Red Alert

Archive for the ‘Tax’ Category

Death and Taxes

Posted by on June 7th, 2013

Nothing, they say, is as certain as death and taxes.

It seems the saying is true.

Yesterday the Finance and Expenditure Select Committee reported back the Taxation (Livestock Valuation, Assets Expenditure and Remedial Matters) Bill to the House.

The usual impenetrable tome of complex technical detail that only corporate lobbyists, tax accountants and hard-working Labour MPs bother to read.

This one was remarkable for what was NOT in it – the odious car park tax had been stripped out under pressure from us, unions and business groups.

Death and taxes may be certain, but there is no point having an annoying tax that costs more to administer and comply with than it actually raises.

The second certainty is that the IRD Call Centre is fast becoming a joke.  

A friend just told me they had been on hold to it for an hour and twenty minutes this morning.  I have had several experiences of close to an hour on hold.  It’s enough to drive you spare!

It is fundamentally wrong that our tax system imposes stiff penalties for late payment and tax payers bear the full risks and cost of any errors when they are effectively denied access to their own tax information and advice because IRD cannot run a decent call centre.

If funding is the issue, it’s a false economy.   The lost productivity must be staggering.

If its management incompetence, it needs a big tune up.

The third certainty this week is that the Minister of Revenue is under huge pressure. 

Indeed, he may not be long in the portfolio.


Filed under: Budget 2013, IRD, Tax

Holding on (and on and on and on…)

Posted by on April 10th, 2013

After four long years it’s obvious the National-United Future Government has no plan to turn around New Zealand’s economic decline or fix the unfair tax system.

The common theme of the Government’s legislative programme is it’s all tiny, tinkering, distracting little changes which ignore the big issues.

This year MPs have had interminable debates about petty new taxes on car parks and iPads and cellphones and laptops – with the sole result being that Revenue Minister and United Future leader Peter Dunne has had to back down on all of them, after Labour demonstrated how the minister hadn’t done his sums.

So if Mr Dunne isn’t doing his job of crafting workable tax laws, then surely he must be very busy overseeing his IRD department? Um, no, he’s not.

I reckon Kiwis who’ve tried to phone the taxman this week will be absolutely pulling their hair out.

A few weeks ago Peter Dunne assured me the IRD was adequately staffed to deal with the poorly-communicated 1 April tax changes. Well the Revenue Minister’s credibility today is as shot as the economy.

Try phoning IRD for yourself. It won’t take long, because they’re not even bothering to put people in a call queue – they just play a message saying they’re too busy and then they hang up on you.

(Now, if you really do want to torture yourself like that, please make sure you’re sufficiently wealthy and of a generation inclined to have a landline rental, because the IRD won’t accept 0800 calls from cellphones. With wait times stretching on and on, many people would need more call credit to phone the cellphone-acceptable number than they’d owe in tax).

If, however, you’re not a glutton for frustration you could try writing a letter to the IRD… but you might never get a reply.

Because now the Peter Dunne has admitted his department have no performance indicators for responding to postal transactions. Not one! None!

They might chuck your letter in the bin unopened for all the Revenue Minister cares.

Last year Dunne slashed IRD staff by 7% and this year he’s fluffed around in his cushy ministerial limo creating endless tiny, tinkering new taxes which he didn’t even bother to cost, all while the 1 April changes were looming.

And now the chickens have come home to roost.

But, as usual with this Government, it’s ordinary Kiwis who will pay the price in time and worry (and cellphone credit) for ministers’ incompetence – and they’ll pay an even bigger price if they mix up their tax obligations, no matter how many times they’ve tried to phone the IRD and no matter how many letters they’ve written.

Filed under: Revenue, Tax

Tackling the multi-nats

Posted by on December 7th, 2012

I’ve drawn attention to the way in which multinationals are avoiding paying tax in New Zealand.  After some prevarication, Peter Dunne ordered up a report from officials on the way similar issues are being tackled abroad.  Good.

The topic is running hot in the UK.  The Guardian’s editorial on Monday was a call to action.  The Australian Assistant Treasurer, David Bradbury, last month announced a range of measures to address tax avoidance.  Bradbury’s speech is well worth a read.  It explains the issue in plain English and how Australia is tackling it.

Quantifying the size of avoidance in New Zealand needs to be a priority for the Revenue Minister.  Australia have pulled an expert group together to advise their Treasury on the scope and extent of the problem in their country.  New Zealand needs to do the same.  Quickly.

