Interesting piece in the Dom front page today about the tax avoidance around trusts – but mostly interesting for what it does not say.
The National government has spent much of the last year cutting “low quality” services like home help for frail elderly because of the supposed fiscal crunch.
Tomorrow they will announce billion dollar plus tax cuts, overwhelmingly benefitting the wealthy few, while the many just tread water in the face of rising GST, rent, power and food costs.
They lamely justify the top end tax cut as either a growth stimulant (which is nonsense – much more stimulus results from good investments or tax cuts at lower income bands)…
…or a way or retaining talent (branding Kiwis as “envious” is rubbish, as not all talented people are wealthy and NZ already has the third lowest taxes in the OECD! Our real need is to lift wages and sustainably grow the economy)….
….or a way of stopping the $300 m tax fiddle arising from the abuse of Trusts. Ironically the way they plan to do that is by giving all top rate earners the same rate as if they too werre fiddling. (Of course, without sin there would be no sinners)….
But here’s the real rub: even that trust tax avoidance is puny compared with the writeoffs around loss attributing companies (LAQCs) – $2.3 billion in 2008 alone. Plus a $500m writeoff around rental property losses. Plus more around the abuse of savings vehicle (portfolio investment entities – PIEs).
Not to mention the wider issue of the income/capital boundary and the incentives created to hock off small companies too soon, taking the tax free proceeds to buy the bach and the BMW rather than to grow the business.
Does this government have the nerve to address these issues, which have spiralled out of control since the election? Or will it just continue to take home help off oldies and special ed services off crippled kids? Will it penny pinch on night classes while boosting private schools?
Will it stop the rorts? Is it capable of governing for the many not the few?
Increasingly, Kiwis are coming around to the view that it cannot, but Labour can and will.
Have to laugh at the “does this government have the nerve to address these issues, which have spiralled out of control since the election?” comment.
I don’t want to use the phrase ‘nine long years’, but you are joking, right?
They boost funding to private schools, yet take away Training Incentive Allowance. Does anyone know how hard it is to study when you can only afford 1 day childcare? Try doing as much of the 20+ hours of study a week within 8 hrs? TIA paid for childcare. I believe that me working and studying will show my children work ethics and teach them to go for anything they want.
Why cant money go back into these type of schemes? No one is going to get a student loan that isn’t really serious at giving study a go and we do get student loans anyway, its just the help with childcare that is needed. If your child is under 3 you don’t get the 20hrs. As soon as one of your children no longer has a sleep during the day, it makes it hard. Even writing this post I’ve had to stop 3 times.
Okay I’m close to burn out hence my whining comments. Have 3 assignments due, have online class work and have pulled late nights the last few nights.
GST is going to hurt. If my rent increases due to the changes in the tax system, its going to hurt. I know some people who are having to move as the house they are living in is getting sold, because of the tax changes. Home help for the elderly? What is going on?
Yes running a country is about money management but it is also about people. Has NZ forgotten that?
Will it stop the rorts? Is it capable of governing for the many not the few?
No, and no.
“Increasingly, Kiwis are coming around to the view that it cannot, but Labour can and will.”
Where do you get that info? I cant see it reflected in the poll results.
The ‘rorts’ have always been there, this is not a new phenomenon and you had a long time to fix them.
So I take it everyone in Labour will be getting rid of their trust funds?
Thought not.
When you are advised by a financial consultant to set up a trust because the tax rate is lower and it is perfectly leagal to do so, is that person encouraging you to rort the sustem or are they giving you good fiscal advice?
LAQCs do not allow tax “rorts” any more than individual ownership of assets does. You need to get on top of this David if you want to be MoF.
Macdoctor is being fatuous. The ‘trust’ rorts he knows quite well, as self employed doctors would use them, are used for running a business, not for holding an asset, as allmost all Labours are. Being paid salary , with paye taken at source would mean using a trust in this way wouldnt work. The rort involves the ‘owner’ being employed by the trust at paid a nominal amount but the trust then spends on bachs ,holidays vehicles, school fees and so on
I thought MacDoctor made a good point and I hope some one has the back bone to answer his question.
I understand the property “loophole” will be addressed tomorrow?
