If he is regularly realising profit it will be taxed.
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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.
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.
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?
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
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.
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.
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. )
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.
[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%.
[QUOTE=Aaron;350989]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.
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.
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.
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.
[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.
[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'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!)
[QUOTE=minimoke;351006][QUOTE=Aaron;351001]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.
[QUOTE=Aaron;351032][QUOTE=minimoke;351006][QUOTE=Aaron;351001]
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.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.
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.Quote:
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.
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.Quote:
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?
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.Quote:
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).
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?Quote:
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.