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Filed under: Tax

National = 0800 hold and wait

Posted by on August 21st, 2012

If the current government are really serious about reducing compliance costs for small business, they could start by getting the IRD call centre into shape. Statistics that I released today make for damning reading. Here are a few highlights:

  • Last year over a million callers to IRD numbers gave up before their call had even been answered
  • A further 260,000 callers ditched their calls after being placed on hold
  • The longest wait time for a call to the IRD was 2 hours and 29 minutes
  • Over 200,000 callers waited for over quarter of an hour to have their call answered

National is always talking about productivity, but how does having people waiting for hours on end to speak to the IRD help with that? Millions of dollars are being lost every day as Kiwis sit around waiting for the IRD to pick up the phone.

In the past four years the IRD has dished out over $31 million in redundancy payments. Clearly that’s having an impact on its customer service record. It’s time for the National government to get this mess sorted out.

Ten ideas for the Government

Posted by on June 26th, 2012

Yesterday the Government released a list of ten “ambitious targets”, and despite ballooning debt, declining exports and slow job growth, there were no new ideas.

In question time today, Bill English confirmed they have no targets for making superannuation affordable, no targets for wage growth, no targets to grow the economy and no targets to reduce overseas debt.

It is just the latest laundry list of vague ideas with no meaningful milestones or policies to achieve real outcomes. It is simply a stunt designed to take the attention off the unpopular asset sales plan and the Government’s botched attempt to increase class sizes.

This list exposes National for once again tinkering around the edges instead of making the tough decisions needed to create a long-term, prosperous future for New Zealand.

While the Government is wishing for rainbows at the end of every street, it has little credibility when it is not dealing with the big issues we are facing as a country.

Here is an example of 10 key issues that National is not addressing:

·         Job creation

·         Economic growth

·         Reducing overseas debt

·         Securing superannuation for the future

·         Reforming our tax system

·         Investing in research and development

·         Supporting our exporters

·         Cleaning up the environment

·         Being tougher on foreign ownership of our land

·         Giving Kiwis a reason to stay in New Zealand

Those are just my first ideas at some “ambitious targets” the Government isn’t trying to address. I’m sure the erudite readers of this blog will have plenty of ideas of their own, please leave them in the comments. I’d love to hear them!

The One Percent

Posted by on June 5th, 2012

Our economy is stagnant under National. Or worse.

Like an opossum in headlights, the Government continues to chart the same economic course.  It is not clear whether this inertia is due to a lack of courage, or a lack of imagination.  Either way, the Government has proven unwilling to tackle the structural problems that underlie our economy – preferring instead to stare down the oncoming train.  We continue to import more than we earn in exports, and no credible plan to change our course is currently being entertained.

In New Zealand, the average value of our individual earnings has dropped during National’s first three and a half years in office.  Real GDP per capita is lower than it was in 2008.

It doesn’t have to be this way.

The Government members continue to blame everyone but themselves.  Their excuses don’t stack up.

Growth in Canterbury is outstripping other parts of the economy, so National’s attempts to blame Christchurch don’t make sense.  Nor do attempts to lay all of the blame at the foot of the Global Financial Crisis.  Our biggest trading partners have enjoyed growth stronger than most over recent years.

The basis of  a more plausible explanation for National’s failure is found in Nobel Prize-winning economist Joseph Stiglitz’s latest article in Vanity Fair.  It’s titled ‘The One Percent’.

National has made bad choices.  It has failed to develop and implement pro-growth policies.

For starters, National passed over a huge opportunity to stimulate the economy.  The latest Treasury figures estimate the cost of income tax cuts made by the National Government in 2010 at around $11 or $12 Billion.

If 44% of the value of the cuts went to the top 10% of earners, around $5 Billion of the 2010 tax cuts went to those who needed them least.  The Prime Minister received about $1000 more in the hand per week.  Others received more.  These tax cuts for the wealthiest New Zealanders came at the cost of income tax cuts for the other 90%: middle and lower income earners. This was not good for our economy. An example Stiglitz uses illustrates this point:

Consider someone like Mitt Romney, whose income in 2010 was $21.7 million. Even if Romney chose to live a much more indulgent lifestyle, he would spend only a fraction of that sum in a typical year to support himself and his wife in their several homes. But take the same amount of money and divide it among 500 people—say, in the form of jobs paying $43,400 apiece—and you’ll find that almost all of the money gets spent.”

