Within the first weeks of becoming leader of the Labour Party, Jacinda Ardern made the call not to defend Metiria Turei’s self-confessed cheating of the welfare system. It was the right move. Workers rightly resent the idea that beneficiaries game the system while others work long shifts, pay secondary tax, and contribute to society with the aim of getting ahead or giving their children a better life.

So it was shameful when in Budget 2019 the Government announced a linking of benefits to average wages. Now, beneficiaries will get payment increases in line with the wage rises that others earned and sacrificed for.

Benefits have already been annually adjusted for inflation: that’s enough to keep up with increases in the cost of living. But last week’s change means beneficiaries will now share the cream of economic growth, automatically, every year – without having to get off the couch.

Treasury estimates the change will cost working taxpayers $320 million in the first four years (that’s $143 per worker), with costs climbing every year after that.

The Government could justify the cost to taxpayers by comparing benefits to superannuation, which has been indexed to wages since 1977, but experts acknowledge that’s increasingly unaffordable and will eventually need reform.

If the Government was consistent with indexation, it would turn its attention to tax brackets. If the top tax bracket was indexed for wages since it was set at $70,000 in 2011, it would now be set at $87,755. Likewise, instead of paying 30 cents on the dollar in tax from $48,000 a year, the second-highest rate would not kick in until $60,000.

In other words, average income earners would be in for significant tax relief.

If that seems too generous, bear in mind that it’s the same principle that now applies to both superannuation and the benefits system. Unfortunately for the taxpayers who fund these programmes, the Government cries poverty when it comes to taxes, refusing to even go so far as to adjust brackets for inflation.

This means that every year, a portion of our income is pushed by inflation into higher tax brackets, meaning we’re taxed harder even though we’re no richer. As a result, in just two or three years the average wage earner will be paying tax in the top 33 percent tax rate – meaning the Government snatches a third of any pay rise or overtime.

Grant Robertson could have used the room in his Wellbeing Budget to treat taxpayers fairly, like superannuants and beneficiaries. Instead, by ignoring the pain of inflation on taxpayers, and boosting benefits, he’s doubling-down on the unfairness of the wealth transfer system.

Labour is now giving its working base a clear message: we’ll keep increasing the penalty for your hard work, and endlessly boost the reward for unemployment. This does not bode well for wellbeing.

Dear Supporter,

Our team has just returned from the Beehive, where we attended the media and analysts' lock-up event for the Government’s new “Wellbeing Budget”. This year’s Budget was accompanied by some level of turmoil, with leaks, alleged hacks, and a (very brief) police investigation all entering the headlines throughout the week.

We’ve had two and a half hours to file through the fiscal documents and spending announcements. We now want to give you an insider’s look, before the spin on the 6pm news.

Our overall impression of this Budget is, glossy marketing aside, it is a classic welfare-spending, rail-worshipping, Michael Cullen-style Budget.

You can read Jordan's headline media statement here.

The Government is holding up its big spend on mental health services as evidence of a fresh new “wellbeing” approach, but the figures tell a different story. The Government is spending almost three times as much on rail ($2.14 billion / $1,175 per household) – including KiwiRail, regional rail and the Auckland City Rail Link – than on direct mental health spending ($823 million / $452 per household).

The “wellbeing” focus appears to be nothing more than a communications strategy from the Government. Budget 2019 is indistinguishable from any other normal Labour Budget, with more money for welfare recipients and no room for tax relief.

The big-ticket items

KiwiRail: An additional $1 billion ($549 per household) is being allocated for KiwiRail including $375 million for new wagons and locomotives and $331 million for new track and infrastructure. As a State-Owned Enterprise, KiwiRail is expected to be profitable – but it has never paid a cent in dividends to the Government. An additional billion dollars will not change reality – KiwiRail is a fundamentally unprofitable enterprise. Click here for my comments to the media.

Mental health: An extra $823 million ($452 per household) is being spent on mental health and addiction services. It has high aspirations, but few plans for judging value for money. As Scotland learned in the 1990s, a lot of extra money can go into mental health with little or no effect on measured outcomes. Click here for Louis' comments to the media.

Venture Capital Fund: Wealthy tech entrepreneurs rejoice! The Government is allocating $300 million ($164 per household) for a venture capital fund to help tech entrepreneurs who can’t convince investors or the bank to fund their projects. Worst of all, the project is being routed through the New Zealand Super Fund, which should be focused on delivering returns for future retirees. We say socialism for tech nerds is still socialism. Click here for my comments to the media.

