Red Alert

Archive for the ‘Capital Gains Tax’ Category

Deck chairs

Posted by on March 19th, 2012

The Inland Revenue Department’s tax policy work programme was released by Hon Peter Dunne on the weekend. 

Reading through the Minister’s related speech, I couldn’t help wondering about the symbolism of its delivery just one month short of the Titanic’s 100th anniversary.

According to its own publicity, the IRD tax policy work programme places emphasis on achieving efficiency and fairness in the system.  Worthy objectives indeed.  And much of the work in the programme is worthy – plugging holes, and trimming sails to align with competitors - where it is to our advantage so to do. 

But significant change appears to have been ruled out once more. A Capital Gains Tax that would push investment towards the productive sector, for example, will not be considered.  The current tax system watches on as the Government shuffles deck chairs and sails towards a $12 Billion deficit.  This is crazy.  If you don’t change anything, nothing will change.

Our current tax system is in need of a serious overhaul.  The tax policy work programme looks a bit like an exercise regime for a thoroughbred nearing a big race – light and steady.  This would be fine if we owned a thoroughbred.  We don’t.  The Minister is refusing to admit his existentially-challenged Clydesdale needs anything more than a good make-over and a stiff crack of his whip.

The fiscal hole is getting bigger and the Government has no credible plan to address it. In my earlier post, I asked how the Minister of Finance could continue to credibly claim tax changes implemented under his watch were ‘broadly revenue neutral’ – when the Government’s own officials say otherwise.  IRD officials have said that 2.5 percentage points of a 4% drop in revenue were due to Government policy changes. 

We need jobs and a plan to address the structural issues that underlie our current account deficit. Tinkering with finer points in the tax system and changing who owns what through asset sales doesn’t begin to address the serious issues facing our economy.  New Zealand debt is set to continue climbing under National.

On the matter of economic policy and tax settings: no amount of deck-chair shuffling will change things - if the ship remains set on the same course.


Labour Campaign Ad No 2

Posted by on October 27th, 2011

There will be several ads of this style in the campaign, called animatics in the trade. Same message as Phil’s asset sales ad. With Labour we can pay down debt, through among other things bringing in the CGT, and keep our assets.


Why The Downgrades Matter

Posted by on October 3rd, 2011

The public does not need to take our word for it that the current government’s economic policies are not working.  There is now even more objective evidence in the form of two important credit rating downgrades delivered on “Black Friday”.

I have written an op-ed for the Herald on why the “Ratings Ref” yellow carded NZ.  Standard and Poors and Fitch agree on what is fundamentally wrong.  They say:

  • First “very high external imbalances, accompanied by high household and agriculture sector debt” (S&P). These are mainly house and farm mortgages borrowed through the banks from foreign lenders to fuel our property obsession.
    • That’s not a new problem and it has levelled off a bit with the recession. But it is at historically high levels and makes New Zealand “an outlier among peers” according to Fitch.
  • Second, “dependence on commodity income” says S&P.  Despite record milk prices we are still not paying our way in the world.  The current account deficit is a long term issue. But it will worsen to 6.9% of GDP while the Net International Investment Deficit (NIID) will grow from 78% to 85% over the next five years.
  • Third “emerging fiscal pressures associated with (our) aging population” (S&P), including health and superannuation.  Suspending the NZ Super Fund pre funding hasn’t helped.

The reaction from Bill English on Q & A yesterday was uttlerly inadequate.  He maintains the government will keep on doing what it is doing.  As if that has done any good so far  – $37 billion extra debt, 47,000 more unemployed and 3.6% lower GDP now than when they were elected.