Sir Michael Cullen’s 2008 tax package was more strongly directed towards lower and middle income earners.  But the new Government unpicked the changes and wound the spend into a new package which underestimated the need for stimulus.  In doing so, National failed to support growth in the New Zealand economy.

The 2010 tax package worked negatively in another way.  It grew inequalities.  Greater inequality undermines trust.  Those not in the very highest income brackets feel less motivated to work in a system that favours those who are already well-off.  I’ve covered that ground before – commenting on an earlier Stiglitz piece in Vanity Fair. That article explained in simple terms why growing inequality is bad for all of us.

But all is not lost.  Opportunities for pro-growth tax reform are still available.  A capital gains tax would push money away from the speculative sector and towards the productive economy.  Unfortunately, National has so far refused to entertain pro-growth proposals that would support our hard-working export sector.

And there are other pro-growth policies that could be adopted.  They’ll be the subject of further blogs.  Labour will take a suite of them to the next election.

The contrast between the records of the two major parties couldn’t be starker.  Labour grew real incomes (after inflation is stripped away) by 25% over its most recent nine years in Government.  Since then real GDP per capita has fallen back.  Population growth, in the absence of economic policy, has driven our economy over the past four years.  This needs to change.

English catches up with Budget changes

Posted by on May 31st, 2012

At the start of question time today, I wondered why Bill English didn’t front for questions in Parliament.  I knew his planned trip to speak at the Dunedin Chamber of Commerce was postponed due to airplane issues.  I figured he must be stuck in Wellington with time on his hands.

Perhaps he didn’t want to personally front up and admit he’d got it wrong in a previous interview about the budget. 

So in Parliament today, Revenue Minister Peter Dunne fronted on Mr English’s behalf and admitted the Finance Minister had not understood the Child Tax Credit changes his Government rammed through under budget urgency.  Dunne confessed that Mr English had got it totally wrong in the Post-budget radio  interview on the changes to the child tax credit, labelled ‘the paperboy tax’.

Mr English said in the interview that interest on savings would not be taxed under the new regime – when in fact the opposite is true.

The frightening thing is key government Ministers do not appear to know what was happening in the Budget.

They have already backed down on some of the teacher changes, taking money from contingencies to cover that gaffe. Now they’re admitting they didn’t understand their own tax policy either.

We need pro-growth tax changes in New Zealand. This Government prefers tinkering with a system that is not working, and what is becoming increasingly clear is that they are not even on top of their tinkering.

An interesting idea

Posted by on May 31st, 2012

I’ve just been sent the following paper by Labour Party member Perce Harpham. Perce is exploring the ideas around a fixed weekly or  fortnightly payments, or “Citizens Dividend”. As well as an asset tax.

I don’t necessarily endorse all these ideas, but it’s good to see some healthy debate and new thinking. Keen to hear what you think.


Filed under: finance, Tax

The Paper Boy/Girl Tax Grab

Posted by on May 25th, 2012

A revealing level of blame shifting and spin in John Key’s response to the Paper Boy/Girl Tax Grab. Here’s what he said in the NZ Herald today

Mr Key – a paperboy in his youth – said he found out about the move at Cabinet on Monday and did not regret it despite the publicity.

He found out on Monday? After the Budget had gone to print? Definitely a game of blame Bill going on here. I imagine the conversation at Cabinet on Monday must have gone something like this, ” Ah, John, we’ve got this thing called the Budget on Thursday. Nothing much for you to worry about….”

But, wait, there’s more Mr Key goes on to say

A lot of people didn’t know they were entitled to them so they didn’t bother claiming. The amounts were fairly small and overall we have been trying to clean up the tax code

Yes, that’s right the amounts are “fairly small”, that is the point! It’s tax on children who earn less than $45 a week, of course the amounts are small. That’s why the credit is there, so they can get those very small amounts back.

And yes some people didn’t bother claiming, but obviously quite a few did given that the government gets $14 million out of this.

What a load of spin and nonsense for a piece of penny pinching from the pockets of paper boys and girls.

Filed under: Budget, Tax

100% tax cuts ahead

Posted by on May 7th, 2012

Today’s crash of Inland Revenue’s website highlights a wider IT vulnerability that must be addressed – urgently.

