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We Axed this Tax!

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.

New report: Two-thirds of CGT revenue will come from taxing ‘paper gains’

Report coverTwo 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.

Major campaign launched to beat unfair capital gains tax

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.”

Full page ad

“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.

Nineteen CGT details to look out for

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?

Revealed: Central Otago District Council's $40,000 fashion collection locked away

GraphicInformation released to the New Zealand Taxpayers’ Union reveals that just 12 per cent of a $40,000 fashion collection owned by the Central Otago District Council has ever been on display, with the exhibited items only being displayed 14 per cent of the time (269 days) since the collection was initially purchased in 2013.

The collection of the late Eden Hore features 276 garments including lavender sequinned hotpants and a gold bikini bottom decorated with shells.

Only 35 items of the collection have been on display, some of which were only exhibited for a day or two.  

Central Otago District Council should be focused on providing cost-effective core services to boost public confidence – quality roading, water, and waste services. Instead, the Council spent $40,000 on a fashion collection it has only ever partially displayed for a short period of time.

Provided the Council’s $92,750 valuation of the collection is correct, the best course of action is to sell the collection or lease it out to private art galleries. Even if you do believe the Council should be getting into the high fashion business, there can’t possibly be value for ratepayers when the collection is locked away for most of the year.

Documents:

Original LGOIMA response

Report to Council recommending the purchase of the collection

Council's resolution to the purchase

PowerPoint presentation on the Eden Hore collection

Insurance valuation of the collection

Report to Council explaining the background to and results from the feasibility study

Feasibility study on the long term care, management and display of the Eden Hore fashion collection

Eden Hore collection catalogue 

Op-Ed: Politicians give to Māori with one hand, but take with the other

This month’s Waitangi festivities were marked with a string of Government funding announcements, totaling hundreds of millions for development projects intended to make life better for Māori.

Some of these projects will achieve their goals. Others will just line the pockets of the politically-connected. But in every instance, these grand Waitangi gifts and the accompanying media coverage serve a hidden purpose: they distract from existing government policies that actively harm Māori and make such handouts necessary in the first place.

The most appalling case is that of tobacco tax. Adjusted for income, New Zealand has the highest tobacco tax rate in the developed world, causing significant financial damage to smokers – who are predominantly poor, and disproportionately Māori. (At last count, the Māori smoking rate was 33.5% compared to 14.9% for the general adult population.)

Assuming Māori smokers consume tobacco at the same rate as the average smoker, we can calculate that tobacco tax last year took about $519 million from the budgets of Māori smokers and their families.

If that’s too much to comprehend, consider it this way: the Government has been taking more from Māori in tobacco tax than it gives in treaty settlements and targeted social spending.

The average amount spent on Treaty Settlements is $89.6 million per year, and Budget 2018 allowed for $316 million in Māori Development spending. In total, that’s still about $120 million less than Māori pay in tobacco excise.

Even this month’s boost to Māori development spending will be undermined, as tobacco tax revenue is forecast to grow even larger in the coming years. In short, politicians give to Māori with one hand, but take even more with other.

Whatever the intended effects of the tax, the practical result for Māori smokers too addicted to quit is horrid: smaller household budgets, less food on the table, and more miserable lives.

The policy does, of course, convenience the government: by quietly turning Māori smokers into cash cows, both National and Labour have been able to puff up their budgets and loudly announce vote-winning initiatives like those unveiled at Waitangi.

Public health advocates correctly argue that the best way to curb the financial hit from tobacco tax is to help people quit smoking. If the Ministers at Waitangi wanted to mitigate the harms of tobacco tax, they would de-regulate the supply of alternative nicotine products like vapes, heat-not-burn tobacco, and snus.

A new Taxpayers’ Union report examines the increasing body of evidence that some of these products have reduced risks compared to tobacco. Giving nicotine addicts safer ways to meet their habit could be far more effective than trying to get people to quit nicotine altogether.

Unfortunately, the Smoke-free Environments Act makes advertising the reduced risks of these alternative products effectively illegal.

Further, reduced-risk tobacco products face the same rate of excise as cigarettes. A better approach would be to weight excise on tobacco products according to their risk: if (for example) heated tobacco could be extensively proven to cause less harm than cigarettes, it should face less tax.