Here is the Government’s spin, and some perspective on it:

  • We have worked hard to control government spending and succeeded”.  The problem is that some $37 billion of debt has been added since the National Government took office – some $18 billion in this year alone.  While nobody blames any government for earthquakes – and the ratings agencies recognise that both sides of the political spectrum are exercising fiscal restraint, this is not enough to avoid a downgrade.   The agencies’ arenot swayed by the prospect of liquidating $5 billion of SOE assets.
  • We are better placed than some other countries”.   Being “better placed” than Iceland, Greece or Portugal is cold comfort.  Nor is it sufficient, in the face of paralysis in the US and chaos in Europe, to take refuge in Chinese and Australian expansion.  The risks of a slowdown in both economies are significant, and s the ratings agencies demand New Zealand  takes responsibility for its own future.
  • “We are still on track for surplus in 2014-15.  So she’ll be right”.   As if.  The precise timing of short term fiscal balance is not the issue that has worried the ratings agencies.  The long term deterioration driven by poor savings performance, weak exports and the mountain of real estate debt is.  Clutching at such irrelevant straws only highlights the absence of better ideas. 

Proof of the bankruptcy of National’s ideas is in this sobering fact:  only one quarter of OECD countries have been downgraded by Fitch in the last three years.  The last time this happened to NZ was in 1998.  It is nonsense to say we are riding the waves better than most.  To the contrary New Zealand is highly exposed, and saddled with a government that has no plan.

Labour has the policies and the political courage to make a difference and to do what is needed: capital gains tax, strong saving policy, monetary reform and strategic economic development.  It is vital that we implement them before it is too late.

Be in no doubt: what happened on Friday is a very serious development that will have repercussions for many years.  I will write further on what this means for the average Kiwi family.


Plans for the economy: an answer and a question

Posted by on August 8th, 2011

A couple of things came up in discussions I had this weekend about Labour’s economic plan that I thought were worth a reminder.

First, among developed countries we stand with only Switzerland and Turkey in not having a capital gains tax. That’s it. Australia’s got one, so has Canada, Norway, Germany, you name it. A lot of people don’t realise that this is not some radical tax dreamed up on the left of politics in New Zealand, it is part of taxation regimes around the world, because it is fair and reasonable.

The other question is around exemptions. As far as I know (and David C will correct me if I am wrong) that Japan is the only developed country who include the family home in the CGT. Exemptions are part of the CGT picture around the world. Tax accountants look at every tax and try to find ways through them. But that is not a reason to avoid putting them in place. We believe that CGT, along with the other initiatives Clare highlighted earlier today are the basis of a plan to bring some fairness and long term sustainable growth into our economy.

One final thought. Labour was rightly asked for detailed policy on the economy. We have provided that. What is National’s policy? Serious question. Can we expect something different? Or Is it just a continuation of the drifting and short term thinking of the last three years? It would be good to know. As the ad says, now’s good.


The plan so far…

Posted by on August 8th, 2011

I did a post last night called the poverty trap laying out the bleak situation many people are finding themselves in.

Job losses, rising prices, shrinking incomes. Not a great future for Kiwis, let alone our kids.

Despite the government spin, the economy isn’t in good shape. Look at our government debt and how it has ballooned. And how it will balloon left unchecked.

We need a plan to turn things round. A bold plan to stop our valuable assets being flogged off overseas, to give hard-working Kiwis a break, pay off the country’s ballooning debt and grow our economy. Here’s what we’ve said so far.

People need wages they can live on. A minimum wage that allows people to keep up with the cost of living.

Labour promises a $15 hour minimum wage.

We need to increase our savings and investments in a productive economy. We need to rebuild our economy on the back of exports. Not by selling our assets.

Labour will not sell state assets. You’ll have to wait for policy announcements on the other matters.

We need a fairer tax system where everyone pays their share

The first $5000 of your income, will be tax free.

GST will come off fresh fruit and veges.

Labour will introduce a capital gains tax. It’s predicted the tax will raise $26 billion over 15 years that can be used to pay off
debt, cut taxes for most New Zealanders, save our assets and prepare for the mounting cost of our aging population.

Labour will also put the top tax rate back up to 39 cents for income earned over $150,000.
That’s likely to affect around 2% of the country’s top earners.

A CGT is already in use in nearly all developed countries, including Australia, the United Kingdom and United States.

And Labour  will use major government contracts to back New Zealand firms instead of exporting jobs offshore as National is doing.

