The Tax Working Group and ‘inequality’

The Tax Working group has just released a background paper with the lofty title of Distributional analysis

This focusses on the distribution of tax in relation to ‘inequality’.

Inequality of income? Inequality of living standards. Inequality of taxation?

 

Purpose of discussion – the background paper is for the Group’s information. It provides:

  • an overview of distributional information on household income, wealth and consumption; and
  • a preview of initial distributional analysis using household income, expenditure and wealth data.

Executive Summary

This paper provides an overview of distributional information on income, wealth and consumption. It provides a preview of initial distributional analysis of tax policy using household income, expenditure and wealth data.

The paper includes new analysis of household wealth and the potential incidence of capital income and wealth taxation. It uses household wealth statistics from Statistics NZ that were not available at the time of the previous 2010 Tax Working Group.

Some of the analysis has only recently been completed by the secretariat. The secretariat will refine its methods and undertake further quality assurance, which may change some of the results.

Further distributional analysis will be provided to the Group in future sessions through analysis of specific policies under consideration. A separate session on distributional analysis to inform the Group’s interim report is also planned in July.

This paper makes the following key points:

  • The Treasury maintains a model for distributional analysis of the existing tax and transfer system that focusses on household income. For potential new taxes on capital income or wealth, the secretariat will provide distributional analysis using available information on the distribution of wealth, although this will inevitably depend on assumptions and be subject to some data limitations.
  • Household wealth is distributed less equally than annual household income. Income before taxes and transfers is distributed less equally than disposable income and consumption.
  • Capital income and self-employment income is distributed much less equally than wages and salaries. Taxes and transfers reduce inequality in disposable income.
  • Household wealth is concentrated in the top twenty percent of households, which hold about seventy percent of total household net worth.
  • Average wealth rises with age, which is consistent with a life-cycle pattern where individuals smooth their consumption and accumulate savings for retirement. While lifecycle patterns and/or intergenerational differences are an important factor inexplaining differences in wealth, there is also considerable wealth inequality within age groups. There are also significant differences in average wealth by ethnicity.
  • The revenue from potential taxes on wealth or capital gains (excluding owner occupied housing) would be expected to be mostly paid by the wealthiest twenty percent of households in a given year. However, this is based on a one year snapshot of wealth data and does not take account of lifetime effects or behavioural responses to taxation.

‘Inequality’ generally refers to inequality of income and inequality of living standards, but inequality of tax is also an important factor.

Inequality of tax can refer to unequal taxing of income over asset gains, especially with property investments in the current New Zealand context.

It should also take into account inequality of taxing people overall – how much people at the bottom should be free of tax, and how much people at the top of the economic pile be taxed so their earnings can be redistributed.

109 Comments

  1. Alan Wilkinson

     /  May 10, 2018

    The unions have just released a survey showing NZers want other people to be taxed more. What a surprise, just as Labour searches for its missing billions.

    • Blazer

       /  May 10, 2018

      morning misery….lemon juice is not good on…Weetbix…Al.

    • Gezza

       /  May 10, 2018

      What survey is this? Link?

        • PartisanZ

           /  May 10, 2018

          “The poll of 700 people took place In late April and had a margin of error of 3.7 per cent.”

          What’s the problem Alan?

          You have no difficulty accepting the results of polls exactly like this when they confirm your biases …

          You have no difficulty whatsoever with NZ Initiative, the (so-called) Taxpayers Union and numerous other corporate funded lobby groups attempting to influence government …

          • Mefrostate

             /  May 10, 2018

            I’m a bit of a lefty, PartisanZ, but I also write survey questions from time to time and this poll is absolutely atrocious. Here are the two options for your answer:

            a) the government should increase tax to at least maintain public services at their current levels into the future, or,

            b) tax collected should stay the same while reducing public services.

            This is blatantly guiding everyone who would have answered “keep things the same” to answer with a). CTU should be ashamed of this poll, and their agitations on the basis of its result should be flatly ignored.

            • PartisanZ

               /  May 10, 2018

              Fair enough … I didn’t look at the Survey itself …

              I’d wager a lot of lobby group surveys are like this though?

              And I’d wager far-and-away the majority of lobby groups are corporate-backed Centre-Alt-or-Far Right?

            • Mefrostate

               /  May 10, 2018

              Yes, this is a common technique, and one that is employed by the left and right. But today we’re criticising the CTU. We can criticise right wing lobby groups if and when they do the same.

          • Alan Wilkinson

             /  May 10, 2018

            The principle that everyone else should pay is not one I support, PZ.

            • PartisanZ

               /  May 10, 2018

              What do you mean “everyone else”?

              That’s almost as absurd as the ludicrous Rightie expression “other people’s money” …

              By “everyone else” you can really only mean “we all” …

              And by “other people” you can really only mean “us” …

              Or do you mean “everyone else” except the poor?

