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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.

The Local Government Minister isn’t doing her job

Hon Nanaia MahutaThe New Zealand Taxpayers’ Union can reveal that Minister for Local Government Nanaia Mahuta has not met with a ratepayer association since her appointment in 2017. Not even one.
 
Given the challenge every ratepayer in the country is feeling about costs being out of control at most town halls, many will be shocked to learn the Minister hasn’t bothered to speak to a single resident or ratepayer groups. Not even one.
 
Just who is she serving?  The fat cat Mayors and well paid bureaucrats, or those who fund the whole thing? The Minister’s diary suggest the former.
 
We were first tipped off on this as the Minister’s office would not even respond to correspondence sent from our sister group, the Auckland Ratepayers’ Alliance.  The Alliance is New Zealand’s largest ratepayer group – some 20,000 subscribed members.  It speaks volumes that this Minister can’t be bothered to meet.  She can’t possibly speak for ratepayers, in fact it seems she couldn’t care less.

The relevant Official Information Act response can be viewed here:

$769,955 of international jet-setting at Ministry for the Environment

While taxpayers are being told to stump up for fuel taxes, off-set their carbon emissions, and watch on as oil and gas jobs face the axe in Taranaki, Ministry for the Environment officials are enjoying luxurious trips abroad, exposes the New Zealand Taxpayers’ Union.

The Union can reveal that since July 2017, the Ministry for the Environment spent $769,955 on international flights, at an average cost per person per trip of $6,637.

The Ministry for the Environment has a section on its website where it explains to New Zealanders what they can do to help combat climate change, including flying less, working remotely, and using video-conferencing. The Ministry claims that flying less is ‘one of the most effective climate change actions you can take’.

But clearly Environment officials are not practicing what they preach. Despite the age of Skype and video conferencing, Environment Ministry officials are opting for first class flights on the taxpayer. Do as I say and not as I do.

The environmental hypocrisy isn’t the only issue. Why did it cost $14,112 to fly a single Ministry Director to Thailand? Was business class not sufficient?

Sending policy analysts on first class trips to international conferences is an insane use of money for a Ministry who tells Kiwis not to fly.

The Ministry also instructs taxpayers to pay to offset their carbon emissions when travelling, but when we asked the Ministry whether the costs of flights included carbon off-set charges, they said no.

A list of transactions for International Flights by Ministry for the Environment Officials between 1 July 2017 and 10 December 2018 can be viewed here.

EXPOSED: Palmerston North deal with Toyota costs ratepayers $391,000

The Taxpayers' Union is exposing that the Palmerston North City Council has given an economic grant to Toyota – one of the world’s largest car manufactures - for a local warehouse expansion, costing local ratepayers $391,000.

It’s great to see a business investing in Palmerston North, but they should do so out of their own pocket, not using ratepayers’ hard-earned money.

Toyota is the world’s second largest car manufacturer with posted profits of more than 22 billion US dollars.  Why on earth does the Council think it a good use of local ratepayer money to fund corporate welfare to this giant?

The corporate gift sets a dangerous precedent. Other large companies will eye up Palmerston North City Council for their own subsidies and special favours. In American and Canadian cities we see multi-million-dollar taxpayer-funded corporate welfare campaigns.  Ratepayers will be poorer if we see that here.

If the Council wants to create jobs in Palmerston North, it should look to cut rates and run a more efficient operation. Charging local ratepayers more just to send corporate welfare gifts to multinationals, is economic sabotage. Even if it does create a couple of jobs, it robs poor Peter, to pay rich Paul and is immoral.

This story came about due to a confidential 'tip-off' from one of our supporters. The subsequent official information request is below.

V-Day: An Impossible Test of Logistics

Early next year, the Tax Working Group will deliver its final report to Cabinet. That report will contain a series of recommendations for reform of our tax system, including any details on a proposed capital gains tax. Once Cabinet receives the report, it will have to decide which recommendations to implement and campaign on heading into the 2020 election.

One important detail for the Working Group (and Cabinet) to consider is how to initially value assets for the purpose of taxing any capital gains. Since the capital gains tax is not intended to apply retrospectively, any asset potentially subject to the tax will require an official value as of 31 March 2021 – valuation day or ‘V-day’, the day before the tax is expected to be implemented.

Valuing those assets is an enormous – and expensive – task.

Every single rental property, commercial property, and business will need to be valued. There simply may not be enough qualified local valuers to assess the hundreds of thousands of properties pulled into the tax system overnight.

While valuation is simple for publicly listed companies (the implied value is derived from the share price) valuing private companies is more difficult.

Some businesses – think real estate agencies, restaurants, and tech start-ups – are notoriously difficult to value. Much of their value is derived from the particular mix of skills of their employees.

For example, a restaurant owned by Gordon Ramsey might be worth far less in the hands of a bad chef. But how accurately can a valuer make this distinction?

This ambiguity creates real problems: if the business is over-valued on V-day then the Government receives less tax revenue than it should, but if it’s under-valued then the owner is forced to pay more tax than they should when the restaurant is sold. 

Using objective financial data like revenue or profit can also be complicated. While Xero has never run a profit or delivered a dividend to its shareholders, according to the stock market the company is worth $5 billion. How can we accurately value a company like Rocket Lab, which neither runs profits nor is publicly listed? 

Valuation is an art, not a science – and it can’t be rushed.

Like art, valuation will be expensive.

OliverShaw – a specialist tax advisory firm – conservatively estimates the cost of V-Day to taxpayers as $1.3 billion, although they claim the cost could run to $2-3 billion. Total tax revenue in the first year is only expected to equal $270 million.