You can only do so much by legislation. People who think its ok to have a trust will justify it and rationalise it every which way, irregardless of the true reason, to pay less tax.
indiana, fair comment, I guess it comes down to individual ethics and the need to make certain aspects illegal. When left to themselves the trust people couldnt be relied upon to do “the right thing”, so now we need to regulate.
My mother-in-law set up a trust for her physically and mentally disabled son. Wen she died house proceeds etc went in there to ensure his long term care. THAT is what Trusts are for, not for developers and others to shelter their income and assets behind when their decision-making goes sour or is found liable at law.
What a complete load of bollocks. You want to know why, YOUR GOVERNMENT INTRODUCED THE PIE FRAMEWORK YOU [deleted, abuse - admin].
Not only that you deliberately set the tax rate on a PIE investment below the tax rate a taxpayer would pay if they invested directly. The point of this policy was apparently to encourage investment. I do know that banks were stoked when this policy was released, it gives them an instant advantage when getting capital.
You cant then take a deliberate policy and complain about it. Just like you cannot complain about trusts after not doing anything about them for 9 years. I means seriously, it doesn’t take a brain scientist to work out what people have been doing since ever. The reason you didnt is because a large portion that use them are seen as swing voters.
The same as LAQC’s (which have a legitimate use of allowing losses from investments to be offset against ones income). Again the problem is they have been abused to gain large depreciation claims from rental properties. Again however this is hardly something new.
Maybe if you had set about fixing the taxation system, instead of systematically breaking it (working for the families – should of used a tax free threshold for low income – much more efficent, increased trustee rate to match top income rate (only people this would negatively effect is those abusing the trusts as you can distribute as beneficiary income – although this does cause prov tax issues but you can get around that).
All these things. Not new. But Labour were to busy in their last term passing crap legislation like the EFB, and that Labour all still sit on the front benches.
Up till the last election I had never voted anyone other than Labour, but I can guarantee there is zero chance you are getting it next election with crap like this.
David: “Does this government have the nerve to address these issues, which have spiralled out of control since the election?”
Are you seriously saying that these rorts just suddenly turned up AFTER 2008?
These rorts have been widely known and widely used ever since you (Labour) brought the new in top rate of tax of 39c in the dollar in 1999 & yet you did nothing to address them.
At least National is doing something. No moral high ground for you here Phil.
Well Ghost, I hope MacDoctor learnt medicine from a better school than he learnt finance from.
Simon said:
Think about it for a second. So what? You’re asking Labour to go back in time to change its behaviour, is that it?
What I’m really interested in from Labour – and all you should be interested in – is what they are going to do when they are ***next*** in power, not a backwards could’ve/should’ve/would’ve retrospective for the last decade.
Rebecca said:
Even if its the wrong thing? Like helping the most wealthy benefit AS IF they are all participating in the rort. Hmmmmm how illogical.
As I suggested to Simon, Labour doesn’t need a backwards retrospective, all I need from them is commitments as to what they ARE going to do, not more would’ve/should’ve/could’ve analysis.
Well Loota if you’re gonna take away the incentive to have a Trust Haven, you have to compensate them (Ia min this income bracket – ) and make up for it in a hefty tax cut.
Loota – I agree. That is exactly what I am here for.
I guess the reason why some of us get so antsy about posts like this from Labour is that they write them in a way that fails to recognise that they are in fact solely responsible for creating a system that played into the hands of the would-be rorters.
The man from Pricewaterhouse Coopers sums it up perfectly:
“People aren’t stupid. The shockingly poorly designed tax package of 2000 has caused all sorts of things to happen.”
Makes one hard to take anything Labour says seriously given this and the fact that they have yet to announce anything that shows they would take our tax system in a different direction – other than perhaps raising the income threshold for the top tax rate. Like their anti GST increase (ironic seeing as it was the Labour party that introduced it then increased it!), it just seems so hypocritical….
I am not sure I have the patience to wait for their big announcements next year…
I was texting with my brother this morning, he is a National or Act man… leaving out the colourful langugae he used, he said he cant wait to be disappointed by the lack of imagination in tomorrow’s budget and he doesn’t know who is left to vote for next time because he said all politicans speak with forked tongue…
I must say I feel the same way, often. WHO do we vote for, when we can pretty easily jot down the parties we dont want, is that how voting was meant to work?