  2. Gezza

     /  May 10, 2018

    It probably is time to have a serious look at taxing wealth but at what level & what rate & what exemptions will be the hard part. If saving, investing & acquiring wealth is disincentivised what impact will that have on the economy & our ability to keep those with no ability or intention to save & invest in their own future

    • Blazer

       /  May 10, 2018

      can’t have rich people without a whole lot of…poor people.

      • Gezza

         /  May 10, 2018

        From my perspective the concern is how much the uber rich people screw the game thru buying governments.

        • PartisanZ

           /  May 10, 2018

          “Sold!!!”

          • PartisanZ

             /  May 10, 2018

            … whether they skew or screw ‘the game’ the ultimate aim of buying governments is to keep the poor people poor … the rich depend on it.

      • David

         /  May 10, 2018

        “can’t have rich people without a whole lot of…poor people.”

        If you want any progress, you must have inequality.

        • Blazer

           /  May 10, 2018

          you must be enamoured with…’progressives’ then.Society has been regressive since embracing …neo liberalism.

        • PartisanZ

           /  May 10, 2018

          David, why bother rephrasing Blazer’s statement in such a negative way?

          Does the same apply to this: If you want peace, you must have war …?

          • David

             /  May 10, 2018

            I was not rephrasing his statement. I was simply stating an economic fact.

            If you want poor people to have a better standard of living, there must be inequality. This has been true in every nation that has developed, and always will be.

    • PartisanZ

       /  May 10, 2018

      @Gezza – “If saving, investing & acquiring wealth is disincentivised …”

      What this really means nowadays, for the bulk of people with what you call “the ability or intention” is this:

      “If saving, investing & acquiring wealth through property speculation is disincentivised, what impact will it have on the rest of the economy …”

      As to “our ability to keep those with no ability or intention to save & invest in their own future” you open up a Pandora’s Box here. Could it conceivably be that its not “all their own fault”?

      Does the education system, the financial system, the globalized ‘free market’ with its ‘instant gratification’, iniquity, pollution, exploitation, resource depletion, false advertising, demand creation, conspicuous consumption and addiction promotion encourage people to “save and invest in their own future”?

    • Alan Wilkinson

       /  May 10, 2018

      Taxing wealth is taxing the future. It will cause less saving and investment and more current consumption. The wealthy will act to avoid it and others will be left more dependent on the state.

      • Gezza

         /  May 10, 2018

        Why do the wealthy want to avoid it? There’d be no wealth if others weren’t involved in creating it.

        • Alan Wilkinson

           /  May 10, 2018

          Because the wealth is what was left after they already paid tax and now it will be taxed again. Just like your house. Except that they have more resources and options to act on to avoid attempts to double tax them.

      • Blazer

         /  May 10, 2018

        absolute piffle ,inside drivel,wrapped in…waffle.

      • PartisanZ

         /  May 10, 2018

        What can possibly be wrong with “more current consumption” Alan?

        Surely that’s the Righties’ dream scenario … ?

        More current consumption creates more demand (for whatever goods and services producers can convince consumers they want and/or need*) and the increased or ‘freshly manufactured’ demand will be met by new entrepreneurial ‘investment’ exercising “risk and innovation” …

        Isn’t that how it works …?

        * after a certain point of market saturation demand has to be ‘manufactured’ because people can’t demand things that don’t exist yet …

    • Mefrostate

       /  May 10, 2018

      The great thing about Land Tax, Gezza, is that it doesn’t discourage saving and investment at all, because it’s impossible to make more or less land.

      • Gezza

         /  May 10, 2018

        How does land tax work? When &/or how often is it taxed & are you talking in addition to other taxes & levies (#more taxes)?

        • Mefrostate

           /  May 10, 2018

          Same as the LV portion of your rates, it’s charged as a fixed percentage of the land value each year.

          I’d like to see every dollar of LVT revenue used to reduce income tax, such that the overall size of government remains the same.

          • Gezza

             /  May 10, 2018

            That would actually see me worse off financially than now.

            • Mefrostate

               /  May 10, 2018

              Sure, there will be winners and losers, same as any tax.

              I’d ask you not to support the tax system that’s best for you, but the one that’s best for NZ as a whole.

            • Gezza

               /  May 10, 2018

              Possibly you are in a far better financial & income situation than me to do so?

            • Gezza

               /  May 10, 2018

              But it’s question time & it appears a significant but hopefully minor war has just broken out between Iran & Syria & Israel.

            • Mefrostate

               /  May 10, 2018

              If LVT offset by lower PAYE means that you’ll pay more tax overall, it means that you own quite a bit more land than me, despite not earning very much wage income for yourself.

              I’m sure you’ve enjoyed the tax-free inflation in the value of that land, but you should ask yourself whether that’s fair.

            • Gezza

               /  May 10, 2018

              I haven’t enjoyed any tax-free inflation in the value of my land and my income this year will $20k, or less.

