Tax is likely to be a key election issue

There have been major distractions in politics over the last two weeks, with the fall of Andrew Little followed by the euphoric rise of Jacinda Ardern, plus the self destruction of the Greens which included the end of two MPs and the effective end of Metiria Turei’s political career.

Amongst that earlier this week there were two polls that showed a shrink in support for the greens and NZ First, and the likely return of a head to head battle between National and Labour.

And in a debate on The Nation yesterday between Steven Joyce and Grant Robertson the battle lines were drawn.

Robertson: So, under Labour’s package, every family earning $62,000 or less will be better off than under National’s package. What I don’t want is for Steven and me to get a $1000 tax cut when we’ve got families living in cars and garages, when we’ve got a health system that’s not coping. What we’re saying is we’ll get the money to the families in need, but we’ll get the money that Steven wants to give to us as tax cuts – to wealthy people like us – we’ll get that money, and we’ll make sure it’s invested in public services that have been run down.

Joyce: Well, it’s not actually about me – or about Grant, actually. It’s about those people who are on the median wage who are currently facing a 30-cent-in-the-dollar tax rate, and we have to change that. And the only way we change that is shifting the thresholds. Now, Grant’s allergic to actually reducing taxes and allergic to adjusting thresholds. He’s about increasing taxes.

Labour have pushed the anti-tax cut for rich people since National’s tax cut package was announced in the budget in May.

But it doesn’t just reduce tax or ‘rich people’, it reduces tax for all workers who pay PAYE:

Increases the $14,000 income tax threshold to $22,000, and the $48,000 threshold to $52,000. This provides a tax reduction of $11 a week to people earning $22,000 or more rising to $20 per week for anyone earning $52,000 or more.

https://www.budget.govt.nz/budget/2017/family-incomes-package/index.htm

That’s $1,000 less tax per year for everyone earning over $52,000 (affecting ‘rich people’ of course but also the majority in wage earners).

Of all the polices announced this one directly affects me the most. Labour would scrap it, and that has to be a significant factor in deciding who to vote for.

More on possible tax changes;

Lisa Owen: Capital gains tax — are you ruling it out in the first term absolutely, if you’re in in the first term?

Robertson: We’ve got a tax working group. I can’t pre-empt what they’re going to come back and decide.

Lisa Owen: So you can’t rule it out? Could come in the first term?

Robertson: I can’t pre-empt what that group says, but here’s the important point — right now today we have something called the bright-line test that the National Party brought in. It says that if you sell a house that’s not your family home within two years, you’ll pay tax on it. Steven has a form of capital gains tax.

Lisa Owen: I’ll give you the chance to talk about your policy, Mr Robertson. So a capital gains tax is still on the table? You’re not taking it off?

Robertson: What we’re going to the election with is a commitment that if you sell a property that is not your family home within five years, you’ll be taxed for that.

Robertson clearly avoiding stating a position on a Capital Gains tax, something he has favoured in the past but Little took off the table. It appears to be under consideration again.

Joyce: I think there’s a problem there for the Labour Party, because they’re dodgy on tax. They’re refusing to say about the capital gains, they’ve mentioned a water tax last week, but they won’t tell us how much it is, and then, of course, they’ve got a regional fuel tax they won’t talk about where it goes beyond Auckland.

Expect National to hammer the uncertainty over what additional taxes a Labour government could implement.

Labour are trying to avoid details by deferring to a future tax working group (on CGT) and an ‘expert panel’ (on water taxes).

Lisa Owen: So top tax rate — can you rule out lining yourselves up with the Greens and having 40 cents over 150 grand? Are you going to go for that?

Robertson: No, I don’t think we will be going for that, but what we will do…

Lisa Owen: …but you are not ruling out raising that tax rate.

Robertson: I’m not ruling it in; I’m not ruling it out.

On a water tax:

Lisa Owen: What about your water levy? What’s that going to be?

Robertson: The water levy? Look, what we’ve said there is for every thousand litres of water that’s used in irrigation, perhaps one or two cents.

Lisa Owen: One or two cents. There you go, Mr Joyce. That’s not going to make a huge difference, is it?

Joyce: This is the problem is that he’s not telling.

