Capital Gains Tax [Archive] - Sharetrader Forum

Aaron

11-04-2011, 09:27 PM

Q - tax capital gains on an accural or realised basis.

The problem with CGT on an accrual basis is there is no cashflow to pay the tax.
The problem with CGT on a realised basis is there is no tax generation for a number of years.

Q - Do you include the family home?

Q - Do you include roll over releif?

If not, if you sell something, you cant afford to buy the same item back again, influencing decisions.

I think there was a good paper by the tax working group. See if you can find it. I am not saying you are wrong, just making sure you are fully informed.
If so, it defers the tax revenue even further
You would pay it on a realised basis.
Family home can be exempt.
No roll over relief
Don't sell if you want to buy back straight away.
Also incurred when making gifts of capital assets on a market value basis seeing as gift duty is about to be scrapped it wouuld be a good replacement.
Lou points out that people hold onto assets longer. Long term investors can therefore defer their taxes whereas traders/speculators can't.
We do have a land tax called "rates" farmers end up paying more than their fair share.

No way should we have just a consumption tax. Taxing consumption isn't a bad idea but GST is a regressive tax so 15% is a much as I would like to see.

lou

11-04-2011, 11:22 PM

How would it be applied? Cant be by area or farms wouldn't be viable so it must be by 'ratable value'.

Hypothetically it would be applied based on "ratable value" and zoning. Basically your rates bill on steroids.

Given that is somewhat arbitary it doesn't seem fair.
Taxes aren't fair at the moment. We have a progressive tax system where higher income earns pay proportionately more. A land tax would fair in the sense that it is a proportionate tax, however would be less equitable to lower income earners.

The biggest hurdle or moving to a tax system like this is it will change the land values around the country meaning thousands of people will be either adversely or positively affected for no reason and that would not be fair.

Plus it creates cashflow issues to those that own land with no income.
If they own land that produces no income they are either saving on expenditure (ie living in there own home). Saving on expenditure can be thought of income and should be captured by tax net. Making this new system even more efficient.
Option two they own land with no income. They are not making efficient use of the land. It should be sold so that the most efficient use of the land can be found.

Why not go to a full consumption tax (ie. GST). You need to buy what you need to buy.
I don't have anything against GST. I excluded in my first post as I thought idea of one tax was a more utopian view. I would mean we would not need accountants for compliance work.

lou

11-04-2011, 11:27 PM

We do have a land tax called "rates" farmers end up paying more than their fair share.

Farmers do not pay there fair share of taxes.
1. Farmers have loads of deductions, heaps of cracks to slip personal expenditure into the books.
2. Heaps of potential for income to disappear on to the kitchen table.
3. Then the fact that a farmer will sit on bugger all "taxable income" for his life time. Using the increase in farm technology/efficiency, that increase the value of his land that is leveraged to the hilt. He then retires to Whangamata on huge capital nest egg tax free.
4. The return on assets in the farm industry is lower than the cost of debt. This does not make economic sense why would they be doing it. Unless they doing it for capital income or other kickbacks.

shasta

11-04-2011, 11:28 PM

Probably the wrong forum for this statement.
I'll vote for the party that promises a cross the board capital gains tax.Tax wealth instead of income.
No more mucking around with two portfolios no more FIF rules. (these were brought in to capture the capital gains on overseas shares) no more mucking around with depreciation on houses and LTC companies. No more arguements about intention at the time of purchasing a property.
Bring the income tax rates down at the same time though.

CGT just wont fly in NZ, & we can do better than that.

If people think CGT will hit the greedy property speculators, these are the one leveraged & making losses, or have offsets to other businesses, so its a "looney left" wet dream to think the rich will start paying up.

What would be more beneficial is a flat tax of 20%, to start with.

Drop the company tax rate to 10%, & add in a 10% compulsory super component (thereby matching the 20% flat rate, reducing any need for dodgey accounting)

Bring in some form of a financial transaction tax, not quite sure how this should be set up though.

Perhaps bring back in the Estate Duty/Death Tax, you cant avoid a death tax, so why not clip the ticket on the way out?

If we could somehow outlaw the green party, we could just nationalise a mineral & hydrocarbon company to mine our own resources!

Imagine that, another Maui to provide us with CHEAP POWER & we the taxpayers would own it!

janner

12-04-2011, 10:12 AM

Lizard

12-04-2011, 10:35 PM

One issue with CGT as a form of revenue is that it tends to dry up just when the economy is at its weakest, thereby dealing a double blow to govt accounts and capacity to stimulate.

Aaron

13-04-2011, 10:38 AM

One issue with CGT as a form of revenue is that it tends to dry up just when the economy is at its weakest, thereby dealing a double blow to govt accounts and capacity to stimulate.

The same could be said for GST and income tax. Maybe not losses but much reduced.
Capital gains tax would not be about going after anyone in particular as Shasta suggests above. I just think that an earned dollar of income can sometimes take a lot more effort than a capital gain so why is it that we are happy to tax income but not capital gains.

Lizard

13-04-2011, 12:24 PM

The same could be said for GST and income tax. Maybe not losses but much reduced.
Capital gains tax would not be about going after anyone in particular as Shasta suggests above. I just think that an earned dollar of income can sometimes take a lot more effort than a capital gain so why is it that we are happy to tax income but not capital gains.

GST and income tax reduce in a downturn, but maybe 10% would be extreme. Corporate tax can fall more dramatically along with profits. But CGT seems likely to dry up entirely AND erode income tax when losses are used as offset.

In theory, I actually like the fair dividend rate method used in FIF. FIF is only complicated because it doesn't apply across the board and there are the options for using CV.

To use FDR for all assets would just require a quick totting up of assets at the start of the year and then applying a low-level tax based on that amount. Make interest costs and rates tax-deductable... this should pretty much offset all the FDR on most properties. The great thing about FDR is that those who can achieve a better return on assets get rewarded for it and those who want to tie money up in non-returning assets have to pay the cost. There are very few loopholes and minimal administration. Money goes where it works hardest and should increase asset base and therefore tax-take over time. Of course, I know you are all thinking the obvious - the reality is that finding a fair and accurate way to set value across all assets is not simple, let alone getting people to declare all their assets. However, we seem to put up with the rating system and that can be fairly arbitrary in places.

rpcas

14-04-2011, 10:12 PM

Once you go right back to the basics and think about the purpose of a tax, you start to get a better idea of which taxes are well directed. The purpose of a tax, despite common belief, is NOT to fund government spending, but rather to create demand for the currency and to regulate aggregate demand (restrict inflation). Quite clearly, the government actually believes they must tax or borrow in order to fund spending (this is not the case for a sovereign government that issues its own non convertible currency, with a floating exchange rate), therefore they enact tax policy with the idea that the more tax revenue, the better. This is all misguided.

Since the purpose of the tax is not to raise revenue, how taxes are directed should depend mostly on the side effects of the tax. I believe income taxes discourage additional work, unfairly take away from the people that produce NZ's real output, and do not meet the purpose of a tax (like land taxes and GST do).

EDIT: Oh, and another problem with income taxes.... there are loopholes, and they require a lot of work to keep track of. The sad part of all this is that the income taxes hurt the productive capacity of NZ. How much time is spent keeping track of income taxes that could be spent elsewhere? How many bright students go into tax accounting/law, an industry that adds absolutely nothing to the real standard of living? I have read of one former hedge fund manager and fiscal/monetary operations expert that estimates this loss of productivity from income taxes could be between 10-15% of GDP.

Taxes aren't fair at the moment. We have a progressive tax system where higher income earns pay proportionately more. A land tax would fair in the sense that it is a proportionate tax, however would be less equitable to lower income earners.
I think it would be more equitable for lower income earners. The current system, whereby ordinary workers automatically get dollars deducted from their wages while property speculators and those that can afford tax lawyers/accountants get away free (well, relatively) is not fair.

A land tax would be perfect. Like you said, it could be based on value, and I think it could be perhaps slightly progressive. For example, 4% per annum for the first 500K of the houses value, 5% for 500-1M, 6% for 1M+.

The biggest hurdle or moving to a tax system like this is it will change the land values around the country meaning thousands of people will be either adversely or positively affected for no reason and that would not be fair.
Agreed, though it could be phased in over time (and income taxes phased out) to reduce this effect.

Option two they own land with no income. They are not making efficient use of the land. It should be sold so that the most efficient use of the land can be found.

Agreed.

15-04-2011, 10:59 AM

rpcas

15-04-2011, 03:22 PM

interesting. Can I just clarify. Taxes aren't there to fund government spending because the government could just print the money. Therefore taxes are for another purpose????

Yes, though I prefer not to use the term "money printing", as there is plenty of room for confusion because of its many different informal meanings.

Essentially, every time the government spends they are "money printing", and every time they tax, they are "destroying money". If the government spends $100 today on welfare benefits, all that will happen is the Treasury's account at the RBNZ will be debited by $100, and the recipients commercial bank's reserve account at the RNBZ will be credited $100 (and so will the recipients account at the commercial bank). If the government then decided to tax the beneficiary $100, the exact reverse process would occur.

Looking at this process, it becomes quite obvious that there is no operational limit to the government's (Treasury + RBNZ) ability to credit and debit numbers on a computer - meaning that there is no operational constraint on government spending (There is perhaps a political constraint on government spending though. I am fairly sure that the USA has a law prohibiting the Treasury's account at the Fed from going into overdraft [a stupid law made by misguided politicians]. I do not know for sure if there is a similar law in NZ).It is also important to note that government spending logically must come BEFORE taxes and the issue of securities (contrary to popular belief) - if the government didn't spend before it required taxes to be paid, then citizens could not obtain the dollars necessary to pay their taxes.

Moving on, the purpose of taxes is to create demand for the currency (the obligation to pay the government NZ dollars creates demand for those dollars, essentially enforcing their use), and to regulate aggregate demand (to ensure the private sectors "spending power" does not outstrip the productive capacity of the economy) in order to maintain price stability. Don't get me wrong - taxes are absolutely vital, just not for the commonly thought reason.

Note - I think it is worth mentioning here that the USA, UK, Japan, Australia, and NZ governments are all currency issuers, whereas Germany, France, Greece, Portugal, California, Christchurch City Council etc are all currency users. The differences between currency users and issuers is HUGE, and any comparison of the sort that John Key regularly makes is totally inapplicable.

rpcas

15-04-2011, 04:08 PM

One issue with CGT as a form of revenue is that it tends to dry up just when the economy is at its weakest, thereby dealing a double blow to govt accounts and capacity to stimulate.

Sorry, but that is totally incorrect.

The sovereign government that issues its own non convertible currency never has nor doesn't have dollars, and ALWAYS has the ability to spend/stimulate. Government spending is NOT funded by taxation or the issue of securities, and the extent to which the government collects taxes does not in any way limit the governments capacity to spend (despite politicians and commentators telling you otherwise). Think of it this way - how can the NZ government "run out" of dollars, when they create them out of thin air on a spreadsheet?

The only issues with a capital gains tax are there is normally plenty of loopholes, and other taxes are potentially more efficient.

drew

25-04-2011, 12:15 AM

Sorry, but that is totally incorrect.

The sovereign government that issues its own non convertible currency never has nor doesn't have dollars, and ALWAYS has the ability to spend/stimulate. Government spending is NOT funded by taxation or the issue of securities, and the extent to which the government collects taxes does not in any way limit the governments capacity to spend (despite politicians and commentators telling you otherwise).

That begs the question then why do we pay taxes. The govt does indeed issue securities to raise funds to spend.

The better way to look at it is any type of spending by the govt is taxation. When the govt borrows to spend its just a delayed form of taxation as the taxpayer not the govt has to repay the debt.

I think what you mean is the govt can print money. But I dont think the RBNZ would be too keen on doing that. The end game of that scenario is inflation which is also a form of taxation, the one you dont get to vote for.

fungus pudding

25-04-2011, 08:38 AM

That begs the question then why do we pay taxes.

No it doesn't. It raises the question, but it's a simple, if inaccurate, statement.

drew

25-04-2011, 05:50 PM

No it doesn't. It raises the question, but it's a simple, if inaccurate, statement.

Oh im sorry i didnt realise the internet spelling police were patrolling these forums.

In any case it is not an inaccurate statement. The statement by rpcas was a circular argument saying taxes do not matter the proof being it has no impact on govt spending. Which is a bunch of nonsense.

fungus pudding

25-04-2011, 06:28 PM

Oh im sorry i didnt realise the internet spelling police were patrolling these forums.

In any case it is not an inaccurate statement. The statement by rpcas was a circular argument saying taxes do not matter the proof being it has no impact on govt spending. Which is a bunch of nonsense.

It is rcpas' statement that is inaccurate, which is what I wrote, but there is nothing circular about it. And I'm not sure what any of this has to do with spelling.

rpcas

27-04-2011, 06:08 PM

That begs the question then why do we pay taxes. The govt does indeed issue securities to raise funds to spend.

Why does the government tax?

a) To create demand for New Zealand dollars. Have you ever asked yourself why you accept a paycheck in NZD's, and why shops accept NZD's in exchange for real goods and services? By placing a tax liability on the private sector that is payable in NZD's and nothing else, the private sector instantly demands NZD's. Essentially, a fiat currency is only as good as governments ability to enforce its use (taxes).

b) To regulate aggregate demand (spending power). If consumers have too many net financial assets, aggregate demand may exceed the real productive capacity of the economy, and thus drive up prices (inflation). Taxing drains net financial assets from the private sector (government spending does the reverse - adds net financial assets), and therefore reduces the private sectors spending power.

c) To discourage the use of a certain product/action etc (smoking for example)

Don't get me wrong, taxes are absolutely essential, but just not for the commonly thought reason.

When the govt borrows to spend its just a delayed form of taxation as the taxpayer not the govt has to repay the debt.
No they don't.

I think what you mean is the govt can print money. But I dont think the RBNZ would be too keen on doing that. The end game of that scenario is inflation which is also a form of taxation, the one you dont get to vote for.

