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Morgan tax report view is right on button
01-02-2010
I have several issues with the recent tax working group report, starting with the fact that the non-academic membership was more a Wellington big business club than representative of the wider tax-paying community.
Further it was stacked with accountants, tax lawyers and economic consultants who have a vested interest in making the system as complex as possible so they can charge more.
The productive sector had no representation at any level. Most farmers would deal with their local accountants not the big city crew so I can't see anyone on that committee able to speak for farming. Further, farming is largely co-operative based and despite the fact that New Zealand's biggest company is a co-operative, there was no co-op representation.
Mind you the committee of 13 didn't include any women either, which obviously means that women know little about tax - in the government's mind at least.
Then we are told that the system is broken which begs the question why? We were given the fact that only half the 100 richest people were paying the top tax rate. If that is why the system is "broken" it is surely because the wealthy can afford high priced accountants and lawyers to get them off their tax. It makes little sense to then employ the same crew to try to fix the system and what did they come up with? Give the wealthy more.
We were further told about the use of trusts as a tax shelter. If that is the issue then fix the trust laws. That will never happen because of the number of MPs sheltering behind them, not to mention the accountants and lawyers that set them up and inevitably have their own trusts as well.
Committee member Gareth Morgan surprisingly gave the report just four out of 10. He claimed the system was broken because those on high incomes can dodge tax and we should be taxing capital rather than income. If that is why the system is broken and Morgan knows more about it than I do, then why not fix it by taxing capital?
The New Zealand Institute of Economic Research claimed the report wasn't bold enough and that people were staying in lower income brackets because of working for families. Again, I would have thought that was relatively easy to fix and doesn't require a total reorganisation of the tax system.
So what we are most likely to see, in practical terms, is probably a land tax, maybe a capital gains tax and an increase in GST, all of which will hit the productive sector. Further, according to the published figures it will achieve little.
For a start the majority of New Zealand, those earning under $70,000 would get nothing with the suggested cuts. At an income of $90,000 you would get $20 a week more, negated by a $21-25 increase if GST was raised. Interestingly, according to Statistics NZ, only 10% of people earn over $75,400.
A land tax would, according to Federated Farmers, cost agriculture $525 million. If we take the accepted figure of 30,000 farmers that, by my maths is $17,500 a farmer. The horticulturists are similarly going to get nuked with their high priced properties close to towns and cities. That land tax is on top of the annual $3000 the government is taxing us for Kyoto and 6 cents a litre fuel tax we're paying for Auckland motorways. You can then add the $21-25 a week that an increase in GST will cost. All this is from a government claiming to reduce taxes. Further any capital gains tax would hit the rural sector hard.
Where, I would ask, is the logic in giving more money to companies and the few per cent of people earning over $90,000 at the expense of the productive sector? Where is the logic in giving the Australian banks, who have already tried to destroy our tax base, more money to repatriate to Australia?
It gets worse. In NZ agriculture co-operatives process the vast majority of our meat and milk and supply the vast majority of our fertiliser. Co-operatives pay little if any tax, they pass their profits back to shareholders who, in turn pay the tax. Any change in company tax will have little if any effect on agriculture.
On the personal side while sheep and beef farmers are making a modest profit, around $20,000 and according to MAF dairy farmers are making a loss, no amount of so-called tax reform will help anyone in the rural sector. The tragedy is it is going to cost us.
If the system is broken do what Morgan suggests but it seems we'd prefer to engage in a futile reorganisation of the Titanic's deck chairs.
• Alan Emerson is a semi-retired Wairarapa farmer and businessman; dath-emerson@wizbiz.co.nz