About two weeks ago Labour released its tax policy programme that it intends to implement if elected Government come 20 September. Predictably the increase in personal tax rates by 3% to 36%, and the confirmation of a capital gains tax, was widely criticised by senior National ministers as envy taxes and a hindrance to investment.
Whatever one’s personal view, the good news for voters is that for perhaps the first time in a number of elections there are now very clear differences between the two large political parties on taxation policy. While tax will unlikely be the determining factor of which party voters will support, it is at least good to see some very clear and distinct alternative thinking between the two main political parties. The most obvious difference being a capital gains tax.
There is little doubt that a capital gains tax will come to New Zealand eventually. Whether it is in 2015, 2018 or 2028, New Zealand will get a capital gains tax. We are one of the only developed countries not to have a capital gains tax and while it is true that it takes some years before it becomes a significant revenue contributor, once implemented it will influence investment decisions and also contribute towards our infrastructure requirements and social spending needs. It is difficult to rationally argue against a capital gains tax on economic grounds. However, the timing of when such a tax should be introduced, and the immediate impact this might have on investment, are issues that voters will be weighing up.
As someone that has a good understanding of how large companies structure their New Zealand business investments, it’s disappointing that almost all parties continue to seek to score political points at the expense of multi-nationals. Labour is no exception in making its tax policy announcement, highlighting its intention to provide additional funding to enable many specialist tax investigators to base themselves in the downtown offices of those multi-nationals considered to be serial tax avoiders. Apparently some $200 million per annum of additional tax revenue will be raised simply by doing this. Whether this is politics or a genuine expectation on the part of Labour’s finance spokesman David Parker is something that could be debated well into the night. National has not been innocent of similar point scoring and regularly highlights how much extra resource and effort it is putting into the fight against large multi-national tax avoidance.
The actual reality of the situation, however, is that our Inland Revenue Department is already perhaps one of the most aggressive revenue authorities in the developed world when it comes to applying the tax avoidance provisions to collect additional revenue. Where taxpayers legitimately take a tax position that the Commissioner does not like, all too often the response is not one of challenging the technical merits of the position, or recommending to Parliament a legislative response is required, it is to jump straight to applying the tax avoidance provisions to achieve the outcome the Commissioner considers just.
The impact of this approach on new investment in New Zealand is difficult to gauge, however, there is little doubt that foreign investors are not only aware of the “avoidance risks” of investing in New Zealand, they also place a risk factor on New Zealand investment that did not previously exist. Basing many specialist tax investigators at the premises of multi-nationals is therefore highly unlikely to bring in any more additional revenue than is already being collected; and certainly not the $200 million per annum that Mr Parker has budgeted.
Without fundamental reform of how we tax non-residents, there is little that can be done to collect tax revenue from companies that do not have a significant presence in New Zealand. The solution lies in making New Zealand a jurisdiction where multi-nationals wish to be based, not in applying the tax avoidance provisions to those companies that currently are based here.
Remembering that this “tax avoidance” initiative announced by Labour is about ensuring everyone pays their fair share of tax, it was disappointing that perhaps the most obvious source of additional revenue under the “paying your fair share” heading has been overlooked. Rather than seeking to gain headlines at the expense of multi-nationals, a much greater return on investment could be achieved by targeting additional resources at our black economy. Estimated at as much as $20 billion by some economists, if only GST was collected on just 20% of this, an additional $600 million more tax revenue would result. This is greater than all of Labour’s personal tax hike, the capital gains tax and the additional $200 million avoidance revenue combined. If income tax was also collected this additional revenue could potentially double. Reduce the black economy by half, and up to $3 billion of additional tax revenue could be collected.
If Government, regardless of political persuasions, is serious about ensuring everyone pays their fair share of tax, then surely this must be where the significant investment is made. Better use of technology and a more strategic approach to information sharing could result in enormous amounts of additional revenue coming from a large sector of society which illegally operates outside the tax system.
Grandstanding at the expense of multi-national companies, whose investment dollars New Zealand needs if we are to prosper long term, is not a good look and will do nothing to raise additional tax revenue or encourage new investment. Our Inland Revenue officials are already overzealous in their application of the tax avoidance rules and if anything they should be encouraged to pull back a tad rather than become even more aggressive.
Regardless of the winner on September 20, the challenge for the post-election Government is to grow our revenue base in a manner that does not discourage investment and truly does result in everyone paying their fair share. Tax should be used as a tool to encourage, not discourage investment….and anyone operating outside of the tax system should be the focus of significant additional audit activity.
This article is the opinion of KPMG Tax Partner Tony Joyce
We've received confidential minutes and a briefing via the tip-line relating to CentrePort’s problematic BNZ building which suggests the building will not be fully reoccupied until the end of October.
What should be one of Wellington’s most modern and safest buildings looks to be still plagued with problems eleven months after the Seddon earthquake.
We understand that CentrePort is having to fork out more ratepayer money on seismic restraints on the risers and that there are now new problems with windows popping out in Pier 3.
If ever you needed an argument as to why ratepayers should not be underwriting property development, the BNZ fiasco is it.