Robertson: One or two cents, Steven. How big a difference?

Joyce: Well, hang on. Don’t ask me; ask the farmers, because I’ve seen some figures that even at those levels, you’re talking about 50,000 a year per farm. So I think it’s beholden on the Labour Party to actually come a bit more clean on their tax stuff, because they’re being very dodgy.

Robertson: We’ve been completely upfront.

Joyce: You haven’t, actually. So you’ve got a water tax that you won’t tell anybody—

On the Panel discussion on The Nation:

Patrick Gower: I actually think that Grant Robertson probably got in a few more jabs in…however in terms of actual overall damage I think some of the talk about tax there that Steven Joyce, in terms of long term damage beyond the debate, in terms of that capital gains tax is back on the table.

The capital games tax is back baby. Labour were going to go to the next election with that, but that could come in next term.

Lisa Owen: Jane, are they doing themselves a disservice by not putting numbers on stuff now.

Jane Clifton: Absolutely. They’re their own worst enemy. This week alone with the water tax issue, because finally we’ve got a figure for irrigators and wineries and so on of one to two cents, although David Parker said three.

…but yeah, just get your ducks in a row, announce them all, don’t leave room for speculation about $18 cabbages and $70 on a bottle of wine…

The Newshub video cut Gower off at the end, but he pointed out a significant power shift in Labour. When Andrew little took over the leadership in 2014 he put a number of Labour policies on ice, including the CGT.

But with Little dropping to the ranks and Ardern taking over the leadership Gower said that this meant also a significant rise in influence of Robertson – he and Ardern have been close allies for a long time. We are already seeing glimpses of what that may change in Labours tax policies.

Gower followed up on Twitter:

So expect tax to be a prominent issue in the election.

It may have a significant effect on the outcome of the election. Labour will need to be much better prepared for the inevitable attacks from National.

Ardern will need to be well prepared for the leaders’ debates with Bill English. She will likely have a ready response to a ‘show me the money’ type line (Key used that to devastating effect against Phil Goff in 2011), but she is likely to get challenged over and over if she remains vague of what taxes a Labour government may impose or increase.

And tax could also have a significant impact on the outcome of coalition negotiations. Both Labour and National will have to try and find enough partners to support their tax (and spending) plans.

Personally a water tax or a CGT or a fuel tax in Auckland won’t affect me.

But I will be seriously taking into account whether National’s income tax cuts might be reversed or not when I decide who I will vote for.

Q+A – multi-nationals paying tax

On Q+A at 9 am this morning:

Judith Collins is our lead interview on Sunday. Political Editor Corin Dann asks her how she plans to get multi-nationals to pay their fair share of New Zealand tax.

Also…

…how’s the economy treating you? We’ve got a panel of economic experts to examine this week’s OECD report and give their take on how you and our economy are really doing.

Grant Robertson on the budget

 

Labour’s finance spokesperson Grant Robertson keeps his criticism up of Thursday’s budget. I guess he couldn’t praise it, but if he disses it too much he risks being seen as too negative.

He has promoted this Radio NZ interview:

And from the Labour website:

Nats’ budget a double-crewed ambulance parked at the bottom of the cliff

National’s election year Budget shows that there’s no coincidence Finance Minister Steven Joyce doubles as National’s campaign manager, says Labour’s Finance Spokesperson Grant Robertson.

“The 2017 Budget reveals a lack of vision, and is simply an election year budget with an eye for September 23, not the 21st Century.

“It’s irresponsible to dangle tax cuts that actually benefit the wealthiest more than low-income New Zealanders, instead of investing in the social foundations that are critical to our country’s future.

“The people who gain the most from the tax changes are people like Steven Joyce and me who earn far more than the average wage.

“The richest families get $35 a week from the Budget bribe, the poorest get $5 a week. Someone on the average wage gets $11 a week, and around 800,000 New Zealanders on taxable incomes below $14,000 get nothing.

“Steven Joyce has failed to deliver a plan to fix the housing crisis, build affordable homes for first home buyers, end homelessness, or fund our hospitals and schools properly.

“The big spending from the Government comes in the form of nearly $800 million for prisons. This is actually a sad indictment of National’s failure to invest in New Zealand.

