Cactus Kate highlights the problem pay the bill has as MoF.
“Bill English has absolutely no right to talk about Trusts with any authority ever again. He set the Endeavour Trust up with the purpose of using it as a vehicle for not only home ownership but rorting the taxpayer of their subsidy on housing. This is beyond what English says he is now targetting – the age old fair practice of using companies or trust to lower the top personal tax rate from the high thirties to the low thirties. Still too bloody high.”
The last bit confirms that Kate hasn’t joined the enlightened side of politics and shows that pay the bill is being written off as a credible figure by the right as well as the left.
I do however want to warn against the idea that government can just hike up the tax rate in order to cover the budget. It doesn’t work.
When I was first an MP the Nats left us a legacy of a 66% top tax rate. Anyone with brains could work out that money invested with an accountant or tax lawyer resulted in a better return than investing it in productive activity.
And when GST was introduced and all rates dropped – including the top rate coming down to 33% – income tax revenue increased. Partly because a pile of exemptions and legal rorts were removed, partly because some people who had never had a relationship with the tax system became registered for GST and therefore paid income tax as well and partly because it was better to get on with earning money and cop the tax rather than spending valuable time energy and money trying to avoid it.
And when GST was introduced and all rates dropped – including the top rate coming down to 33% – income tax revenue increased
So why then, did you increase the top rate again? A move which apparently generated little in the way of extra income other than for accountants?
I can understand private citizens using trusts, but he was doing it to collect tax payer money when he’s already raking it in.
Mr Mallard, since you seem so obsessed with Mr English’s trust arrangements, perhaps you could ask your colleagues, including Mr Cunliffe, to disclose theirs?
I’ve made it pretty clear that I support transparency of trust arrangements for all MPs. Currently they are being used by a number of people including the PM to negate the Declaration of Pecuniary Interests.
I think that’s a pretty bold statement Mr Mallard, since the history of MPs having trusts predates the declaration of pecuniary interests by many decades. Perhaps you could enlighten readers just what Labour did when it was in Government to promote a more transparent pecuniary interest regime ? balance deleted personal Trevor
Trevor, you’re not an advocate of the Laffer curve concept are you? I thought that was ACT party territory, the idea that tax revenue could be increased by a reduction in tax rates.
Tell me why investing in Kiwisaver incurs such high taxes. If I invest in overseas shares, there is no capital gains tax, and the wealth tax (very low %, btw) doesn’t kick in until $50,000 (each). If my wife and I had less than $100,000, it would be untaxed. I could give my kids up to $50,000 each and that would be untaxed until it went over $50,000.
When I signed up for Kiwisaver, I was informed that the tax rate was 30%.
Why?
If I am in the growth fund, most of my investment is in shares. Why does one get taxed on it so high when the same investments done individually outside Kiwisaver are virtually tax-free?
To give an example of why this is important:
$1040 invested in Kiwisaver + $1040 tax credit = $2080
invested in a fund that performs at 10% per year
versus
$1040 invested in a share that performs at the historic average for the sharemarket: 10%
I am 40 years old, ergo the investment is for 25 years.
The Kiwisaver results in savings of $11,289
The private investment results in savings of $11268
Exact same return, yet due to the taxes, the private return is almost identical.
If the $2080 were not taxed at 30%, the savings would be $22,536.
Over 30 years, not taxing Kiwisaver would result in $225,000 savings for someone who put in the $1040 minimum and got a 10% return each year. Taxed at 30%, one ends up with $141,000.
And once you factor in the fees of $30-50 per year, the private return is even better. Not to mention the fact that when you invest privately, you know exactly what you are investing in, whereas with Kiwisaver it is all a big mystery. I asked one provider if they could reveal their top 10 investments, like US mutual funds routinely do, btw, and they said no, it’s a trade secret. The way they invest *our* money is a trade secret.
The lack of choice prevents people from getting really good returns. One share I invest in in the States went up 70% since July. My Kiwisaver went up less than 10% during that time–and that was in the growth fund. We want people in New Zealand to have a higher net worth, and overseas investments help that happen. They can then bring that money home and buy things here. That helps the NZ economy.
Kiwisaver is about saving for the future, right? When people retire there is supposed to be a big benefit. Unfortunately, as shown above, the government claws back returns such that the initial tax credit means nothing. You think you are getting “free” money, but the freedom ends right there.
@ Shane no – but I am aware this stuff is not simple and there can be unintended consequences of tax increases.
@ Tim Labour government introduced and promoted the Pecuniary Interest declaration for members. Not perfect but mainly because many Nact members have (re)arranged their personal finances into trusts.
Tim if you want to list Labour members who have trusts do it on Kiwiblog or blowhole. I have made it clear that I think all trusts that members have either pecunuiary or beneficial interests in (including discretionary beneficial interests in) should be transparent. This applies to all members we don’t need a list. Trevor
Yes Mr Mallard I figured you would delete my comment as it adds balance to your comments on Mr Key and Mr English’s financial arrangements. This balance is obviously inconvenient to your view.
