Chris Hipkins, New Zealand Prime Minister 2023

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#3069507 30-Apr-2023 14:03

I'm surprised no one has commented yet on the IRD report released this week.

https://www.beehive.govt.nz/release/ird-report-shows-wealthy-nzers-pay-much-lower-tax-rates-other-earners

Using unrealised gains is a very unusual way of assessing income.

Only applying this metric to a very small portion of the taxpaying population when it affects a significant portion of taxpayers is just out right dishonesty as it doesn't show the true picture.

The presentation of the headline figures in this report gives a very distorted view.

You have to ask what the government's game is?

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mudguard

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#3069550 30-Apr-2023 16:54

Technofreak:

We don't need a government that's popular, we need a government that has a goal for our future and has the strategy and fortitude to take us there.

Isn't that kind of an oxymoron? A government that isn't popular won't get elected.

I'm a little torn on the tax report, yes they are including unrealised gains, but in a way, unrealised gains are powering the economy. All those baches and investment properties aren't being bought with cash.

I still wonder if it was possible to tie lending to a fixed amount. IE You purchase a house for $600K with a $480K mortgage, and that purchase price is the fixed value for the duration of that loan. So preventing using increasing equity to purchase something else.

Technofreak

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#3069666 30-Apr-2023 18:17

mudguard:

Technofreak:

We don't need a government that's popular, we need a government that has a goal for our future and has the strategy and fortitude to take us there.

Isn't that kind of an oxymoron? A government that isn't popular won't get elected.

I'm a little torn on the tax report, yes they are including unrealised gains, but in a way, unrealised gains are powering the economy. All those baches and investment properties aren't being bought with cash.

I still wonder if it was possible to tie lending to a fixed amount. IE You purchase a house for $600K with a $480K mortgage, and that purchase price is the fixed value for the duration of that loan. So preventing using increasing equity to purchase something else.

I guess it is a bit of an oxymoron. However if potentially unpopular but necessary policies were well explained I think they would be accepted. My point being that trying to be popular or Mr/Mrs nice guy isn't necessarily the best for the country. Sometimes we have to take our medicine.

No doubt some of those properties have been bought as investments, but I'd venture to suggest most houses, baches, etc weren't bought as investments.

My issue with that report is unrealised gains have been used to make a few people look bad when in fact unrealised gains apply to many many tax payers.

Over the last 5 years or so many home owners will have made nearly as much from the increase in the value of their house as they would have received in salaries or wages. While the unrealised gains have been used to make 350 or so wealthy people look bad those same gains weren't applied to everyone else to "adjust" their effective tax rate in the same manner as those "wealthy" people targeted in the report. In my opinion the unrealised gain figures have been used in a dishonest manner for political motives.

Unrealised gains aren't taxed anywhere else. The problem with taxing unrealised gains is taxpayer generally has no money to pay the tax on these gains. I presume you own a house. Take a look at how much it has increased in value over the past 5 or so years and then work out how much tax you'd have had to pay and think about where you'd have got the money from to pay that tax.

By all means have a capital gains tax but only tax after a gain has been realised. That will sort out most of your concerns.

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GV27

5897 posts

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#3069783 1-May-2023 06:04

Technofreak:

I'm surprised no one has commented yet on the IRD report released this week.

https://www.beehive.govt.nz/release/ird-report-shows-wealthy-nzers-pay-much-lower-tax-rates-other-earners

Using unrealised gains is a very unusual way of assessing income.

Only applying this metric to a very small portion of the taxpaying population when it affects a significant portion of taxpayers is just out right dishonesty as it doesn't show the true picture.

The presentation of the headline figures in this report gives a very distorted view.

You have to ask what the government's game is?

I've been somewhat busy, but agreed - this is borderline useless as a metric for anything. The problem with including unrealised gains as a form of income measurement is that only works once. The following year, you'd either have to normalise for the already-measured gains to get a meaningful figure, or factor in gains that have subsequently reversed from your new baseline. That would substantially boost the tax rate in this report, something I'd suggest has already happened as asset prices have weakened in the last 12 months.