“We would not have to build billion dollar prisons if the Government would adequately invest in early childhood education, get better support to help our vulnerable children, and provide mental health services to New Zealanders before their problems overwhelm them.

“The Government has said they want to double crew ambulances, but when it comes to social services, sadly those ambulances are still parked at the bottom of the cliff.

“Labour has different priorities to National. We will fund our health system properly to meet the needs of a growing population. We will build houses for first home buyers that they can afford, and invest in education instead of building prisons. This Budget offers nothing new. It’s time for a fresh approach,” says Grant Robertson.

The real costs of National’s election bribe

The cost of National’s poorly-targeted election year budget bribe is that there’s nothing to fix the housing crisis, health funding is cut, and funding for schools is cut, says Labour’s Finance spokesperson Grant Robertson.

It’s no coincidence that Robertson targets the three election issues that Labour has chosen to focus their campaign on.

“As the dust begins to settle on the Government’s massive PR exercise, it’s becoming clearer than ever that National has no plan for New Zealand’s future.

“The reality is that $5 of every $7 in National’s package is poorly-directed through the tax cuts. Labour can’t support an approach that perpetuates inequality.

“Around 800,000 New Zealanders on taxable incomes below $14,000 get nothing from this. The 500,000 low income workers currently getting the Independent Earners’ Tax Credit lose that $10 a week, and are left with just an extra dollar a week.

“National’s answer to the housing crisis is building only one new affordable house for every 100 new Aucklanders. They’ve funded just 1200 houses in this Budget.

“Health gets $439 million when it needed $650 million simply to keep up with a growing and ageing population, as well as inflation. This adds further to the existing $1.7 billion of underfunding over the past six years.

“School operational grants needed $140 million to keep up with roll pressures and inflation, but they got $60 million – a shortfall of $80 million.

“And once again, National is refusing to restart contributions to the NZ Superannuation Fund. National is selling out this country’s future for a cynical election-year bribe.

“But the real winners in the tax cuts are those like the Finance Minister and Prime Minister, who will gain 20 times what a single person working fulltime on the minimum wage gets.

“That’s simply not fair. Under nine years of National the gaps between rich and poor have only grown wider. Labour has the fresh ideas to ensure all New Zealanders get a fair share of prosperity,” says Grant Robertson.

The problem with this criticism is that Labour doesn’t have an alternative to suggest, they don’t have a new tax policy, apart from reviewing tax if they become government.

Tobacco dominates dairy revenue

A lot is being said about violent robberies of dairies. Tobacco is often the target of thieves, and suggestions have been made that dairies should stop stocking tobacco to protect themselves.

An Associate Minister of Health has said dairy owners should stop selling cigarettes, and the ‘higher security’ of liquor stores means they may be more appropriate outlets.

RNZ: Dairy owners blame cigarette price hikes for robberies

Dairy owners should stop selling cigarettes “if they feel too threatened” by robbers, says Associate Health Minister Nicky Wagner.

A packet of 20 cigarettes will cost about $32 by 2020, after four legislated 10 percent year-on-year price rises.

Dairy owners say the price hikes are making cigarettes more and more enticing for thieves.

Ms Wagner said cigarette sales might be more appropriate for liquor outlets.

“Maybe we should sell them with alcohol because the security systems in an alcohol convenience store is usually much higher than [in] a dairy,” she said.

There’ a major problem with these suggestions. A large chunk of dairy revenue is from tobacco products. Many dairies would be not be viable businesses without tobacco which can represent towards a half of their revenue.

And there are other complications too, as reported by the ODT: Liquor licence in doubt

A Dunedin supermarket  with a perfect record selling alcohol faces losing its liquor licence over the amount of tobacco products it sells.

A report  on the licence application by Brockville Four Square Supermarket said the police, public and Medical Officer of Health did not oppose the liquor licence, and there were no issues about the suitability of the applicants Greg and Zandra Davis.

The problem was a breakdown of the shop’s sales revenue showed the principal income  of the business  came  from the sale of tobacco.

Foodstuffs, which owns the Four Square chain, said tobacco was increasingly becoming shops’ main  revenue stream,  as prices rose each year because of government tax hikes.