A government deficit that is followed by the issue of securities is actually LESS inflationary than a deficit "funded" by "money printing". This is because interest is payable on the securities, which further increases the deficit. If the government choose not to issue Treasury securities (which would most likely be a better alternative to the current risk free welfare that bonds are), then government spending would be less inflationary.

What you don't realize is that government spending occurs the same way (operationally) regardless of whether it's "funded" by taxes, debt or "money printing".

rpcas

27-04-2011, 06:11 PM

It is rcpas' statement that is inaccurate, which is what I wrote.

No it is not.

Quite clearly you don't understand reserve accounting and monetary operations.

Lego_Man

26-05-2011, 03:29 PM

He is correct on his reasons for taxation.

The US Dollar as a Federally-controlled currency only came into being when the US Federal Government levied a nationwide income tax payable only in US Federal Reserve Dollars.

Before that it was commercial banks who issued their own bills of exchange, thus the money supply was not under governmental control.

Te Whetu

01-06-2011, 12:34 AM

I'll also put my 2 cents in. In general I agree with rpcas, though I do disagree with a couple of his conclusions (at least as I read them):

1) The government spends using NZD.

2) This can generally be funded in three ways, i) Issue Debt, ii) Print NZD, or iii) Tax.

3) However even when the government uses the "tax" method, it's the same as printing NZD then destroying other NZD through tax.

4) The broad impacts of each method.

5) Issuing debt: This is the same as destroying dollars but with a promise to print more later... reducing inflation/tax now but increasing inflation/tax later.

6) Printing NZD: This directly increases inflation. All dollars are worth less with inflation and this impacts everyone to the extent they are long/short cash. In theory it does not impact people with real assets; so someone long real assets and short cash benefits and vise versa. Funding government spending through inflation does not seem fair and does not promote the use of the domestic currency.

7) Taxing: Assuming we want a government who spends, and assuming we don't want this to be funded via inflation then we need tax. So it is about making the tax both fair and non-disruptive. Problem is everyone has a different view on fair and fair often does not equal non-disruptive.

8) I agree with Liz here, I really would like the FDR to be broadened across all investment assets. Maybe exclude the family home from the definition of investment assets, this would be done so as to help get the act through, (and because the government sees positive externalities from home ownership and therefore wants to encourage it).

9) Personally I would like the tax on the family home as well, but that's mainly because I like renting and don't particularly like the idea of subsidising land owning families. (Which I would need to do as the FDR tax would be accounted for in the rent I pay).

10) By borrowing to fund the current deficit spending, the government is effectively reducing the inflation its spending would otherwise be causing. Later on this will need to be funded through inflation or taxes.

11) I generally support the governments aim to get into surplus quickly, as the long term inflation/tax impacts of excessive borrowing are harmful to our economy and increase the potential for future inflation/taxes.

Cheers
Te Whetu

rpcas

01-06-2011, 07:24 PM

5) Issuing debt: This is the same as destroying dollars but with a promise to print more later... reducing inflation/tax now but increasing inflation/tax later.
Issuing debt doesn't destroy dollars, but merely exchanges their form. When you buy a Treasury security, you exchange cash for a security - both denominated in NZD's. This does not destroy your financial assets, but rather changes the length of maturity (where cash has an instant maturity, and Treasuries have longer maturities). It's best to think of a Treasury security like a normal term deposit at a bank.

6) Printing NZD: This directly increases inflation. All dollars are worth less with inflation and this impacts everyone to the extent they are long/short cash. In theory it does not impact people with real assets; so someone long real assets and short cash benefits and vise versa. Funding government spending through inflation does not seem fair and does not promote the use of the domestic currency.
Consider this: If I printed myself $10 billion NZD (assume they are identical to legitimate currency) and stored them in my basement, would I be causing inflationary pressure? No.

"Printing money" as such is only inflationary if people use/spend that money. If they choose to de-leverage or save (especially de-leverage), then there won't be inflationary pressure.

10) By borrowing to fund the current deficit spending, the government is effectively reducing the inflation its spending would otherwise be causing. Later on this will need to be funded through inflation or taxes.
That is incorrect sorry, and is a common mistake.

Government deficits that are offset by the issue of government securities are NO LESS inflationary than deficits not offset by anything - or "money printing" if thats what you like to call it. This is a very important point.

Consider this:

Scenario A - Issue of Securities
Private Sector Financial Balance Sheet Before: Deposits 200, Equity 200
- then securities are issued: Deposits 100, Securities 100, Equity 200
- then government deficit spends: Deposits 200, Securities 100, Equity 300

Net result: 100 increase in net financial assets

Scenario B - "Money Printing"
Private Sector Financial Balance Sheet Before: Deposits 200, Equity 200
- then government deficit spends by printing: Deposits 300, Equity 300

Net Result: 100 increase in net financial assets

Difference: In Scenario A, the private sector has 100 additional net financial assets in the form of Treasury securities. In Scenario B, the private sector has 100 additional net financial assets in the form of cash. What's the difference between cash and Treasury securities?

Answer: Treasury securities are the most liquid financial investment on the planet. The owners of Treasury securities are always savers (whether that be banks or pension funds etc), therefore it is not important whether they hold cash or Treasury's. They will be saving either way - not issuing securities and forcing them to hold cash will NOT suddenly make these savers go out and spend. Furthermore, if these savers did want to spend, they could trade their very liquid asset for cash quickly and easily. Therefore the difference between Treasury securities and cash (when considering inflation) is negligible.

I generally support the governments aim to get into surplus quickly, as the long term inflation/tax impacts of excessive borrowing are harmful to our economy and increase the potential for future inflation/taxes.

Thats a bad idea. Our economy is struggling with additional spending (deficits) that are larger than ever. Remove this spending, and the economy goes down the hole.

Te Whetu

01-06-2011, 09:38 PM

Ok, we should switch to M1, M2, and M3 if we want to discuss this properly. For those who have not done economics (ever/recently):

M1 – Cash, on demand deposits etc. (This is money you can go out tomorrow and spend).
M2 – All of M1 and also short term deposits etc. (Effectively cash and other amounts which can be converted to cash within a reasonable time frame).
M3 – All of M2 and also longer term deposits.

Issuing debt doesn't destroy dollars, but merely exchanges their form. When you buy a Treasury security, you exchange cash for a security - both denominated in NZD's. This does not destroy your financial assets, but rather changes the length of maturity (where cash has an instant maturity, and Treasuries have longer maturities). It's best to think of a Treasury security like a normal term deposit at a bank.

You can't look at a treasury security as a normal bank term deposit. A bank term deposit gets on-lent (subject to reserve requirements), so does not reduce the amount of cash available. However a treasury security reduces the cash (M1 and M2) in the economy, but needs to be repaid later.

Yes a treasury is a financial asset, but it is not M1 and is not generally used to purchase goods and services. Thus something which is in M3 and not in M2 will generally be accruing interest and not be used to purchase goods and services.

Consider this: If I printed myself $10 billion NZD (assume they are identical to legitimate currency) and stored them in my basement, would I be causing inflationary pressure? No.

"Printing money" as such is only inflationary if people use/spend that money. If they choose to de-leverage or save (especially de-leverage), then there won't be inflationary pressure.

I feel you are getting way off track and losing the point here. We are talking of the government printing money. This implies they are spending it, sure they could print and keep it at the reserve bank, but this is the same as not printing it at all as it would not enter M1. When I say "printing money" I'm obviously talking about the government printing money and spending it.

That is incorrect sorry, and is a common mistake.

You don't need to apologise. Anyway apologising on a forum as you are arguing the other side of a point just sounds condescending.

Government deficits that are offset by the issue of government securities are NO LESS inflationary than deficits not offset by anything - or "money printing" if thats what you like to call it. This is a very important point.

Consider this:

Scenario A - Issue of Securities
Private Sector Financial Balance Sheet Before: Deposits 200, Equity 200
- then securities are issued: Deposits 100, Securities 100, Equity 200
- then government deficit spends: Deposits 200, Securities 100, Equity 300

Net result: 100 increase in net financial assets

Scenario B - "Money Printing"
Private Sector Financial Balance Sheet Before: Deposits 200, Equity 200
- then government deficit spends by printing: Deposits 300, Equity 300

Net Result: 100 increase in net financial assets

Difference: In Scenario A, the private sector has 100 additional net financial assets in the form of Treasury securities. In Scenario B, the private sector has 100 additional net financial assets in the form of cash. What's the difference between cash and Treasury securities?

Answer: Treasury securities are the most liquid financial investment on the planet. The owners of Treasury securities are always savers (whether that be banks or pension funds etc), therefore it is not important whether they hold cash or Treasury's. They will be saving either way - not issuing securities and forcing them to hold cash will NOT suddenly make these savers go out and spend. Furthermore, if these savers did want to spend, they could trade their very liquid asset for cash quickly and easily. Therefore the difference between Treasury securities and cash (when considering inflation) is negligible.

A agree; in your two examples financial assets do increase by 300. However in one M1/M2 increase by 200 and the other by 300. The long term impact of both is an increase in cash when the debt is repaid but in the short term this is not the case.

Those that buy the treasury securities don't then use them to trade for goods and services. When the government spends by borrowing they still pay in cash, those that get the deposits are the parties who wish to save.

Lets take your Scenario A:

Government sells 100 securities to China, China needs to purchase those treasuries with NZD. To do this China first purchases NZD and then uses these to buy the NZ government securities. The NZD is removed from the economy and both M1 and M2 are reduced.

Note that China doesn't then use those treasuries as pseudo cash to buy stuff. Also note if later on they do need cash then they can sell the securities but this takes the cash out from elsewhere in the economy.

The same would be true if it was an NZ investment fund instead of China purchasing the government securities. Except in this case it would not need to go through the intervening step of purchasing NZD as it would already have local currency.

Thats a bad idea. Our economy is struggling with additional spending (deficits) that are larger than ever. Remove this spending, and the economy goes down the hole.

Remove this spending and you lower the crowding out of private investment. Removing spending means less inflation and lower interest rates. This in turn means people borrow more to invest elsewhere. It also means households have lower interest costs which mean they can return to spending sooner.

Now I’m no Act supporter, I’m not saying we should chop spending and taxes too far or quickly. But what our current government is doing seems both sensible and pragmatic. A low inflation and interest environment is easily the most encouraging of business development and expansion. If we want to grow the economy then this seems like the best way to go about it.

The only thing we need to be careful of is that property prices don’t start ramping up again, which is why I’m quite happy for a tax on property. Now whether this is in the form of FDR or CGT is a fair argument, and it is an argument which needs to be had.

Thanks for reading.
Te Whetu

Te Whetu

01-06-2011, 09:48 PM

Hmm

So sadly a property tax is not something I see our current National government doing of its own volition; these sorts of taxes are generally implemented by left leaning parties. Labour didn't want to implement this sort of tax in its three terms, as many of its middle voters are those that have gone out and heavily invested in property. That said I would not be surprised to see this sort of tax implemented in Labours next term, so likely 4-7 years away.

That's not to say this sort of tax couldn't be implemented by a National government, but it would require pressure from all it's supporting parties. This basically means both the Maori party and Act would need to team-up. An unlikely combination but this sort of tax does seem like the type which each could support, though the Maori party would likely ask that there is a discount for Maori land written into the legislation due to its reduced marketability, (it is very hard to sell as only certain parties can purchase it).

It would also increase the chances of National implementing some sort of tax like this if Labour campaigns on a CGT/FDR tax, which is certainly not out of the realms of possibility.

Cheers
Te Whetu

drew

01-06-2011, 10:33 PM

rpcas im curious where you came up with this stuff? I've heard a lot of economic theories in my time but nothing quite like yours.

Te Whetu is pretty much bang on, treasuries reduce money in circulation being M1 so total money supply will not increase (assuming the securities are not being purchased by govt) and velocity of money remains the same.

Going back to your earlier reply to me about why govt taxes apparently to "create demand for NZD" really does not make any sense. The govt exercises a monopoly over currency in NZ therefore there is no competition. If we had a free banking system where a bank could issue its own currency then govts monopoly over money would be taken away and so its ability to execute monetary policy in the economy. In any case, for what purpose would a govt want to create demand for the currency it exercises a monopoly over?

You seem to be engaging in a fallacy of only looking at currency and not the fact that the currency needs to be exchanged for resources.

As for "regulating aggregate demand" that just sounds like Keynesian nonsense (no offense to Keynes of course :) ). Go back to your Milton Friedman son, "inflation is always and everywhere a monetary phenomenon".

Te Whetu a couple of comments - inflation has very negative impacts on an economy not just poor people but the business environment as it creates a lot of uncertainty. Its not the actual rate of inflation that causes this problem but the rate of change in inflation. If inflation was a constant 10% p/a and we all knew and expected that we could deal with it in wages, contracts, capital purchases etc. Its when it varies that it causes so many problems and people are unprepared.

Also not sure why you think a property tax is a good thing. In my opinion income is the most appropriate thing to tax. And capital as compared to income and consumption is the most sensitive to taxes. Capital can flee an economy if it doesnt like a tax unlike labour and consumption. Obviously land is not the kind of capital that can flee an economy and because of this there is a strong economic argument that taxing land is efficient but there are very strong counter arguments against this when you consider the role of the govt becomes landlord and master of your property and free to levy taxes as they see fit.

Anyway in my opinion property taxes are more likely to drive property prices up not down.

Te Whetu

02-06-2011, 01:22 AM

Te Whetu a couple of comments - inflation has very negative impacts on an economy not just poor people but the business environment as it creates a lot of uncertainty. Its not the actual rate of inflation that causes this problem but the rate of change in inflation. If inflation was a constant 10% p/a and we all knew and expected that we could deal with it in wages, contracts, capital purchases etc. Its when it varies that it causes so many problems and people are unprepared.

