The current tax regime favours owners of capital and unjustly burdens wage earners. This is not only inequitable, it results in poor utilisation of capital and lower than necessary income and employment.
Nowhere is this more obvious than in the property sector, where speculators and home-owners benefit while those that are renting are punished. It is unfair, pushes up house prices and drives even greater inequality. Ultimately, it is in everyone’s interest that we address the loophole in the tax regime.
Our proposed reform will not collect even one additional dollar in tax – we want to change what is taxed, not the amount of tax collected. Any increase in revenue will be used to reduce income tax rates.
Under the reform we propose, around 80% of the public will be better off, the 20% that aren’t can well “afford” it.
The current system encourages borrowing and speculating on land values. This comes at the expense of investment in our productive businesses, which are held back by a lack of investment.
All productive assets – and that includes the house that provides you with your accommodation each year – are or can produce income each and every year. All income should be taxed, whether it is in cash or in kind. By only taxing the cash income from assets, Establishment parties have hurt many people, and in effect given a handout to property owners.
Not only will plugging this leak in the tax regime make tax fairer and boost economic growth it will over time improve housing affordability, by erasing the reason for property speculation.
At TOP, we acknowledge that all productive assets generate income (either in cash or kind) and by deeming that they produce
a minimum level of assessable income, such capital will be deployed in the most efficient manner. This is critical for maximising jobs and incomes. Those that already declare at least that level of income will be unaffected. Those that don’t, will pay more.
Plugging the hole in our tax regime will be done gradually to ensure house prices remain stable while incomes grow. We acknowledge this is a cultural change and some people will struggle to separate their own self-interest from the matter of what’s fair and reasonable. However we believe that a well-informed public is astutely rational. While the property-owning group is a big one, the implications of an ever-rising property to income ratio is that future generations will struggle to rent let alone own, businesses will be starved of the investment capital they need to grow and create jobs, our reliance on foreign debt will keep rising and inequality will get worse.
That is unacceptable to fair and rational-minded New Zealanders. Given only 20% of New Zealanders would bear the burden of this change – and we are the most able to afford it – it’s a small cost to improve the lives of many.