Dunedin City Council liquor licensing inspector Tony Mole said in his report  39.50% of the shop’s  revenue was  from  tobacco products, while food products made up 28.64% of  income. According to  the Sale and Supply of Alcohol Regulations Act 2013,  the  shop’s high tobacco income meant it had to be considered its  “principal business”.

I’ve seen claims from elsewhere that suggest tobacco is the principal business of many dairies – this supermarket is in a similar situation to a dairy.

“Under this interpretation of the Act and the regulations, we would conclude that Brockville Four Square cannot be considered a grocery store for the purposes of licensing,” Mr Mole said.

The shop  did not appear to meet the requirements  for a different off-licence application, documents showed.

This is not the only supermarket with this problem.

Cockle Bay Four Square, in Auckland, also had its liquor licence renewal application declined last year on the basis it  sold too much tobacco to be considered a grocery shop.

This is a complex issue.

Security of supermarkets and dairies may need to be increased substantially if they want to safely sell tobacco.

The price of tobacco, pushed up by regularly increasing tax, has in large part created this problem, but it is also a law and order issue. It seems to be getting so bad that the police may need to put more resources into rapid responses to diary robberies – and liquor stores also have high robbery rates in some areas, so they aren’t necessarily the solution.

Clampdown on multinational tax avoidance?

A Government announcement is expected today on attempts to clamp down on multinational companies avoiding paying tax in New Zealand.

This is a difficult world-wide issue so it will be interesting top see what is proposed. The Government has been looking into what it might be able to do about this for some time.

Stuff: Multinationals face nervous wait on tax

Long-awaited measures to clamp down on multinational tax rorts are expected to be unveiled by Revenue Minister Judith Collins on Friday morning.

Company tax makes up 15 per cent of New Zealand’s total tax take of $63 billion, but a Cabinet paper said there were concerns multinationals were not paying their fair share.

Profit-shifting has prompted G20 nations to back a crackdown by the Organisation for Economic Cooperation and Development, called Beps.

An Inland Revenue briefing to Collins released last month confirmed officials were working on proposals to tighten transfer pricing and “permanent establishment” rules and hybrid instruments and on limiting the interest payments that foreign firms could deduct from the profits of their New Zealand subsidiaries.

Judith Collins only took over the Revenue portfolio late last year. Previous Revenue Minister Michael Woodhouse put this out last September:

BEPS proposals released for consultation

A strategy used by some large multinationals to shift profits overseas and minimise their New Zealand tax is the focus of international tax proposals released for consultation today, says Revenue Minister Michael Woodhouse.

“A discussion document which proposes that New Zealand adopt the OECD recommendations on hybrid mismatch arrangements was today released for consultation,” says Mr Woodhouse.

“Our international tax rules are sound, but the Government considers that New Zealand’s rules on hybrids can be stronger.

“Hybrid mismatch arrangements are one of the base erosion and profit shifting strategies used by multinationals to exploit the difference between how two countries might treat a cross-border transaction, resulting in less tax.”

The OECD recommendations remove the advantage of using hybrids.

“It is important that our rules complement those of other countries, particularly Australia and the UK who have both announced their intentions to adopt the OECD recommendations in this area.”

IRD in November:

Addressing hybrid mismatch arrangements

Hybrid mistmatch arrangements are one of the main base erosion and profit shifting (BEPS) strategies used by some large international companies to pay little or no tax anywhere in the world.

The OECD developed recommendations for anti-hybrid measures in its 15 point Base Erosion and Profit Shifting (BEPS) Action Plan.

A Government discussion document, Addressing hybrid mismatch arrangements, seeks comments on how the OECD recommendations could be implemented in New Zealand:

Part I of the document describes the problem of hybrid mismatch arrangements, the case for responding to the problem, and a summary of the OECD recommendations.

Part II of the document explains the OECD recommendations in greater depth and discusses how they could be incorporated into New Zealand law.

Submissions closed on 11 November 2016 (extended from 17 October 2016).

Perhaps today’s announcement is a result of this.

Hybrid financial instruments and transfers

The First Discussion Draft defines a hybrid financial instrument as any financing arrangement that is subject to either different tax characterizations under the law of two or more jurisdictions such that a payment will have different tax treatments (e.g., a loan in one jurisdiction and equity in another), or different manner in which tax will be assessed on the instrument (e.g., deduction in one jurisdiction while the other jurisdiction gives an exemption). The different tax characterizations will result in a D/NI outcome.