The IRDs current tax collection system was designed in the early nineties. It was effective for many years.  But it has become increasingly obvious that patches applied over recent years are a failing stopgap.  New Zealand needs real progress on a replacement system.

The Government has already written off millions of dollars after a failed attempt to rebuild the student loans component of the IRD online collection system.  Since then no progress, only bad news.  Earlier this year, it was revealed that the Government estimates a necessary IT rebuild of IRD’s whole tax collection structure will cost up to $1.5 billion dollars.

New Zealand is not unique in having a tax system.  Adapting successful systems used elsewhere is the logical approach to replacing our ailing IT infrastructure.  This problem has been on the horizon for some time.  It beggars belief that the Government has not yet outlined a convincing plan or timeline for the development of overdue IT solutions. 

Voluntary compliance with a transparent tax system is critical to the efficient and effective functioning of our society. 

Businesses rely upon our tax collection system working properly when they put their GST returns in.  They don’t have time to waste reentering data when systems go down.  We cannot afford to risk the patience of those citizens who wish to comply with their civic duty.

And testing the patience of businesses is not all that is at stake here. Our hospitals and schools rely upon a trustworthy tax-collection system.  The IRD must not be allowed to fail.

The Minister of Revenue has not put forward a credible timeline for the project, and it is becoming clear that the government is sitting on its hands whilst New Zealanders face the consequences of an IT time bomb.

Not good enough Minister.

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Filed under: Tax

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.

Dear Liza

Posted by on March 17th, 2012

The Government has continued to spout the line that its tax ‘switch’ in 2010 was ‘broadly revenue neutral’.

This is an outrageous claim.  It was nowhere near revenue neutral.

According to the IRD’s 2011 Briefing to the Incoming Minister (BIM), Government tax-take dropped from 35.1% of GDP to 31% of GDP during National’s first term.  In a time of high borrowing, and a projected $12 Billion deficit, a drop in the tax base of more than 10% is plain irresponsible. Falling revenue means we don’t have the funds to support our schools and hospitals.  Either that, or we have to borrow to fund them.  This ain’t good.

The ‘broadly revenue neutral’ claim has been relegated to the status of a bad joke by the honesty of the Government’s own tax officials.  In their 2011 BIM, officials made clear that only about 1.5% could be blamed on the Global Financial Crisis.  About 2.5 percentage points of its 4% revenue drop can be directly explained by Government policy changes (ie the 2010 tax package).

To use the phrase ‘broadly revenue neutral’ in this context beggars belief.  It is an abuse of the English language.

How ‘broad’ can ‘broad’ get before it the Finance Minister will admit it is simply *not* revenue neutral?

Blaming the hole in the accounts on the Canterbury earthquakes or the Global Financial Crisis is no longer a credible excuse for the $12 billion deficit.

Though not widely reported, this drop in tax-take is big stuff.  It is likely to have wider consequences.  Sadly, it fits with the picture of a government bereft of a credible plan for managing our economy.

Then and now: Key on all sorts

Posted by on March 14th, 2012

Over the weekend I posted some of John Key’s earlier statements on asset sales and public sector restructuring, pointing out how much his current views and approach differ from what he promised people before he became Prime Minister.

Tonight TV3 have gone one better and unearthed video footage of him speaking to the PSA Conference back in September 2008. Not only does John Key rule out asset sales, he makes a compelling case against them.

“There’ll be no asset sales in the first term of a National government, and there may never be asset sales in the years ahead… Nor am I hell-bent on selling assets actually. I personally think it’s not the issue that the current economy faces. In the world of making the boat go faster, actually I don’t think selling off state assets is going to make the boat go faster.

Labour has been arguing all along that asset sales will not make us a richer country. We’ve been consistent. John Key and the National government have done a complete u-turn and have now placed asset sales at the centre of their economic strategy.

“The Crown’s dividend streams from the Meridians, the Mighty Rivers of the world is large, so on both motivations we don’t have a debt problem, they’re acting, I think, highly effectively as companies, and they’re making money. There is no motivation to sell assets.

Once again, Key is borrowing the line that Labour has been consistently arguing for over a decade. The SOEs are highly profitable. They make more money than we would save in debt repayment costs if we sold them. Also note Key arguing we don’t have a debt problem (Bill English also made similar comments both before and after the 08 election). Interesting how after 3 years of a National government debt seems to be the biggest issue we face…

“So there’s no agenda to sell assets.