            • Gezza

               /  May 10, 2018

              * will BE $20k, or less.
              Anyway, following other big developments in Syria & a raucous Question Time where Trev’s punishment policy is starting to really confuse people & get up everyon’s noses. So, back later.

            • Mefrostate

               /  May 10, 2018

              What’s the current rateable value of your land, and what was it when you bought it? Also, have you read TOP’s tax policy and do you understand the concept of the imputed income you receive from your land?

            • Gezza

               /  May 10, 2018

              I don’t give a monkey’s what they are. My house (and the land it is on) are costing me money. Not generating any. My property won’t generate any money until I kark it & it is sold.

            • Mefrostate

               /  May 10, 2018

              But every year you reside on your land you derive the benefits it provide, i.e. in not having to pay rent. So it does generate you money, just in the form of avoided costs. That’s exactly why you bought it actually.

            • Gezza

               /  May 10, 2018

              That is correct. In order not to have to pay rent & enrich someone else for putting a roof over my head I &, when she could, for a very short time, my wife, borrowed money & worked our freakin butts off & scrimped & saved & didn’t jet around the world or chuck money away in Casinos or on shitburgers & expensive restaurants & holidays in Vegas & Queenstown & visiting Europe & sucking lattes & beers n vinos & doing coke n meth to make paying our house off our principal priority.

            • Gezza

               /  May 10, 2018

              Plus I’s stuck with rates n insurance n levies (#moretaxes). So, the system you are advocating is a stinker of a plan & would only appeal to people who don’t want to do that. It’s not good enuf. It’s a lousy idea. What else have you got.

            • Mefrostate

               /  May 10, 2018

              The very reason you had to scrimp & save is because land was so expensive. Land was so expensive precisely because of its tax free status. You also had to pay much more in interest on your mortgage because land was so expensive when you acquired it. It should never have been that difficult for you. I wish LVT had been in place since before you even bought the land.

              But, since you bought it, land has gotten even more expensive, and it’s become even more difficult for future generations to get onto that ladder. Any time land increases in real value it means existing land owners are benefiting, and things are getting even harder for those who don’t own land.

              We need to break the cycle, and start taxing land as soon as possible, such that it falls to a stable level and does not continue to increase in real value.

            • Gezza

               /  May 10, 2018

              Perhaps you are right but this plan will actually take from me more than I earn, so you need to modify or think up another plan which doesn’t do that. The chicken doesn’t vote for the man with the axe and especially when the man with the axe is doing very nicely thank you and won’t lose a cent from it in real terms. Gareth’s not short of a bob I hear and I imagine Grant & co & Sir Michael are not going to end up losing any dosh in real value terms.

            • Mefrostate

               /  May 10, 2018

              We come back to the distributional impacts of LVT, whereby it will certainly cost the land-owning majority of voters more in tax than they get back in reduced PAYE. I understand that they will vote in their self-interest but I beg them not to. I’d love to progress this country towards a better future today, rather than to having wait for the boomers to die, or for land-ownership to concentrate into the hands minority.

              Gareth & Grant & Sir Michael all own considerable amounts of land, and so would certainly lose more money under LVT than they do under the status-quo.

            • Gezza

               /  May 10, 2018

              They would remain massively more wealthy than me. Nope. You have to think of a better plan. Needs more road cones.

            • Gezza

               /  May 10, 2018

              If you wish to lower the cost of land why not simply do it by decree overnight and have done with it. If anyone doesn’t like it they can write to their MP & complain.

            • Mefrostate

               /  May 10, 2018

              Much of their wealth was generated through productive effort, I’m not interested in taking any of that. I’m not in the business of simply appropriating people’s wealth just for the sake of it. I’m just trying to get at ill-gotten wealth that was generated through passive ownership of a natural resource. They’ve benefited from some of that, so I’d like to tax them for it. So have you, so I’d like to tax you for it.

            • Gezza

               /  May 10, 2018

              I’m just trying to get at ill-gotten wealth that was generated through passive ownership of a natural resource. They’ve benefited from some of that, so I’d like to tax them for it. So have you, so I’d like to tax you for it.

              Fuck off. You know nothing about what was required to acquire this house or why it was such a priority. To call it ill-gotten gains is insufferably insulting. Get a better plan.

            • Mefrostate

               /  May 10, 2018

              I’ve already acknowledged how hard it was, and the fact that it was difficult specifically because there was no LVT in place. I’m trying to stop it from getting harder for future generations, which is what’s happening as your land increases in value through no effort of your own. It’s that gain which is ill-gotten.

            • Gezza

               /  May 10, 2018

              Fine. So the first part of your better plan has to focus on looking after the future generations not penalising me because I own a house that is only worth another house.

              Revise the plan along these lines. I know it’s hard but more thinking is needed as your current plan cannot penalise me for this situation.

              When you have solved this problem, get back to me your better plan. Capital gains tax is ok with me.