Maori, Pasifika initiatives: Much of the spending on education, health, and even business is targeted on the basis of race, including an $80 million ($44 per household) injection for the Whanau Ora programme. We say targeting spending on race will lead to unfair and inefficient outcomes. Click here for Louis' comments to the media.

Welfare changes: Following the release of the Welfare Expert Advisory Group’s report, the Government has chosen to spend $535 million ($293 per household) to boost up the welfare system. Benefit sanctions for breaking the rules are being withdrawn and beneficiary payments will be adjusted upwards annually in line with wages, rather than inflation. Click here for my comments to the media.

As for the economy…

The economy itself is expected to track slightly weaker in coming years (forecast GDP growth is set to average 2.6 percent in the next five years) but is not projected to enter recession or enter serious headwinds. Business investment growth, however, is expected to fall off a cliff in 2019 (0.7 percent growth) compared to 2018 (6.8 percent growth), which could be a reflection of weak business confidence in response to plans for a capital gains tax and international trade sentiment. The Government also still expects to meet its self-imposed Budget Responsibility Rules, including reducing net debt to below 20 percent of GDP by 2022.

Click here to read my media statement on the economic/fiscal update.

There’s a lot of information we’re still absorbing, so watch out for our next newsletter which will pick up some of the smaller-ticket items.

Until then,

Joe Ascroft Economist New Zealand Taxpayers' Union

The Taxpayers’ Union can reveal that, despite declaring a ‘climate emergency’ on Thursday, Environment Canterbury is the largest spender on combined international and domestic flights of all regional councils, bar Auckland.
 
On one hand, Ecan is making grand gestures indicating ratepayers will have to fork out more for climate change action. But it turns out ratepayers are already paying council staff to create emissions on their way to France, San Francisco, and Germany. One junket in Canada was, ironically, meant to address climate change. Ratepayers will be wishing council staff had just stayed at home.
 
The $21,000 international spend was in addition to a further $241,000 spent on domestic flights. The total $262,000 spent on flights in 2017/18 means Ecan is the seventh-largest spender on flights out of 77 councils across New Zealand, and is (Auckland aside) the highest-spending regional council.*
 
Out of all 77 councils Ecan was also the fourth most frequent flyer with 1,360 domestic flights flown in the 2017/18 financial year.
 
Ecan’s primary functions are local ones, so it’s unclear why any international travel is necessary. Even domestic flights should be limited – in the time of Skype, the cost of constant trips to Wellington is eye-watering and unjustified.
 
The Ministry for the Environment’s advice to those concerned about climate change is very clear: fly less. Ecan should either take this advice, or announce a ‘hypocrisy emergency’ to match its climate one.
 
Background documents:
LGOIMA response
International travel breakdown
 
*Travel expenditure figures for all councils have been obtained by the Union and are set to be released shortly, pending the release of final figures from Auckland Council.

The Mayor of Nelson’s genuine concern for climate change is being questioned, with the Taxpayers’ Union revealing the Mayor flew to Copenhagen for a luxury trip primarily to view a yet-to-be-open climate change museum.

An official information response shows that Mayor Rachel Reese spent four nights at a luxury hotel in Copenhagen costing the ratepayer nearly $2,000, and all ratepayers were left with is the bill and emissions.

Incredibly, there wasn’t even a climate conference, or even a climate conference centre. The Mayor flew to the Norway to look at a 'Climatorium', which is still being built, and a road which absorbs water to heat a kindergarten.

The Climatorium building is not set to be opened until 2020. According to reports, the Mayor hoped to pitch the idea to the European Union of Nelson having their own southern hemisphere Climatorium. In previous public comments, the Mayor has suggest that Shane Jones’ Provincial Growth Fund could foot the bill.

This has all the hallmarks of a classic ‘climate junket’. The Mayor should be sticking to her knitting – Nelson’s roads and rubbish – not swanning off to fight climate change with air-miles.

The New Zealand Taxpayers’ Union can reveal that Waikato Regional Council last year sent out 177 electronic Christmas cards to political insiders – at cost of $9,341*, or $53 per card.
 
The Union was tipped off about the cards by one of the recipients, who was concerned about the extravagance of the ridiculous ‘gesture’. According to the Council, the cards were sent to 177 “leaders of central and local government organisations, Waikato’s ministers [sic] of parliament, and non-government organisations with which Waikato Regional Council works closely.”
 