This would encourage people to switch from smokes to better options, reducing negative health effects and the improving the financial status of struggling families – especially Māori.

Sadly, in Wellington the ‘easy option’ is to simply continue heavy-handed tobacco excise hikes. The Government gets to pat itself on the back for punishing filthy smokers, while plotting the next big Waitangi spend-up.

Jordan Williams is Executive Director of the New Zealand Taxpayers’ Union. The Union’s latest report, Ka Tukuna Atu, Ka Tukuna Mai, is available at www.taxpayers.org.nz/ka_tukuna_atu.

Report: Māori punished with world's highest rate of tobacco excise

Report coverWith tobacco excise slamming the country’s most vulnerable communities, the Government needs to urgently deregulate reduced-harm products, says the New Zealand Taxpayers’ Union upon the release of its new report, Ka Tukuna Atu, Ka Tukuna Mai.

Key findings:

1) The Government annually takes $120 million more from Māori via tobacco excise than it gives in Treaty Settlements and Māori Development funding.

2) When calculated as a proportion of income, New Zealand charges smokers the most punitive tobacco tax rate in the developed world.

3) There is increasing evidence to suggest that smokeless tobacco products like snus and heat-not-burn are far less harmful than cigarettes, and encourage people to quit smoking. Excise tax rates on these products should be weighted to reflect risks.

Taxpayers’ Union Executive Director Jordan Williams says, “Revenue from tobacco excise tax alone outstrips the combined value of Treaty Settlements and Māori Development funding by $120 million a year. This is the inevitable result of charging the highest rate of tobacco excise in the world, when adjusted for income. In short, the Government gives with one hand and takes far more with the other, undermining decades of effort to improve outcomes for Māori.”

“Reaching the Smokefree 2025 target doesn’t require never-ending taxes on the poorest. If the Government made it easier for smokeless products like vapes to be marketed, current smokers may be more likely to shift over, improving health outcomes and reducing the burden of tobacco excise on themselves and their families.”

“Additionally, our paper focuses on an alternative approach to tobacco excise: excise on tobacco products should be weighted according to health risks, if reduced health risks can be proven in peer-review. As alternative tobacco products become more popular, there is a growing body of evidence showing reduced health risks for heated-tobacco, snus, and e-cigarettes. Using price signals to encourage smokers to adopt a product with reduced health risks could make an enormous improvement to long-run health outcomes – in addition to limiting the burden of excise.”

The report can be read here.

Op-ed: Fake news from Oxfam on inequality

Earlier this week, Oxfam released its latest findings on global wealth inequality, with widespread media coverage (such as the pictured front-page story in the Dominion Post).

The group’s analysis of inequality in New Zealand was glib and unhelpful.

Citing Credit Suisse’s Global Wealth Databook 2018, Oxfam claims that inequality is worsening – two wealthy New Zealanders were better off over the last year by over $1 billion, while the bottom 50 percent of New Zealanders were worse off by $1.3 billion.

On the surface that sounds deeply concerning, but it misses the substance of Credit Suisse’s report, which shows the Gini coefficient – a more comprehensive and internationally-recognised measure of wealth inequality – reduced in the last year from 72.3 to 70.8, indicating wealth inequality actually fell, despite Oxfam’s alarmist claims to the contrary.

Unfortunately, there are more fundamental problems with the analysis, beyond Oxfam’s use of ‘alternative facts’.

If you have just completed university and have a large student loan, Oxfam treats your wealth position as worse than an impoverished worker in the developing world, who despite having very few or no assets, may also have no debt or liabilities. Hence the impoverished worker has zero net wealth, while university graduates in New Zealand and the rest of developed world have ‘negative’ net wealth.

This leads to absurd conclusions in Oxfam’s analysis.

Introducing a student loan scheme in a developing country – opening up access to tertiary education – would show up as a worsening of social capital in Oxfam’s eyes. While the programme would improve the net wealth positions of many families in the long run, young people would temporarily take on debt while they receive an education and seek employment.

Wealth inequality is also only considered domestically, rather than internationally. Inequality  between developed countries and developing countries is collapsing, largely due to the expansion of free markets and free trade.