Putting the cost aside, even completing valuation will be straining. Attempting to value hundreds of thousands of properties and businesses after the detail of the capital gains tax has been finalised, but before it kicks in, would be a logistical nightmare.

A better approach would be for the Government to ‘grandfather’ the valuation process, meaning capital gains tax reference prices are determined by the first sale of the asset after the tax is introduced. This would mean that only assets that have already been sold at least once after 1 April 2021 would be subject to the tax.

No V-day would be required and asset owners could be confident that capital gains tax would only be applied based on the price they paid, not the subjective valuation of an over-worked, over-stressed valuer.

REVEALED: Taxpayer dosh paid to Ministerial spouse’s firm – with no open tender

Peter Nunns and Julie-Anne GenterThe New Zealand Taxpayers’ Union can reveal that in the last year the Government has paid $356,466.61 to the consultancy firm of Peter Nunns – the partner of Associate Transport Julie Anne-Genter – without a single open tender process.

The firm in question is MRCagney – for which Mr Nunns is principal economist.

A significant proportion of the 19 engagements – namely around light rail – falls directly within the Associate Transport Minister’s own portfolio allocations.

Under the previous Government, MR Cagney was paid an average of $50,346.66 per year, compared to $356,466.61 under the current Government.

This marked increase in spending on a particular consultancy since Ms Genter became the Minister raises obvious questions. If she had a sense of accountability to taxpayers, the Minister would have recognised the name of her spouse’s firm, identified the clear conflict of interest, and demanded that at least one of the 19 tender processes were opened to other firms. From what we have been provided to date, there is no evidence of this happening.

Even if the Minister has stepped aside from the decision-making, how can we have confidence that taxpayers are getting value for money, and that the firm is the most qualified if no-one is bothering with a competitive process?

One thing is clear: Julie-Anne Genter’s Government has been very good to MRCagney. The previous Government engaged MRCagney just six times in four years, compared to the current Government’s 19 engagements inside of 12 months.

The Union obtained this information under the Official Information Act, having been tipped off to the spending by a concerned public servant. The information can be viewed below.

Op-ed: Leave the Super Fund alone

When Sir Michael Cullen’s Super Fund was established, its explicit purpose was to help ensure that superannuation would remain fiscally sustainable long into the future while the population ages.

It’s an expensive scheme. The Government has devoted $15.45 billion to the Fund since inception, approximately $8,935 per household in higher taxes or government debt.

Wisely the quid-pro-quo for taxing New Zealanders much more to fund the Super Fund was that the Fund must be operated completely independently from the political whims of Government. The Fund was justified to the public on the basis that it would make superannuation affordable for future generations: allowing political interference in investment decisions would inherently reduce the Fund’s return and undermine the central purpose of investment performance.

Independence has served the Super Fund – and taxpayers – well. Since inception, the Super Fund has delivered an average return of 10.37 percent per annum, while the fund’s benchmark portfolio has only delivered 8.88 percent per annum on average: equivalent to a $7.6 billion premium in returns. While some economists (including our own Jim Rose) have argued that the Fund’s return merely reflects the high risk investments it chooses, the point is that it is independently managed and performs well.

Except now, the Government wants to kill the Golden Goose.

Last month the Minister of Economic Development David Parker said he wants to seize on hundreds of millions of dollars of the Super Fund to establish an ‘angel investment fund’.

The purpose of an angel fund is to invest in early stage ‘start-up’ companies. ‘Angels’ evaluate these start-ups and determine the likelihood of their future success, and the size of any returns if they are successful. If the start-ups appear to be a good investment opportunity, the fund will buy a stake in the company to deliver funding required for growth.

A well-known example of this investment strategy is Facebook, which received US$500,000 of investment from now New Zealand citizen Peter Thiel in 2004.

Angel investment strategies can be extremely profitable, but they are also enormously risky. For every Facebook there are thousands of scrap-heap start ups that never become profitable. The most adept analysts in the world seek to sort the wheat from the chaff. Most can’t.  

Establishing an angel fund is incredibly risky, especially for an agency like the Super Fund investing public money. It does not have the experience or knowledge in the tech start-up world to take full advantage of any available opportunities.

If the Fund is also directed to disproportionately focus on New Zealand investments, delivering good returns will be even more difficult.

Mr Thiel told us last year that the reason he has not invested in New Zealand start ups to the extent that he had hoped is that there are no promising investment opportunities. 

More importantly: is the Government best placed to direct the Super Fund’s investments?

The Super Fund is doing a good job at finding investment opportunities and delivering reasonable returns to taxpayers. If adopting an angel investment approach made good economic sense, why does the Government need to direct them to do so? The Fund has more than enough capital to start such a fund on their steam, without Ministerial directives.

If David Parker could do a better job with the Super Fund than its current managers, he should apply for a job there, rather than externally interfere.

Funding the next Facebook or Netflix might be politically appealing for an ambitious Minister of Economic Development, but taxpayers deserve better than to have the Government gamble away their retirement savings.  

Cancel the hui, cut off the koha

The budget blowout for Kelvin Davis’ Māori-Crown Relations engagement meetings shows the danger of taxpayer-funded ‘hui’ and koha payments.
 
Calling a meeting a ‘hui’ shouldn’t be an excuse for lavish catering and bureaucratic extravagance. Besides, the fact Kelvin Davis had to hold 33 meetings to figure out what his new job involves suggests the Māori-Crown Relations portfolio probably isn’t needed in the first place.
 
Especially concerning is that a significant proportion of the blowout comes from ‘koha’ payments. The Government should never be paying anyone ‘koha’. These payments, at best, obscure real costs and skirt tax requirements. At worst, they’re taxpayer-funded bribery of special interest groups.


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