…is being written off as a credible figure by the right…
Since when has Cactus been a representative of the broader-right? She’s a female version of that hateful little man Redbaiter, albeit with a more intelligent wit and (personal speculation follows) much easier on the eye.
If you really really belive that these people represent the bulk of your political opponents, you’re destined to spend more than a decade in opposition.
If you really really belive that these people represent the bulk of your political opponents, you’re destined to spend more than a decade in opposition.
Hear, hear. My friends (certainly my wife’s friends) probably class me as fairly right-wing. Yet the main reason I read this blog is to find reasons to prefer Labour over the alternatives. I find the reverse in all the “the nats are all self-serving troughers behind a giant conspiracy to destory the country” rhetoric.
For the most part, your political opponents, like most of even the more lunatic fringes of the left, actually want the best for the country and are striving to get there (although their methods clearly are not yours). If you considered this prior to every pronouncement, you’d get me at least reading much of what you have to say. (by “you” I mean all writers of this blog, not just Trevor – it might have saved Chris C some recent embarrassment for example).
Back to the issues guys – either on the tax issue, on whether it is appropriate for Bill to keep on costing the taxpayer money by pretending to live in Dipton, and whether pay it back bill should do just that for the hundreds of thousands he has received as a result of declarations over the years that he lived in Dipton.
or for that matter just from 1999 to date would be good. Still hundreds of thousands.
Hi Trevor.
How do you reconcile your attitude towards tax, which I will interpret as a derisory rejection of keynesian economic principles, and the continued embrace of third-way neoliberalism by the Labour Party given the latest MSD Social Report which shows that New Zealand is still in the top 5 of most unequal countries in the OECD, and suffers from little, if any change in statistics such as child poverty and income inequality since Labour took office in 1999?
cheers
Piggy – there was substantial change in child poverty through working for families for example where hundreds of thousands of families were lifted over the poverty line.
Am I’m certainly not anti keynsian – probably one of the biggest proponents of substantial counter cyclical expenditure in parliament.
But I also know that if you go to the Muldoon extreme on tax rates people spend time energy and money avoiding paying the tax rather than maximising their income through making investment in productive assets, employing others and developing their skills.
Trevour I am worried re a comment of yours “through working for families for example where hundreds of thousands of families were lifted over the poverty line.” Perhaps you should visit The Standard and a topic “Everyone is doing it”. I am worried that you are overstating the number of families that WFF assisted OVER the poverty line. Or is NZ more 3rd world during the early 2000′s than I realised !!
I quote from the report:
“In 2008, 20 per cent of dependent children were in households with incomes below the 60 per cent threshold”
“The most recent OECD comparison (from 2004) gives New Zealand a score of 34, indicating higher inequality than the OECD median of 31 and a ranking of 23rd equal out of 30 countries”
Working for Families was good, yes, and the government ought to be congratulated for that, but let’s not get ahead of ourselves – it was Nixon or Ford who introduced a similar scheme in the States over 30 years ago.
I mean, really, after nine years of Labour government, a party which is meant to look out for the interests of the needy, not the wealthy, it is the rich who have got richer and the poor who have got poorer with negligible, if any gains in statistics that matter like income inequality. If rogernomics doesn’t reduce inequality, and pretending not to enact rogernomics style policy but actually doing so in practice (the Third Way, or ‘Social Democracy’) why not go back to what we know worked, i.e the economic system and welfare state New Zealand and the rest of the developed world enjoyed where, as opposed to the past 20 years, we saw decreases in inequality and wealth being gained by all sections of productive society, not merely those at the very top, as opposed to talking center left and acting center right?
Piggy or anyone else out there, What is a reasonable/substainable/legimate disposable income for a family?
WFF I believe gave assistance (Tax cut) to many families that did not require assistance from the govt (Refer 9700 families receiving WFF who have used offsetting rental losses to become eligible to claim WFF) and still no mention from Nats/Lab to close this loophole. That is $5m p.a. cost for each family (Based on $10.week benefit) who don’t need this !!!
Before the revisionists get too carried away:
1. Working for Families was introduced in late 2004 so OECD data from 2004 is of academic use only.
2. Is that MSD report the same MSD report quoted by Brian Fallow of the NZ Herald in August, as follows:
“There is a tendency among businesspeople to look back at the 1990s as a golden age of economic progress, which was then squandered in the present decade by a Labour Government more interested in redistributing wealth than creating it.
That is a viewpoint more plausible to people in the top income decile than those on low or middling incomes.
A report released last month by Bryan Perry of the Ministry of Social Development on trends in indicators of inequality and hardship reminds us that it was not until 2001 that real household disposable incomes at the median got back above where they had been in 1988.