This is perhaps the most damning quote. Although Key was careful before the 2008 election to qualify his no asset sales pledge with “during the first term” he gave New Zealanders the very clear impression that he wouldn’t be selling assets long-term either.

“What we are saying is we’re not going to cut jobs, we’re simply capping at 36,000.

That commitment didn’t even last a term. Now he’s promising even more job losses during National’s second term. Nothing about that in their manifesto for 2011.

“The second point is, no we’re not borrowing for tax cuts.

So if they’re not borrowing for tax cuts, and New Zealand didn’t have a debt problem when they took office, why are they now arguing we have a major debt problem and need to sell assets to fix it?

John Key has built his political career on telling people what they want to hear. Eventually that strategy always catches up with people, and it’s catching up with Key big-time.

GST off bananas (and other fresh fruit and vege)

Posted by on November 1st, 2011

The Labour policy of removing GST off fresh fruit and veges is a very good example of evidence-based policy development.

The facts:
NZ is the third fattest country in the OECD (astounding). The productivity and health costs associated with this are huge – and growing.
Auckland University and Otago University medical schools undertook a joint research project into ways to influence consumer behaviour around the purchase healthy foods. Three groups were set up; 1) control group, 2) a group given very targeted information and education about the outcomes of healthy purchases, and 3) a group that were given information and a 12.5% price discount. The result: no change from control group (expected), no change from the group given a high level of education and information only (surprising), however, a 11% increase in the purchase of healthy food by those who received a 12.5% discount.

After consultation with a lead member of this research team, we decided that one of the best ways to influence buyer behaviour and promote healthy choices was provide a price incentive. This works. Six months after the study had finished and prices returned to normal for the third group, the researchers found the majority in this group were still making healthy purchase decisions.

So, education alone will not work in changing the eating habits / purchase decisions of the vast majority of NZers. A price incentive does. If anyone has a more effective way to directly target the obesity problem then I am very interested in hearing, because while it is a problem now, it is set to become an epidemic within a short space of time.

As an aside, we did briefly consider a ‘fat tax’ on unhealthy foods, however, ‘unhealthy’ is very difficult to define (under many definitions, milk and cheese are ‘unhealthy’) and so we decided that in this case, it is easier to remove a tax than add one.

Filed under: GST, health, policy, Tax

Doing Things Differently

Posted by on October 12th, 2011

In the wake of the double downgrade, the debt blowout, and further afield the Occupy Wall Street movement, one thing keeps coming through for me. If we want to improve our lot economically, if we want to address the growing inequality in our society, we have to do things differently.

An interesting contribution to that debate in New Zealand is coming from Gareth Morgan and Susan Guthrie. Their latest piece appeared in the NZ Herald on-line today.

Morgan and Guthrie highlight the obsession with property speculation, the reliance on commodity prices to keep us afloat, a narrowly based economy and monetary policy and a tax system that fuels the worst of speculative behaviour. These are not new messages from Gareth, but there is more reasonance as we look at a global and national economy defiantly not recovering and staggering (or is that muddling) through the year. He puts it this way

There is a naive single dimension to our economic policy – we either raise or reduce the budget deficit or we raise or reduce interest rates. That’s the sum total of the intellectual capital being applied to managing our economy. That it could be so bereft for so long has led to the persistence of our “structural imbalance”. There is a chronic need for policy enlightenment and a sweeping aside of a simplistic policy orthodoxy that has been rigidly paid homage to for 30 years now.

Now, of course I don’t agree with all of their prescription, but the idea that we have to change the way we think about our economy is the core message, and it is one that Labour has heard and taken on board. We are offering a different way of doing things both from where the current government is, and where we have been.

Monetary Policy. Labour has already announced that we need to change monetary policy to address the structural issues in the economy, including the volatility of the dollar that makes life difficult for exporters and high interest rates that discourage investment in productive parts of the economy. While curbing inflation remains important, having that as the single focus is not working for us. Our policy is to broaden the objectives of the Reserve Bank beyond just controlling inflation to look other issues, such as employment and to support more aggressive interventions to deal with currency speculation.