Greater Wellington needs to abandon its policy of secrecy and explain how much these problems at the BNZ building are costing ratepayers. Latest estimates are in the tens of millions.
In May the Taxpayers’ Union revealed that the Greater Wellington Regional Council guarantees CentrePort’s debt, including borrowings related to property development.
Click 'continue reading' to view the documents.
Documents we've obtained show that the Department of Conservation has spent over $100,000 to send staff overseas to learn a skill not applicable in New Zealand. 47 staff have traveled to Australia to learn how to conduct controlled burn-offs, despite the practice not being used by DoC.
Included in the document is an email from a DoC official regarding the our enquires which suggests a an ‘excuse’ the Department could use for why staff were going on the trips.
Also released is feedback from staff that went the trips, including the admission by one that the group didn’t “really do much fire stuff”, despite that being the apparent purpose of the trip.
We think these trips were just an excuse for a junket, not training that furthers New Zealand’s conservation. They might as well have learned the didgeridoo. We're calling on the the Minister for Conservation should put an end to this ‘controlled-burning' of taxpayers’ hard earned money.
DoC response to OIA by New Zealand Taxpayers' Union 16 May 2014
DoC response to OIA by New Zealand Taxpayers' Union 18 June 2014
News that Auckland Transport forked out $122,000 of ratepayers’ money for a six month trial of an employee shuttle service has gone down in Auckland like a lead balloon.
Auckland Council has been left scrambling in an attempt to save face.
We are concerned by the prevalence of the cavalier attitude towards ratepayers’ money that is seemingly embedded in Auckland Council and some of its associated organisations.
A concerned supporter of the Taxpayers’ Union has written in to us with a list of questions that need to be raised about this latest Auckland Transport gaffe. We’ve condensed them down to the following:
The Taxpayers’ Union has today published a new report by Jono Brown that suggest ways local councils can save money and reduce the rates burden on New Zealanders. Rate Saver Report: 101 Ways to Save Money in Local Government is a guide for local authorities on how they can cut waste, save money, reduce bureaucracy and ultimately lower rates. The report adopts many suggestions made by the country’s mayors, and is based on similar reports published in the United Kingdom.
Too often we hear unimaginative councillors insisting that they have no choice but to increase the rates burden. Before they even consider increasing rates they should consider all of the suggestions in this report. In future, any council claiming that raising rates is the only option had better be able to prove that they have implemented or at least considered implementing every single idea we are putting before them today. If not, they won’t be able to look their residents in the eye and insist that they have exhausted the possibilities for saving money.
Ray Wallace, Mayor of Lower Hutt, says in a foreword to the report:
"I urge local government people to take these suggestions as a challenge. If you do not like them, come up with some better ones."
Tim Shadbolt, Mayor of Invercargill City, says in a foreword to the report:
"Having been a mayor for 28 years and finally achieving a rate increase of less than 1%, I’ve learnt to face many challenges and this publication is certainly challenging. Some of the ideas are obviously worthy of discussion and others are clearly designed to provoke discussion."
Highlights of how councils can save money:
Other notable suggestions include:
The Taxpayers’ Union would like to thank the many Mayors across the country who responded to the Union's invitation to submit ideas and examples of their council saving ratepayers’ money.
While in the UK seeing family, I'll be pausing my vacation to fly the Taxpayers’ Union flag at the Margaret Thatcher Conference on Liberty. The conference will be hosted for the Centre for Policy Studies, a UK-based independent think tank advocating for greater economic liberalism. The event will coincide with the 40th anniversary of the establishment of the Centre for Policy Studies.
The conference will host speakers from around the globe, including current and former Prime Ministers, academics, MPs, MEPs and political influencers. A full list of speakers can be found here.
The Centre for Policy Studies will be live-streaming the conference, which will begin at 10pm New Zealand time from two locations at the event: the Great Hall and the breakout groups. (I'll also be tweeting interesting tidbits via @BGCraven).
I’m hoping to learn a great deal about the challenges facing the representatives of each nation and how these compare and contrast to New Zealand’s domestic policies.
The Taxpayers’ Union is slamming the property management skill at Greater Wellington Regional Council which has lost 95% of the purchase price of the building it used to occupy.
Information released to the Taxpayers’ Union under the Local Government Official Information and Meetings Act show that ‘Pringle House’ in Wakefield Street, also known as the 'Regional Council Centre', was purchased in 1987 for $22 million. In 2014 dollars, that is equivalent to $45.2 million. According to a recent independent valuation, the property is worth only $2.3 million. The documents reveal that ratepayers have taken a loss of more than 95% of the purchase price.
This shows why councils should be extra careful about managing property. At the time when Greater Wellington is taking a 95% loss on its own building, the port it owns is pushing ahead with the Harbour Quay property development, which Wellington ratepayers underwrite.
Last month the Taxpayers’ Union revealed that Greater Wellington had not bothered to enquire into the extent of damage and potential loss resulting from the Cook Strait Earthquakes (click here for DominionPost coverage).
These new revelations do not give us confidence that Greater Wellington are good stewards of ratepayer money. The Council should leave the funding of property development to the private sector and put a stop to risking public money.
Notes:
Click 'continue reading' to view the documents released under the Local Government Official Information and Meetings Act.