Originally published by the National Business Review on Friday, 10 June 2016

Too much of tax policy is debated with pistols drawn at 10 paces. Each side accuses the other of ignorance or being steeped in moral turpitude, and preferably often both.

Far too much time is spent feuding over the incentive effects of taxes.

If you inspect closely the history of the warring sides, they all agree that incentives matter.

If you tax something, you see less of it; if you cut taxes, you will see more of it.

The difficulty is the advocates for various causes are disappointingly selective about when they admit this is so.

Incentives do matter
French economist Thomas Piketty could not be more honest about the impact of a higher top tax rate. He welcomes the strong incentive effects of high marginal tax rates.

Why? Piketty wants to use high taxes to put an end to top incomes. He wants few to earn a large income and if they do, they should face ruinously high 70-80% marginal tax rates.

This honesty of Piketty is the basis of a ceasefire. Let us all admit that taxes have incentive effects and argue whether that is good or bad or that other considerations are more important than efficiency.

Too often in debates over income tax cuts, the opponents will not give an inch on the labour supply and investment effects of lower taxes.

Incentives count, especially when they bolster your case
But when the same groups argue about poverty traps when welfare benefits are wound back or when tax rates and Working for Families abatement rates interact, they admit that work must pay. Ordinary families will work less and second earners may stop working.

Those deeply troubled about poverty traps from high effective marginal tax rates deny point blank that putting the top tax rate back up to 39% or more will harm labour supply, investment, entrepreneurship and the incentive to go on to higher education.

On taxes on sugar and tobacco, consumers are said to be fairly responsive to higher taxes. Unkind words are said about the motives of those that disagree with these taxes.

The opposition is about how taxes on sugary drinks is a waste of time unless they are prohibitively high because there is plenty of substitute sources of sugar and fattening foods.

A higher tobacco tax is much more likely to cut smoking because there is no reasonable substitute. If the government really wanted people to quit smoking, rather than raise more revenue, they would legalise the sale of the safer alternative – e-cigarettes containing nicotine.

Opponents of company tax cuts are unwilling to admit that in highly integrated global capital markets a lower company tax wins more investment. They say that more tax is paid in the home country of the foreign investor if we cut our company tax.

In the next breath, they will rage against Facebook and Google for avoiding New Zealand company taxes. This is despite their previous argument implying this tax avoidance must be futile because Facebook and Google will pay more taxes offshore if they pay less company tax in New Zealand.

European Union politicians will say in domestic elections that company taxes do not deter investment but still relentlessly bully the Irish for its 12.5% company tax rate because it was winning more investment at their expense.

What is the point of the EU and G20 push for tax harmonisation unless it is to stop competition for investment through lower company taxes?

Clashing value judgments
It is perfectly reasonable to agree on the effect of a particular tax policy but have an honest disagreement about its desirability. A higher top tax rate will not raise as much revenue as some hope but that may not matter if you want less income inequality.

Sugar taxes may not reduce obesity by much but it could be a useful first signal about healthy eating.

Others disagree because sugar taxes are ineffective and because people should be able to live their lives for better or for worse by their own lights as long as they do not harm others. People meddling in the lives of others because they know better has always ended in tears.

At least we should keep the conversation civil. Incentives matter. Taxes bite. The disagreement is over who you want the taxes to bite. By how much usually depends on how you value the competing goals of efficiency, equality and liberty.

Jim Rose is a research fellow at the Taxpayers’ Union

Originally published by the National Business Review on Thursday, 26 May 2016

The one thing we knew wouldn’t be in the Budget this week was tax cuts. The Government has said not today, probably not next year but maybe at some stage before 2020.

While National has done a good job at getting the Government’s books into surplus, it has done so on the back of an increasing tax burden on New Zealanders.

National campaigned in 2008 on tax cuts. They implemented the first tranche of their programme in 2008, but ditched the next two tranches. In 2010 they did a tax switch which saw GST increase and personal rates decrease. This was designed to be overall fiscally neutral. So the last true reduction in the tax burden was in 2009.

Fiscal drag has helped the Government balance the books, as rising wages push people into higher tax brackets. This has been quite considerable.

Take a worker earning the median full-time wage. In 2010 Ms Median paid $7,132 in tax at an average rate of 15.4%. Her marginal tax rate was 17.5%. She got to keep 82.5% of any extra money she earnt (putting aside the other taxes such as GST, excise tax)

Today Ms Median pays $9,148 in tax. An extra $2,016 or $40 a week to the Government. Her average tax rate has crept up to 17.0% and her marginal tax rate is now 30%. She only keeps 70% of any extra income, rather than 82.5%.