That is partly true, a steady 10% is better than wild fluctuations between 2% and 7%. However I can name a several things that high inflation do impact which is not desired, here are a couple:

i) Very high inflation means depreciation becomes worthless for long life projects (significantly reduced tax shield), this discourages investments in longer term projects in favour of shorter term projects even when the longer term project might otherwise be a better use of capital.

ii) High inflation is a nightmare to model out more than a few years. This also disadvantages long term business projects and a high inflation country is disadvantaged vs. one with low inflation due to the degree of confidence that can be provided with scenarios provided to decision makers. High inflation also harms the validity accounting records makng things like ROE or ROA fairly meaningless.

iii) High inflation means that the tax on bank deposits would be greater than real interest. Also in the cases where capital gains are taxed there would either be massive over-taxing OR additional complexity added to the tax system to allow for inflation.

iv) High inflation means where a party pays another party annually (e.g. some taxes are only paid annually based on prior year income). The government would effectively lose out on larger amounts which are from one year ago.

v) High inflation disproportionally hurts the poor, as they are less able to structure their affairs to account for the fact that inflation is high. If they only got one pay rise a year then they will be fine at the start but by half way through the year things are all 5% more expensive and the're another six months away from a pay rise. Giving more frequent pay rises would become a necessity which puts additional strain on businesses. Alternatively you could agree to 2.4% pay rises each quarter... but even that adds more complexity.

vi) Prices need to be updated a lot more. That's fine for larger businesses which have automated systems and possibly also smaller businesses where it's not too large a task. But in some businesses re-pricing is not something which is a cheap exercise and can cause disruption to customers. The tighter the margins in the industry the more often prices need to be changed.

Mainly just wrote these as they came to mind...

EDIT: Basically a lot of these could be adjusted and accounted for, but that in itself would take a lot of resources. So I'd argue high inflation increases the dead-weight loss in a countries economy, even when inflation is correctly forecast to be high.

Also not sure why you think a property tax is a good thing. In my opinion income is the most appropriate thing to tax. And capital as compared to income and consumption is the most sensitive to taxes. Capital can flee an economy if it doesnt like a tax unlike labour and consumption. Obviously land is not the kind of capital that can flee an economy and because of this there is a strong economic argument that taxing land is efficient but there are very strong counter arguments against this when you consider the role of the govt becomes landlord and master of your property and free to levy taxes as they see fit.

What form the property tax takes has different advantages/disadvantages, a CGT is less likely to drive off capital. But it's also harder to implement (and would need to be higher) than a FDR tax. I'm actually rather unconcerned which it is but we should really have I just feel we need something.

Anyway in my opinion property taxes are more likely to drive property prices up not down.

I'd argue this, but not now... and can certainly see some arguments which could be made on your side. What does history show us? I'm sure property taxes have been introduced and the impact recorded in other places in the world. Do you also say that a CGT would increase prices (I'm assuming not)?

rpcas

02-06-2011, 06:39 AM

I feel you are getting way off track and losing the point here. We are talking of the government printing money. This implies they are spending it, sure they could print and keep it at the reserve bank, but this is the same as not printing it at all as it would not enter M1. When I say "printing money" I'm obviously talking about the government printing money and spending it.
Yes, but whether or not that "money printing" results in inflation depends on whether the private sector goes on to spend. If for example the government "prints money" and gives it to beneficiaries who then go on to save it, then inflation won't be a problem.

This is the situation NZ is in now. The private sector is de-leveraging, so big government deficits are not nearly as inflationary as they otherwise would be. Remember inflation of the sort we are talking about is caused by excessive spending.

A agree; in your two examples financial assets do increase by 300. However in one M1/M2 increase by 200 and the other by 300. The long term impact of both is an increase in cash when the debt is repaid but in the short term this is not the case.

Those that buy the treasury securities don't then use them to trade for goods and services. When the government spends by borrowing they still pay in cash, those that get the deposits are the parties who wish to save.
Yes, agreed. However the key point here is that the people that buy the Treasury securities (banks, insurance companies, funds etc) wouldn't be spending anyway. It is ridiculous to say that "Those that buy the treasury securities don't then use them to trade for goods and services" because they wouldn't anyway. Holding Treasuries instead of cash in no way alters these firms/savers propensity to spend, and therefore won't alter inflationary pressure.

Government sells 100 securities to China, China needs to purchase those treasuries with NZD. To do this China first purchases NZD and then uses these to buy the NZ government securities. The NZD is removed from the economy and both M1 and M2 are reduced.

Note that China doesn't then use those treasuries as pseudo cash to buy stuff. Also note if later on they do need cash then they can sell the securities but this takes the cash out from elsewhere in the economy.

The same would be true if it was an NZ investment fund instead of China purchasing the government securities. Except in this case it would not need to go through the intervening step of purchasing NZD as it would already have local currency.

Agreed, but would China Central Bank be spending their dollars if they didn't hold securities? No, they would hold them in their reserve account at the RBNZ. Whether they hold the securities or not (if Treasuries weren't issued), and is not relevant to inflation, despite the differences in M1..

Remove this spending and you lower the crowding out of private investment. Removing spending means less inflation and lower interest rates. This in turn means people borrow more to invest elsewhere. It also means households have lower interest costs which mean they can return to spending sooner.
Government spending only crowds out private investment when the economy is almost or fully employing their resources (in which case more investment will lead to inflation). This is not currently the case in New Zealand, with 6% (?) unemployment and untold underemployment.

On the other side of the spectrum, if the government doesn't net spend enough, then businesses sales won't increase fast enough, and the firms won't bother investing. Firms invest when they face increased sales/believe future prospects are better. If the economy isn't growing, then these firms won't invest.

The only thing we need to be careful of is that property prices don’t start ramping up again, which is why I’m quite happy for a tax on property. Now whether this is in the form of FDR or CGT is a fair argument, and it is an argument which needs to be had.
Agreed.

Thanks for reading.
Te Whetu

Thanks for the discussion!

rpcas

02-06-2011, 06:53 AM

rpcas im curious where you came up with this stuff? I've heard a lot of economic theories in my time but nothing quite like yours.

Well I don't "come up with it" as such :). Much of what I am saying here is based on the accounting identities and true realities of our monetary system. Obviously I learn it from books and online papers. Here are a couple of useful links:

The balance sheet visualizer is accurate, lays everything out nicely and is fun to play around with: http://econviz.com/balance-sheet-visualizer.html
This book is aimed is easy and fun to read, as well as somewhat shocking. It avoids complications and technical terms, but is still a must read: http://moslereconomics.com/2009/12/10/7-deadly-innocent-frauds/

That will get you started!

drew

02-06-2011, 11:05 PM

Te Whetu all you comments i mostly agree with. The point i was simply making is that a constant rate of inflation can be dealt with. If we know its going to be say 5% or 10% then all prices can simply be indexed to the expected inflation rate. It would be a little problematic but Brazil has coped with high inflation for a very long time now. Thats not to say inflation is not harmful but when it fluctuates year on year is when it really makes a mess of things.

What form the property tax takes has different advantages/disadvantages, a CGT is less likely to drive off capital. But it's also harder to implement (and would need to be higher) than a FDR tax. I'm actually rather unconcerned which it is but we should really have I just feel we need something.
The houses and land cant leave the additional capital required to build new houses certainly can leave or not come at all.

I'd argue this, but not now... and can certainly see some arguments which could be made on your side. What does history show us? I'm sure property taxes have been introduced and the impact recorded in other places in the world. Do you also say that a CGT would increase prices (I'm assuming not)?
I think testing empirical evidence against impacts of a CGT on property prices is a very difficult task and studies always need to be discounted due to potential bias.

I think you should base your opinion on basic economic reasoning on what impact a CGT is likely to have. Prices are only signals and are a function of supply and demand. Whenever a govt taxes something it is expected to reduce both demand and supply. Maybe check out duncan macgregors posts in the property section - he correctly points out how regulations, red tape and unreasonable costs being imposed on the building of houses that has caused the high prices in NZ.

The basic problem in the housing market is there are not enough houses. There is no shortage of land in NZ either. During the last 10 years or so prices kept rising in the housing market. We had the most fertile conditions to create an oversupply of houses with low interest rates, rising GDP, general public confidence etc. Instead the only oversupply occurred in central city apartments because that was the only area in which the market could quickly and cost effectively create new housing units in response to price signals.

So a CGT will reduce demand somewhat but people still need to live somewhere so the demand is a bit inelastic. The bigger concern is what a CGT will have on supply. Also it might make it more difficult to sell or rather people will be more reluctant to sell if they cannot pass on all of the cost to a buyer. Either way, supply will be restricted and costs will go up.

I remember over a year ago reading an article by John Whitehead about how house prices were a problem and he blamed everybody from greedy mums and dads, property hoarders, the banks etc. Everyone was to blame except of course the govt. If you want to fix the housing market we need more houses - in that case we should be encouraging the speculators and high prices because thats the only way more houses will be built. If you try to force the prices down then, as is typical in the wonderful world of economics and counter intuitive unexpected consequences, you will end up with even higher prices.

drew

02-06-2011, 11:33 PM

Yes, but whether or not that "money printing" results in inflation depends on whether the private sector goes on to spend. If for example the government "prints money" and gives it to beneficiaries who then go on to save it, then inflation won't be a problem.

This is the situation NZ is in now. The private sector is de-leveraging, so big government deficits are not nearly as inflationary as they otherwise would be. Remember inflation of the sort we are talking about is caused by excessive spending.
Nonsense. If the beneficiary puts the money in a bank then the bank will be paying interest to the beneficiary and will seek to onlend the deposited funds. In a fractional reserve banking system savings will exponentially grow the money supply. Inflation is not caused by spending alone - it is caused by spending of an increased quantity of money that finds its way into an economy.

When the total quantity of money increases people will tend to spend more money. When more money gets spent on the same amount of goods and services being produced, prices will tend to rise. Thats inflation.

Yes, agreed. However the key point here is that the people that buy the Treasury securities (banks, insurance companies, funds etc) wouldn't be spending anyway. It is ridiculous to say that "Those that buy the treasury securities don't then use them to trade for goods and services" because they wouldn't anyway. Holding Treasuries instead of cash in no way alters these firms/savers propensity to spend, and therefore won't alter inflationary pressure.
Wrong again rpcas - treasuries held by a bank will be treated by them as core capital and will allow them to increase their lending and hence the money supply will grow.

If a non-bank institution or business or whatever holds a treasury note they can use that as security to borrow funds against. The treasury will likely end up in the hands of a lending institution and the money supply will most likely increase.

Agreed, but would China Central Bank be spending their dollars if they didn't hold securities? No, they would hold them in their reserve account at the RBNZ. Whether they hold the securities or not (if Treasuries weren't issued), and is not relevant to inflation, despite the differences in M1..
In this example the RBNZ would likely use the funds deposited by a foreign central bank as part of its open market operations which is a more subtle way in carrying out monetary policy than adjusting interest rates and capital ratios. Those funds will very likely find themselves somehow sloshing through the NZ economy.

Government spending only crowds out private investment when the economy is almost or fully employing their resources (in which case more investment will lead to inflation). This is not currently the case in New Zealand, with 6% (?) unemployment and untold underemployment.
No thats not right. Crowding out can occur in a specific sector it depends on what action the govt is going to take. It seems to me you are only looking at things in aggregate when oversupply and undersupply can occur at the same time in different areas of an economy.

On the other side of the spectrum, if the government doesn't net spend enough, then businesses sales won't increase fast enough, and the firms won't bother investing. Firms invest when they face increased sales/believe future prospects are better. If the economy isn't growing, then these firms won't invest.
Well thats debatable. The govt is only able to spend money by taking it from the consumers through taxes. I prefer to look at it from a philosophical perspective - if the people at large want to spend less money in aggregate or in a particular sector (both of which can cause a recession) what right has a govt to take money from them forcibly and spend against their will?

rpcas

03-06-2011, 07:04 AM

Nonsense. If the beneficiary puts the money in a bank then the bank will be paying interest to the beneficiary and will seek to onlend the deposited funds. In a fractional reserve banking system savings will exponentially grow the money supply.
Banks are never reserve constrained - loans create deposits. Banks make loans and find the reserves later if need be (the RBNZ is the lender or last resort, and is obliged to lend). In NZ, there are no reserve ratio's, so there is nothing to stop lending regardless of how many reserves a bank has.

Increased deposits at a bank does not increase their capability to make loans. The only requirement is the maximum equity to loan ratio.

In this example the RBNZ would likely use the funds deposited by a foreign central bank as part of its open market operations which is a more subtle way in carrying out monetary policy than adjusting interest rates and capital ratios. Those funds will very likely find themselves somehow sloshing through the NZ economy.
The Reserve Bank is never ever short of NZD's, and all of its operations involve inputing data on a computer. Open market operations involves the RBNZ debiting or crediting the commercial banks reserve account, and providing or receiving a Treasury security in return. The RBNZ doesn't get the "money" to do this from anywhere. It just types the numbers into a computer.

You seem to have the idea that when a commercial bank or the RBNZ has greater deposits or reserves respectively, they can lend more and "money" will end up "sloshing around". This is categorically false. Greater deposits aren't required for "money to slosh around".

No thats not right. Crowding out can occur in a specific sector it depends on what action the govt is going to take. It seems to me you are only looking at things in aggregate when oversupply and undersupply can occur at the same time in different areas of an economy.
Alright. If the government spends inappropriately, with too much in one area and too little in another, I suppose that could happen.

Well thats debatable. The govt is only able to spend money by taking it from the consumers through taxes. I prefer to look at it from a philosophical perspective - if the people at large want to spend less money in aggregate or in a particular sector (both of which can cause a recession) what right has a govt to take money from them forcibly and spend against their will?

I hope your kidding because that comment proves you don't understand the topic.

belgarion

07-07-2011, 06:29 PM

South African example ...
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10698224
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10698913
http://www.nzherald.co.nz/south-africa/news/article.cfm?l_id=94&objectid=10699125
(Sorry if I've not got them in order.)[/

absolut-advance

09-07-2011, 08:55 AM

Id rather they better go about using the money they get already before voting to give them more money via another tax.

Id rather they tax high income earners more, and reduce tax for the middle class, and give businesses a temporarily tax reduction for 6 months for every new employer they take on and keep on for one year, thus creating jobs and reducing beneficiaries.

