Tax Working Group – Why?
Filed under: Economics, General Budgeting, Jobs & Work, Property & General Investing, Retirement, Pensions and Kiwisaver
(Other than whacking “rich pricks” over the head with a big stick for being greedy of course.)
Well, for a start – the National Government claims it doesn’t actually want to increase overall tax. And if you believe that – I’m the tooth fairy.
What they want to do is move away from taxing income, to taxing capital – or wealth. For the purposes of this – you need to understand that Wealth is not about how much you earn – it’s about how much you own. So if you have scrimped and saved and accumulated assets that are worth money – they want to tax you on it. Because as previously discussed, it’s not fair that you scrimped and saved to accumulate wealth.
And if Income Tax is too high – it discourages people from getting better jobs and earning more money because they will lose too much of it in tax. And that of course means they have less money to spend. And economies don’t grow if people don’t spend.
The other main goal is to “align the tax rates”. This is because at the moment, the top rate of personal tax is 38%, whereas tax on trusts is 33% and tax on companies is 30%. Which means that taxpayers who would normally be charged 38% can “hide” their income in trusts and companies to reduce their tax.
So dropping the top tax rate to 30% should stop us having to do this.
To see why in theory they need to do this – you need to look at what happened when Michael “I hate rich people, even though I earned a whopping $276,000 a year plus tax-free expenses” Cullen, introduced the 39% income tax bracket.
What this shows is that the year after the tax was introduced, there was a huge spike in the number of people paying tax on 60k a year income, because they used measures to legally reduce their incomes down to that level.
So in trying to tax “rich” people – they kinda failed.
Now – the new government wants to make it “fairer” and stop that happening. Unfortunately there is every chance this too will fail – because in general – the richer people are, the more they can move and are prepared to make choices about where they live and what taxes they will pay. And there’s always loopholes.
Like us for example – who moved from the UK to get away from 51% tax on our income and new and more colourful taxes being imposed left right and centre.
So in general terms, lowering the top tax bracket is a good thing. I just can’t get my head round why taxing people who have invested is a good thing to replace it with. It’s kind of a big incentive not to be financially stable and able to support yourself in retirement.
Personally – in the perfect word in which I am the benevolent dictator for life – I would insist that Governments have to stick to strict budgets, have to stop throwing money away, and treat the money they take in taxes with some respect, and the taxpayers as something other than a constant deep well of extra funds every time they fail to stick to their budgets. Like setting an $11 million budget to refurbish the Supreme Court building and then spending $81 million instead because taxpayers won’t complain.
Which is like budgeting to retile your bathroom, and deciding instead to knock your 3 bed house down and build a 70 bedroom mansion instead, and demanding the overspend from your boss.
The thing about this is that if we as the people overspend each month – we cannot in fact go to our bosses and demand that they pay us more. But the government can do that with tax – because if you don’t pay it – they can send you to jail.
So while the “why” may be sensible and in some ways a good thing – it’s kinda fixing the wrong problem. We don’t need to give them any more taxes – they need to stop wasting the money they already screw out of us.
Please bear in mind that the Tax Working Group changes are recomendations – and may not happen.
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Comments
4 Comments on Tax Working Group – Why?
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Anton on
Mon, 25th Jan 2010 7:46 am
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menace on
Mon, 25th Jan 2010 8:30 am
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Avalon on
Mon, 25th Jan 2010 11:47 am
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Hubby on
Mon, 25th Jan 2010 5:25 pm
The TWG recommends Robbing Peter to pay Peter in my opinion. Whos Paul? lol
They are taking the “benefits” from investing in property in one hand and reducing income tax in the other.
Not very original and wont get NZ off the platform to catch up to Australia.
While i sympathize with your bone, I don’t quite see it possible to make it “fair” fair from who’s perspective? If we all payed the same amount of tax(dollar for dollar) then somebody like me would earn negative, I would actually work, pay ever cent in tax or at least all most? I’m sure some would say this to be fair, very few though I’m sure also lol.
I don’t see any other way than for the people who can afford it most to make a greater contribution to the costs of having our nice western standards of living.
I’m personally of the opinion that greater inequality = lessor social cohesion, which in turn leads to social problems and even, ultimately crime etc.
So i thinks sometimes with these things, its not quite as simple as the money, Its rich society i see as being of the ultimate importance here.
P.S. I don’t take hand outs! I stand on my own two feet!
(Ive edited the swearing out 
H
Anton,
we are working through the stuff now to see if anyone would actualy benefit – other than high earners without property investmenst (we would be laughing all the way to the bank if we didnt have any I think).
Menace.
I personally think the only way tax could be seen to be “fair” if the amount taken was amount needed to fund basic infrastructure likes roads, schools, hopsitals. Free (and I mean free) education for children up to 16, and free basic heathcare. And a welfare state that could fund those in true need rather than be a choice.
Taxes get screwed up becasue many people take more than they need (such as our beloved MP’s using it to go on holiday, or pay for a “second” home). Or when an 11million budget becomes n80million one.
The people who pay the most are not always the ones who can afford it the most just the ones that earn the most – the TWG aims to change this.
And when you have rich people being made the enemy – you lose the source of all that money.
I wish I had an answer as to what was fair – but the only thing I can come up with is to demand that the Government stop wasting the money we give them. I really do think they are fixing the wrong problem.
Im not sure that really answers you point – but ive tried 
Hi Menace,
Thanks for the comment. IMO – everyone paying the same rate of tax should be at a fair & low rate. The good principles behind the same rate of tax is that it would encourage people on lower wages to get better paid jobs, since they don’t jump from paying 19% to 30%, or 30% to 38% tax, which can be a huge disincentive. WfF does that now, penalising those especially in part time jobs, from working extra hours or moving to a better paid job, since they lose $ for $ the benefits. This just can’t be good, let alone fair.
To echo what Avalon says, I think there’s a difference between what people want, and sure I want stuff too!, and what people need. A fair society helps people take care of their needs. If you want more, you have to make a fair exchange of your time/labor for money, to then have what you want. And sure, if a person’s needs are covered, then there is less likely to be crime etc. as people aren’t fundamentally struggling to meet their basic needs.
Benefits for those who are unable to work to pay for their needs is fine. That’s the price of a moral & advanced society. Taking $ from those the Govt. believes can afford it, and giving it to those who earn less, simply because they earn less, not necessarily because they have a need, isn’t fair.
No simple answers of course. At least the TWG is making people talk about what we want as a society and how we pay for it.
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