            • Gezza

               /  May 10, 2018

              *with your better plan.

            • Gezza

               /  May 10, 2018

              * CGT exept on the family home.

              Your plan is no good. Needs more refining or we need to look at another plan altogether.

            • Mefrostate

               /  May 10, 2018

              No. I can’t help you if you refuse to support policy that is based on solid principles simply because it would cost you slightly more in tax, even though by owning land you’re already in the wealthy half of the country.

            • Gezza

               /  May 10, 2018

              No, you’re not getting it. You’re too into your own headspace to listen I think. All I have is a house & some savings. And a reducing income. Which is depleting yearly, as are my savings to meet my living expenses. Your proposed system will accelerate the reduction of my income.
              Your system must not do this. Otherwise it is completely useless to me. Why do you want me to embrace a system which is making me poorer & steadily reducing my income annually just because I own the house I live in?

              When you come up with a system that doesn’t do this it might be worth thinking about. Have another think. Get back to me with a revised plan.

            • Mefrostate

               /  May 10, 2018

              “Why do you want me to embrace a system which is making me poorer & steadily reducing my income annually just because I own the house I live in?”

              I’ve explained exactly why it’s a better system to our current one. You just happen to be an edge case, since you’re asset-rich but cash-poor.

              You’re in a similar situation to retirees, and you can see above that I’d be happy for you to defer payment of the land tax until your property is sold.

              Since you’ve already made it clear you don’t consider the capital gains on your property to be an actual increase in your wealth position, you shouldn’t mind if a little bit of that gain is eventually directed to the government when you die or downsize.

            • Gezza

               /  May 10, 2018

              No I don’t mind CGT. What we need is a way to stop skyrocketing house prices. That may be best just done by decree.

            • Gezza

               /  May 10, 2018

              Then we also need to find a way that enables more people who want to buy the house they live in to do so. That will require paying more people more.

              Then we also need to make sure they can meet their payments. That means making sure the banks & lenders can’t screw them.

              If this means some rental owners go stuff this then great. More houses on the market.

            • Mefrostate

               /  May 10, 2018

              Do you, or do you not, believe that you deserve to keep all of the capital gains on the value of your land when you leave it?

            • Gezza

               /  May 10, 2018

              No I think at the point it’s sold any gain is income and should be taxable. Until then it’s not and shouldn’t be. If it’s sold to buy another house of same value it’s not income and shouldn’t be taxed as such.

            • Gezza

               /  May 10, 2018

              I didn’t buy land. I bought a house on some land. The value of the two is what must be considered. If all I had was a section I would get stuff-all for it.

            • Mefrostate

               /  May 10, 2018

              If your section is worth stuff-all, then you’ll face stuff-all land tax.

            • Gezza

               /  May 10, 2018

              That will be stuff-all extra income taken from what stuff-all income I have now. This system has to be voted against. I have explained all of this. What other ideas have you got?

            • Mefrostate

               /  May 10, 2018

              I’ve suggested a mechanism by which it won’t touch your income at all, and you’ll only have to pay it when you move house or die. Land value taxation is such a crucial fix to NZ’s tax system that I’m willing to try all sorts of things to ease the transitional burden on you while still retaining the vast, vast benefits that such a shift would generate.

              If you can’t accept a little bit of pain in exchange for making NZ a much better place overall and for future generations, then I understand that you’ll remain averse to the policy, but I’ll insist on calling you selfish even if I have some empathy for your economic situation.

            • Gezza

               /  May 10, 2018

              I’ve had enuf pain in my life mate you don’t know the half of it. If you’re going to call me selfish I’m going to call you an arsehole. Get a better plan that doesn’t cause me pain.

            • Mefrostate

               /  May 10, 2018

              I’ve tried to mitigate your pain, quite reasonably I’d argue. Other people, and future generations, will suffer even more pain than you did if we don’t get LVT.

            • Gezza

               /  May 10, 2018

              Bullshit. Get a better plan.

          • High Flying Duck

             /  May 10, 2018

            It’s a slippery slope for property rights when you get taxed for having the temerity to own assets.
            Avoided costs are not income, although they could possibly be construed as a type of saving.
            Rates are somewhat justified as being necessary to cover the costs of a regions facilities and amenities. These are already arbitrarily loaded to those with higher property values rather than using either land value or a user pays model as they should be.
            Property rights are sacrosanct. Wealth taxes are the thin end of the wedge leading to becoming government tenants on your own property.

            • PartisanZ

               /  May 10, 2018

              Nope … Property rights aren’t sacrosanct … Human Rights are!

              Property Rights may be a good thing … in themselves … as might money … in itself … A means of tenure and a means of exchange …

              They stave off ‘brute force’ … which might otherwise organize things?