Investing this much time and money into a feel-good Christmas message for political insiders suggests the Regional Council is either overfunded, or has its priorities completely out of whack.
 
Fellow bureaucrats might have been impressed by the bells and whistles, but ratepayers will be wondering why the money wasn’t instead used for core services like roads and rubbish.
 
This was an unjustifiable indulgence, and the Regional Council needs to confirm it was a one-off. A more ratepayer-friendly option would have been to visit The Warehouse, which is selling 10-packs of Christmas cards for 47 cents.
 
*Including GST and postage.

The New Zealand Taxpayers’ Union has revealed that the Whangarei Arts Museum Trust spent $91,168 – including business class flights to Dubai – for 11 people to visit Vienna and see a Hundertwasser painting.

In total, Whangarei Art Museum Trust – a Council CCO – spent $71,308 flying 11 people return to Vienna via Auckland, and $19,860 was spent on accommodation.

Whangarei Council's purpose for the trip was to ‘gain an insight of what is involved in the realisation of a Hundertwasser creation and construction, and to strengthen relationships with our partners abroad.’ If this was a simple fact-finding mission why were 11 people required and why did they travel business class? Better to call it what it is, a junket.

Councils should be focused on core services – like roads, water, and rubbish – not international art trips for 11 people. Whangarei ratepayers deserve better.

Below is the full official information response from Whangarei District Council.

---

Dear Tabitha

I refer to your official information request of 17 August [reference COP002396] seeking information on flights and international trips.

Your request was referred to Council’s Finance Department for consideration. The responses below are based on data provided by our CCOS, our preferred travel supplier, and a high-level analysis of our general ledger accounts for travel expenses.

Domestic travel
1) the total spend on all domestic flights by your Council in the 2017/2018 financial year.
2) the total number of domestic flights flown in the same period.

International travel
3) the total spend on all international flights in the 2017/2018 financial year;

4) a list of each international itinerary flown in the same period, including the:

5) costs for each international itinerary, please also provide details of all associated:

6) For each international itinerary, please tell us if a domestic partner also travelled with the official.

a)i-iv: No
b): 3 partners also travelled but covered their own costs. These costs are not included in the above.

I hope this information is of some assistance. If you believe we have not responded appropriately to your request, you have the right by way of complaint, under section 27(3) of the Act, to apply to the Ombudsman to seek an investigation and review of the decision.

Yours sincerely,
[Redacted]

Wow!

Louis and I have just returned to the office from the Beehive, where we watched as Jacinda Ardern announced she has completely and totally ruled out a capital gains tax under her leadership.

This wasn't easy for the Prime Minister. She literally told the media she wanted Michael Cullen's capital gains tax. But you wouldn't let her have it. 

All up, more than 5,000 New Zealanders used our tool at www.AxeThisTax.nz to bombard Jacinda Ardern and Winston Peters with messages telling them to scrap this unfair, complex, and costly tax. In addition, our efforts last year ensured that the vast majority of submissions to the Tax Working Group resisted Michael Cullen's efforts. Today's announcement showed that it worked.

The Deputy Prime Minister, Winston Peters, has just told media that the final decision was only taken in the last 'few hours'. That means our campaigning, even in the last few days, made all the difference.

This is why we founded the Taxpayers' Union

Wins like today are why David Farrar and I set up the Taxpayers' Union back in 2013. The 'Axe this Tax' campaign could not have happened without the tens of thousands of people who have donated and supported our campaign efforts over those years.

To our fourty thousand members and supporters, thank you for making it possible.

Two thirds of the forecast revenue from the Tax Working Group’s proposed capital gains tax is the created by the proposal’s failure to adjust for inflation, reveals the Taxpayers’ Union in its new report, Inflating the Cost of Tax: Why failing to adjust capital gains tax for inflation is unfair.

Jordan Williams, Executive Director of the Taxpayers' Union, said:

“Michael Cullen defends his proposal on the basis of ‘fairness’, but it is not fair to tax New Zealanders for inflation that they have no control over. If the Government fails to fix this aspect of the tax, it will be guilty of a cynical revenue grab.”

“This tax will hit New Zealanders at far higher rates than advertised, it would thieve from those who are not necessarily getting any richer, and it would reward politicians who fail to control inflation with extra revenue.”

Joe Ascroft, Economist at the Taxpayers' Union who authored the report, said:

“The compounding effect of inflation creates large ‘paper gains’ on assets in the long term. Under the Working Group’s proposal, these gains would be unfairly taxed, even though they don’t represent any real increase in value.”