A centre right government should be sticking up for Ms Median, and pledging to allow her to keep more of her earnings. Someone on the median wage is not rich. They should not be facing a 30% marginal tax rate on top of 15% GST.

Looking at other significant parties is even more depressing. Labour have just announced that they will campaign to increase taxes on New Zealanders in 2017, and the only thing they don’t know is by how much, and what new taxes they will impose.

NZ First promises more in spending than all the other parties combined, so they offer no hope for tax relief, unless it involves massive deficits.

The Greens attitude to tax, is to impose one on anything they disapprove of – and that is a very very long list. I once counted up all the things they wanted to ban (there were around 120), so I imagine the list of things they want to tax is equally high.

As I have a masochistic bent, I have been keeping tabs on all the spending demands made by political parties, MP, media, NGOs and others since the 2015 Budget. In just one year an extra $15 billion of extra spending (per year) has been demanded. And that is not even including Labour’s flirtation with a Universal Basic Income which could easily add $10 billion more to that.

There is a huge amount of economic research showing that low tax developed economies do much better over time than high tax developed economies.  If we allow families and businesses to keep more of their income, the country gets wealthier and more people have jobs.

However Ms Median paying an extra $2,000 a year in tax doesn’t get front page newspaper headlines which seem reserved for stories saying it is outrageous that a family has to repay the massive cost of their taxpayer funded motel accommodation after their last three state homes tested positive for Methamphetamine and they were banned for a year.

This family of ten appear to have been receiving close to $3,000 a week in assistance, or $150,000 a year. $1,200 a week in welfare payments and $1,700 a week in motel accommodation. Despite this, the complaint is that taxpayers are not generous enough and should not be expecting any of this money to be repaid.

No matter how much money the Government spends, there will be scores of politicians and lobby groups demanding even more. That is why the Taxpayers’ Union will be fighting for a commitment from the Government to reduce the tax burden on New Zealand families, rather than competing with parties of the left on how best to spend the surplus.

David Farrar co-founded the New Zealand Taxpayers’ Union. He blogs at www.kiwiblog.co.nz

Originally published by the National Business Review, Monday 23 May, 2016

Centre-right political parties have a moral duty to lower taxes and allow people to take home more of their own money.

The National Party’s values – limited government; individual freedom and choice; competitive enterprise and reward for achievement – underpin this commitment to lower taxes.

It’s a basic principle that right of centre parties look to uphold the world over. Even UK Prime Minister David Cameron, who would hardly be regarded on the right as a dry, is on record as saying that the simplest way to help raise living standards is to allow people to take home more of their own money.

Despite the eternal honeymoon in the polls, the John Key-led government has been cautious at best when it comes to making the case for this most basic philosophical tenet of centre-right thought. Its actions don’t match its campaign slogans.

Chasing the Brighter Future

When Mr Key announced the government would look to deliver a $3 billion tax cut package after the 2017 election, people could have been forgiven for thinking that it felt a lot like Groundhog Day.

Just two years ago National raised the hopes of households by indicating tax cuts were on the horizon.

But, like chasing the horizon, the promised Brighter Future of tax cuts and increased discretionary spending seems to be perpetually just out of reach.

Contrary to the “no new taxes” billboard, since the last election National has introduced four: the “Netflix” tax on online goods and services; bright-line capital gains tax for houses sold within two years; the “travelers’ tax” at the border; and the new telecommunications levy.

In addition, bracket creep has meant Kiwis are taxed at higher rates as their wages have adjusted with inflation.

ACT’s David Seymour says that since 2011 the Inland Revenue has taken an additional $2.1 billion through bracket creep than it would have if income taxes were indexed to inflation.

The $3 billion tagged by the government for tax cuts after 2017 are too little, too late. Rather than a being a philosophical project to shift people and business toward self-reliance, the proposed tax cuts are just electioneering.

While National markets itself as the party of hard work, self-reliance and lower taxes, its record shows they are little better than Helen Clark in an attitude of “we will spend your money better than you will.”

Welfare dependency

If the government were serious about cutting taxes, it would stop expanding corporate welfare dependency.

While Finance Minister Bill English is rightly focusing government resources on the 10,000 most vulnerable people so that they are able to stand on their own two feet, his colleague Steven Joyce is dishing out more corporate welfare every year.

