Tax-Free Downunder

Here's an idea, New Zealand should move to mop up all the money that will be fleeing the United Arab Emirates right now. All those seeking the tax-free life, don't like receiving messages on their phone telling them their friendly neighbourhood missile will be arriving shortly.

A few years ago I suggested NZ set up a tax-free zone in the East Cape. Let's do this now. For people from overseas, we could take part of the coast and designate it tax-free so long as they stay resident for 120+ days of the year (or something). 

https://kenhorlor.blogspot.com/2017/07/make-east-cape-monaco.html

https://kenhorlor.blogspot.com/2018/06/making-east-cape-monaco.html

Start-Up Failure and Tax

I have drawn a logarithmic curve illustrating the link between the rate of income tax businesses may face and the rate at which start-ups fail within the first six years of existence.

At 0% tax, 10% of start-ups fail, while at 10% income tax, 40% of start-ups fail within six years. The argument here is that start-ups should not be subject to income tax within their first six years, the time when they are most vulnerable to failure.

Horlor Curve Logarithmic 

Baker Tilly Staples Rodway Election Poll

Baker Tilly Staples Rodway (chartered accountants) election poll, key findings:

Top concerns:

Infrastructure top priority (45% of those polled had this 1st or 2nd)

Technology/Innovation

Healthcare/Medical research

Skills/Apprenticeships

What used to be important in these polls? Housing, now no longer dominant. 

Nearly 40% think things getting worse

Only 8.5% think election will have positive impact

56% of businesses have seen revenues decline

This is catastrophic.

What about Tax?

53% in favour of tax cuts

44% in favour of Labour's adjusting top tax rate

72% oppose Greens wealth tax

75% don't want extra sick days and holidays

Message: don't tax assets, income - may be prepared to pay a bit more.

Take this on board you politicians.

Capital Gains Tax NZ

We've been waiting for some time now and finally the Tax Working Group have arrived at their conclusion: New Zealand needs a Capital Gains Tax (CGT). Well blow me down, that was a surprise finding (not).

The problem with a CGT in NZ is that an investment property is a hobby for many. The share market is small and mom and pop investors don't feel safe putting their money there, even though you can get better returns in stocks (don't get me started). Any government introducing a CGT is making a very foolish move as the people most affected are the ones who vote. Those mostly unaffected (at least not yet) are the young. Even people on low incomes manage to get themselves an investment property. Basically it's the sort of thing that tax specialists get excited over, politicians get greedy for, but everyone else just gets pissed off.

My advice: forget the proposal, throw it in the bin.

Thoughts About Tax

Working on the assumption that less tax is good and more tax is bad, and that the more you fiddle with something the more likely you are to cock it up or break it, I've developed the following ideas to overhaul New Zealand's tax system.

In my Manifesto for NZ I suggested dropping NZ's GST rate to 10%, scrapping Working for Families, doing away with user pays and making government smaller and leaner, by that last remark I'm talking about health care being made closer to the people, and government departments being dispersed, making government cheaper as salaries are lower in the regions (and it means less risk to NZ due to natural disaster). My ideas involve a mix of cutting costs and raising revenue, such as a huge infrastructure spend leading to employment (this includes state housing) and mining which is a solid foreign exchange earner.

If you don't like the sound of all that, how about the following as an alternative; scrap all PAYE.

That's right, just don't collect PAYE. By simplifying the tax system to being indirect only, the cost of collection goes down for employers and government. What would happen is the individual pay packet would only have superannuation deducted, possibly council rates, student loans and any fines and other levies such as court orders and that would be that. What you earn you keep, when you consume you pay.

My thinking is the GST rate would need to be about 22.5% to achieve this aim. I'm interested in anyone who has tumbled the numbers on this. Working for Families - gone. PAYE - gone. User pays - gone. 

Critics will say this is regressive in nature. That's why I went for the 10% GST and less excise on cigarettes, to lower prices for the poor. But I'm putting this as an alternative, what it does is provide incentives to earn more and instead of taking money from the higher earners, it allows them to consume and invest and grow the economy (more employment).

What am I talking about? Higher earners pay most income tax. I think those earning more than $100,000 pay about 98% of all tax in New Zealand directly - correct me if I'm wrong. It's easy then to just say income tax is a waste of time, just take GST and leave it at that.

More controversial would be to look at exemptions from and zero rating of GST. It makes sense to exempt financial transactions but residential rental being zero rated? What about taking something from that, setting GST at say, 10% as opposed to everything else 22.5%. 

Gareth Morgan's Opportunities Party

What sort of political party calls itself Opportunities? It's a lame name, what a shame.

I visited their website and I was underwhelmed. They had one policy and that was to change tax, making it fairer. That's it, tax. They didn't have anything else. Note that when I say 'they' I'm pretty sure I'm talking about just one man and his ideas. I don't imagine any room exists for ideas that Mr Morgan doesn't agree with or hasn't thought of himself.

Why do I say that? Well remember when he used to write his columns, the one that appeared regularly in The Press in Christchurch and no doubt other publications? At the foot of each piece was a suggestion to go to Mr Morgan's website to discuss the issues. When I did that and expressed ideas that criticised Mr Morgan, I was summarily banned. I think I lasted one day on his site. Mr Morgan is not in favour of open debate. He's a sensitive soul.

Let's face it with regard to Mr Morgan. He's only notable for having bred someone good, and that good person is Sam Morgan, the founder of Trade Me. Gareth Morgan, who appears to promote himself as some kind of guru, has assailed the New Zealand public with his wackadoodle views, which in short amount to putting a bob each way and then popping up to say 'see I told you so' when whatever it is happens.

What was this latest whiz bang idea? I think it was that total assets should be taxed. A classic example of theory getting in the way of practical reality. Here's why such an idea is stupid:-

1. New Zealanders have been trained since forever to put their life savings into their house. You can't just go shifting the goal posts, people are not good at changing course and do not have the skill sets to make investment decisions apart from which house to buy;

2. What happens when there is yet another collapse? There have been seven major economic crises in NZ in my lifetime (do I need to list them?), and the only constant that has saved me and the rest of NZ from ruin was the safe haven of owning our own home, thank heavens it is not taxed apart from Rates;

3. If the tax is not paid, Inland Revenue will be foreclosing people's homes, the IRD could become the biggest seizer of Kiwis homes;

4. Farmers prices at the gate fluctuate, and farms are valuable immovable assets, if farmers are taxed on their total assets they'll be forced to play the financial markets, or set up businesses in towns where businesses are already closing their doors. This puts NZ's productive base in jeopardy;

5. Property prices go up and down, whereas income tends to rise, albeit slowly. The government tax take would fluctuate and create uncertainty with regard to basic services like defence, health and education;

6. Seeing as Auckland has the most valuable real estate, the policy is highly Auckland-centric;

7. Kiwis would be forced to deal with investment advisers which have a very dubious record.

The policy as developed by Morgan and his Opportunities party would have the opposite effect of that intended, it affords less opportunity for Kiwis. The practical effect would be to move control over many assets to so-called investment professionals, and dodgy shells set up to fleece the masses. The history of New Zealand is littered with shonk after shonk. The only thing Kiwis can do is buy as good a home as they can afford, they don't need people like Gareth Morgan looking to whittle away at what little nest egg they have.