For example, while Oxfam found in 2017 that inequality was worsening in Vietnam, the percentage of the population living below the poverty line fell from 17.2 percent to 9.8 percent between 2012 and 2016. In the decade between 2007 and 2017, average monthly income grew from 2349.7 VND to 6357.4 VND – close to a tripling in take-home pay.

In other words, while there are more wealthy Vietnamese today than there were ten years ago, the gap in the standard of living between those who live in New Zealand and Australia, and those who live in Vietnam, China, and many other countries quickly ascending from deprivation, is falling.

The developing world understands why their lives are improving as well, even if Oxfam doesn’t.

Evidence from Pew Research’s 2015 Global Attitudes survey suggests 89 percent of Vietnamese believe the Trans-Pacific Partnership free trade agreement is good for their country, with only 2 percent believing the opposite. Sadly, Oxfam organised a petition against the Trans-Pacific Partnership in the same year – bowing to populism, instead of acknowledging the genuine transformative effects of free trade and economic growth on the lives of the most internationally vulnerable.

A final question: how can Oxfam continue to credibly claim tax-free charitable status, when so much of their work is strictly political?

Campaigning for wealth taxes, and other left-wing policies to ‘solve’ wealth inequality is not and should not be treated as charitable – particularly when the Oxfam’s research skews the facts to suit this agenda.

If the likes of the Sensible Sentencing Trust and Family First (or, for that matter, the Taxpayers’ Union) miss out on the tax benefits of charitable status, then Oxfam should too.

Joe Ascroft is an economist at the New Zealand Taxpayers’ Union.

New Report: Five Rules for a Fair Capital Gains Tax

Report cover

While taxpayers wait for the release of the Tax Working Group’s Final Report, the New Zealand Taxpayers’ Union has released a new report which provides a framework – Five Rules – for assessing a possible capital gains tax, expected to be proposed by Working Group.

The exact detail of the capital gains tax will be crucial for determining whether the tax is fair or not, and whether the Taxpayers’ Union will accept the reform – or fight it with everything we’ve got.

To be fair, a new capital gains tax must abide by the following:

  1. No Valuation Day: Any capital gains tax regime should exclude a valuation day approach in favour of grandfathering assets into the system upon sale, as was the case in Australia when it introduced a capital gains tax.
  2. Indexation for Inflation: Any capital gains tax regime must discount for inflation, so taxpayers are taxed only on their real capital gains, rather than nominal gains.
  3. Revenue Neutrality: Given the Government's surpluses, any revenue from a capital gains tax must be used to fund tax cuts in other areas so that the total tax burden does not increase overall.
  4. Roll-Over Relief: Tax should be paid only on sale – not death. Further, there should be roll-over relief when capital raised from a sale is then immediately invested in the same asset class.
  5. Discounted Rate: Any capital gains tax should apply at a discounted rate, instead of at the full personal income tax rate, to avoid New Zealand having one of the highest capital gains tax rates in the world.

If the Government puts forward a reasonable proposal, focused on fairness and steady reform, the Taxpayers’ Union is ready accept a tax shift. In contrast, if the Working Group process was just an excuse for aggressive tax hikes, we’ll fight it to the end.

Even if the Working Group's proposals fail the five common sense tests, taxpayers will still have opportunities to make their voice heard, either to the Government now, or during Parliament's Select Committee process. We will be working to make sure the new tax legislation follows our Five Rules for a Fair Capital Gains Tax.

PETITION: Make Toyota pay back the $391,000

The New Zealand Taxpayers’ Union has launched a petition calling on Toyota New Zealand to pay back the $391,000 grant secretly given by Palmerston North City Council, for which the Council and Toyota refuse to explain.
 
This kind of corporate welfare is wasteful and unnecessary. With profits of 22 billion USD, Toyota should not be getting free handouts from Palmerston North ratepayers.
 
The Council and Toyota refuse to explain why or how this decision was made. That says it all. If the grant was above board, why was it kept secret?
 
We encourage Palmerston North ratepayers, Toyota customers, and concerned New Zealanders to sign the petition.

--> Click here to sign the petition. <--
 
Toyota needs to apologise and explain that its opportunistic grab of public funds was just a blip in an otherwise solid record of serving New Zealanders. The first step is to pay the money back.


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