Fairer Tax System. As noted we are going to introduce a Capital Gains Tax to ensure we tax income in all its forms and start to move toward investment in our productive economy. We also are going to return the top tax rate to 39c over $150,000, the first $5000 tax free and taking the GST of fresh fruit and vegetables

Procurement/Overseas Investment
. Labour is going to make important changes to focus to support our own economy. This means new rules on government procurement, that will be compliant with our international ageements, but will require a process that gives Kiwi firms a fair go and will look at a wider set of criteria for awarding contracts including the impact on the domestic economy. We want overseas investment but as announced in 2010 we will put stricter controls on purchases of farm land, monopoly infrastructure, so that we keep control of our assets (and of course there will be no asset sales!).

And there is more to come in terms of innovation and economic development, to build on the R and D Tax Credits, Youth Employment. And more to come in Savings, where we really can build a basis for creating the pool of resources to invest in our own companies, just as Kiwisaver funds have done with Scott Technology.

This post is too long already, so I will come back to some of the social policy issues Morgan and Guthrie raise, but for now I am confident that Labour has a different vision on offer this year. Some of it is policy we have done before, but a lot of it is thinking differently, because as they say a definition of madness is doing the same thing over and over and expecting a different result.

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.

Peter Dunne – Changes to Child Support

Posted by on August 21st, 2011

Peter Dunne has finally announced proposed changes to the child support regime in order to make it fairer. He admits that “on something as contentious and as emotionally charged as child support… it is not about trying to please people. It is about creating a system that people feel is fundamentally fair, and crucially, that they feel is for the benefit of their children. If we get those two factors through to people, then we have succeeded, and I believe we are doing that here.”

Aside from the obvious contradiction there (‘not trying to please people… but about creating a system that people feel is fundamentally fair’: in my experience, people are pleased with a fair system, and not with one that isn’t), I don’t think anyone would disagree with the sentiment. As Revenue spokesman, I get many e-mails from people who believe they are being ‘ripped off’ by a discriminatory child support regime.

Three points I would make however:
1. Two and a half years ago Dunne said he would complete a review of the system in 6 months. What took him so long?
2. Dunne’s IRD is undertaking a round of redundancies (16 front line staff in Napier alone) and yet they are about to restructure the child support system… Does that mean ‘more with less’? Give me a break.!
3. Most importantly, Dunne has said that the changes to the system will be in legislation introduced to Parliament in the next few months. There are only four sitting weeks left this term. This is incredibly important legislation because over 200,000 NZ children rely on child support payments. I hope like hell this isn’t something that Dunne and the Nats are planning to introduce under urgency.

I am not saying there doesn’t need to be changes to the child support system, because there quite obviously does (of the approximately $2b in child support debt, under $200m is actually principle). But any legislation reforming the child support system needs to go through the proper parliamentary process; e.g. public select committee where all NZers can have their say.

The real shame of all this: if Dunne had done what he said he would do, then we would have had this whole system reformed months ago. Wonder why he hasn’t…

Carmel talks about the cost of living

Posted by on August 21st, 2011

My new hero

Posted by on August 17th, 2011

I would never have imagined that my new hero would be a mega-rich American investor. But when Warren Buffett called for rich Americans like himself to pay higher taxes, I started to think that perhaps we are entering a new phase in humanity – where greed is not necessarily seen as good, where some of the wealthy are prepared to share and where the contributions of the not so well off are considered as important as those who have “made it”. Warren Buffet says :

“While the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks. These and other blessings are showered upon us by legislators in Washington who feel compelled to protect us, much as if we were spotted owls or some other endangered species. It’s nice to have friends in high places……….

If you make money with money, as some of my super-rich friends do, your percentage may be a bit lower than mine. But if you earn money from a job, your percentage will surely exceed mine — most likely by a lot.”

It reminds me of Sam Morgan who said last year

“The amount of tax people pay in different areas is not fair. The people that pay the most tax are working people.”

Back in the US of A Manhatten Millionaire Lawrence Benenson has joined the call saying :

“How much money do you really need? Give it back to the government, pave some roads.”

Scores of New York’s millionaires have signed on to campaigns encouraging “tax equality,”such as the group Responsible Wealth, that includes Edith Everett, a retired Wall Street stockbroker who says :

“People who are just scrimping and saving to pay their rent, they shouldn’t pay one penny more.  Rich people make their money on the backs of the workers.”

This is refreshing.  May we hear more like it in New Zealand.

No problem with people doing well.  Big problem with not paying fair share.

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.