To grow a strong economy we need a strong "working" middle class and incentives for businesses to grow and employ.

CGT will be damaging to one method to build a nest egg for retirement thus creating more mediocre middle class and forcing many to rely on the pension in later life.

A high CGT could be applied to only individuals who have net wealth 5 times that of the average New Zealanders net wealth or higher, the CTG returned to the Working Middle class as a Tax reduction.

This would reward and give hope to middle class individuals to build asset wealth for retirement and to not rely on the government pension yet would also work to reduce the ever growing disparity between the very rich and very poor.

Strengthening the middle class will lead to greater opportunity to get ahead for the majority , put in incentives to encourage the middle class to invest correctly in economic production.

Teach in schools from a early age that real Assets earn "passive income" and liabilities are things like cars and homes that don't generate income.

Force the Government to better use the money they get by not giving them any more, encourage efficiency and cap Government borrowing.

Let the wealth growth rate of the Middle Class be the only means for increased tax revenue.

Reduce Tax for Exporters, Increase tax for Importers.

Block students who leave school from joining a polytech or university until they have completed 12 months of work experience in the real world.

AA

09-07-2011, 11:58 AM

Absolute - good ideas but extremely complicated so wont work.

CGT on everything taxed at marginal rates, but reduce marginal rates (incl company and trust) to 20% (or slowly reduce to 20% as the CGT take increases).

I am a right wing voter, but would vote for a CGT but dont trust Labour to implement it properly or to give the individual tax rates a corresponding cut. If national were to do and make it fiscally neutral (like the GST increase was), then it would be great.

POSSUM THE CAT

09-07-2011, 12:10 PM

CJ they only need to use the Australian system very simple

macduffy

09-07-2011, 12:58 PM

Increased deposits at a bank does not increase their capability to make loans. The only requirement is the maximum equity to loan ratio.

I wouldn't dismiss the capital requirement issue quite so lightly.

The current trend is to tighten these ratios which could well constrain the ability of some banks to increase their lending. Kiwibank would be in this category, IMO, as NZ Post (the govt) wouldn't welcome - or be able to afford? - the call for increased capital to support increased lending, regardless of how easy or difficult it may be to raise the deposits to fund them. I can see the new Heartland bank having the same problem down the track.

All a bit off the subject of a capital gains tax. For what it's worth, I'd like to see a comprehensive tax along the lines of the Aussie one as soon as possible to take some pressure off a system which relies overly much on taxing income from earned income/company profits.

fungus pudding

09-07-2011, 01:15 PM

Absolute - good ideas but extremely complicated so wont work.

CGT on everything taxed at marginal rates, but reduce marginal rates (incl company and trust) to 20% (or slowly reduce to 20% as the CGT take increases).

Then it is not a CGT. That is just income tax. Exactly as it stands now for those dealing in pproperty - or anything else.

fungus pudding

09-07-2011, 01:23 PM

I wouldn't dismiss the capital requirement issue quite so lightly.

The current trend is to tighten these ratios which could well constrain the ability of some banks to increase their lending. Kiwibank would be in this category, IMO, as NZ Post (the govt) wouldn't welcome - or be able to afford? - the call for increased capital to support increased lending, regardless of how easy or difficult it may be to raise the deposits to fund them. I can see the new Heartland bank having the same problem down the track.

All a bit off the subject of a capital gains tax. For what it's worth, I'd like to see a comprehensive tax along the lines of the Aussie one as soon as possible to take some pressure off a system which relies overly much on taxing income from earned income/company profits.

I'd like to see the Aussie self funded retiree scheme introduced here.

fungus pudding

09-07-2011, 01:32 PM

I am with CJ on this one.

No income tax. Low company tax ( if any ). Retain excise taxes ( fags booze etc )

GST with no claw back.. Thus relief from never ending paper work..

What about introducing a Tobin Tax ??

There is very little paperwork with GST. What have you bought, what have you sold. What is the difference, and what is the GST on that amount? It's minutes rather than hours for any businress operating the right system. By clawback I presume you mean no deduction for input. If so it would not work because gthe tax would become cumulative. Some items would be marked up hundreds of % in tax alone. It can only work if it falls to the end user. It's actually a great system whether you agree with consumption tax or not, probably the best in the world. - let's hope nobody ever alters the basic structure of it e.g. introducing exemptions.

POSSUM THE CAT

09-07-2011, 02:00 PM

fungus pudding

09-07-2011, 02:49 PM

Fungus Pudding there are and always have been exemptions Read the GST ACT bank fees for one are GST exempt. The reason for very few exemptions has gone with the adoption of computers. That was one of the reasons the increase to 15% was actually possible try working out the 15%GST without A computer for a gst return it is not simple like it is for 10% & 12.5%. It could even be included in the products barcode as to the products GST stutus

Yes. Financial transactions, res. rents have always been exempt, which was easy ad necessary. physical - a pure service. There are special reasons why finance never attracts consumption tax in any system and it's all about interest rates. I am not aware of any exempt countries. Consider the likes of fruit and vegetables in a mixed business. Do they go out the door as they same in, or in a salad roll? Over the checkout counter, or through the delicatessen as a salad. As it is it is very hard to fiddle. Incidentally, removing GST from perishables as Labour are on about will not reduce the retail price, just as it could not be added when introduced. Nothing responds as rapidly to supply and demand. It is always priced to sell before it has to be thrown out; that's the only criterion. Supermarkets adjust prices daily or even through the day, and the mark-up range can be massive. They won't bother reducing below what they can safely sell out at. And you certainly do not need a computer to calculate GST whatever the percentage. Anyone that can't do it in their heads can do it on a two dollar calcukator. GST content 1s 3/23rds or 13.04%. No more difficult than it was at 12.5% and content was 1/9 or 11.11 % Every review ever done on GST has commended the fact there are no exemptions. That includes various studies done by the Labour party hypocrites.

09-07-2011, 02:56 PM

Then it is not a CGT. That is just income tax. Exactly as it stands now for those dealing in pproperty - or anything else.yes. Income tax but on capital gains. Provided you factor in inflation somehow, I dont see why income gains should be taxable but capital gains shouldn't be. Anything that increases wealth.

Halebop

09-07-2011, 03:16 PM

I think some form of capital gains tax would be fair - particularly if it also resulted in lower income taxes* (I think a flat tax across any form of income and because I'm an egalitarian prick would even consider taxing the family home too - albeit political ramifications would almost certainly preclude this). John Key has suggested CG taxes are complex which is partly true but so is the tax system in its entirety so suspect he is pandering here. I don't like the wealth tax approach and think cashflow is too important a consideration in the investment value mix so taxes should be incurred at sale time, nothwithstanding the consequences on how this impacts asset sale decisions.

The question of inflation is complex as many people suggest capital gains should be cupped by the rate of inflation (or even the risk free rate of return). But by the same note, income taxes are often allowed to creep up the progressive scale so are not always effectively indexed against inflation. What happens in one should happen in the other.

* Suspect investors have something to gain from lower income taxes anyway as a share of income increases will find their way into company coffers.

whirly

09-07-2011, 03:48 PM

From what I've read it sounds like fiddling with numbers that ultimately will not end up making much difference at all to most of us. Much like the great tax cuts. Give with one hand and take with the other.

fungus pudding

09-07-2011, 04:14 PM

yes. Income tax but on capital gains. Provided you factor in inflation somehow, I dont see why income gains should be taxable but capital gains shouldn't be. Anything that increases wealth.

But capital gained is treated as income and taxed already for many property investors. The hoi polloi seem to think that investors can just sell properties and pocket the capital profit. Will be interesting to see if Goff/Cunliffe are suggesting that they should now declare the profit as income and pay a CGT as well. Or are they looking more at areas that are almost always exempt? Mainly these are farms and holiday homes, or perhaps a second home such as an inner city apartment.

biscuit

09-07-2011, 04:21 PM

yes. Income tax but on capital gains. Provided you factor in inflation somehow, I dont see why income gains should be taxable but capital gains shouldn't be. Anything that increases wealth.

One problem with that is that the increase in value of an asset doesn't necessarily provide cashflow to pay tax. Also, many assets go up in value over time above the rate of inflation because some poor bugger has invested their time and energy into building them up - something you are unlikely to get a tax credit for. Personally, I would be very reluctant to encourage politicians to see assets as a source of Government revenue. Also - we might all be better off if we taxed things that don't "increase wealth"

fungus pudding

09-07-2011, 06:44 PM

One problem with that is that the increase in value of an asset doesn't necessarily provide cashflow to pay tax. Also, many assets go up in value over time above the rate of inflation because some poor bugger has invested their time and energy into building them up - something you are unlikely to get a tax credit for. Personally, I would be very reluctant to encourage politicians to see assets as a source of Government revenue. Also - we might all be better off if we taxed things that don't "increase wealth"

None of this matters of course. They won't get a sniff at the treasury benches for a few years. By then they will probably give up on this one, and just get back to ****ing on about how unfair it is that some work hard, chuck everything on the line and if lucky, make a few bob. That will lead to more envy levels on income tax - their usual ploy to pacify their sad socialist followers.

Jay

09-07-2011, 07:26 PM

But capital gained is treated as income and taxed already for many property investors. The hoi polloi seem to think that investors can just sell properties and pocket the capital profit.

Agree, however the IRD don't seem to have the resources to track everyone doing that.
I know of a person who bought and sold a "family" home 4 times within about 2 years and each time made at least $100K - supposed to be that they changed their mind on where they wanted to live or decided they did not like the house.
Equally would/should apply to share investors traders as well, IRD do not seem to monitor this area either, but then how far do you go - cars, art, stamp/coin collections etc etc

biscuit

09-07-2011, 07:49 PM

Agree, however the IRD don't seem to have the resources to track everyone doing that.
I know of a person who bought and sold a "family" home 4 times within about 2 years and each time made at least $100K - supposed to be that they changed their mind on where they wanted to live or decided they did not like the house.
Equally would/should apply to share investors traders as well, IRD do not seem to monitor this area either, but then how far do you go - cars, art, stamp/coin collections etc etc

Putting a CGT on the increase in value of all assets would probably reduce some tax evasion. But, they will not put CGT on all assets. The most effective way to reduce tax evasion would be if we all handed over all our salaries and assets to the IRD and lived off a small benefit.

fungus pudding

10-07-2011, 09:38 AM

Putting a CGT on the increase in value of all assets would probably reduce some tax evasion. But, they will not put CGT on all assets. The most effective way to reduce tax evasion would be if we all handed over all our salaries and assets to the IRD and lived off a small benefit.

Wrong. Adding any new tax increases incentive for evasion and always opens new avenues. I was witness to (not party to - of course) numerous transactions in the days of speculation tax, when a local property investor always had sackfuls of cash. He would contract to buy a property at a certain price, then top it up with an under the counter payment; often as much as 90% of the increased price. There were more conventional and probably less illegal ways around it, but they would spring up again.

10-07-2011, 10:05 AM

But capital gained is treated as income and taxed already for many property investors. but not all. And most pretend they long term holders rather than traders. elimitate the 'intention' test and that wrought goes away.

Also, many assets go up in value over time above the rate of inflation because some poor bugger has invested their time and energy into building them up - something you are unlikely to get a tax credit for. You are suggested income from labour which was not paid as wages or salary, so no PAYE/tax. increase in wealth from labour should be subject to tax. Currently you can hid as a 'captial gain' and get away with it (hence why builder/ developers/ traders are tainted in respect to land transactions).

fungus pudding

10-07-2011, 10:12 AM

I think some form of capital gains tax would be fair -

If properly implemented it would be fair. No doubt about that. The problem as I see it is many prop. investors, traders, businesses and developers are subject to income tax already on capital gained. If a separate CGT tax was introduced, would they pay both? If not - which one would they pay? Or would it still remain a matter of intention? Where would the line be drawn?

biscuit

10-07-2011, 10:47 AM

but not all. And most pretend they long term holders rather than traders. elimitate the 'intention' test and that wrought goes away.

You are suggested income from labour which was not paid as wages or salary, so no PAYE/tax. increase in wealth from labour should be subject to tax. Currently you can hid as a 'captial gain' and get away with it (hence why builder/ developers/ traders are tainted in respect to land transactions).

Why should increase in wealth from entrepreneurship be subject to tax? Personally, I think that is exactly the wrong thing to tax.

fungus pudding

10-07-2011, 10:53 AM

Why should increase in wealth from entrepreneurship be subject to tax? Personally, I think that is exactly the wrong thing to tax.

Because like it or not - it is income. The American system allows you to sell and as long as you buy an replacement asset within 12 months there is no CGT to pay. Only when you finally cash out (if ever) do you pay CGT. That's pretty hard to argue with.

biscuit

10-07-2011, 11:02 AM

Because like it or not - it is income. The American system allows you to sell and as long as you buy an replacement asset within 12 months there is no CGT to pay. Only when you finally cash out (if ever) do you pay CGT. That's pretty hard to argue with.

If I take a bare piece of land and develop it so that it now has a motel on it. Well, fair enough, the Government takes a cut from here to eternity of the income that new asset produces. But the new value that has been created, why give a chunk of that to the buggars as well? It is the same as building up any business and creating value and income streams. Society and the Gorvenment benefits and can tax the income stream. But taxing people for creating wealth, I do not get.

10-07-2011, 02:15 PM

Why should increase in wealth from entrepreneurship be subject to tax? Mark Ellis and Stefan apparently turned a $140k investment into $18m each. Why shouldnt that be taxed?

Would they still have done what they did if they had to pay $2.7m in tax. Off course they would (the remaining $15m would do).

fungus pudding

10-07-2011, 02:49 PM

If I take a bare piece of land and develop it so that it now has a motel on it. Well, fair enough, the Government takes a cut from here to eternity of the income that new asset produces. But the new value that has been created, why give a chunk of that to the buggars as well? It is the same as building up any business and creating value and income streams. Society and the Gorvenment benefits and can tax the income stream. But taxing people for creating wealth, I do not get.

