Posts Tagged ‘taxes’

I’ve been banging the drum on this issue a bit recently, but what we’re not being told about National’s recent criticism of Labour on taxes is that they don’t actually just hate a CGT because it’s a tax, even though their loathing for taxes they themselves don’t raise, (remember, they took in huge amounts of extra tax by raising GST) is well-known. Let’s set aside for a minute Labour’s position on one, and focus on what the Greens want to do, so that we can talk about an actual CGT rather than about political uncertainty, which I promise to come back to at the end.

Now, the reason National dislike a CGT is because the upper echelons of the Party is full to the brim with people who make money off speculation, which a country with a CGT still allows, but doesn’t privilege as a loophole around income taxes. To them, this tax is economic policy that hurts their preferred method of making money, and equalizes a playing field that they have enjoyed seeing as tilted to those with sufficient capital to make money off capital gains.

The Greens want a comprehensive capital gains tax on real realized gains1, with an exemption for the family home2, which means you will never be forced to sell an asset because it becomes more valuable, in fact, taxes will only ever be paid if the owner of an asset makes a profit (after considering inflation) when they choose to sell. There is only a very small class of people for whom this would impact their day-to-day income, and thus their ability to “go shopping,” and that is people who live primarily off speculation in assets, a profession we should want to wipe out. If they’re professional investors, we want their income to be based on dividends, a financial reward for investing your capital in the productive economy. That sort of virtuous cycle is why we call our economic system “capitalism,” whatever your wider critiques of it. (and I have many)

What this will do in addition to collecting revenue is reduce the value of houses, farms, and other assets that are being bought for speculative purposes3. This might seem like a bad thing for property owners, however it really isn’t. If you buy and sell two properties in the same market, (eg. two farms in Canterbury) for the same value, you’ll likely be no better or worse off for the tax. (the sellers in each transaction will account for the tax in their asking price, but those prices will be depressed by more than the tax adjustment due to the lack of speculative demand) You might get hit badly if the CGT policy has been more effective in deflating prices in the area you want to sell than in the area you want to buy, but it’s not going to be implemented in isolation. A CGT together with a crackdown on investments to launder money, a government program to build thousands of affordable houses, and rule changes that genuinely incentivise people building and buying houses to that are occupied, should all act to depress house prices in all the overheated markets, while leaving the reasonably priced markets, such as the regions, roughly the same.

This might seem like a bad thing for business owners, who might one day want to sell their interest in a business, but it really isn’t. Why, you say? Not every business owner who sells will want to buy new assets for a new business afterwards, so it’s not like the tax balances out somehow. Instead, the benefit comes before the point of transaction, in terms of the availability of capital. Because speculative investments that allow for quick profit will now be taxed, productive investments in businesses of all sizes will become much more attractive. This means that investors will likely to be very happy to sink capital into your venture on a long-term basis, so long as they can expect periodic dividends. This will make starting ventures easier, seeking capital injections to expand easier, and, ironically enough, put local ventures on a more equal ground to ones with overseas owners, because they will have competing local capital. Even without re-investing a cent, this will stimulate the economy. And even though businesses founded before the CGT was implemented will have had to get capital the hard way in comparison, they’ll have an incumbent advantage in the marketplace, and they can always leverage the newly available capital to expand, too.

Now, onto Labour’s handling of tax uncertainty. It is fair to critique Jacinda Ardern’s statement that labour has been transparent about what it wants to do with the tax reform side of housing policy, and whether that would involve a capital gains tax that could apply to farm- and business sales. She has been clear, but she hasn’t been transparent. A transparent party would have told us what option they provisionally favour before going to the working group. However, that doesn’t mean that Bill English is being fair to her in saying she has to have numbers on such a proposal if it’s really just a sense of what option Labour favours going in to the working group. The whole point of having experts advise you is to listen to their opinions on the numbers, so if you’re genuinely going in to a reform process open to expert advice, the numbers in your starting proposal aren’t definite in the first place. If English were really sincerely critiquing her position as either a policy maker or an economist, he would know this. His crocodile tears on taxes affecting “hard-working kiwis” are nonsense. None of his economic or tax policy is sufficiently aimed at kiwis on or below the average wage.

In addition, as I’ve said above, the only people who need numbers on a CGT to know if they can go buy groceries are professional speculators. Your average waged employee won’t ever be taxed under the Greens’ proposal, and Labour is very likely to implement the same safeguards against unfairness in a CGT, but these average workers might well benefit from it in terms of being able to buy a house more easily, or being able to find a job more easily in a new business, or even being able to get capital to start their own business more easily, something every bit as much a kiwi dream for some people as owning a house.