Will the government’s legacy be one of alleviating welfare dependency, or expanding it from McGehan Close into Queen St?

The most recent report published by the Taxpayers’ Union on corporate welfare, Any New Kids at the Trough? found that the government was spending $1.34 billion on corporate welfare in the last budget. That’s $752 for every New Zealand household.

And it’s not as though the corporate welfare projects are even paying off. Take for instance the French-owned Gameloft that went under owing the government $2.9 million; the grants to Team New Zealand and its opposition, Oracle; or the handouts to the German-owned business software giant SAP.

But it’s not just corporate welfare. The government has failed to tackle the problems Mr Key talked about when he was the leader of the opposition.  There are still more back office bureaucrats and paper shufflers than at any time under the Helen Clark-led government.

There is plenty of room to cut taxes. National simply needs to cut spending, stop trying to pick winners with our money and cut out the nonsense about Wellington spending our money better than the people who earned it.

Ben Craven is the campaigns coordinator at the New Zealand Taxpayers’ Union

Over the weekend we revealed more Upper City Council corporate welfare 'economic development' grants amounting to $375,000 of ratepayers’ money. Joining Burger Fuel, grant recipients include Subway, Vogue (a clothing store), Bed Bath and Beyond, and even a hairdresser!

Stuff.co.nz covered our comments here:

"It is economic trickery benefiting only the favoured businesses.

"Take the example of Prodigy Hair. There are at least 29 hairdressing firms in Upper Hutt, but the council picks this one out for a handout."

Previously, the council defended its corporate welfare scheme on the basis that it was creating jobs, Williams said.

"Of course the politicians and officials ignore that every cent is drained from the very community they are claiming to help. It is intellectually dishonest. 

"Upper Hutt ratepayers are smart enough to see that this isn't economic development, it's robbing the poor to pay the rich."

To respond, Mayor Wayne Guppy spoke to Newstalk ZB's Larry Williams tonight just prior to the political Huddle with our Executive Director Jordan Williams and Vernon Tava.

Coverage of the Taxpayers' Union response to LGNZ's efforts to impose new council taxes such as local fuel, sales and even income taxes.

Taxpayers' Union fuming over council plan (3 News, 2 February 2015)

A ratepayer-funded plan which suggests imposing more taxes to raise cash for councils has the Taxpayers' Union fuming.

Rates are the primary source of income for local authorities, but in a discussion paper released today, Local Government New Zealand suggests other funding sources.

The report lists imposing road tolls or bringing in taxes on income, certain types of expenditure, fuel, or certain transactions as options.

But Taxpayers' Union executive director Jordan Williams says the average rates bill has doubled over the last two decades, and the paper is only about how to tax more.

"Instead of focusing on the quality of councils' spending decisions, this campaign is using ratepayer money on propaganda promoting new taxes," he said.

"Nowhere in the discussion paper do we see a disciplined analysis of why local government spending is out of control." [...]

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Council Digesting Report (Rotorua Review, 4 February 2015)

ROTORUA Lakes Council (RLC) won’t rule out a raft of possible new taxes that have been outlined as options in Local Government New Zealand’s (LGNZ) funding review discussion document.

LGNZ, a lobby group made up of 78 councils, including RLC, has issued the document which outlines options for addressing shortfalls in local government funding.

The options, which it says would sit alongside rates, include a local income tax, local expenditure tax, regional fuel taxes, transaction taxes and what it calls ‘‘selective taxes’’. RLC chief executive Geoff Williams said the document was intended to stimulate a discussion about possible funding opportunities and constraints in New Zealand, and declined to rule anything out.

[...]

Unsurprisingly, Yule’s claim that the discussion paper was not meant to pre- empt an overall increase in taxes was met with some scepticism by lobby group The Taxpayers’ Union.

Fairfax has picked up our comments on SkyCity's recent comments to prompt taxpayer funding of the controversial convention centre.

Auckland Councillors blast Sky City 'corporate welfare' Stuff 22/12/2014

Auckland ratepayers should not have to pay for a blow-out in the cost of the Sky City National Convention Centre, councillors say.

On Sunday we suggested that New Zealanders should be given the ability to recall their representatives after the latest of a series of scandals involving Auckland Mayor Len Brown was revealed. The NZ Herald picked up our suggestion:

'Secret room' spending shows need for recall elections

A lobby group says revelations Auckland Council spent $30,000 on "secret rooms" for Len Brown show New Zealand needs recall elections to dismiss politicians before their terms expire.