              But I fear they’re both in dire need of reform, as is so-called ‘democracy’ … because the component of them ‘governed’ or ‘motivated’ by brute force is showing itself rather badly …

            • High Flying Duck

               /  May 10, 2018

              It’s not an either / or proposition parti:
              A right to property is recognised in Article 17 of the Universal Declaration of Human Rights,
              Many important human rights are derived from property rights.

            • Mefrostate

               /  May 10, 2018

              To be fair, I largely agree with you when it comes to a broader wealth tax, which is why I’m instead advocating for land tax. Land tax is fine with respect to property rights, because there’s a philosophical question about what right people have to own land anyway. It’s a natural resource that exists before their birth & after their death, and we should ask what right an individual has to privately accrue the socially-generated benefits of land, while excluding others from access to those benefits.

              Avoided costs are obviously not what we consider income, but they absolutely are a form of financial benefit, i.e. imputed income.

              If rates are justifiable on the grounds of local services, why is LVT not justifiable on the grounds of national services? It’s exactly the provision of those services that gives land its value anyway. I agree with you that rates should be charged only on LV and not on IV.

              Property rights certainly are sacrosanct, but I’m not sure why you’re advocating for taking 25% of the property I generate through the fruits of my labour, but taking 0% of the value generated by an individual passively holding land. You seem to care more about the landlords property rights than the wage earners.

            • PartisanZ

               /  May 10, 2018

              … RESPECT …

          • PartisanZ

             /  May 10, 2018

            Oh God … I can see why TOP found it so difficult during the election campaign … It’s like preaching to the diverted …

            If you’re over 65 you can borrow against your ‘property in the soil’, or even only against its increased value since you’ve owned it, and enjoy its benefits that way, without making payment ’til you die …

            • Gerrit

               /  May 10, 2018

              TOP taxation was not just on land but ALL assets. Your car, your caravan, your trailer, that nice painting on the wall, anything that could be considered productive, even if it just sat in the garage, shed or back bedroom.

              “All productive assets – and that includes the house that provides you with your accommodation each year – are or can produce income each and every year. All income should be taxed, whether it is in cash or in kind.

              If you had an asset you needed to pay the tax on the 6% it the asset could potentially produce. Never mind it sat idle by owners choice.

              TOP lack of explanation and then back tracking on what were “productive” assets was bad politics and hence they got the results they did.

      • Alan Wilkinson

         /  May 10, 2018

        If the tax is only on the value of land and not improvements then it will produce tiny sections, highrise apartments and demands for more public recreation areas. If it is on capital value then it will discourage investment and development.

        • Blazer

           /  May 10, 2018

          show yourself out Al…definately not your..forte.

          • Alan Wilkinson

             /  May 10, 2018

            I’ll definitely be dead before I need your opinion on anything, B.

        • Mefrostate

           /  May 10, 2018

          “If the tax is only on the value of land and not improvements then it will produce tiny sections, highrise apartments and demands for more public recreation areas.”

          Yes, and? That all just sounds like productive activity & agglomeration benefits to me. Certainly better than the sprawling gridlock produced by the current orthodoxy.

  3. Gezza

     /  May 10, 2018

    Sir Paul Callaghan (RIP) 2011

    What NZ politicians say we’re good at (they’re wrong) & what we ARE actually good at. 100 entrepreneurs figuring out & then setting up businesses making what we’re good at – high value niche products the big corporate companies can’t be bothered making – is what we need. They could turn this country round, he said.

    • PartisanZ

       /  May 10, 2018

      One or more of those industries could be medicinal and ‘recreational’ (or therapeutic) cannabis … but here we have a problem which, in almost any other economic sector, would be called ‘draconian government regulation’ … or worse? … and often is called exactly that in the construction & property development sector …

      Add to those 100 industries a fairer tax system … capturing global corporate tax avoidance … and a financial transaction tax …

      Voila! UBI becomes possible!

      • PDB

         /  May 10, 2018

        Still waiting for you to show us in the world where a fully implemented UBI has worked? UBI isn’t possible & is one of those economic myths passed down from generation to generation.

        • PartisanZ

           /  May 10, 2018

          Still waiting for you to show us where in the world a totally Von Mises-like, minarchist “free market” is operating? Or has ever done so with colonization, genocide and/or slavery? Without, literally, sowing the seeds of its own destruction?

          Would the United States be a good example?

          At least I accept that it might be possible though … if Mankind can ever culturally evolve beyond “predictable irrationality” …

          • PDB

             /  May 10, 2018

            I’m an advocate for the mixed economy with a slant towards the right so your question makes no sense. A UBI is not possible hence why it has never been put in place to run on its own two feet successfully……..anywhere.