From Neutralizing hybrid mismatch arrangements under BEPS Action 2

The Nippert tax investigations

Media is widely criticised for it’s shallowness, it’s obsession with trivia, and it’s lack of investigative reporting.

Last year Matt Nippert showed that there is still some old school investigation going on. He has detailed his series on articles on tax last year – 19 articles at NZ Herald on the topic were published through the year, in what he calls “a deliberate effort to dig into the opaque world of corporate tax avoidance and the growing Tax Gap.”

Not the most popular of topics, but far more important than much of the news we are now dished up.

The series started with package on the front page of the Herald on March 18. This included:

A pre-planned series of stories followed, including

Nippert then looked at government policy on the issue, including

Some further drilling down:

Nippert: “Throughout all this, the opinions of the public and policy-maker and even the business community appeared to shift.”

And finally “late in the year, the government finally reacted”:

In a year that the Herald was heavily criticised for it’s click-bait headlines and increasing reliance trivia we should acknowledge that they retain a commitment to some in depth investigative reporting, albeit with reducing resources.

Source: http://bigapplebites.blogspot.co.nz/2016/12/the-nippert-tax-omnibus.html

NZH bio on Nippert:

A Fulbright scholar with a masters from the Columbia School of Journalism in New York, Matt has spent the past decade in newsbreaking roles at the New Zealand Listener, National Business Review, Herald on Sunday and the Sunday Star-Times before joining the Herald in 2014. His work has won numerous awards and he is the reigning Canon reporter of the year.

His stories include horrific abuse at a state-run boys home on Great Barrier Island, malfeasance at South Canterbury Finance, systematic tax avoidance by multinational companies, and the sudden resignation of justice minister Judith Collins.

Nippert has a regular sideline as a broadcast commentator and is one of only a few journalists who honestly enjoys numbers and spreadsheets.

Last year Nippert won Canon media awards for his efforts:

  • Reporter – Business Matt Nippert – The New Zealand Herald
  • Reporter of the Year Matt Nippert – The New Zealand Herald

Action on on taxing multinationals

The taxing of multinational companies has been a difficult issue to deal with. The Government is planning further action to try to address it.

It’s very complex, and not something that can be easily solved by waving a magic Government wand.

NZ Herald: Government planning action to target multinationals over tax

The Government is planning unilateral action to crack down on tax dodging by multinational companies, including changing the law, amid growing concern about fairness.

Revenue Minister Michael Woodhouse said proposals outlined in a cabinet discussion document tabled last month would see Inland Revenue properly armed to tackle the problem and could be accompanied by increased enforcement funding for the taxation authority.

“They are policy and legal bullets – and there may also be resource bullets. We’re constantly having that conversation,” Woodhouse said.

The proposals include granting broader information-gathering powers to Inland Revenue investigators, shifting the burden of proof to multinational companies in disputes over transfer pricing, and tightening loopholes that allow companies to claim they have no taxable presence in New Zealand.

The moves stop short of a full-scale diverted profits tax, as introduced by Australia and the United Kingdom, but Woodhouse refused to rule out such a measure if this new package failed to achieve results.

The paper lays out challenges faced by IRD dealing with multinationals over tax issues, especially “a minority that engage in aggressive tax practices” complicated by “difficulties Inland Revenue faces in obtaining the relevant information”.

The measures are intended to both tackle sharp tax practice – and have a positive, but as-yet unquantified effect on the government’s tax take – as well as answer public concerns about tax fairness.

Woodhouse said controversy over the tax arrangement of multinational companies was likely to continue, as he was concerned that moving imprudently could cause unintended consequences.

“If we start playing silly games with this stuff and over-reach in our attempts to claw back from multinational companies, Fonterra may be subject to the same thing,” he said.

Woodhouse said the package was unlikely to be the final word on the subject of corporate tax avoidance.

A formal paper on the policy changes is expected to be published for consultation in February, with cabinet making a formal decision on the proposals later in the year.