The four lowest deciles lost ground over that period.
All in all, not much to show for 13 years of upheaval and hard graft.
By contrast between 2001 and 2008 the real median household income rose 21 per cent.
From 2004 to 2008 incomes for the lowest four deciles grew between 13 and 17 per cent, compared with 8 or 9 per cent for those above the median. It is the only period in the past 25 years when the incomes of low to middle income households have grown faster than those above the median, the report notes, and it reflects the impact of the Working for Families package.”
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10588868
The newest 2009 UNDP report (http://hdr.undp.org/en/reports/global/hdr2009/) shows that we’ve gotten even worse in terms of global rankings since that OECD one in 2004…we’re now the 6th most unequal nation, but we’ve been overtaken by Ireland and the UK during that time, and now rank evenly with Israel and Portugal..
There are certainly alot of +ve data in all this, on the surface at least. We need to go deeper into many of these numbers re increasing of income, did not the number of hours worked per person within the workforce go up, and arfe we not 2nd to Japan for working hours per person?
Increasing min wage did more and was better targeted than WFF. Where Labours 2nd tax cut included within this data. Any one can spout out headline nos (Even Trevor does this “through working for families for example where hundreds of thousands of families were lifted over the poverty line.”) But where is the real analysis, and how truthful are these statements. If I remember correctly under Labour TVNZ reduced their news and current affairs staffing numbers, papers give scant notice to anything in depth.
2001-2008 21% rise in income. Sounds like a lot, but that is less than 3% per year compounded.
If you compare that with inflation over the same period (20%), you find that there was really no increase in overall buying power at all. Only 1% better than inflation over 7 years.
Comparing one important industry, university academics, with Australia, NZ lags far behind in salaries even with the improvements the Labour government made. And on top of that, in Australia their version of Kiwisaver provides academics with a contribution of 17% of their income. You’ll be able to live on that in retirement–and they don’t make you salary sacrifice to get it, either. No university offers anywhere near that here.
“The employer contribution rate is 17 % of a member’s gross salary.”
http://www.hr.unimelb.edu.au/benefits/superannuation
National’s cuts this year were bad and put negative pressure on universities, but this is a long-term trend:
http://www.universityworldnews.com/article.php?story=2008052914493791
@Andrew Straw way up the top there.
I think you have the wrong end of the stick with Kiwisaver (or maybe I’m wrong).
As far as I’m aware, part of the reason for the PIE rules was because under the old system, when a taxpayer invested in shares via an investment vehicle, it resulted in being taxed on increases in share value (because the investment vehicle was in the business of buying and selling shares).
Investments in PIEs (as far as I’m aware) are NOT taxed on increase in value of NZ/Australian shares – only on interest & dividends – thus bringing them into line with how you would be taxed if you bought the shares direct instead of putting the money in an investment vehicle.
Andrew – am assuming Brian Fallow means over and above inflation, as he describes it as “real” median household income.
Herodotus also makes a good point about the impact of the minimum wage, and how important it was to reinforce that absolutely basic protection. It can make you weep to read of the circumstances of some workers, mostly female cleaners working the graveyard shifts, who are paid a pittance and don’t have much in the way of security of tenure either.
If I invested in overseas shares, the likely result is that I would eventually (don’t have enough saved now) would be taxed on an imputed 5%. I don’t get taxed 5%, I get taxed *on* the 5%. So if I were in the 38% tax bracket, which I am not, and paid tax on 5%, I’d pay a wealth tax of 1.9%.
http://www.goodreturns.co.nz/article/976492057/how-the-fair-dividend-rate-would-work.html
($50,000 threshold)
http://www.ird.govt.nz/toii/fif/how-taxed/how-tax-threshold/
If my money were in a property in NZ, there is no tax at all on the investment, but lots of deductions for expenses, interest, etc. It is completely unfair and unreasonable to encourage people to invest in housing, but then tax people when they invest in shares. Shares translate into capital for a company somewhere, and they are the ones who hire people.
If anything, the opposite tax situation should be true, because slapping a capital gains tax on housing would drive down prices and make housing more affordable.
There’s a policy Labour should pursue! Cap gains on realised real estate gains, and zero tax on shares. Cheaper housing, more revenue, and more employment!
My Kiwisaver provider, Westpac, says:
“If your scheme is a widely-held superannuation fund then your investment earnings will be taxed at 30%.”
There are two options for fixing that system. Scrap Kiwisaver and just give people annual tax refunds in the amount of $1040 so they can invest on their own. The tax system already favors the individual investor over Kiwisavers.
Or, reform Kiwisaver so that the earnings are not taxed and people are allowed to make their own investment choices like Americans and Australians can. Open the floodgates to mutual funds offered by overseas companies, so Kiwis have more ways to diversify if they don’t want to decide every little investment. Only funds that provide a generous level of transparency to the customer should be allowed to participate.