  4. PartisanZ

     /  May 10, 2018

    I’ll bet money that what the TWG comes up with roughly equates to TOP1 Tax Policy … because, of course, Gareth Morgan sat on the last TWG and was possibly its only truly ‘independent’ member …

    https://www.top.org.nz/top1

    Except, of course, Labour (or any other Party) can’t risk losing votes by including “the family home” … which for so many ‘dis-placed’ people nowadays is no more than another house/rung on their “property ladder” … a safe haven for wealth and capital gain …

    • Gezza

       /  May 10, 2018

      For the vast majority of people the family home is the family home. Something they’ve worked & saved for to not have to pay rent & enriching someone else. If it’s going to be taxed when it is taxed is important. If it’s only home you have unless you borrow more against it, it’s not actually wealth until you sell it. What you get for it is your wealth from it.

      • PartisanZ

         /  May 10, 2018

        @Gezza – “For the vast majority of people the family home is the family home.”

        And you know this how?

        I wonder how it could even be worked out?

        For some it isn’t, they have no ‘place’ other than place-of-employment and maximize the gain from wherever they feel they must live.

        For some I imagine it’s both … a family home and ladder of wealth increase

        For others still … a long, long term attachment and commitment, or turangawaewae?

        What the percentages are I don’t think anyone knows. Numerous indicators might tell us … one being the property market …

        Even Gareth Morgan isn’t prepared to reform the banking system and debt-based money … maybe “yet” … because, for one thing, you can easily get ‘popped off’ for trying to do that.

        But they’re the really big winners from ‘property in the soil’ … the mortgagors … and guess who ‘they’ are?

        Yep … The Uber rich!

        • Gezza

           /  May 10, 2018

          @Gezza – “For the vast majority of people the family home is the family home.”
          And you know this how

          Well, maybe it’s not where you live? Maybe you have friends or famiky with investment properties who rent them out?

          But around here absolutely none of my immediate dozen or so neighbours own investment properties. And none of my whanau do. And I don’t. We loved living in the hillside house we had built in 1980 but by the time my late Mrs went into a wheelchair we had to move, fairly quickly, into a place on the flat. Although we got $325k for our 1st home we had to put that and another $15k from our savings in immediately to get this one, and then another 5k on modifications, so we didn’t make any money out of it, did we?

          If I sold this one to find somewhere smaller around here it’s actually going to cost me as much to get as nice a place as I’ll get for this one because there’s a shortage of single level low maintenance houses.

          • PartisanZ

             /  May 10, 2018

            I acknowledge your personal experience …

            I wasn’t really referring to rental properties. I was referring to what we quaintly call “the family home” nowadays, which, I reckon, is little more than “the investment property we currently live in” for many people …

            One of the truisms of a ‘property bubble’ economy like New Zealand’s is that whenever you sell at obscenely inflated prices you have to pay obscenely inflated prices to get onto the next rung of the ‘property ladder’ … and usually borrow from the mortgagors as well!

            Unless you buy in a provincial town and begin the whole property bubble cycle there as well …

            Ultimately self-defeating … as those for whom home ownership OR property speculation is fading into the distance can clearly see …

            Those … children and grandchildren of ours …

  5. Gerrit

     /  May 10, 2018

    Problem taxing wealth is IF there is no liquidity generated from that wealth.

    So a pensioner living in her/his freehold home had, under TOP, to pay tax on a theoretical 6% ROI.

    But the pensioner having no other income but the pension would not be able to find fund the tax .

    No worries said TOP. We will do a reverse mortgage with the IRD and take the taxes owing when the estate sells. Meaning if the pensioner lived long enough the state would own the freehold titled home, not the estate

    Taxing wealth that has no liquidity stream (such as a start up business or the family home) is counter productive.

    • PartisanZ

       /  May 10, 2018

      Perfect description of a HeartLand mortgage … which so many retirees are taking up now anyway to make ends meet … (unlike how the adverts depict them) … and somewhat descriptive of ‘ownership’ style retirement villages … (some of which are starting to look a lot like contemporary ‘projects’) …

      And who do HeartLand mortgages and retirement units enrich …?

      Oh … The Banks … and the Corporates … The Uber Rich!

      • Gerrit

         /  May 10, 2018

        So do you agree with the TOP taxation regime on wealth? Or are you advocating that the state only does reverse mortgages?

        Not sure what you stand for PartisanZ, total ownership by the state of everything?

        • PartisanZ

           /  May 10, 2018

          Put it this way Gerrit … I’m writing a ‘what if’ novel about how prosperous we’d all be if Pakeha had honoured Te Tiriti o Waitangi, Maori had formed their own “Parliament” (how I loath that word) Kotahitanga, Kingitanga or Marae Ture, and we’d leased our land long-term from them …

          I’m onboard with TOP1 at present … as a precursor to sweeping financial reform …

          “The State models its real life on the “State morality”.”

          This is not really true of many Western nations now, rather: The State models its real life on the “Corporate morality” …

          Either way, “Hence the restoration of the world to a sound moral basis requires that the State shall be superseded” (Frank E Warner, ‘Future of Man’, 1944)

          Corporate morality has become global ………. Hence ……….. ?

  6. Mefrostate

     /  May 10, 2018

    Distributional analysis is crucial for helping us understand the implications of any change to the tax structure. But at the same time, we should take a good hard look at the distribution of the existing tax system.

