Tax will be a big issue this year

They say that there is nothing as certain as death and taxes. They also say that a political party that bases its election campaign around increasing, or introducing new taxes is destined for the opposition benches. As the current government is intending to do precisely that with the introduction of a capital gains tax, we will see how true that saying turns out to be. The taxation system in this country is already unfair and the introduction of some of Michael Cullen’s proposed new taxes will not make the tax system fairer. It will just mean that the same people pay more tax than ever. Peter Williams commented on this just before Christmas. quote.

Last year $77.5b was collected in taxes. Individuals paid $35b in income tax, together we paid $20.5b in GST and companies chipped in $13b.
There was just under $7b from customs, excise and road user charges, and over $2b taken from tax on bank interest and company dividends.
So it’s pretty darn hard to do anything these days without being taxed.
What’s more, according to figures from last year, 48 per cent of that income tax is paid by just 11 per cent of taxpayers, those earning more than $90,000 a year.


Yet 82 per cent of taxpayers, earning up to $70,000 a year, pay less than 40 per cent of the total income tax take.


When you consider that many of those earning up to $70,000 get tax credits and accommodation supplements, about one in four households pays no net income tax at all.

Peter Williams

Our income tax regime takes from the high earners and gives to the low earners. That’s what a compassionate and generous society does.
But according to this Government, our tax system isn’t fair.

Therefore we need to be taxed in different ways. The Tax Working Group (TWG), chaired by Sir Michael Cullen, is determined to introduce a Capital Gains Tax (CGT). end quote.

It is Cullen’s intention that CGT will be legislated before the next election, but effective after the election. In other words, assuming National campaigns successfully on getting rid of the tax, they will have to repeal the legislation. Not impossible, of course, but this is dishonesty on the part of a government that promised no new taxes unless mandated by a successful election. No surprises there. quote.

The final report of the TWG is due late next month. But it’s patently obvious they want to tax your assets either when you sell them, or as those assets increase in value over time.

It could be said with some certainty that if a CGT is passed into law before the next election, that election will be about CGT and not much else.

The major problem though is that most of your assets either won’t be taxed, or already are. The family home accounts for about 42 per cent of the average family’s net wealth. No government has the political courage to tax the increases in value of your house. The family home will not be taxed.
Another 14 per cent of household wealth is in fixed interest investments like bank deposits. They’re already taxed. end quote.

Because of exemptions, such as the family home, CGT collected little revenue for about 15 years after its introduction in Australia. You can expect a similar outcome here. Markets always react to change, and the property market will react initially, probably pushing prices downwards. It may not only be the property market either. quote.

There’s our KiwiSaver accounts. But for the Government to even consider touching them for more tax would be outrageous. The money both we and our employer pay into KiwiSaver has already been taxed.


What could be taxed then? It looks like investment property, holiday homes and New Zealand shares held directly by individuals in either listed or private companies.


Put a tax on rental property and the outcome will be higher rents.
Put a tax on individuals’ share trading gains and investors will bail out to managed funds where the tax rates are lower. That will hurt the New Zealand sharemarket with serious implications for New Zealand business. end quote. end quote.

The NZX is already a small market, with few IPOs on offer these days. Many large companies now look to dual list with the ASX, or even delist on the NZX all together. Capital gains tax could do a lot of damage to our vulnerable share market; a consequence that I doubt has been properly considered.quote.

Tax the capital gain on the sale of a private business and you take away the incentive to invest and grow the business. Tax the increase in value of a business each year and business owners won’t have much incentive to grow the company, let alone the cash flow to pay the tax. end quote.

Ah yes. Cullen’s much favoured tax on unrealised gains. We already have this on overseas investments (introduced, funnily enough, when Cullen was the Minister of Finance) so he might as well finish the job and tax all unrealised business gains. This is his intention.quote.

The TWG says whatever it comes up with, it must be fiscally neutral. In other words, the total tax take must be no higher than what it is now.
But is there any mention of personal income cuts in the TWG reports so far?

Nope.

Has a Labour government ever dropped income taxes? Well, they did in the 1980s, but that was a Labour government like no other, and certainly not like this one.


Is there any suggestion GST will be lowered? The TWG says that won’t happen.


Will company tax drop? The first TWG first report said that won’t happen either.


It doesn’t sound very fiscally neutral so far.


You see where this is heading?


Nowhere. end quote.

Of course it is not going to be fiscally neutral. Labour likes to tax the hell out of people and then spend it all on social programmes that don’t work. It is classic Labour ideology, and Michael Cullen has operated on this agenda for decades. Remember his comment about ‘rich pricks’ which was aimed squarely at John Key? It is the politics of envy, pure and simple.

In the 2014 election campaign, John Key made short work of David Cunliffe when he pointed out that capital gains tax would be levied on holiday homes, a property that has passed to a taxpayer on death, and probably also on property owned by trusts. It destroyed Labour’s chances of re-election that year but Labour ideology is strong. Michael Cullen will not rest until he has implemented a capital gains tax, capital transfer tax and wealth tax in some form. That will show the ‘rich pricks’, won’t it?

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