“This will result in some asset holders paying real tax rates far higher than the advertised 30 or 33 percent. In fact, in some cases the tax on capital gains will be well over 50 percent.”

Key findings*:

• Over two thirds of the tax’s forecast revenue can be attributed to the effect of taxing paper gains (based on the Working Group’s own assumptions about expected capital gains).

• A typical $500,000 rental property could face a real capital gains tax rate of 55.7 percent when sold after 20 years.

• A typical $450,000 bach could face a real capital gains tax rate of 76.5 percent when sold after 30 years.

• A typical $800,000 family home / lifestyle block could face a tax rate of 30.35% when sold after 10 years.

• A typical $500,000 bach that experiences zero real capital gain could still produce a $64,000 tax bill when sold after 25 years.

* based on an inflation rate of two percent.

The Taxpayers’ Union is campaigning to stop the capital gains tax at AxeThisTax.nz. Inflation adjustment was one of the Five Rules for a Fair Capital Gains Tax published in February.

The New Zealand Taxpayers’ Union today formally launches a major campaign to fight the unfair capital gains tax, proposed by Dr Michael Cullen’s Tax Working Group.

The Union is encouraging New Zealanders to go to axethistax.nz and use the email tool to tell Jacinda Ardern and Winston Peters how the tax will hit their family.

Taxpayers’ Union Executive Director Jordan Williams says “The capital gains tax proposed by Dr Cullen and the Tax Working Group would be the least fair and most punitive in the world, and would apply to small businesses, farms, shares, and property. We are calling on the Government to Axe this Tax by rejecting the Working Group’s recommendations outright.”

“Our role in this campaign is to make it easier for taxpayers to navigate the Wellington bureaucracy to ensure politicians hear from those who will be personally affected by the tax. That’s why as a first step of the campaign we’re providing taxpayers with a tool to tell Jacinda Ardern and Winston Peters to reject the capital gains tax.”

“This is also a public education campaign to increase awareness of the scope of the proposed tax. With the support of our thousands of donors, we have full page newspaper adverts (see below) running across the country and a major digital campaign launching today.”

“While Dr Cullen is trying to convince the public that this is a tax on the wealthy, most New Zealanders will be hit by the tax at some point in their life. If you own your own home but have flatmates, live on a lifestyle block, have a small business, have a rental property for retirement, or have a KiwiSaver account, you will be targeted under Dr Cullen’s proposals.”

More information on the Taxpayers’ Union’s campaign to Axe this Tax can be found at the campaign website www.axethistax.nz.

The Taxpayers’ Union has listed the top 19 details Kiwis will be looking out for on Thursday in the Tax Working Group’s capital gains tax proposal.
 
In our recent report, Five Rules for a Fair Capital Gains Tax, we outlined criteria to assess whether a capital gains tax is ‘fair’. Capital gains taxes can range from moderate to extreme, or simple to convoluted, depending on the detail of the proposal.

On Thursday we will look to see how the proposals stacks up against these criteria, and check off many other details that we encourage commentators and concerned New Zealanders to look out for.

Details to look out for include:

• Rollover relief:
  • will the capital gains tax apply on death or just on sale of an asset;
  • will the tax apply if capital is simply being recycled within the same asset class (selling a smaller farm to purchase a larger farm, for example)?
• The rate:
  • will there will be a discounted or lower rate, like in Canada, Australia, the United Kingdom, or the United States?
• Revenue neutrality:
  • will the revenue be offset with tax cuts;
  • if so, who will receive them;
  • will revenue neutrality be maintained in the medium-to-long term as CGT revenue grows?
• Family home exemption:
  • will there be exemption exclusions for large properties (will lifestyle blocks be subject to the tax?);
  • will there be a ‘maximum value’ for the family home;
  • how much tax will be payable if there is an exemption exclusion?
• ‘Valuation Day’:
  • will asset owners be required to value their property and businesses;
  • if so, will it be at their expense, or will the general taxpayer be required to pay;
  • if the general taxpayer is required to pay, what will be the estimated cost of ‘V-Day’;
  • how much time will taxpayers have to obtain asset valuations;
  • if valuations are not obtained, will other ‘default valuations’ be used?
• Exemptions:
  • are there any sectoral exemptions (e.g. racing, fisheries);
  • will Maori authorities pay capital gains tax, if so, at what rate;
  • how are vehicles, boats, antiques etc. treated?
• Trusts:
  • at what rate are trusts taxed;
  • will they be taxed on accrued or realised gains?