New Zealand shares a common problem with many countries in trying to get multinational companies to pay a ‘fair share’ of tax.

If they avoid paying tax for business done in New Zealand it puts a greater tax burden on local companies and especially wage earners, and gives unfair pricing advantages to those companies who pay less tax.

Also from the Herald: Explore how multinational companies pay no tax in NZ

NZ ‘heading in the right direction’

The latest Roy Morgan poll shows that a clear majority think that New Zealand is ‘heading in the right direction’.

“Generally speaking, do you feel that things in New Zealand are heading in the right direction or would you say things are seriously heading in the wrong direction?”

  • Right direction 55.5%
  • Wrong direction 29%

rmconfidence2016october

Meanwhile there has been some positive news over the last week or so.

RNZ: Tax take puts govt back in black

Excluding investment gains and losses, the operating surplus stood at $222 million for the three months to September 30, compared with the $503m loss that had been forecast in May’s budget.

That comes after the government recorded a $1.8 billion surplus in the June 2016 year – four times more than forecast.

The growing economy has again boosted tax revenue for the most recent quarter, which came in above expectations at $17.3bn.

Treasury said the improvement was being driven by a higher corporate tax haul and stronger GST returns from building work and tourists.

Expenses remained close to expectations, at $18.9m.

If investment gains and losses were included, the operating surplus was a larger than expected $2.3bn.

Net debt totalled $63.1bn, or 25 percent of the value of the economy.

Economists are picking the faster growing economy will translate into bigger surpluses in coming years.

RNZ: Unemployment drops to lowest level since 2008

Official figures show the unemployment rate declined to 4.9 percent in the three months to September, or 128,000 people, the lowest rate since December 2008.

That compares to a revised 5 percent jobless rate in the previous June quarter.

“The number of people employed in New Zealand was up 35,000, or 1.4 percent, in the September 2016 quarter,” Statistics New Zealand labour and income statistics manager Mark Gordon said.

“This strong growth in employment, coupled with few unemployed people, pushed the unemployment rate below 5 percent for the first time in nearly eight years.”

Employment outpaced the growth in the number of people entering the workforce, which rose 0.7 percent, or 24,000, to 3.379 million.

Unemployment fell by only 3000.

New Zealand has been ranked the top country in the world for doing business in the World Bank’s 2017 Doing Business Report.

The report, which examines regulations that enhance or constrain business activity, assesses 190 countries and ranks them according on the impacts of their regulatory environment on business.

The report is made up of ten different indicators that affect the life of a business. New Zealand ranks first in half of these including starting a business, dealing with construction permits, registering property, getting credit, and protecting minority investors.

The report also notes:

  • New Zealand’s strength in procurement through our online procurement process (GETS)
  • New Zealand is world leading in ease of starting a business with the smallest number of procedures required and the shortest time to start a new business.
  • New Zealand has made the process of paying taxes easier and cheaper.

Newshub: New Zealand best place to live in the world – study

A survey conducted by London-based think-tank the Legatum Institute considered 104 factors before coming to the conclusion that New Zealand should be crowned the top country on its Prosperity Index.

The Index calculates just how much prosperity a country delivers given its wealth – looking at its per capita GDP and the number of people employed, among a myriad of other variables.

The Index said New Zealand was unrivalled in its ability to turn its wealth into prosperity, describing Aotearoa as model country for delivering “wellbeing and wealth”.

We took top spot on account of our social capital – which measures personal relationship and social network support – and economic quality – which looks at macroeconomic indicators, financial foundations for growth and the economy’s openness.

We were also deemed to have the world’s second best business environment and governance, and were third best in personal freedom.

Our success has been put down to a few factors – with our place in the Commonwealth, our strong civil society and wide open markets all significant, the Legatum Institute says.

While there’s obvious room for improvement New Zealand is doing relatively well.

Tax paid by multinational companies

The issue of tax paid (or lack or tax paid) by multinational companies came up in Parliament’s Question Time yesterday.

7. FLETCHER TABUTEAU (NZ First) to the Minister of Finance: Does he think it is acceptable that 20 multinational companies paid just $1.8 million in income tax in 2014, despite recording nearly $10 billion in annual sales in New Zealand?