Interestingly though, it shows that very little of the big money in this country is inherited. That may in fact be the opposite of what the government was trying to get at. There's also not much tied up in land - the really big businesses invest in their businesses and grow generational wealth through that.

I note the usual suspect (Greens) are trying to suggest we should have a wealth tax. Never mind that this was a study of 300 or so wealthy families - everyone should remember the Greens' 'wealth tax' from 2020 kicked in at a pathetic $1m, which was $200K under the median Auckland house price at the time. It also would have been applied equally across NZ - so a family home in Auckland owned outright would drag you into the net (for all your other assets) but you could own multiple homes in other parts of NZ, or live in something approaching a palatial manor out in the wops living the life of riley, and still not touch the sides.

Policy by soundbite does not good tax policy make, but that was a particularly egregious example because there was so much obviously wrong with it and almost no scrutiny of it from outside of National or ACT. If they'd been applying the same blowtorch they were using on Collins at the time, the Greens would have been a laughing stock.

sen8or

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#3069949 1-May-2023 12:29

Not sure if I'm allowed back in, but the report has likely elicited the response for which it was intended.

Was being discussed at the golf club the other day and the only part of the message that has stuck is that "the rich" are only paying sub 10% tax. No matter how much it was explained about "unrelised gains", to the many, this was irrelevent.

mudguard

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#3069952 1-May-2023 12:44

sen8or:

Not sure if I'm allowed back in, but the report has likely elicited the response for which it was intended.

Was being discussed at the golf club the other day and the only part of the message that has stuck is that "the rich" are only paying sub 10% tax. No matter how much it was explained about "unrelised gains", to the many, this was irrelevent.

I did listen to Bernard Hickey's interview with David Parker and I think there was genuine merit for the report. The law change which enabled it meant the IRD could actually ask about wealth, rather than simply tax info, as they would request information from accountants etc, and they would reply that it was beyond the remit of the IRD to be asking, so no, you can't have this information about my client.

That said, it is patently clear to everyone with an ageing population that the number of PAYE workers is to shrink pretty dramatically. How or who deals with it is the question. The reality is probably it will be kicked down the road again as the voter base is ageing as well.

It's a really thorny problem and I suspect most of the Western World is facing the same dilemma.

mudguard

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#3069955 1-May-2023 12:48

Technofreak:

I presume you own a house. Take a look at how much it has increased in value over the past 5 or so years and then work out how much tax you'd have had to pay and think about where you'd have got the money from to pay that tax.

By all means have a capital gains tax but only tax after a gain has been realised. That will sort out most of your concerns.

I'm only a recent home owner. So what has gone up has probably come back down. Aside from rates, but they weren't going stay at 2.5% forever.

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sen8or

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#3069960 1-May-2023 13:13

I'm not necessarily against a CGT provided there are a (very few) conditions / exceptions -

- The Family Home has to be exempt.

- Something in there for unusual situations (divorce, death of spouse etc)

- Must be on realised gains, not book value.

The real question though is whether this will be used as an additional tax on the nation (paid by "the rich"), increasing the overall tax take, or if there will be reduction in other taxes to offset the CGT and a net zero gain/loss position on tax income.

No Govt of any political leaning will want to substantially reduce Govt income as this means reducing Govt spending which is a very risky thing to do (no one want their lunch money cut) and as the country and economy grows, the more money is needed just to keep existing expenditure items relevant and fit for purpose.

I think Hipkins has been clear as to what not to expect (no mention of tax changes in this years budget), but is leaving the door wide ajar for election announcements.

The majority of the news items I have seen (newshub etc) are all "rich people aren't paying enough" and feel like propaganda to prepare the nation for some form of new tax, so that if (when) it does get announced, there has been plenty of warning that its only "for the rich" and nothing to fear for most ordinary people.

mudguard

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#3069980 1-May-2023 13:56

sen8or:

I'm not necessarily against a CGT provided there are a (very few) conditions / exceptions -

- The Family Home has to be exempt.