And if developing motels is how you make your living ..there is no valid reason why you should be any less liable for tax than a plumber or nurse. The problem with the line drawing rules currently is that as long as you had a bit of income from some other activity you had a good chance of not paying tax on gains from your property activities. One day this will change, but not in the foreseeable future. Labour has now made certain that National wll oppose CGT so it will take a few elections before Nats can introduce it. It will also take a leadership change and a few elections before Labour can stop waffling about what they will do, because they know they won't have to put it into practice. Seems like they've learnt a trick or two from Winston First.

biscuit

10-07-2011, 05:14 PM

Mark Ellis and Stefan apparently turned a $140k investment into $18m each. Why shouldnt that be taxed?

Would they still have done what they did if they had to pay $2.7m in tax. Off course they would (the remaining $15m would do).

Who are you to say that?

Once you go down this path, the logical conclusion is that at the end of the year, everyone's wealth should be assessed and a tax bill paid on the increase, regardless of cashflow. That might make sense to people with no assets, but it would hardly be fair to the people who have accumulated and built up assets and are already paying tax on the income from those assets. There seems to me to be a feeling out there that the wealthy should pay more of the tax burden, which ignores the fact that the tax burden already falls disproportionately on those with high incomes and assets. I'm not opposed to addressing genuine issues where people are rorting the system to evade tax. But significant instances of that are probably quite limited to specific asset bubbles and are unlikely to be the general rule.

10-07-2011, 06:30 PM

Who are you to say that?

Once you go down this path, the logical conclusion is that at the end of the year, everyone's wealth should be assessed and a tax bill paid on the increase, regardless of cashflow. Definitely not. I dont agree with any tax that isn't on a realised basis. And I also would prefer roll over relief. I see how that works for property (buy a new property) but not exactly sure with shares.

I also would only vote for it if it was in conjunction with reduction in income tax rates - something I dont trust Labour with.

I dont have all the answers but dont think it should be ruled out.

Note: I will still be vote right.

belgarion

11-07-2011, 07:28 AM

...which ignores the fact that the tax burden already falls disproportionately on those with high incomes and assets.

This old gem again. A shame its not actually true.

fungus pudding

11-07-2011, 08:59 AM

This old gem again. A shame its not actually true.

Tax on income of 35,000 = $5,000

Tax on income of 70,000 = $14,000

Tax on income of 140,000 = $37,000

Fairly obvious that higher incomes pay dispropotionately more. Only a flat tax would have them paying proportionately more.

POSSUM THE CAT

11-07-2011, 10:06 AM

Fungus Pudding be careful what you wish for The flat tax could be 100% & the state would give you a living allowance

belgarion

11-07-2011, 11:57 AM

fungus pudding

11-07-2011, 12:09 PM

biscuit

11-07-2011, 02:08 PM

FP, Sorry I didn't make myself very clear. I was not referring to wage slaves that have no other investments and are stuck paying PAYE. I was referring to the majority who earn over $150k from many more than once source and how they ensure they are taxed on far lower incomes. E.g. a friend who earns a salary of 180K and yet pays tax each year on about 32k. This is a high capital worth individual who will get caught by the CGT. He's remarkly sanguine about the whole CGT issue as well.

I think that is a separate issue and needs to be addressed specifically. We all know that that commonly involves using negative gearing losses to offset other incomes. The Nat Govt has addressed that to some extent with regard to property with the elimination of the LAQC rort. There is probably more that should be done around other assets such as farms. But that is quite separate from introducing tax on a whole new class of "income". People with assets should not be sanguine about that proposal. Regardless of how it is framed at the outset, once you let the fox into the chicken coop, the end result is always the same - blood and feathers. Address the specific routes by which people are rorting the system, but leave assets out of the equation

Aaron

11-07-2011, 02:41 PM

I think that is a separate issue and needs to be addressed specifically. We all know that that commonly involves using negative gearing losses to offset other incomes.

I think that is the issue. Belgarion's friend is making very little income due I assume to borrowing to invest. If he invests well any gains will be tax free. Good on him to for taking the risks and getting the returns.

The issue is, why is the return from his efforts earning income being taxed but the capital gain portion of his investing efforts remain untaxed. Is it harder working 9 to 5 or holding an asset that is increasing in value by 5%-20% per year. We tax income and consumption why not wealth? In fact wouldn't the wealthier we become mean we are in a better position to contribute to society.

Another important election issue is how are they going to spend our tax dollars. I don't mind paying for a lot of what the government spends our tax dollars on e.g.hospitals, schools, police, national super etc. But surely there are areas where spending can be cut to reduce the deficit instead of increasing taxes. I guess we will all vote for whatever is in our own best interest but I hope we aren't all knowingly being bribed by the politicians leaving our kids to pay the bill later.

11-07-2011, 02:50 PM

Address the specific routes by which people are rorting the system, but leave assets out of the equationSo ignoring the rate of tax (or assuming any change would be fiscally neutral to the government) what changes would you recommend to broaded the tax base.

Or do you think the current balance is right, if properly enforced (John Key seems to be suggesting this).

biscuit

11-07-2011, 03:30 PM

So ignoring the rate of tax (or assuming any change would be fiscally neutral to the government) what changes would you recommend to broaded the tax base.

Or do you think the current balance is right, if properly enforced (John Key seems to be suggesting this).

Well, firstly, I don't reckon a CGT would really do much to "broaden" the tax base. If you exclude people's homes, the vast majority of people don't own anything worth taxing, do they? A CGT is really simply going to narrow the tax base even further. I think realistically, you cannot squeeze much more out of most NZers, they just don't have enough anyway. You could probably "effectively broaden" the tax base by getting rid of subsidies such as kiwisaver and working for families, interest-free student loans etc. But if you specifically want to tax people who are currently getting a free ride, toughen up the IRD's approach to those obviously ripping off the system particularly where people have assets but little or no income. It's not unreasonable, I think, to expect people with investments to be making taxable income over the long term.

fungus pudding

11-07-2011, 03:41 PM

I think that is the issue. Belgarion's friend is making very little income due I assume to borrowing to invest. If he invests well any gains will be tax free. Good on him to for taking the risks and getting the returns.

If he is regularly realising profit it will be taxed.

Aaron

11-07-2011, 04:48 PM

If he is regularly realising profit it will be taxed.

True but he also has the choice if he wants to hold long term and not pay tax. Also in the case of investment property he has some leeway regarding intention at time of purchase and with shares some leeway regarding changing investment strategy and portfolio reweighting rather than being taxed on speculation and trading.
If he is realising investments every two or three years is that trading? Rather than have the half arse system we have now trying to identify when a capital gain is income/revenue just have a CGT. It does also catch the long term investors but again what is so bad about taxing wealth. Why is taxing income and consumption OK but taxing wealth somehow is worse. All taxes are horrible but if we agree they are essential to maintain a soceity like the one we live in, what is the fairest most equitable way to get those tax dollars.

biscuit

11-07-2011, 05:12 PM

All taxes are horrible but if we agree they are essential to maintain a soceity like the one we live in, what is the fairest most equitable way to get those tax dollars.

Well, the fairest way is to work out how much we need, divide it by the number of people living here and send everyone a bill.

minimoke

11-07-2011, 05:20 PM

All taxes are horrible but if we agree they are essential to maintain a soceity like the one we live in, what is the fairest most equitable way to get those tax dollars.
What about abolishing all taxes and just having a Consumption tax payable by everyone at say 25% on all purchases.

fungus pudding

11-07-2011, 05:38 PM

True but he also has the choice if he wants to hold long term and not pay tax. Also in the case of investment property he has some leeway regarding intention at time of purchase and with shares some leeway regarding changing investment strategy and portfolio reweighting rather than being taxed on speculation and trading.
If he is realising investments every two or three years is that trading? Rather than have the half arse system we have now trying to identify when a capital gain is income/revenue just have a CGT.

That doesn't solve the problem. Is a landlord who now pays income tax on capital gain also to pay the CGT? Or are some only going to pay CGT without income tax? At what stage does a property investor become a trader? Are developers to pay both? No matter how you lookn at it, it's still a line drawing execrcise. The only way to simplify it is to call all capital gained income. Primary residence and repatriated funds should be exempt.

Aaron

11-07-2011, 05:38 PM

Well, the fairest way is to work out how much we need, divide it by the number of people living here and send everyone a bill.

Agreeing on what we all need might be a problem and although I don't have any figures to back it up probably over half of NZ won't earn enough to cover their own bill.

Minimoke its hard to believe you openly favour a regressive tax like GST. I think most people would agree that a regressive tax is the least equitable way for a government to tax the people. Although does National raising GST from 12.5% to 15% mean I am wrong?

POSSUM THE CAT

11-07-2011, 07:10 PM

Minimoke would that include purchasing labour IE a 25% tax for employers on wages paid. And remember that without people with the money to become customers all businesses fail. You could use the Australian idea & abolish tax on trusts . The tax liability flows through to the beneficiaries at their marginal tax rate & if they are non income earners the highest personal tax rate applies to counter tax avoidance by paying it to children or other non earners

11-07-2011, 07:11 PM

Well, firstly, I don't reckon a CGT would really do much to "broaden" the tax base. If you exclude people's homes, the vast majority of people don't own anything worth taxing, do they? A CGT is really simply going to narrow the tax base even further. I think realistically, you cannot squeeze much more out of most NZers, they just don't have enough anyway. You could probably "effectively broaden" the tax base by getting rid of subsidies such as kiwisaver and working for families, interest-free student loans etc. Great policies but no one will vote for you.

A CGT wont narrow the tax base but I do agree it wont broaden it much if you exclude the family home.

That doesn't solve the problem. Is a landlord who now pays income tax on capital gain also to pay the CGT? Or are some only going to pay CGT without income tax? At what stage does a property investor become a trader? Are developers to pay both? No matter how you lookn at it, it's still a line drawing execrcise. The only way to simplify it is to call all capital gained income. A gain is either income or capital and would be taxed under the appropriate system. by having teh CGT rate at marginal rates, that distinction becomes academic.

biscuit

11-07-2011, 08:31 PM

Great policies but no one will vote for you.

Not even if I kiss a scungy baby or two?

fungus pudding

11-07-2011, 09:15 PM

A gain is either income or capital and would be taxed under the appropriate system. by having teh CGT rate at marginal rates, that distinction becomes academic.

So that would mean no CGT tax, but all transactions other than primary residence to be subject to income tax.

Aaron

11-07-2011, 09:36 PM

That doesn't solve the problem. Is a landlord who now pays income tax on capital gain also to pay the CGT? Or are some only going to pay CGT without income tax? At what stage does a property investor become a trader? Are developers to pay both? No matter how you lookn at it, it's still a line drawing execrcise. The only way to simplify it is to call all capital gained income. Primary residence and repatriated funds should be exempt.

I am not quite sure what you mean, for a landlord to be paying income tax on a capital gain currently he would have to be trading property or a developer etc so the capital gain for him is income and all his property is unfortunately tainted by a trader/developer status.
But most landlords currently would not be traders/developers and they would not pay any tax on a capital gain if they sold their property. A CGT would mean these landlords would now have to pay tax on a capital gain. The trader/developers would continue to argue with IRD over their status and would be trying to get any gains treated as capital rather than income so the gains would be taxed at the lower CGT rates rather than the higher income tax rates(they would end up paying some tax one way or another). Whether a gain is considered capital or income depends on what your business is.

fungus pudding

11-07-2011, 10:09 PM

I am not quite sure what you mean, for a landlord to be paying income tax on a capital gain currently he would have to be trading property or a developer etc so the capital gain for him is income and all his property is unfortunately tainted by a trader/developer status.
But most landlords currently would not be traders/developers and they would not pay any tax on a capital gain if they sold their property. A CGT would mean these landlords would now have to pay tax on a capital gain. The trader/developers would continue to argue with IRD over their status and would be trying to get any gains treated as capital rather than income so the gains would be taxed at the lower CGT rates rather than the higher income tax rates(they would end up paying some tax one way or another). Whether a gain is considered capital or income depends on what your business is.

Precisely. The point I was trying to make is that it does not address the 'half arse' intention nonsense as suggested in your earlier post. (I should add that I'm not so sure that most landlords are exempt from income tax on exit. The IRD have recently been instructed by govt. to tighten up on this very point. My view is they will look closely at landlords who have not made a profit because of their gearing. If they purchase without a reasonable chance of a profit from the rental activity, then the reason threy bought is obviously for sale one day at a profit. So regardless of what they say is their intention - the IRD will very likely view a profit as income. When I first became a landlord many moons ago the IRD used to apply that test, but then gave up. )

minimoke

12-07-2011, 08:40 AM

Minimoke its hard to believe you openly favour a regressive tax like GST. I think most people would agree that a regressive tax is the least equitable way for a government to tax the people.
It would be a progressive tax on consumption. Those with more ability to spend would pay more tax. If you don't have the ability to spend you pay no tax.

I'm not a big fan of taxes but they are of course a necessary evil. It goes without saying that if citizens want services from their government then taxes need to be raised to pay for those services.

We might then walk down the path of what services should government pay for against what citizens should pay. And that leads us to the old chestnuts - paying for healthcare, education and the like. If you take the liberterian extreme the government would only pay for defense of the nation/citizens and a few other things. But in reality we are a a country that on the whole tends to be much more socialist than anything else. So government has quite an appetite for tax revenue.

I'm not a fan on taxing income as this creates a disincentive to earn and invest. For those motivated to earn more they expend more energy and cost on devising ways to avoid/evade tax and this isn't productive - unless you are a tax lawyer / accountant of course!.

So if we want the spoils of ones labour to go to the toiler and the rewards of risk to go to the risk takers we need an alternative. That being consumption.

What do we all consume? New and second hand goods and contracted services. We all have choice on what it is that we consume and the price point we are prepared to pay for those goods and services. So a consumption tax is only regressive if those on increasingly larger incomes spend comparably less. A person on a low income may choose to buy a second hand Toyota Corolla whereas a person on a high income might choose a new Prius. A corporation might choose a Hilux. They all pay the same tax thought the amount they actually pay is discretionary based on the purchasing decision.