P.s HOW does reducing the top tax rate help the wealthy considering that a good proportion of them are not even paying it in the first place?
Perhaps I am a little slow, but this argument seems to lack logic…
I would suggest that it is actually helping those of us who do pay what we aught and are finding that high taxes on top of high everything else is starting to erode our ability to build a life of financial security.
In terms of predictions I think that they will reduce the other tax rates as well – like I have said before, charging 21c on $14k & 33c on $48k is just criminal. If they do this I would imagine this could in part be funded by the increased revenue resultant from bringing some of the rorters into line.
There seems to have been a lot of strategy in the mix where NACT are concerned – it wouldn’t surprise me if they have been baiting Labour so that they could blow them out of the water tomorrow.
But that is probably wishful thinking as it takes a brave government to make very radical changes.
Well GST was introcued in 1989 Rebecca, surely we would expect our politicians to have learned/moved/changed from 1989? Good god if they hadnt we would have had rogernomics for the last 9 years!
What we seem to have is pecisely that. a govt rolling back the clock 20 years and giving us those “ideas”.
We’re in trouble.
Loota, as Rebecca mentioned above: “Are you seriously saying that these rorts just suddenly turned up AFTER 2008?”
“P.s HOW does reducing the top tax rate help the wealthy considering that a good proportion of them are not even paying it in the first place?”
I suspect most in the top bracket ARE paying the top rate. BUT the top 100 of that bracket earn a shitload more than everyone else in their bracket, and if they dont pay…
Tracey – wasn’t it introduced in 1986 at 10% then increased in 1989 to 12.5%? I could be wrong….it’s been a long time since I studied domestic politics!
Re learning from the past – I think that’s the problem, I don’t think ANY of them have including the fresh faces that seem to express the same rhetoric as those who have been around for 20 years.
Aaah I fear your brother is right – tomorrow will no doubt unveil a very unimaginative & uninspiring Budget.
After that – might go live in Australia. I quite like ole Ruddy. For a left he seems very radical – slashed spending in the public service even!
I stand corrected @ 1986, makes my comment more pertinent
Untrue defamatory into moderation Trevor
Loota you cannot guage a politician or the party by what they say, we have only their past actions to be able to judge and in the subject or tax rorts pitful….. That is why there is so much spin applied to distance the lack of effort applied. At least in sport we know if the All White, All Blacks have done well, there is a scoreboard.
I like Jeff R are heavily frustrated with Lab, now we see all this hype on what Nat is doing. At least they are commencing work on this continual protection of the wealthy, which LAb also fostered. And I try to avoid the “You had 9 years syndrome. In this case I think it is pretty valid.
sorry trevor for not being a yes man like the rest of forum participants
Rebecca said:
Trevor Mallard has already admitted to us that the differential introduced with the top tax rate was a mistake. I rather think that counts as learning, eh?
And, you’re not picking up on the fact that NACT is compounding the error but putting ***everyone*** on the rort rate now, a move designed to benefit those on >$150k p.a. the most.
Usual Tory behaviour, advantage the rich, make life harder for those who can most ill afford it.
SIMON: look at the road forwards, not at the would’ve/could’ve/should’ves in life eh?
Apologies all, there is much to respond to – a busy day has kept me way from the computer:
@Fred Smith, @Rebecca & @ Simon – As one example, the LAQC explosion is a relatively recent thing – total LAQC tax losses from residential investments balooned from $105m in 2003 to $812m in 2008. In other words the idea may have been OK but they have been abused. time to fix that. (And by the way labour is looking to the future not the past).
@Chris – tracking polls. Believe me they are real.
@JeffR – PIEs are a bit like LAQCs – the abuse has mushroomed over time. The idea was ok – provide a vehicle that would facilitate Kiwisaver schemes. But it has been used much more widely and now constitutes a policy problem. What would you have us do – ignore current reality because in the dim dark ages of a former administration someone thought the idea was worth trying? Surely good government needs to be learning government. We are pragmatic – if it isn’t working, change it.
@ Tracey – it is very unlikely that all loopholes will be fixed tomorrow. If they are I will be the first to congratulate Bill English. And yes (per your brother) the lack of imagination from National since getting elected is breathtaking. Answer to him – look afresh at the new Labour.