That sounds like dramatic underpayment of tax but it lacks a lot of detail. In many cases much of the cost of sales from multinational companies is incurred overseas and the sales are recorded overseas.

Hon BILL ENGLISH (Minister of Finance): As I think the member is aware, we do not tax turnover in New Zealand, so it is a bit hard to know. It is possible that the levels of tax are lower than they should be. We expect multinationals to pay their fair share of tax and be good corporate citizens. Most companies play by the rules, but the Government is continuing to tighten up the rules around transfer pricing and interest deductibility. New Zealand continues—most importantly, in my view—to work with other OECD countries to strengthen international tax settings, because, in some respects, what is most concerning about some multinationals is that they do not appear to pay much tax anywhere. We need to work with other countries to make sure that they pay their fair share as appropriate to each country’s rules.

That’s standard waffle from English, and his following responses didn’t add much. But Tabuteau came up with two examples.

Fletcher Tabuteau: Given that he just stated that he believes in a fair and equitable tax system, does he think it right that MasterCard New Zealand declared revenue in New Zealand of just $4.5 million, and paid tax of only $71,000 in its latest figures, despite sharing evenly in $40 billion of annual credit card billings?

That seems interesting but it is misleading, as his next question shows.

Fletcher Tabuteau: Given his answer, does he think it right that Visa New Zealand shared in the same pool of credit card billings of $40 billion, and it declared only $3.2 million of revenue and paid only $185,000 in tax in its latest figures?

So Mastercard and Visa together shared in “the same pool of credit card billings of $40 billion”. And that is not their sales, it is the sales of many companies who use credit card services so people can pay for goods and services.

It doesn’t separate domestic versus international sales.

Credit card charges are only a small part of overall sales, a few percent at most. If you pay Inland Revenue by credit card the fee paid to Westpac is 1.42%, if you pay the Police the fee is 1.9%.

It is obvious from this that some of the $40b are not sales but are payments with no revenue or tax involved.

One percent of $40b is $400 million, still a substantial amount. But there will be significant costs involved in providing the service and providing the finance – banks provide finance free of interest for up a month and a half.

So the detail Tabuteau is insufficient to have any ideas how outraged to be about how little revenue Mastercard and Visa report and how little tax they pay.

I don’t know how things are structured between the banks and the credit card companies. It looks like the banks incur most of the costs and will get most of the sales value from transactions.

Fletcher Tabuteau: How will the Minister help many New Zealand companies, which have said that they have missed out on investments here at home because overseas competitors are abusing the tax system here in New Zealand, giving them an unfair advantage over Kiwi firms?

That’s little more than a vague assertion of abuse. Without details Tabuteau has embellished his claims and made a very weak argument.

Tax cuts or debt reduction?

Today’s Herald editorial makes the case that Govt should use extra to cut debt, not taxes.

The Prime Minister, an endlessly agreeable politician, entertains talk of tax cuts whenever the Budget surplus turns out to be higher than expected. It is well past time that he stopped doing so and instead made the public better acquainted with its debt position.

John Key and his Government know very well that the reason they have managed to bring the economy through a recession and earthquakes in good shape owes just about everything to the very low debt left by the previous Government.

We have to hope the next economic “shock” does not happen before 2020, for it is not until then that National plans to have the debt back down to the level at which Labour left it.

Really? Government debt has risen from $10 billion in 2008 when National took office to $50 billion now. I don’t think there is any way our economy would allow for an average of $10b per year debt reduction for the next four years.

However reducing debt should now be a priority. But the Government still needs to spend, and they should seriously consider reversing the creeping personal tax increases we have had over the last eight years.

The calls for tax cuts today are not coming from opposition parties, nor from business lobbies who have seen how low public debt helped the economy weather the global financial crisis better than most others.

Business lobbies may well be happy that personal income tax increases while their rates remain static.

The Government should not base their tax decisions on who calls the loudest, they should do what is fair. And allowing personal tax rates to creep up is hardly fair on wage earners.

Repaying debt is important.

There is always pressure to spend more on things like health, social housing, education, crime – and some spending increases are unavoidable, like providing more prison beds.

But restoring personal tax parity should also be a serious consideration.

We can have both tax cuts and debt reduction from a fair and prudent Government.