Rental on property would be taxed as would car and concrete mixer rentals as you are, in one sense, buying a service from an asset owner. I'd be inclined not to tax residential property purchases (but would tax the real estate agent fee) as you aren't buying a services and since property is a long term "asset which is expected to hold or improve its value over time it is more of an investment than a good or service. An investment in property precludes government from having to provide state funded property. MT tax would also cover transactions such as "trade Me" - anyone done the sums on lost GST as consumers obtain goods in this manner?

In answer to PTC's question I probably wouldn't tax labour through an employers wages. An employer will already pays tax on the purchase of accident insurance, training, safety boots tools and equipment. That's probably enough tax to satisfy governmental spend.

Aaron

12-07-2011, 09:34 AM

[QUOTE=minimoke;350980]It would be a progressive tax on consumption. Those with more ability to spend would pay more tax. If you don't have the ability to spend you pay no tax.

But its a regressive tax. For simplicities sake assume it costs $23,000 to afford the basics in life. A guy earning $23,000 is paying GST at 15% currently. Even if a guy earning $115,000 spends twice as much($46,000) and saves $69,000 he is paying twice as much GST as the guy on $23,000 but as a proportion of his income his is paying GST of roughly 7.8%. The more he saves the less GST he pays as a percentage of his income. Assuming everyone needs to spend on the basics such as food etc poor people have less choice as to whether they want to pay GST or not and end up paying GST at a higher proportion to their income.
GST is good as it is simple, it catches drug dealers, cash operators etc and it may discourage excessive consumption to a certain degree but I don't think it should be raised anymore, in fact I don't think it should have gone to 15%.

minimoke

12-07-2011, 10:03 AM

[QUOTE=minimoke;350980]

But its a regressive tax. For simplicities sake assume it costs $23,000 to afford the basics in life.
We might be at odds here. It places a similar burden on the poor as it does the rich. For a start we can't assume what the costs of the basics of life are. At best we have the questionable "poverty line" which could be used as your base except NZ doesn't have an official one. We could then use the "working For Families threshold - but thats an expense which is partly paid for by the consumption tax. Mark Hotchin has said he can't live on $1,000 a week and Alan Hubbard has been given $1,000 week to live on.

I guess you could say its regressive if every one had to buy, say milk at $3.50 a bottle generating $0.70 in tax. But we have choice. A poor person can buy milk at $2.80 a bottle, contributing $0.56 in tax and the rich person can go spend $5.50 on a bottle contributing $1.10. The milk doesn't cost double but the rich person is paying more than twice the tax.

So it would be a very fair tax. Individuals get to choose how much tax they pay through their purchasing decisions.

fungus pudding

12-07-2011, 10:12 AM

What about abolishing all taxes and just having a Consumption tax payable by everyone at say 25% on all purchases.

I'd be a starter and suggested to Roger Douglas raising GST to the point of eliminating income tax when GST was introduced. His objection was if it got too high it would lead to evasion and avoidance. It is a valid point. Therefore he favoured a higher GST and a flat tax of 22%. He would have got there if it weren't for Lange losing the plot, and calling for a cup of tea break, which has cost this country dearly ever since.

minimoke

12-07-2011, 10:32 AM

I'd be a starter and suggested to Roger Douglas raising GST to the point of eliminating income tax when GST was introduced. His objection was if it got too high it would lead to evasion and avoidance. It is a valid point.It might have been a valid point 20 years ago when we still had cash. Electronic financial transactions have now got to the point where pundits are suggesting the rare Chequbook will be extinct in 10 years time.

Evasion would be quite hard but obviously not impossible. A person has an identifiable income because this is money going into their bank accounts. Expenditure can be tracked by money going out of those bank accounts. Finding where the money gets spent on investment (shares / property etc) is easy because you'l have a certificate of title. The balance is what you have consumed and the tax is easitly identifiable. The trick is finding a tipping point were the effort going into avoiding tax isn't worth it.

The tax can't get "too high". Its simply a function of government expenditure. The more more teh electorate wants the more government spends the higher the tax needs to be. So rather than focusing on evasion/avoidance we should focus on the productive value of that government expenditure. If its not productive get rid of it. For example if faced with a 30% Consumption Tax would we really want to be paying for a Ministry of Womens Affairs? No, get rid of the Ministry and drop your tax rate.

And thats why the tax gets paid by the citizens - those who are consumers of governement services. Tourists coming into NZ could be tax free (making us really attractive as a tourist destination) providing they don't consume government services. Of course they will to some extent (eg policing) but they could insure against those risks.

fungus pudding

12-07-2011, 10:42 AM

It might have been a valid point 20 years ago when we still had cash. Electronic financial transactions have now got to the point where pundits are suggesting the rare Chequbook will be extinct in 10 years time.

But the black economy will never die. Under an extreme consumption tax, bata would flourish. Not just in goods but services also. 'I'll do your heart transplant if you paint my house' sort of thing. :scared: Or possibly a mechanic fixes a car for an electrician who installs some new power points. It's illegal now to engage in swapped labour schemes, even casual or informal arrangements. which I am sure would suprise many people.

Aaron

12-07-2011, 11:10 AM

minimoke

12-07-2011, 11:54 AM

[QUOTE=minimoke;350994][QUOTE=Aaron;350989]
That GST is a regressive tax is a fact not an opinion.
The less income you earn the more GST you pay as a percentage of your income.
As far as the basics in life go we could agree that everyone has to eat and drink and wear clothes etc. It doesn't place a similar burden on the rich as it does on the poor. The poor will be spending a greater portion of their income on essentials to survive but the wealthier you are the more discretion you have in regard to your consumption/spending.
GST is commonly considered to be a regressive tax - but only where all things are equal. It is arguable that a person paying $2.80 is simply paying for the milk.They aren't buying a service and perhaps they cant afford a service - but they are buying a good. Where as a person paying $5.50 is paying for the milk and a service. The greater a person's income the greater their opportunity to purchase additional services - consequently the greater their share of the tax burdon.

I'd also suggest it isn't regressive because poor people have their income topped up through either government benefits or "working for Families". The "poor" person isn't spending all their income on things that attract tax. They are being subsidised by the government who is funded by the higher income earners who contribute more to the tax take. Consequently the tax burden isn't fully felt by the poor person.

If we look at my milk analogy, lets say a poor person earns $10. Roughly 5.6% of that person income has gone on the tax. Lets say the rich person earns $20 - he's still paying around 5.6% tax. How is that regressive?

(Oh - and I assume we can take it that a "regressive" tax is seen as a very bad thing because it hurts the poor where as a progressive tax is a very good thing because it hits the rich. Ideals I'm not comfortable with!)

Aaron

12-07-2011, 04:02 PM

[QUOTE=Aaron;351001][QUOTE=minimoke;350994]
GST is commonly considered to be a regressive tax - but only where all things are equal. It is arguable that a person paying $2.80 is simply paying for the milk.They aren't buying a service and perhaps they cant afford a service - but they are buying a good. Where as a person paying $5.50 is paying for the milk and a service. The greater a person's income the greater their opportunity to purchase additional services - consequently the greater their share of the tax burdon.

****I agree, people in general tend to spend more the more they earn and I agree that the wealthy will pay a lot more GST than the not so wealthy. What I am saying is that the not so wealthy will pay more GST as a percentage of their income and they have less choice in reducing how much tax they pay.****

I'd also suggest it isn't regressive because poor people have their income topped up through either government benefits or "working for Families". The "poor" person isn't spending all their income on things that attract tax. They are being subsidised by the government who is funded by the higher income earners who contribute more to the tax take. Consequently the tax burden isn't fully felt by the poor person.

****I don't want to debate how the taxes are spent just that GST is regressive and unfair.****

If we look at my milk analogy, lets say a poor person earns $10. Roughly 5.6% of that person income has gone on the tax. Lets say the rich person earns $20 - he's still paying around 5.6% tax. How is that regressive?

****In your example both people spend roughly the same proportion of their income so pay roughly the same proportion of tax compared to their income although the $20 guy has paid almost twice as much GST. From a previous post you didn't want to debate how much the basic necessities of life are but can you agree that if you don't eat you die and if you don't have clothes and shelter hypothermia could be a problem in winter. Assuming you agree with the preceeding statements you can understand that at a very basic level people will need to spend a certain amount to live its not really a choice. ( option (1) buy food and pay GST or (2) die). Spending and consumption over and above that is discretionery. In your example if the basic necessities in life cost $10 then one guy is going to pay $2 GST. The other guy can spend $20 if he wants to and will pay proportionately the same amount of GST but he can also choose to spend $10 and invest the other $10. Tax paid as a portion of income for Mr $10 is 20% for Mr $20 its 10%. Also Mr $20 may benefit on not having income tax or capital gains on his investments.****

(Oh - and I assume we can take it that a "regressive" tax is seen as a very bad thing because it hurts the poor where as a progressive tax is a very good thing because it hits the rich. Ideals I'm not comfortable with!)

Personally I see a tax that expects those least able to pay actually paying a higher proportion of their income as unfair and bad. Its an ideal I am comfortable with. I also don't think progressive taxes are always better. In fact with a flat capital gains tax rate we could flatten the income tax rates as well and try and make things as fair as possible.
Not sure how to break up your quote so my other responses are between the **** within the quote above.

minimoke

12-07-2011, 04:34 PM

[QUOTE=minimoke;351006][QUOTE=Aaron;351001]

[quote]Personally I see a tax that expects those least able to pay actually paying a higher proportion of their income as unfair and bad. Its an ideal I am comfortable with. I also don't think progressive taxes are always better. In fact with a flat capital gains tax rate we could flatten the income tax rates as well and try and make things as fair as possible.
Well Aaron. there are parts of life that aren't fair. Sh#t happens. You either adapt to your environment, you do something to make the most of it or you do something to better it. The choice is the individuals. Now I figure paying taxes to support some lazy benificairy so they can enjoy a life style of sloth and KFC is unfair. I think its unfair I pay taxes so some fat person can get their obesity can be treated in a public hospital. I don't think it fair that my taxes are paying for the sins of our forefathers. But as I say Sh#t happens, time to move on.

What I am saying is that the not so wealthy will pay more GST as a percentage of their income and they have less choice in reducing how much tax they pay. So Moses came down and wrote in stone that person should only pay a certain percentage in GST relative to their income. I don't think so. They do have some choice - but not necessarily a lot. They could buy that cheaper bottle of milk, they could go to the second hand shop for brand new clothes or alternatively they could do something to increase their income and hold their expenditure. I'd hazard a guess the low income earners are disproportionate users of government spending. We know for example that low paid Maori have greater numbers in prison than higher paid Asians. If you are a consumer why shouldn't you pay your fair share.

I don't want to debate how the taxes are spent just that GST is regressive and unfair.
As I have already pointed out a consumption tax is not necessarily regressive. That is your view but again something that isn't set in stone. That they are "unfair is certainly worth debate since that is pure opinion and speculation.

If we look at my milk analogy, lets say a poor person earns $10. Roughly 5.6% of that person income has gone on the tax. Lets say the rich person earns $20 - he's still paying around 5.6% tax. How is that regressive?

In your example both people spend roughly the same proportion of their income so pay roughly the same proportion of tax compared to their income although the $20 guy has paid almost twice as much GST. From a previous post you didn't want to debate how much the basic necessities of life are but can you agree that if you don't eat you die and if you don't have clothes and shelter hypothermia could be a problem in winter. Assuming you agree with the preceeding statements you can understand that at a very basic level people will need to spend a certain amount to live its not really a choice. ( option (1) buy food and pay GST or (2) die).
We are fortunate to have a government that will provide a minimum level of income to families, beneficiaries, superanuitants that prevents them from dying. That seems to be fair to me but I can't figure why a person who is unproductive should have the same net income expectations as a productive person. Nor do I see why productive people should subsidise those who want a life style that their income can't support.

Spending and consumption over and above that is discretionery. In your example if the basic necessities in life cost $10 then one guy is going to pay $2 GST. The other guy can spend $20 if he wants to and will pay proportionately the same amount of GST but he can also choose to spend $10 and invest the other $10. Tax paid as a portion of income for Mr $10 is 20% for Mr $20 its 10%. Also Mr $20 may benefit on not having income tax or capital gains on his investments. The reason being is that Mr$20 has earnt more than Mr $10. Why should he not be entitled to keep the benifits of his labours?

belgarion

12-07-2011, 05:27 PM

Gareth Morgan, a dude with a Doctorate(?) in Economics is in favor of a CGT too.

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10737829

Now we wait and see what Labour's CGT looks like. Frankly, I like Gareth, hope they follow the GST path and keep it simple: no exemptions! (which include the family home!) ... And I hope Labour doesn't pollute GST by exempting anything as well (e.g. fresh fruit and vegies) ... (although I'm okay with wine!)

Aaron

12-07-2011, 06:21 PM

That's right this is a thread about capital gains tax.

I guess my arguements about GST won't change Minimoke's view, maybe my logic is flawed but it seems to make sense to me and I don't seem to follow his logic pointing out how GST isn't necessarily regressive so I'll have to give it a rest. I agree whether its fair or unfair is a matter of opinion but there is something on that in the Gareth Morgan Article above.

What is your view on CGT Minimoke? For or Against and why?

westerly

12-07-2011, 07:16 PM

From the days of Regan and Thatcher followed in NZ by Douglas and Richardson there has been a world wide push to sell Govt. assets and lower taxes. Death duties - gone, Gift duties -gone, marginal tax rates lowered always at lower percentages the lower the income. Definitely a politically driven agenda by the far right.
He who has the capital makes the gains. It is very simple really.

Westerly

belgarion

12-07-2011, 08:19 PM

He who has the capital makes the gains. It is very simple really.

