to them.)

    OTHER INVESTMENTS
    -——————————————
    I keep seeing people say that if we tax capital (like houses) that it will encourage investments in other areas.

    HOW will this happen? What is the incentive to invest in other areas?

    How do we even do that?

    I’m not at all experienced in investments, and at the moment property seems to be a very safe investment. Even if the value didn’t keep going up, a rental property still keeps gaining net value due to paying off the mortgage.

    Just about every other investment I know of seems much less safe. Or requires the kind of time investment that I just don’t have because I’m working 50 hours a week. (For a good income, let me be clear.)

    I very much hope that TOP is looking very carefully at countries where this has been tried, and explicitly states what they will do to solve the problems that appear to have come about because of policies like this.
  • John Zoetebier
    commented 2016-12-12 21:19:35 +1300
    This TOP tax policy has been tried out for decades in Holland and it caused mayhem in society. The effect of home owner property tax is exactly the opposite from what you may expect.
    The secret lies in what is called dynamic systems. If everything stays the same the TOP tax policy could work, but people and financial systems adapt. This is what happened in Holland. As tax had to be paid over assets, banks created mortgages that allowed zero home deposits and only interest. The interest was tax deductible. The mortgage deposits did not go in paying off the house but in an “investment”. Great you would say, this is exactly what Garreth Morgan wants to achieve, more investment in New Zealand business !
    But wait there is more. People were told they could have maximum tax advantages during the entire lifetime of the mortgage, then get a big payout which they could use for, not paying of their own property, but for buying another property and get again a big tax profit. This was too good to be true and indeed it was. Disaster struck decades later when the big financial crisis hit home (pun intended) and most of the investments evaporated more rapidly than an ice cream under the sun. Gone was all the money invested in business. Lots of people lost their home and got into state housing and were dependent on welfare. More than 1 million people were better off as they still had their own home but worth much less than the mortgage. Their house had become unsellable as the owner could not afford the loss.
    There are other more perverse effects of taxing property as well. For example the poor paying for the mansions of the rich. This is because politicians felt it “fair” to offset asset tax with income tax deductions. I’ll keep this story for next time.
  • David Washer
    commented 2016-12-11 23:04:08 +1300
    My understanding of this tax is that it is ‘nett’ wealth. That means that any mortgage or loans is offset against the value of the property to obtain the value of assets that will be taxed. Excellent policy.
  • John Zoetebier
    commented 2016-12-11 20:45:14 +1300
    Quote from above :
    “Most developed countries address this tax loophole with a variety of taxes such as inheritance tax or estate duties which are 40% in the USA, so long as you’re “rich”; wealth taxes that prevail across Europe”
    Yes, Europe has massive taxes. This is one of the main reasons why the European economy is the “sick man of the world”. Government extracts so much money from the people that less income is available for consumption. Another side effect is rampant tax evasion by the rich (see Panama papers). If you go to a party in Holland the most favorite subject is tricks for tax evasion. So crushing is the tax burden for small businesses are forced to have duplicate accounting , one for the tax man and one for their own. Anyone not playing this game will go bust sooner rather than later. People hide savings in overseas accounts for the tax man.
    At the same time Holland is a tax haven for multinationals like Google, Star Bugs, Philips and The Rolling Stones to name a few. They all pay less than 1% tax.
    There are a few issues with tax on virtual income. One of them is that there is no end to virtual income. Today it is applied to the home owner. When the government runs out of money they invent other types of virtual income, like virtual interest on your savings, riding on a push bike to work (you do not pay for petrol) , your handy man skills (do not have to pay for a builder). There is no end to what the tax man can see as virtual income.
    No amount of tax regulation can make a country rich. It’s the hard work and creativity of the people that make a country rich.
    New Zealand is still doing well, but I am convinced that increasing the tax burden for the middle class will backfire, drive people out of the country and increase the divide between poor and rich. In the end everybody is worse off.
  • Friend
    commented 2016-12-11 15:33:41 +1300