The Council spent the money building a private bathroom and dressing room hidden behind a bookcase in the Auckland mayor's new office, the Herald on Sunday reported.

The Taxpayers' Union today said the Government should give local communities the ability to petition for recall elections.

"Councillors have already censured Len Brown for misusing funds but clearly the line in the sand is being ignored," said Jordan Williams, Taxpayers' Union executive director.

"A recall option would enable ratepayers to petition for a vote to fire a shameless [politician] who lacks any respect for those who pay the bills." Read more.

Voter recall options are gaining popularity overseas and it's time New Zealand had the conversation. Though often associated with the United States, where they have a long history and are used at both the state and local leve, recall mechanisms also exist in British Columbia, several Swiss cantons, the Philippines and Venezuela.

Recently the UK Government introduced the Recall of MPs Bill to the House of Commons on 11 September 2014, after pledging to the public to go so upon election in 2010. Many UK MPs, led by backbencher Zac Goldsmith, think the Government’s proposed threshold of recall only after a committee of MPs has found the representative to have been engaged in “serious wrongdoing” is too high.

Based on the swamp of emails we've been getting, many Auckland's think the threshold to censure a Mayor seems to be pretty high too!

We think that it's time the Government gave ratepayers a voice between elections. A recall option would enable ratepayers to petition for a vote to fire a shameless politicians who lacks any respect for those who pay the bills. New Zealanders need a mechanism to replace elected representatives if they fail to perform or bring their office into serious disrepute.

As Zac Goldsmith recently said:

“What is at stake is a matter of principle – do we trust out voters to hold us to account or not?”

It’s time to have the recall conversation.

The Hawke's Bay today is referencing our Ratepayers' Report - local government league tables, in correcting what appear to be mistaken information about the indebtedness of Hastings District and Napier City councils. Local debate is raging in Hawke's Bay as the twin cities prepare for the release of the latest amalgamation proposal from the Local Government Commission expected before the end of the year.

Taxpayers' Union joins debt debate

A lobby group set up to keep a check on government spending has waded into the debate about Napier and Hastings' respective council debt.

The Taxpayers' Union says its own figures show Napier Mayor Bill Dalton "is comparing apples with oranges" in numbers he released this week, which were also criticised as "miles off" by Hastings Mayor Lawrence Yule.

Taxpayers' Union executive director Jordan Williams said the organisation went through a rigorous process earlier this year to collect debt figures for all New Zealand councils.

It published the figures in online "league tables" which included other measures of local body performance.

"Mr Dalton's figures appear to be very different from the ones we ran past the council's finance team earlier in the year," Mr Williams said yesterday.

"Mr Dalton is right that Hastings has higher debt per ratepayer, but his figures are arguably misleading by failing to take into account differing accounting policies used by each council."

"On a total liabilities measure, the latest figures available show that Napier Council owes external parties $714 per ratepayer. Although Hastings District is higher, $2501, that is still less than the New Zealand average, $4386."

Read more.

 

Steven Joyce has provided a response to Jim Rose's Monopoly Money report - but appears to focus just on R&D tax credits, rather than address the bulk of corporate welfare identified in the report.

Joyce disputes corporate welfare analysis

Economic Development Minister Steven Joyce is disputing the Taxpayers’ Union analysis of corporate welfare under National, saying he disagrees with its characterisation of a subsidy and its estimate of would-be corporate tax rate reductions.

As revealed in National Business Review last Friday, a Taxpayers’ Union report claims that National has handed out an average of $1.18 billion a year in corporate welfare since it came to power in 2008. (See report attached)

In the Monopoly Money report, Jim Rose – a former principal adviser at the Treasury and former senior analyst at the Ministry of Business, Innovation and Employment – concludes that such business subsidies are costing New Zealand households an average of $600-800 a year.

Continue reading on the NBR site ($)

Crony capitalism undermines sustainable growth National Business Review - 14/10/2014

On Friday we launched our hardest hitting report to date,Monopoly Money. The report includes forewords by Labour's Napier MP, Stuart Nash, and the Chief Executive of the Auckland Regional Chamber of Commerce & Industry, Michael Barnett, ONZM.

This morning the NBR published Mr Nash's foreword as an opinion piece on its website (click link to view). 

Our Monopoly Money report can be viewed online here.