Westerly

And eventually comes a revolution and blood gets spilled. I seem to remember a race based one in the US where the population attributed the inequality of income dsitribution down to the fact that some were British, and, a short war later, the rich were booted out leaving their assets behind. Maybe it'll happen again but this time it'll not be hidden behind the race card. :)

mr.needs

12-07-2011, 09:07 PM

[QUOTE=minimoke;350994][QUOTE=Aaron;350989]
We might be at odds here. It places a similar burden on the poor as it does the rich.

I don't think we are at odds, I just don't think you understand what I am saying. That GST is a regressive tax is a fact not an opinion.
The less income you earn the more GST you pay as a percentage of your income.
As far as the basics in life go we could agree that everyone has to eat and drink and wear clothes etc. It doesn't place a similar burden on the rich as it does on the poor. The poor will be spending a greater portion of their income on essentials to survive but the wealthier you are the more discretion you have in regard to your consumption/spending.

Except... you forget that savings are really just deferred spending... its all going to catch up with the wealthy eventually. Those savings will be spent on consuming goods and services in the future, and the wealthy will be taxed just like the rest of them.

We don't save money for fun, we save so that we can spend in the future don't we?

The only real discretion that the rich have is the choice to save or spend their discretionary income. But either way that income will be taxed when it is spent; by themselves or by their kids etc it doesn't really matter, it will still be taxed.

Probably be need to be a tax on capital leaving the country to make it work though

STRAT

12-07-2011, 11:57 PM

Just another incentive to spend , spend and spend some more as those in charge of the state coffers loot any last penny from those who try to get their head above water. A state dependent nation of debt laden paupers is in Labours best interest.

minimoke

13-07-2011, 08:47 AM

What is your view on CGT Minimoke? For or Against and why?
I'm against.
There is a traditional view that there are four purposes for having taxation. The first is Revenue - a government needs revenue to provide the services which are an outcome of the policy the citizens have voted for. Generally I have no problem with tax as a revenue gatherer. If the citizens are dumb enough to want a Ministry of Womens Affairs (something I think is a total waste of money) I accept this is as an expense that must be paid for and I quietly, but begrudgingly cough up my taxes for this.

A second concept tied to the first is Representation. We can go back to the boston tea party for the good ole adage "No taxation without representation". This is pretty important because it helps keep government honest with how it spends the revenue. National has shat on this concept in Canterbury by removing our right to elect our representatives to Environment Canterbury yet we still have to pay our taxes. I have a major problem with this - this is something that should be rectified before we introduce another tax.

The third concept is repricing. This is a mechanism government uses to try to change behaviour. Cigarette tax is an example where smokers are gouged. Worst yet is the Carbon Tax where we are all gouged on the pretence that little ole NZ can stop the planet from self destruction. Bull**** I say.

The fourth concept is Redistribuiton which is where the government tries to move wealth from the rich to the poor. I have no difficulty with this if the redistribution is to support the needy. I do have a problem with this where the redistribution is to the lazy. Examples of this is payments to benificiaries who have been unemployed for many years during times of low labour supply and with intergenerational state dependency.

Essentially I am against taxes because the Governement is ****ing with us but its the fourth reason, redistribution which leads me to my primary reason from being against a CGT.

I'm of the view that those who create an income and take the risks by investing in the capital that a society needs should be rewarded for getting off their bum. They should not be penalised and I see a CGT as a penalty. If we look at property, there is already a mechanism for a governement to gather revenue from rental property owners and thats through the enforcement of policy which already provides for the taxation of revenue - and I can see owners have, in many cases, used the sale of their property at a price higher than they paid for it as a revenue stream.

If a CGT is to be "fair" it should apply to all gains on capital. That would include any gain I make on the Sharemarket. Now, why would I take a risk by placing my money in a startup company if I don't get a return on the risk I'm taking. If I buy a company and take a low wage so the cash flow is protected in order to grow the business and pay the employees a decent wage why should I then be taxed on the blood and sweat I have put into the business.

Also to be "fair" if my capital looses value should I not be entitled to a tax rebate?

Before we look at a CGT the government should get its house in order around the four "R's". If they were to do this we may just find we don't need an extra tax like CGT.

minimoke

13-07-2011, 09:06 AM

[QUOTE=Aaron;351001][QUOTE=minimoke;350994]

We don't save money for fun, we save so that we can spend in the future don't we?

My idea of abolishing all taxes and implementing a Consumption tax doesn't seem to be gaining any traction - put your post is getting to the point I'm trying to make. A consumption tax gets everyone either now or at some stage. How much fairer can you get than that!

biscuit

13-07-2011, 09:08 AM

If a CGT is to be "fair" it should apply to all gains on capital. That would include any gain I make on the Sharemarket.

The only CGT close to being "fair" would be a CGT on all assets including the family home etc and realised or not. Anything else is simply an attempt to shift the tax burden even further onto a politically insignificant minority.

fungus pudding

13-07-2011, 09:15 AM

The only CGT close to being "fair" would be a CGT on all assets including the family home etc and realised or not. Anything else is simply an attempt to shift the tax burden even further onto a politically insignificant minority.

Then why a separate tax? Just treat all gains as income, and eliminate the silly 'intention' test that we have now, and will remain under a separate CGT. But to tax unrealised gains would be a nightmare and quite unworkable, although it would be popular with valuers..

biscuit

13-07-2011, 09:23 AM

Then why a separate tax? Just treat all gains as income, and eliminate the silly 'intention' test that we have now, and will remain under a separate CGT. But to tax unrealised gains would be a nightmare and quite unworkable, although it would be popular with valuers..

Well I am not in favour of a CGT so it doesn't bother me that it would be unworkable! I actually don't see any way it would be fair and workable.

fungus pudding

13-07-2011, 09:33 AM

Well I am not in favour of a CGT so it doesn't bother me that it would be unworkable!

And I'm not too happy about income tax, but to try and decide when capital gain is income - and when it isn't, based on 'intention' is woolly line drawing. Capital gained is always income - like it or not. It is ridiculous to say it is income if earned by a developer, but not income if gained by an investor.

biscuit

13-07-2011, 09:52 AM

And I'm not too happy about income tax, but to try and decide when capital gain is income - and when it isn't, based on 'intention' is woolly line drawing. Capital gained is always income - like it or not. It is ridiculous to say it is income if earned by a developer, but not income if gained by an investor.

I think that logically you are right. But then, unrealised capital gain in the value of a domestic residence is then also logically "income".

fungus pudding

13-07-2011, 09:59 AM

I think that logically you are right. But then, unrealised capital gain in the value of a domestic residence is then also logically "income".

Is money owing to a business income, or does it only become taxable once received?

biscuit

13-07-2011, 10:22 AM

Is money owing to a business income, or does it only become taxable once received?

I don't understand the relevance of that comment. From my point of view, I have several unmortaged properties paying me income. The Government gets a good slice of that and I think they should be satisfied with what they get! If the properties go up in value, I would be pissed off to have to pay tax on unrealised gain. If they only tax realised gain, that is inherently unfair and it produces a distortion that may influence my investment decisions. We all know that there are distortions in the system, but there are better ways to specifically address those issues.

fungus pudding

13-07-2011, 10:46 AM

I don't understand the relevance of that comment. From my point of view, I have several unmortaged properties paying me income. The Government gets a good slice of that and I think they should be satisfied with what they get! If the properties go up in value, I would be pissed off to have to pay tax on unrealised gain. If they only tax realised gain, that is inherently unfair and it produces a distortion that may influence my investment decisions. We all know that there are distortions in the system, but there are better ways to specifically address those issues.

I also have unencumbered properties, that's my sole source of income except for a bunch of LPT shares. and pay heaps of tax. I certainly don't want to pay more, but even so I don't see why I shouldn't. It is money earned. There are definitely people, and plenty of them, who play the game solely for capital gain - to date a lot of them have flicked in and out of properties, never made a trading profit, and never paid tax on realising a profit. Good on them - for that is what the rues allow. However the numbers of them doing just that, writing books, running seminars telling others how to do that - it is only a matter of time that this will change. Still, it will be a good few years yet. Goff's mob will never get in so labour will have a new lineup and new policies by the 2014 election. I reckon National will make gains taxable, but it will never be retrospective, so make the most of it over the next 10 or so years.

biscuit

13-07-2011, 12:14 PM

I certainly don't want to pay more, but even so I don't see why I shouldn't. It is money earned.

I think that is where we differ. I certainly do see why I shouldn't. Tax is being paid on the rent. If the properties suddenly go up in value, well good for me, and if they suddenly go down in value that's my hard luck. What has that got to do with the Government? People get too obsessed about paying tax on all "income" as though that was some kind of natural physical law. Then they get all tied up defining what is income and what isn't income. Address the specific distortions in the system but don't introduce a a new class of tax that is going to whack people already paying more than their fair share and introduce a whole load of new distortions.

fungus pudding

13-07-2011, 12:51 PM

I think that is where we differ. I certainly do see why I shouldn't. Tax is being paid on the rent. If the properties suddenly go up in value, well good for me, and if they suddenly go down in value that's my hard luck. What has that got to do with the Government? People get too obsessed about paying tax on all "income" as though that was some kind of natural physical law. Then they get all tied up defining what is income and what isn't income. Address the specific distortions in the system but don't introduce a a new class of tax that is going to whack people already paying more than their fair share and introduce a whole load of new distortions.

I agree - don't introduce a new tax. That is why I say call it all income and tax it on that basis. There has to be a means of getting around the silly intention rule. At present a hairdresser who owns a block of flats, say, then sells after a few years, pays no tax. A builder doing the same thing does. The only way to avoid the distorions as you call them, is to class all gains as income. Think of the positive side - buying would become a lot less competitive meaning we might return to the days where investment flats, commercial etc, will have to be higher yielding to be attractivre to a buyer. Such things have become so competitive that they just make no sense. Taxing profits would deflate the market - although only a little. Most people still earn money in the full knowledge that there efforts will be taxed. The sad part is - most of them do it through being employed. Yuk! :scared:

Jay

13-07-2011, 12:56 PM

belgarion

13-07-2011, 01:11 PM

I certainly don't want to pay more, but even so I don't see why I shouldn't.

Who says we'll be paying more tax?

Sure, some who have milked the absence of capital gains will end up paying more. But the vast majority will probably pay no more than they do now. I'm guessing that if CGT is introduced, then PAYE will probably be reduced as soon as is feasible. Labour will giveth as well a taketh.

Good thing too. PAYE simply stifles productivity as there's little incentive for the bulk of wage-slaves to work harder/longer/smarter/etc. when they push themselves into a higher tax bracket. (Okay, its better than it used to be but I'm old enough to remember the punitively high rates of 66%!)

More from some experts: http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10738073

biscuit

13-07-2011, 01:27 PM

I agree - don't introduce a new tax. That is why I say call it all income and tax it on that basis. There has to be a means of getting around the silly intention rule. At present a hairdresser who owns a block of flats, say, then sells after a few years, pays no tax. A builder doing the same thing does. The only way to avoid the distorions as you call them, is to class all gains as income. Think of the positive side - buying would become a lot less competitive meaning we might return to the days where investment flats, commercial etc, will have to be higher yielding to be attractivre to a buyer. Such things have become so competitive that they just make no sense. Taxing profits would deflate the market - although only a little. Most people still earn money in the full knowledge that there efforts will be taxed. The sad part is - most of them do it through being employed. Yuk! :scared:

Well, on one level I would acknowledge that you are probably right that it would not be so damaging to long-term investors depending on the details. And as you have said, Labour are unlikely to get in and National will be cornered into fighting against it which will make it more diffecult for them to bring it in themselves later. If it is introduced, it would likely exclude existing investments, and would likely only be on realised gains. However, I resent it. I resent the thought that my savings are being eyed up by politicians to help pay their constituent's share of the tax take. I strongly do not trust politicians, once they have gone down this path, not to expand and change the rules to my disadvantage. I also know full well that the smart-arse money will simply flee to the next tax loop-hole and all we will gain is a more complex tax system.

fungus pudding

13-07-2011, 01:27 PM

I think it should only ever be on realised gains , otherwise what happens if one period they are up next period the value has reduced, so from fp's point of view he/she has not suddenly got all this extra cash to spend because one of his propeites has incresed by $20K, however if this means he can increase rent then will pay the income tax on the increased earnings.
same would apply to shares/Bonds etc.

It can only be on realised gains, it simply can't work any other way. Better still is the American system where it is only paid on exit. They can sell and as long as the money is reinvested within 12 months there is no tax to pay. This allows businesses to expand premises or farmers to step-up to larger holdings, likewise for investors. What's more it allows tax to be paid on retirement. For genuine investors in most cases this will be at a lower rate. At present under our system it is quite possible to flick over a property and spend every cent on a world trip - tax free. Is that fair? Get into it while you can by all means, but don't expect it to last forever.

lissica

14-07-2011, 08:49 AM

I don't think it's going to be limited to property. Conceptually properties are no different to shares or any other business. They derive an income from providing a service (ie shelter).

From the news this morning, it doesn't look like Labour is applying it only to property- it will include shares.

The main issues for me are:
- Our Govt already makes up close to half the economy, it's an excuse to increase taxes and Govt spending
- It introduces more complexity to shares. How do you account for share slits, rights issues, buying and selling various amounts at different times, inflation indexing etc etc. It is one reason I don't invest in Australian shares personally (I'm an Australian tax resident). I do so with a NZ resident company even though it means I can't claim imputation credits- I really can't be bothered calculating CGT

POSSUM THE CAT

14-07-2011, 10:14 AM

Lissica The australian capital gains tax for shares is very simple. If NZ uses the same system it would be very good

gv1

14-07-2011, 01:59 PM

What system does Aus use?

fungus pudding

14-07-2011, 02:15 PM

What system does Aus use?

http://www.ato.gov.au/content/00208572.htm

Don't forget that they have a self funded retiree scheme which is just great for those who do not like paying tax. It's about the only good thing about the whole country. ;)

biscuit

14-07-2011, 03:39 PM

I agree - don't introduce a new tax. That is why I say call it all income and tax it on that basis. There has to be a means of getting around the silly intention rule.