    Tax on 2nd property unless family batch.If however making income on family back from tch tax that at increased rate. Also high tax on land banking and unoccupied property. If you classify income 100-200k as top 20% your dreaming as I know a umber of people in this bracket struggling to buy own home in Auckland and no the fix is not to tell people to move elsewhere as they have genuine reasons such as family and training schemes. I do agree that there should be much more scrutiny of actual vs declared income and loopholes for hiding income closed. I suspect there is a very top heavy 5-10% making in excess of 500k plus a year or with assets in the millions, these are the ones that should be targeted not the new middle class on around 100k struggling to get by.
  • Dan Williams
    commented 2016-12-11 11:21:12 +1300
    After reading this tax package. It has my full support.
  • Dan Williams
    followed this page 2016-12-11 11:13:06 +1300
  • John Zoetebier
    commented 2016-12-11 10:09:37 +1300
    The tax man wants to see real cash for virtual income. This shows the inconsistently of the tax logic. Real Money for virtual income. Can I offer Garreth Morgan my virtual services and get real cash in return please ?
    The term “investing” is not applicable to 99% of the people buying their own home. Only the very rich have a choice where to invest their money.
    Furthermore, that tax money will not become available for business but will only boast bureaucracy.
    For example Holland, a country the size of Canterbury, has over 800,000 public servants. Holland has tax on virtual income from houses and bank savings. Yes, you read that right, tax over virtual interest on bank accounts. The astronomical tax burden has chased away millions of hard working people and entrepreneurs.
    Ever increasing taxes is the best way to make a country poorer and chase away the most talented people. Garreth Morgan says the total tax will not increase, but is that for everybody ? For example a grandparent raising children, will they have the same net income when taxing virtual home income ?
    Or will their grandchild live in poverty as the grandparents have to pay tax on their home ?
  • Hennie van Kooten
    commented 2016-12-10 10:17:47 +1300
    I like your thinking outside the box, Gareth, but I totally object against taxing the owner occupied home. I understand that tax will be offset by lowering the income tax. So theoretically 80% will be better off. But why complicate things? Would that not cause a lot more bureaucracy and red tape and (God forbid) more civil servants and assorted pen-pushers to uphold compliance… Why not just tax all second and subsequent properties, landbanking and, maybe, expensive boats and luxury toys.
    I trust you have thought about raising the tax for the real high incomes, and revisiting the threshold for the low incomes..
    By the way, I thought Paul Henry acted like a total tosser during that interview. But of course, he stands to pay a lot more tax when your ideas would be implemented, and no, he would not like that.
    Good luck!
    Hennie van Kooten
  • John Hyndman
    commented 2016-12-10 08:07:05 +1300
    It is not easy to persuade New Zealander’s about the merits of this ‘wealth tax’. One woman owns several Hoteres that she ihnhereted many years ago. They are now valuable but she is holding on to them for sentimental reasons. Would they be valued and taxed accordingly? Someone has a nest egg of gold bars. How would they be taxed and would the IRD even be aware of them? And granny who is an 84 yo widow and lives on the pension. She has a humble mortgage free house. Should she take out a mortgage with IRD to pay her wealth tax?
    The problem when trying to sell these ideas to New Zealanders is that they strike the average Joe as being fundamentally unfair – and we are trying to convince them that these ideas will result in a fairer system of taxation.
  • Timothy Monck-mason
    commented 2016-12-09 17:21:14 +1300
    As per andy read I need some case studies. Average home and average income, then lower and higher, to show total tax. If it will tax my residential home I need to know how my income tax is lowered!
    This scares people!
  • Peter Jamieson
    followed this page 2016-12-09 12:27:17 +1300
  • Andy Reid
    commented 2016-12-08 22:00:35 +1300
    So we had Thursday night football at Te Whaea tonight and a couple of beers at Bebemos afterwards with some discussion of this policy. It is difficult to discuss and to get right in discussion but the upshot of the conversation was for the group we were with we needed some case studies. So differences in the group was between household incomes of 100k and renting through to 180k to 250k home owners (well mortgage holders!) of say houses worth 550 to 650 k. So what would be yearly tax payments for these groups as well as retired people in their own homes and say people earning 200k per annum with say 3-5 properties in wellington.
  • Geoffrey Roberts
    commented 2016-12-08 12:41:45 +1300
    Really well articulated explanation of an excellent policy and great to see the online ads for this too.
  • Julian Witt
    commented 2016-12-08 07:01:45 +1300
    A great start to address equality. I have had this conversation a number of times with colleagues in our lunch room – lets get capital into productive assets and not skew our investment towards houses!
  • Oliver Krollmann
    followed this page 2016-12-07 22:47:32 +1300
  • Matt Walkington
    commented 2016-12-07 20:30:32 +1300
    Question: are all financial assets (deposits, bonds, shares, etc.) income taxed fairly at present? Or is there reform needed here too?
  • Matt Walkington
    followed this page 2016-12-07 20:30:26 +1300