    I dearly desire a shift away from income taxation and onto wealth taxation (specifically onto land), and there’s no denying that this will fall most harshly onto retirees & farmers, to the benefit of renters and wage-earners.

    But, when we lament the plight of the poor retirees, we must also acknowledge that the very reason they’ll face a large tax burden is that they have already accumulated large amounts of wealth specifically because of the tax-exempt status of their land (which makes up the majority of their wealth position).

    So yes, retirees would pay more tax under a LVT, but this is because the value of their land has tripled since 2000, through no effort of their own, and with them paying no tax on this windfall gain.

    • Gezza

       /  May 10, 2018

      So some having spent a working lifetime acquiring equity & security in their own home you favour the state then reducing that equity & security?

      • Mefrostate

         /  May 10, 2018

        Yes, because most of that equity & security has come from inflation in the value of their land, which would have occurred anyway, and had nothing to do with the amount of effort or work they put in.

        Land value comes from being close to transportation networks, highly paid jobs, diverse social opportunities, attractive landscapes, and desirable neighbourhoods. All of these opportunities are entirely generated by society at large rather than the landowner themselves, and yet it is the landowner who accrues the financial benefits of a new train station or public garden built nearby. LVT reclaims these unearned benefits for society at large, while enabling lower taxes on actual productive effort by workers.

        Any time land value increases in real terms, it’s a windfall gain to those who happen to own land, and a windfall loss to those who don’t.

    • Gerrit

       /  May 10, 2018

      Problem is this “:wealth” is not liquid or readily realiseable with a sale.

      When land values drop, the tax take drops, where will the shortfall come from?

      The vexing question is, who sets the land value. The government or the market?

      • Mefrostate

         /  May 10, 2018

        Liquidity issues can easily be solved by reductions in PAYE, reverse-mortgage schemes for those not working, or by the land owner putting their property to more productive use in order to generate cash flows.

        Your concerns about the tax take falling if land values fall is no different to what happens with incomes in a recession. LVT actually dampens oscillations in the economy at large, by discouraging land speculation (which was what triggered the GFC).

        Land values are set by the marketplace, but for the purposes of levying the tax you can make use of professional valuers, as we already do for rates.

        No problem.

        • Gerrit

           /  May 10, 2018

          Only problem (and a big one) is selling the concept to the public.

          Will IWI owned (communal) Maori land be exempt?

          Will charitable religious and Maori trusts land ownership be taxed?

          Keen to see the details in the TWG report for there are powerful lobbies looking for exemptions, not just the home owner.

          • Mefrostate

             /  May 10, 2018

            Taxes work much better without exemptions and loopholes. I’d advocate for no exemptions for Maori land, no religious exemptions, no exemptions for trusts, and especially no exemptions for ‘family homes’.

            It’s a damned difficult policy to sell to the public, because most people own land, and most people are selfish, but my appeal is that people will vote for a good tax system, not just the one that benefits them the most.

            • Gerrit

               /  May 10, 2018

              So what the sell should be, you will pay more taxes here but they are offset with tax cuts here.

              And do we believe politicians when they promise tax cuts and don’t deliver on those promises? Remember Cullen’s chewing gum tax cut or Key’s no increase in GST (even though the GST increase was supposed to come with cuts in personal taxes)?

              We have long memories of political deceit.

            • Mefrostate

               /  May 10, 2018

              Yeah, the sell is that LVT can be used to slash income taxes. But that’ll still shift the lifetime tax burden onto those who own more land and are at the end of their careers.

            • High Flying Duck

               /  May 10, 2018

              A wealth tax is unworkable and would breach a fundamental tenet of taxation, in that the burden to pay falls to each person based on their ability to pay.
              The ability to pay is an income based test – it requires liquidity.
              You are taking taxation off those earning income and putting it on those who own assets which are illiquid and notoriously difficult to properly value – ratings values are often out by hundreds of thousands of dollars in Auckland, and even registered valuations can significantly differ from an achieved market price.
              Reverse mortgages etc simply delay the Government’s ability to receive taxes in a timely manner, or alternatively significantly increase the “dead hand” cost of collection due to interest accruals.
              Capital gains taxes can be justified in the name of “fairness” if not through any sort of revenue gathering success,
              Official IRD and Trerasury advice on the Wealth Tax is telling:

              “:However, they appeared to play down the likelihood of that happening, noting that wealth taxes were relatively expensive to collect and in decline globally.

              Only five major countries had wealth taxes in 2017 – Argentina, France, Norway, Spain and Switzerland – compared to 12 in 1990 “and many of those that do still have wealth taxes are making steps towards removing it”, they said.”

              https://www.stuff.co.nz/business/industries/103766007/tax-working-group-papers-highlight-concerns-over-inequality

            • PDB

               /  May 10, 2018

              Mefro: “Yeah, the sell is that LVT can be used to slash income taxes.”