Looks like under Labour's new policy, you would get a CGT and still have the "silly intention rule" as traders would pay tax at their marginal rate!

Anonymous

14-07-2011, 03:53 PM

Not so much CGT itself but you might find the following table interesting.

44% of households are net tax recipients and 17% of households pay 97% of tax.

Taken from: http://www.kiwiblog.co.nz/2011/07/net_taxpayers.html

minimoke

14-07-2011, 04:39 PM

Well I like it!
in the next few years EQC is going to give christchurch landlords brand spanking new houses and they won't have to pay any CGT on its new value. Thats up to five years worth of capital gain with no tax. I reckon theres at least least 6 1/2 years of capital gain and no tax for Cantabrians. Brilliant.

I also like the first $5,000 of income being tax free. Thats less income for me, more for my whanau less tax I pay. Superb!

No GST on fruit and veg. Great. I like fruit and veg and every week my whanaua get loads of the stuff. More loot to me. I wonder if KFC burgers will come down in price - that bit of fresh lettuce has to be a bit cheaper and Phil wants food to be more available to the poor. Excellent stuff.

Now I'm no art buff but I know what I like. Looks like I'm going to have to become a bit more learned so I can tell the difference between a Hotere and a McCahon. My interest in gold has just waned.

I'm really going to fancy those listed companie that plough profits back into growth rather than dividend yield. Two new classes take my fancy. Any listed companies out there that do valuations? Tasty! Also real Estate companies - they will become much more profitable as their fees now become tax deducible. Nice - we need to do what we can to get all those real estate agents back into work.

Pikers will be happy. PRC last sale price is $0.88. They'll be able to carry their losses forward (except they think there won't be any losses because a knight in shining armour is about to snap the mine up and all will be well. You gotta love those guys who thrill at the drill)

So Mr Goff. Not a bad afternoons work. You have a plan. JK may trump you with his cycle way economic prowess but election time will tell.

fungus pudding

14-07-2011, 04:49 PM

PLYNCH

14-07-2011, 04:51 PM

Under Labour does it mean The FIF tax will be dumped?

minimoke

14-07-2011, 05:34 PM

I can't believe Goff and his mates really think that Fruit and Veg would be cheaper just cos the GST has gone.
I think Goff may be a little lactose intolerant. Why keep GST on that nutritional staple, the bottle of milk. Doesn't he want the poor to stop drinking Coke? While we are at it why not take GST of porridge - nothing like a plate of hot gruel to start the day for the underprivileged.

I'l now be interested in how landlords react. We are desperately short of housing stock and we need private individuals to invest in that market since government only holds around 15% of the total stock. If we see landlords retreat govt will need to spend more on housing which will see the CGT head off to more housing purchases by government. Kinda defeats their purpose since they see investment in housing as unproductive.

fungus pudding

14-07-2011, 05:53 PM

I think Goff may be a little lactose intolerant. Why keep GST on that nutritional staple, the bottle of milk. Doesn't he want the poor to stop drinking Coke? While we are at it why not take GST of porridge - nothing like a plate of hot gruel to start the day for the underprivileged.

I'l now be interested in how landlords react. We are desperately short of housing stock and we need private individuals to invest in that market since government only holds around 15% of the total stock. If we see landlords retreat govt will need to spend more on housing which will see the CGT head off to more housing purchases by government. Kinda defeats their purpose since they see investment in housing as unproductive.

Landlords won't care. Nobody will because Labour will not see the treasury benches while Goff is at the helm and the new broom will rework some of this stuff. But that's two elections away. They haven't got a Goff replacement yet unless Clayton Cosgrove has a fling. Hughes has gone. Shane Jones stuffed his chances. Cunliffe would not appeal to the masses. David Parker just aint got it. National are pretty safe for long enough.

lissica

14-07-2011, 07:15 PM

Lissica The australian capital gains tax for shares is very simple. If NZ uses the same system it would be very good

So you buy 6789 shares of XYZ on a particular date, reinvest in their DRP and acquire another 73 shares on another date at a different price, then subscribe to a rights issue on another date at a different price, some time later you sell 357 shares (at a loss), buy back another 900 shares at another date, then another company takes it over using a mixture of script and cash payment.

Now multiply that by however many shares in your portfolio. Is there an easy way around this or do we have to have to spend all day in front of a spreadsheet?

14-07-2011, 07:29 PM

So you buy 6789 shares of XYZ on a particular date, reinvest in their DRP and acquire another 73 shares on another date at a different price, then subscribe to a rights issue on another date at a different price, some time later you sell 357 shares (at a loss), buy back another 900 shares at another date, then another company takes it over using a mixture of script and cash payment.

Now multiply that by however many shares in your portfolio. Is there an easy way around this or do we have to have to spend all day in front of a spreadsheet?do you use LIFO, FIFO or weighted average?

Halebop

14-07-2011, 08:25 PM

do you use LIFO, FIFO or weighted average?

Cheeky! :P

Waiuta

15-07-2011, 04:23 PM

Perhaps a Financial Transaction Tax would be a better option than the Labour proposal http://www.makefinancework.org/home-english/financial-transaction-tax/1000-economists-for-a-financial/

fungus pudding

15-07-2011, 04:27 PM

Perhaps a Financial Transaction Tax would be a better option than the Labour proposal http://www.makefinancework.org/home-english/financial-transaction-tax/1000-economists-for-a-financial/

Perhaps stopping the waste of our money would be even better still.

belgarion

16-07-2011, 10:33 AM

fungus pudding

16-07-2011, 12:21 PM

Well once again Labour has shot itself in the foot.

Instead of making the CGT very simple and with no exceptions, they've suggested
a leftist style load of mumbo-jumbo that seeks to 'balance the tax take' along
social engineering lines. Bollocks.

And no GST on fresh foods? More Bollocks!

And more progressive tax on high income earners who are generally salaried
and struggle to hide from tax unlike business owner. Even more Bollocks.

Why don't politians under the KISS principle? (Seems only R Douglas did that when he introducd GST!).

Because among this sad Labour lot I doubt that there is one of them who has any commercial experience, or any they can remember. They simply do not know how the world works. You are right abour Roger Douglas. He rejected CGT because as he put it 'it stops things happening' and his no exemption GST should never be tampered with. It works, and it's simple and leaves little room for dodgy stuff.

777

17-07-2011, 10:43 PM

Think of all the extra people that will be needed in the IRD. Everyone will have to file tax returns again to ensure they only get the first $5,000 tax free. Up goes the state servants numbers again.

Actually I can live with the CGT but I can't agree with the GST being wiped off fruit and vegetables, and the increase in the top tax rate is just a typical Labour "anti success" tax. The first $5,000 tax free is simply a vote bribe. All political and not fiscal.

skeet

20-07-2011, 11:11 AM

No most likely people will only need a PTS, this involves minimal human intervention if requested online.

Billy Boy

22-07-2011, 04:28 PM

CGT is really a tax on inflation !!!!

Purchase Price 500,000

Average Inflation 3%
CGT Cap Gain P/Cent
Year Inflation Cap Gain 15% After Tax Loss
1 515,000 15,000 2,250 12,750 0.44%
2 530,450 30,450 4,568 25,883 0.86%
3 546,364 46,364 6,955 39,409 1.27%
4 562,754 62,754 9,413 53,341 1.67%
5 579,637 79,637 11,946 67,691 2.06%
6 597,026 97,026 14,554 82,472 2.44%
7 614,937 114,937 17,241 97,696 2.80%
8 633,385 133,385 20,008 113,377 3.16%
9 652,387 152,387 22,858 129,529 3.50%
10 671,958 171,958 25,794 146,164 3.84%
11 692,117 192,117 28,818 163,299 4.16%
12 712,880 212,880 31,932 180,948 4.48%
13 734,267 234,267 35,140 199,127 4.79%
14 756,295 256,295 38,444 217,851 5.08%
15 778,984 278,984 41,848 237,136 5.37%
16 802,353 302,353 45,353 257,000 5.65%
17 826,424 326,424 48,964 277,460 5.92%
18 851,217 351,217 52,682 298,534 6.19%
19 876,753 376,753 56,513 320,240 6.45%
20 903,056 403,056 60,458 342,597 6.69%

Cpoied from a spread sheet, Hope it comes out right

Halebop

22-07-2011, 07:58 PM

CGT is really a tax on inflation !!!!

Not if it includes a base allowance for inflation or the risk free rate of return.

winner69

22-07-2011, 08:20 PM

Cunliffe tried to explain that the 15% they went with instead of tax payers marginal rate was in part 'an allowance for inflation'

777

22-07-2011, 09:11 PM

If they get it in then watch the rate increase a year or down the track. The more they get the more they will waste.

Heke

23-07-2011, 12:19 AM

If they get it in then watch the rate increase a year or down the track. The more they get the more they will waste.

Don’t worry 777, they haven’t got a hope of getting in and trying to get in bed with the Greens makes their chances even more remote.
But!! we must all do our part on voting day and keep the idiots out.

belgarion

23-07-2011, 08:49 AM

CGT is really a tax on inflation !!!!

I wonder if the effect will be to dampen inflation over the longer term?

fungus pudding

23-07-2011, 09:01 AM

CGT is really a tax on inflation !!!!

That depends on whether the tax is on the nominal gain, as Goff's scheme intends, or the real gain, as is in many countries. Nominal gain is esay to impose and collect, but quite unfair, whereas the real gain leads to huge costs, both for the victim and the IRD.

Billy Boy

23-07-2011, 12:19 PM

That depends on whether the tax is on the nominal gain, as Goff's scheme intends, or the real gain, as is in many countries. Nominal gain is esay to impose and collect, but quite unfair, whereas the real gain leads to huge costs, both for the victim and the IRD.

Belg..... I dont think so.
Fungus....... Yes heg...zak...ally.....
Q. Are we going to see a CGT on Gold ???
What a can of bloody worms that will open !!!
e.g. some people have been accum'ing for years,
how are they going to prove their purchase prices.
and so on !!
BB
P.S. black markets ???

winner69

23-07-2011, 01:33 PM

Belg..... I dont think so.
Fungus....... Yes heg...zak...ally.....
Q. Are we going to see a CGT on Gold ???
What a can of bloody worms that will open !!!
e.g. some people have been accum'ing for years,
how are they going to prove their purchase prices.
and so on !!
BB
P.S. black markets ???

If they ever get it and do this everything involved will be priced/costed as at a certain date .... so Cunliffe said on TV

fungus pudding

23-07-2011, 02:34 PM

If they ever get it and do this everything involved will be priced/costed as at a certain date .... so Cunliffe said on TV

Cunliffe says a lot of things; he is a real worry that boy. Absolutely no idea of commerce and how the world works. :(

Billy Boy

23-07-2011, 03:56 PM

If they ever get it and do this everything involved will be priced/costed as at a certain date .... so Cunliffe said on TV
There is a CGT on Property now. Not enforced,,,, to hard to administer !!! etc. etc.
if IRD cant administer what's in exinstance now, how can they cope with the xtra
workload. Not doing their cause any good at all.
BB

fungus pudding

23-07-2011, 04:30 PM

There is a CGT on Property now. Not enforced,,,, to hard to administer !!! etc. etc.
if IRD cant administer what's in exinstance now, how can they cope with the xtra
workload. Not doing their cause any good at all.
BB

Not really. We don't have a CGT, but capital gained can be considered income, and taxed as income. National have poured heaps into IRD to chase up and tax gains that are really income, and that's fair enough or hard to argue with.

craic

15-08-2011, 11:46 AM

Enforcement in this country is a nightmare - fraud is simple. UK and most places have field teams in place to counter fraud, particularly among beneficiaries. These people turn up in a van and observe. They turn up unannounced on work sites etc. The policy in NZ is that if benefit fraud is reported and as a probation officer, I was bound to report cases over the years, the standard reply was "Oh well we'll get them in" The fraudster only had to go into the office and deny the allegations and that was the end of it. One "boarder" was quite proud of the fact that he had a separate room fully set up as his room which he never used. He paid a minimal board so not to interfere with his partners DPB while he worked full time in a good job. Any capital gains tax will only go to benefits administered from an office and it is cheaper to pay fraudster rather than employ more staff. I know of others on ACC for years who work just about full time in the cash economy.

minimoke

17-08-2011, 11:34 AM

Enforcement in this country is a nightmare - fraud is simple.
The same can be said for immigration. The only reason takeaways are as cheap as they are is due to the illegal migrants working out the back or staff who are paid well under statutory minimums. IRD misses out on loads of tax due to the cash nature of these businesses.

BIRMANBOY

17-08-2011, 12:22 PM

Historically yes, but now with so much being done by eftpost that is changing year by year. You cant hide an electronic transaction. Good for the state coffers..everybody doing their bit.
The same can be said for immigration. The only reason takeaways are as cheap as they are is due to the illegal migrants working out the back or staff who are paid well under statutory minimums. IRD misses out on loads of tax due to the cash nature of these businesses.

Halebop

17-08-2011, 12:53 PM

The same can be said for immigration. The only reason takeaways are as cheap as they are is due to the illegal migrants working out the back or staff who are paid well under statutory minimums. IRD misses out on loads of tax due to the cash nature of these businesses.

In many cases the employees are legally allowed to work but require the employment as a condition of their pending application for permanent residency. Often their employers take advantage of this. I came across an employer just last week who told two (legal) chinese workers they would now be paid 35 hours for their 45 hour work week because business was bad. As both had pending PR applications, they were too scared to rock the boat and risk losing employment so accepted the pay cut. Two workers who already had residency did not get the pay cut. The employer, also a Chinese national resident in NZ driving expensive cars and owning a nice home, belongs to a family whose net worth is in excess of US$100m. Not the kindest advertisment for capitalism (although I suspect a fair representation of chinese capitalism) and not the sort of concept the endears them to a non capital gains environment. Also (now) not my client.

Almost immediately across the road, a Korean restaurant owner has played similar games with two Korean staff, while Kiwi staff and Korean staff with PR status avoided this treatment.

...and I feel I'm fast running out of establishments where I feel morally comfortable just buying a coffee...