Cost and quality will continue to be paramount considerations under Labour. But the new procurement policy will in future require companies like KiwiRail anf Govt depts and agencies to consider wider economic benefits rather than just taking a narrow accounting approach. As with CGT, most other countries have strong policies to back local industries and local jobs.

This is for starters. There’s more coming.


Double-Dipton’s dipstick poll

Posted by on July 21st, 2011

Quelle horreur. On July 9, Bill English’s minders decided to do a poll on Labour’s emerging Capital Gains Tax proposal.

Given the database, they must have expected a resounding No.

But that’s not what happened. Quite the opposite. So the poll was quickly taken down.

But not before someone did a screen-save…

 

 

 

You think?

 

Do you support a capital gains tax?

 

No

 

37%, 1849 Votes

 

Yes

 

64%, 3205 Votes

 

Total of 5054 votes.

 

 


Capital Gains Tax – most get it

Posted by on July 20th, 2011

I have been traveling around the country explaining our capital gains tax policy to individuals and audiences. The messages vary depending upon the audience, however, even those in business ‘get it’ when the economic advantages are explained.

For example, as a country we are approximately $169b in debt, however, about 86% of this is private debt, with the majority invested in the housing market. The value of the investment property market is about $200b, and yet this returned -$500m in revenue to the govt. last year.

Now imagine if a good chunk of this money was invested in the productive economy as opposed to housing i.e. people investing in businesses and companies that created wealth, jobs, foreign exchange etc.

Interest rates would be lower, USD-NZD cross rate lower, people wealthier, more jobs, deeper capital markets and we might have avoided the worst of the finance company collapses.

As it is, the tax incentives around investing in the property market distort this country’s investment profile to such a dangerous extent that we are at risk of losing a good chunk of our manufacturing base.

The CGT is about fairness, tax equity, paying our fair share, but most importantly, it’s about rebalancing the economy towards investment in the productive sector, towards the companies that export, that create wealth, jobs, foreign exchange and that drive this country forward. That requires bold thinking and a vision. And no one from any sector of the community – be it business, or other – believes that selling state assets is the answer.! Only Labour can deliver an economic vision and an alternative to selling our state assets.


The fairness test

Posted by on July 19th, 2011

My electorate team was delighted last night to have our revenue spokesman Stuart Nash as their guest speaker. Stuart’s presentation filled in some of the knowledge gaps around the tax package announcement.

• The stark choice. The one-off $6b in revenue from flogging off state assets or a rising $2b+ annual stream from CGT.

• Most Kiwis won’t pay it. Only one in ten New Zealanders own more than one property and given Canterbury is exempt for a five years or more and family baches can be handed down without involving CGT, most will be unaffected by this part of the Labour tax package other than gaining $5000 of exempt income.

• This is not Death Duties in drag. If parents want to pass on the family home to their offspring on death or even earlier, so long as it is not sold, it is not subject to CGT, allowing the parental property to be occupied or tenanted

I was also heartened to have dinner on Saturday night with friends Pam and Rob who own a couple of investment rentals.  A small part of me thought their Labour commitments might be tested. Not at all. As working people they agree all income needs to be subject to tax, whether its their wages or any profits derived from property investments. Like most Kiwis, they believe in fairness.


Lies, Damned Lies and … Steven Joyce.

Posted by on July 19th, 2011

Our opponents have been tied all in knots as they attempt to rebut the obvious – that Labour’s CGT is an idea whose time has come.

First the leader of the National Party, John Key, shrilly claimed it would be a “dagger through the heart” of western capitalism – or as Bomber Bradbury put it “aliens were coming to eat our pets”.

Then Bill English said it was a good idea in theory – but wasn’t comprehensive enough.

So with tweedles dee and dumb at cross-purposes, they called in the “cavalry” on Sunday – a Steven Joyce press release with some bodgied numbers from his Beehive hacks.

It tried very hard to construct a strawman and then shoot it down.   Trouble was, the strawman bore no resemblance to Labour’s policy.