@Rebecca – many top earners still do pay the top marginal rate, otherwise where doyou think all the pressure on the Government is coming from?
@Loota: yes, at the end of the day, this will be an old fashioned tory budget: tax cuts at the top and crumbs elsewhere. Key may prove to be like Holyoake, smiling and waving but not shifting the fundamentals.
As they say at McDonalds: “For a limited time”.
Thank you Loota. Y’know I watched General debates today on Parliament TV and hoped that once, just once,the National benches could actually contribute without blaming Labour with the “9 long years” mantra. One even went as far as saying he would not talk of the past because there was so much positive things to say that National had done and immediately went into a usual diatribe against Labour.I was hoping for reasons to be cheerful about the Budget,(which I actually suspected there wouldn’t be) but nothing.Absolutely pointless contribution from the Nats.All they seem to do is put Labour down.I am now using the mute button as soon as one of them starts against Labour and I find it more informative.
Would be good if their supporters could contribute as well, instead of just rubbishing Labour.
Are we allowing the financial houses and scamster developers to ride off into the sunset with our legacy of savings. Fiduciary responsibility for the affected people nationwide that have lost $NZ 6,231.3 million dollars to finance house collapses coupled with receivership’s and shonkster leaky homes bailouts.
Come on Labour …. please make the people that made this occur accountable , otherwise its all rhetoric. The figures don’t lie , the facts remain.
All the upbeat words in the world arent a lot of use to the tens of thousands of ordinary kiwis paying for this abandonment by the Governments and politicians .
Accountability for the openness of fair play and fair dealing we all expect but isn’t forthcoming.
Bailing out of fiduciary responsibility is the cause of this .
Stop it , you are elected by us amd act for us. Act for your constituants, dont discuss.
Demand action. My great great grand-kids deserve better futures than this.
http://www.interest.co.nz/deepfreeze.asp
Click and learn …… please
David Cunliff: “many top earners still do pay the top marginal rate, otherwise where doyou think all the pressure on the Government is coming from?”
Recent reports state they are in fact NOT paying this rate.
I would argue that the pressure is coming from those of us in the top bracket that have been carrying the can for Labour’s rich mates over the past 10 years…..
Sofie, I reckon the NACTs are trying to play it safe at the moment.
The reason being that they don’t quite know why they are still so far ahead in the polls, but are anxious they don’t jinx it by say, breathing too hard.
Once Labour cracks the 40% mark its all over for the Blue team. Because they don’t know what they are doing right, they won’t know which way is up once the halo disappears.
Rebecca, as you know, anyone on an income of $80,000 pays very very little extra tax because of the jump from 33% to 38% on their last $10K earned.
Which comes to around $40/month.
Not worth crying over is it?
By the way, i think the PM’s investment banking Merill Lynch and Goldman Sachs mates will be somewhat richer than Labour’s “rich mates”, don’t you reckon?
@Brian: Action you will get. But you need a labour government to do it.
@Rebecca: With respect the idea that no rich people are on the top tax rate is silly. IRD advised the TWG that 50% of the top 100 earners were, and the indications are the bigger the fish the better the lawyer, so go a few steps down the wealth scale and the proportion rises. The comment about “Labour’s rich mates” is surely a joke.
@Loota: Its not really public yet but National is currently bleeding support on both sides – the right wing is decamping for ACT (hence the Tuhoe double-cross) and the centrist liberals are resenting the accumulated cuts. There is movement on. It will take a while to ferment.
“..The comment about “Labour’s rich mates” is surely a joke..”
“Rebecca I agree that opening the gap up between trust and the top marginal rate was a mistake and created the loophole through which hundreds of millions have been lost.”
“In other words the idea may have been OK but they have been abused. time to fix that..”
“PIEs are a bit like LAQCs – the abuse has mushroomed over time. The idea was ok”
David so was Lab poorly advised by officials? how come there was no vision as to the consequences from these policies. Lab had some very experinced politicians. And when these short commings were evident many years ago there was no comment or action to correct this issue. Not until you lose an electon does an issue like this get reassessed.
There are some who could conclude that Lab did look after the rich by the lack of action to correct the ship. i.e. Taking votes from the poor but allowing the rich to profit from your measures. But that is what some could conclude.