So when you vote, ask yourself: what kind of economy do you want, and who’s got the policies to support it? Because if you want an economy dominated by big corporate farms where the actual workers are largely paid wages by overseas owners, overseas companies who can afford to set up businesses in a capital-poor environment, and people sitting on untenanted property portfolio or serially renovating houses, then you should probably re-elect the government. But if you want a diversified economy with a growing tech sector, fueled by renewable energy and maybe even some high-quality manufacturing jobs, and responsible mining that restores the environment after its done so we can keep making electronics, then you should vote to change the government. Because there’s more to voting for the economy than just finding the person who sounds most economically literate.

It’s quite possible to know what’s going on in the economy and still be captured by the interests of the current winners in the economy, like the government, or even be captured by irrational fears4 that immigration hurts the economy, like New Zealand First, but we should look at what the likely effects of economic policy would be, and also for the two long-standing governing parties, National and Labour, we should look at their record on economic indicators5. Those things both make it clear that only a progressive government, with the Greens moderating Labour’s policies to make them more about ordinary people and to commit them to a CGT or similarly effective policy to reform our economy, will deliver real economic prosperity decades into the future.

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So if you’ve been hiding under a hole until recently, Bill English let slip in an interview recently that he wasn’t going to renew John Key’s pledge on not touching superannuation, then, like Labour, went and made it an election issue by announcing he would, in 2040, raise the retirement age by two years. I had meant to get to this issue sooner but have been sidetracked with other priorities.

There are so many sides to this. The first is, Bill English has literally set the cut off for when people should retire with the generation that has borne the brunt of increasing inter-generational warfare waged on behalf of (although not necessarily with the consent of all) Baby Boomers. Gen X, the generation that paid the first student loans, and did it with interest, is being told they’re the ones who will be asked to cut costs if National can govern without a coalition.

First, let’s be real here: while superannuation is less of the national budget in New Zealand than it is overseas, (per capita we spend about half as much as say, European countries do, and get a better system out of it) there’s still a very real affordability problem if we want to maintain government spending in other areas once the Boomers hit super age en masse. (some already qualify, but the real big hit is yet to come) Nobody, even the two parties who were consistent in wanting to maintain super at 65 for the general population, (That’s the Greens and New Zealand First, if you’re curious) is arguing with that fact.

If we’re going to maintain super, we need to look at the revenue side of the equation. Remember how I proposed a solution in search of a problem back when I said we should tax the wealthy? A comprehensive capital gains tax would more than fund Super, in fact, it would go a long way to funding a UBI1. Julie Anne Genter literally has very similar opinions on this issue.

If we take the revenue steps we need to anyway to ensure a more equal society, we can easily afford super, and we can do so off wealth taxes that will effectively act as a means test without all the administrative costs, as wealthy boomers who don’t need Super might well end up paying more in taxes than they receive anyway, but we still receive the benefits of universality in terms of ease of access, reduction to poverty, and incentive to continue working for those who genuinely wish to and are able to.

There is absolutely no need to start a generational war like Bill English has in order to solve that problem when the gap is clearly on the revenue side. Labour’s answer, squirreling away surplus money, is a good thing to do in principle, but there’s no indication it will make a serious dent in the cost. National’s argument that Gen X will still get Super for a longer percentage of their life than Baby Boomers currently do might be a fair one, if it were taken completely outside the generational context it deserved to be placed in. Gen X, and to a larger extent, Millenials and the upcoming Gen Z, are being asked to bear increasing costs on basically everything, coupled with decreasing opportunities and being left political problems that have been dumped in the “too hard” basket for decades, like climate change. This super announcement is one too many kicks in the ribs, and National better hope it doesn’t mobilise younger voters who’ve stayed home, because they are big Green supporters, and a 20% boost to turnout of the youth vote would literally change the electoral maths on this issue.

Politics aside, if we can square those financial challenges away with a bit of a surplus, we should also be considering the points made by the Māori and Mana parties about equity of Super, and their support for some level of flexi super, and/or some reduction to the age of eligibility for Māori and/or people in taxing manual employment. These are absolutely fair ideas that deserve consideration. Let manual workers who struggle to make it to 65 have a bit of super. If there’s any argument to raise the age, it’s so we can afford to let manual labourers and Māori have an equitable piece of the super pie.

Overall, I hope voters will stand together in the coming election and realise that there isn’t a need for this divisive type of politics. We can keep super at its current settings without sacrificing our other spending priorities if we tax the wealthy more fairly, but that will never happen under a National government.

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