First, Mr Joyce alleged that our tax plan had not replaced the capital value of the non-sale of SOEs:  “You see Labour done a big lie, and said it is a choice of asset sales or their tax package. But they have not calculated for any increased borrowing through no sales”.

John Armstrong made the same mistake in his Herald column: ”In May’s Budget, National cunningly “booked” the money from its planned post-election sell-off of such shares even though the money has yet to be realised.  Some of that “money” has been set aside for $900 million in capital spending.  Labour has exacted revenge for this trickery by simply ignoring it” .

Sorry John, our numbers do incorporate the asset sales revenue because it’s in National’s net debt track and our net debt track is based on theirs. Not getting that revenue is essentially the sole reason why our net debt track is above National’s in the first few years.

Second Mr Joyce  tried the line that we had not modelled in the cost of interest on debt.  Wrong again.  Interest costs are fully included.

Third, he argued we would achieve “$0″ on our tax avoidance crackdown.  Wrong again:  IRD says there is $3.5 bn in colleectable tax debt (of $5.5 bn total); and over $300m p.a. in avoidance through trust structures; as well as -$500m on the $200 bn invested in property.   Bill English says there is $5 back for every extra $1 in IRD tax collection.  IRD says 30:1.  It all makes our provosion that rises over 5 years up to $300m look pretty modest.

Three strikes and your credibility is out, Steven.


kama sutra provides lessons to the leader of the national party

Posted by on July 17th, 2011

The trip to India wasn’t a total waste for the leader of the national party. He has had more positions than in the kama sutra on asset sales and taxation.

Was going to post on the fact that he has been missing in inaction since Tuesday. But The Standard beat me to it.

He now makes a habit of avoiding Parliament when in trouble. Combination of the house and journos on the bridge mean Captain panic pants locks him in his room. Wednesday was another example.

And it looks like he will have to share the front pages of major US newspapers and leads in the US electronic media. Pesky debt crisis. Wonder if he will offer Cullen’s services in getting country to nil net debt.

Meanwhile the #ownourfuture site is going gangbusters.


Own our future

Posted by on July 15th, 2011

own our future

Go to the site this way.


Campbell Live on CGT

Posted by on July 15th, 2011


Capital Gains Tax is Progressive

Posted by on July 15th, 2011

I was glad to have the opportunity to run through the Capital Gains Tax (CGT) policy released by Labour yesterday on Radio Chinese Voice immediately after Question Time.

To give a simple example to the Chinese audience, I said that every dollar from salary or wages you earn you pay tax. But if you have an investment which earns a much greater profit, you are not required to pay tax.

When talking about CGT, it is also important to note that aside from New Zealand, Switzerland and Turkey are the only two other developed countries which don’t have a Capital Gains Tax.

What is more telling is an example given by Labour Finance Spokesperson David Cunliffe yesterday. New Zealand is in a financial hole with a record Government deficit of 16.7 billion dollars and 142 billion dollars of overseas debt but National’s only solution is to sell off our treasured state assets.

Since coming into office, National has looked after their privileged few mates pretty well, but what about the ordinary many and New Zealand’s future?

I would like to quote an email I received from a Chinese constituent (name withheld)

“What about the financial recession? It stemmed largely from speculation; in no way has it helped to grow the economy but created crisis.

Those creators pocketed hefty cash, smiled and went. Good on you Labour, a Capital Gains Tax should have been brought in long ago.”

For financial savvy Chinese, it is not hard to understand that to build a modern, equitable society a progressive tax system will work but National’s regressive tax system will not.

Labour’s policy is for all New Zealanders and our future.

http://blog.labour.org.nz/index.php/2011/07/13/families-struggle-as-food-prices-go-up/


Hickey on CGT – do it or kids should leave #ownourfuture

Posted by on July 10th, 2011

Bernard Hickey on CGT. nb I maintain a neither confirm nor deny position.

If we don’t move urgently to cut debt, push down our currency and encourage productive investment, we are sending a big signal to our young to visit an airline website to buy a one-way ticket.