- Something in there for unusual situations (divorce, death of spouse etc)

- Must be on realised gains, not book value.

I don't think the home should be exempt, make it like GST in that it just applies to everything. If you buy for $500,000 and sell for $800,000 then tax the $300,000 at 39% and just apply it everywhere.

I agree on realised gains, though TOP felt it should apply as an annual land tax, which would be interesting. But again, if something like that was applied, surely we wouldn't have this relentless increase in pricing each year?

GV27

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#3069981 1-May-2023 13:56

sen8or:

The majority of the news items I have seen (newshub etc) are all "rich people aren't paying enough" and feel like propaganda to prepare the nation for some form of new tax, so that if (when) it does get announced, there has been plenty of warning that its only "for the rich" and nothing to fear for most ordinary people.

I wouldn't hold your breath.

The TWG report was pitched during the election campaign as a response to greedy property investors flipping houses for tax free gains.

What we ended up with was a proposal that would have taxed the Capital Gains on every Kiwisaver account. It was such a next-level miss it's not funny, but it gives you some idea of the problems with tax policy by slogan.

By and large, most people are happy for new taxes as long as they aren't paying more personally. Working that out on foregone accumulated gains on a Kiwisaver account is where it gets tricky to quantify. Our tax treatment of Kiwisaver is already sub-par, that would have made it worse.

And, I will note, a CGT does nothing if you are going to look the other way while your central bank craters the OCR and makes credit easier to get than meth. The supposedly forsaken gain just gets priced back in on top of the asking price and the market adjusts.

johno1234

2805 posts

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#3069994 1-May-2023 14:35

mudguard:

sen8or:

I'm not necessarily against a CGT provided there are a (very few) conditions / exceptions -

- The Family Home has to be exempt.

- Something in there for unusual situations (divorce, death of spouse etc)

- Must be on realised gains, not book value.

I don't think the home should be exempt, make it like GST in that it just applies to everything. If you buy for $500,000 and sell for $800,000 then tax the $300,000 at 39% and just apply it everywhere.

Right. So you get a job in on the other side of town, or your kids are going to school there. Sell your house for $1M that cost you $500K 10 years ago and pay a fat CGT tax on it. Now you don't have enough money to buy the same value house? How on earth is that fair? You've just lost a chunk of your net worth simply by moving from one side of town to the other? I don't think so.

quickymart

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#3069996 1-May-2023 14:39

^ property owner right there.

Seriously, if this levels the playing field for everyone, why be against it?

GV27

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#3070065 1-May-2023 15:23

quickymart:

^ property owner right here.

It's a fair question, especially when school zones are a thing, Auckland is a mess for commuting and there are plenty of other reasons that you might move other than to leverage a capital gain. And you can make the argument that if people are creaming it from merely owning a family home, that suggests there is something amiss with land allocation, migration settings, zoning etc.

That's not something you can pin on an individual homeowner, so expecting them to take on a bigger mortgage to cover a CGT shortfall is effectively externalising a failure of the state as a regulator/legislator. And making Crown revenue contingent on it creates agency issues - why would a government meaningfully intervene to bring down house prices if their funding stream requires them to continually increase, presumably at a rate higher than general inflation?

quickymart

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#3070079 1-May-2023 15:56

Yes, but...I only look for jobs in areas that I know I can reach easily by public transport if required.

If I lived on the North Shore, I wouldn't go looking for jobs in Manukau or Papakura (for example) as the commute would take forever. That's a choice I do have control over - if I can't reach a potential job easily from where I live, I simply won't apply.

johno1234

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#3070080 1-May-2023 16:07

quickymart:

^ property owner right there.

Seriously, if this levels the playing field for everyone, why be against it?

Selling a house when you have to buy back in again is not realising a gain. It's an asset transfer.

If you applied CGT in this case you would place a massive disincentive to sell on the market. Housing stock availability would plummet. Moving house would become financially harmful. Imagine if you had a 75% mortgage? Your equity could be decimated in a hot market.

Sorry, this is simply not going to happen, if for no other reason that any party stupid enough to run with it will be wiped out.

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