              Reducing major taxes like income tax will never happen under a NZ Labour-led govt.

            • Mefrostate

               /  May 10, 2018

              @PDB, neither Labour nor National nor Greens nor NZ First are advocating for LVT with reduced PAYE, so they’re equally culpable in my eyes. I’ll support any party with that as their flagship policy.

              @HFD.

              ” A wealth tax is unworkable and would breach a fundamental tenet of taxation, in that the burden to pay falls to each person based on their ability to pay. The ability to pay is an income based test – it requires liquidity.”

              This is the Vertical Equity principle of taxation, and while you’ve pegged ability-to-pay to liquid income, ability-to-pay should be considered more closely aligned to wealth. By definition, the more wealthy have greater means by which to pay tax.

              It’s not harder for Warren Buffet to pay taxes than me, simply because I’m earning a weekly paycheck whereas all his wealth is locked up in shares.

              “notoriously difficult to properly value – ratings values are often out by hundreds of thousands of dollars in Auckland, and even registered valuations can significantly differ from an achieved market price.”

              LVs are much more consistent to value than CVs, already have a statutory basis, and even greater care could be given to improving their accuracy under a national LVT. You could also easily establish a dispute resolution system for contested values, in fact this already exists under the Public Works Act. No problem.

              “Reverse mortgages etc simply delay the Government’s ability to receive taxes in a timely manner”

              Deferred mortgages would clearly sit as an asset on the government’s books, and would be extremely easy to borrow against if liquidity was an issue for the public books. No problem.

              “alternatively significantly increase the “dead hand” cost of collection due to interest accruals.”

              I’d just peg interest to the inflation rate so that the tax is constant over time in real terms. No problem.

              For the rest, I’m not advocating a wealth tax, I’m advocating a land tax, which is much simpler to implement. Not least because it’s impossible to hide land in a Seychelles bank account.

            • High Flying Duck

               /  May 10, 2018

              I completely understand the premise you support, but to my mind tax needs to be simple, and as soon as it moves away from income and consumption, the ONLY justification is fairness, as complexity, loopholes and lack of consistency take over.

              They may achieve slightly more equality – but at what cost.

              And also it fundamentally changes the proposition that if you work hard, make good decisions and save / invest, you will have a nest egg to support you.

              Wealth or land taxes erode this and would impact the middle classes in a disproportionate way (again).

            • Alan Wilkinson

               /  May 10, 2018

              Don’t know why you think it will hit the elderly hardest. How do you think young families will cope? And the rents that will rocket for non-home-owners?

            • PartisanZ

               /  May 10, 2018

              @Gerrit – “We have long memories of political deceit.”

              Oh my goodness … it took me a while to recover from laughing at that one!

              We have long memories of political deceit … unless we’re committing it … or we benefit from it …

            • Mefrostate

               /  May 10, 2018

              @HFD: “I completely understand the premise you support, but to my mind tax needs to be simple, and as soon as it moves away from income and consumption, the ONLY justification is fairness, as complexity, loopholes and lack of consistency take over. They may achieve slightly more equality – but at what cost.”

              LVT is superior to PAYE & GST on Efficiency, Horizontal Equity, Vertical Equity, Fairness and Transparency grounds. The only area it’s slightly worse on is Administrative Simplicity, which I’ve already shown isn’t such a big deal. The costs of LVT are really very minor relative to the problems being created by the current system.

              “And also it fundamentally changes the proposition that if you work hard, make good decisions and save / invest, you will have a nest egg to support you.”

              To the contrary. I’m trying to cut taxes on people who work hard, save, and make productive investment decisions, while raising taxes on people who earn their wealth through unproductive passive speculation.

              @Alan

              “How do you think young families will cope?”

              Young families will benefit from reduced income tax.

              “And the rents that will rocket for non-home-owners?”

              Note here that the rent on a property = ground rent + floorspace rent.

              LVT cannot be passed on through ground rents, because land supply is perfectly inelastic, meaning ground rents are set entirely by what the tenants are willing to pay. LVT is therefore born entirely by the land owner, with no deadweight loss I might add.

              Floorspace rents will fall because, as you rightly note above, LVT will encourage more productive use of land, meaning more tenancy space will be built per hectare. By boosting supply of commercial & residential space, the rental rates for each will fall.

        • David

           /  May 10, 2018

          “LVT actually dampens oscillations in the economy at large, by discouraging land speculation (which was what triggered the GFC).”

          Hard to take this seriously when the United States has LVT’s in almost every kind of variation.

          • Mefrostate

             /  May 10, 2018

            Sure, they have small ones much like our rates. Not enough to generate the kinds of benefits that I’m talking about though. If they shifted even more of the tax base to LVT, the oscillations would be smaller.

  1. The Tax Working Group and ‘inequality’ — Your NZ – NZ Conservative Coalition