I’d like to know if the people that abused and mushroomed the legal rules created by Labour such as LAQC’s, where they Labour voters? If they were, is Labour now ready to turn on them and “fix” things so that all the advantages that were created for them are to be washed away? David when you say that Labour is looking to the future, I’m afraid that as an “ordinary kiwi”, I have to look at Labour’s past behaviours to judge what your future behaviours are likely to be. Unless there is major change to the make up of Labour, I can’t but help feel that things are not likely to change that much even with all the rhetoric being blogged here.
David – again, LAQCs allow no more tax advantages on rental property than owning it in your own name. None.
Claiming depreciation has nothing to do with tax.
@Herodotus _ I know your comments to be thoughful and useful contributions. You are asking tough and searching questions.
I know that the heart of the last Labour administration was in the right place. It fought over a decade for the betterment of all Kiwis and the stats (from life expectancy to socialinclusion to declininng inequality) reflected that.
But yes we were poorly advised on occasions. And I will go on record as saying the LAQC rules that allow company losses to be set off against personal income are too broad and need to be tightened. That is now obvious in a way that it was not 3 or 5 years ago.
@Indiana. The process of renewal within labour is deep and broad, at all levels of the party and the caucus. We don’t pretend everything the last government did was perfect – no government is. But we are determined to lead New Zealand forward, to offer real alternatives and strategic change. If you don’t yet believe that, just watch us.
@A Mother – Goodluck with your assignments it’s a tough part of the semester
I’m not weighing into this fight, looks draining.
@Herodotus- “There are some who could conclude that Lab did look after the rich by the lack of action to correct the ship. i.e. Taking votes from the poor but allowing the rich to profit from your measures. But that is what some could conclude” Nice comment Herodotus- I have sadly come to that conclusion myself.
The cynic in me thinks Labour’s sudden concern about tax rorts is because you guys know that National is going to fix much of the mess in todays budget. Labour won’t actually have to do anything so words are cheap…
I feel so disappointed in the left. The New Labour parties of both Britain and New Zealand increased inequality rather than decreased it. Why is Labour so easily hijacked by the right? It seems to be just as easy for the right to get what they want from Labour than from National- it is maybe even easier at times.
David Cunliff: my point was that ONLY 50% of the wealthy are paying the top rate of tax – this is not acceptable!
In terms of your view that the anomalies with LAQC were not that obvious until “3 or 5 years ago” – 5 years ago takes us back to 2005. Why didn’t you address these in your last term?
I also struggle to buy that argument as the rest of us were well aware of such loopholes so how the Labour government managed to not be aware of them is beyond me!
That said, thank you for at least acknowledging that Labour didn’t get it quite right.
I agree that Labour did achieve many good things but for me, this did not include anything to do with property, tax or WFF. I feel Labour lacked foresight & guts in these areas.
However, no doubt I will be equally disappointed by what will no doubt be a very uninspiring & unimaginative budget today!
And to end on a happier note – thank you Red Alert MPs for being so willing to engage with us. I think you are single handedly changing the face of politics in terms of how voters & politicians interact so Kudos to you!
@Rebecca: Thanks I agree with you 50% is way too low It shold be 100%
To be honest David I would say if you didnt see how use of PIE’s would balooon (an effective 8% after tax advantage is a massive competitive advantage) then you didn’t deserve to be in power. And if this is the case you really need to bring someone who has a strong tax experience into your caucus.
HOWEVER I believe that their use wanted to be as Labour saw it as a way of encouraging investment in things other than property (although ironically many PIES has large chunks of property in their portfolio) and this was a way to achieve that.
I personally see them as a positive success of Labour which is why your demonising of them is totally bizare. THey were there to encourage investment, they have done that. Investment is the life blood of economy and what NZ are terrible at. You most prob need to tinker with the eligibility of what a PIE can invest into (i.e. not be property focussed – only allow a portion so portfolio is balanced) and also make it harder for small groups of people (think it is 6) to set up a PIE to just get advantage of it.
As for LAQC’s. Nothing wrong with them, the problem is the laws surrounding investment properties which are going to be hopefully dealt with.
As for those going “cant judge on past”, well its good to see they have ‘theoritically’ learned the error of their ways (although I see no plans to sort out / remove WFF which is an incredibly inefficient system) and your GST plans seem to suggest otherwise.
Thought Not