Tax Cuts

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Forums › Finance and wealth management › Tax Cuts

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#1791810 30-May-2017 15:29

Geektastic:

So, if the government ceases to provide health cover, buys a huge chunk of shares in the insurance companies as an investment (thus owning part of the companies and getting profit share via dividends) and then allows a tax deduction on the premiums payable to those companies, is that similar or dissimilar?

Sounds very convoluted and likley to have deadweight loss everywhere. Plus a 'huge chunk' of shares doesn't necessarily give them the same kind of control that full ownership does. Maybe they just pay their management huge salaries to reduce profit.

IMO, some (most) things should be left to the free market, but there are a few things that make sense to fund out of taxation, either because they are natural monopolies, or they provide a large social benefit (or both). Education, healthcare, roads, heck probably utility networks too.

NZ needs to ensure that everyone is paying their fair share of tax - and there are not loopholes allowing the rich to pay little to no tax. This is both unfair on others with wealth who do pay large amounts of tax, and the population more generally. But if you want to flatten out the tax curve, you need to reserve the current trend of wealth distribution. Lots of doing well middle class people paying moderate tax rates is far better than a few super wealthy paying the bulk of the tax.

I pay a marginal tax rate of 39.5c in the dollar (inc. Medicare) in AU, and I'm quite happy to pay that providing it's money spent on things that make sense for the govt to provide like good education, quality healthcare, police, fire services etc and well structured social safety nets.

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tdgeek

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#1791821 30-May-2017 15:40

MikeAqua:

tdgeek:

You can only tax profit.

That's not true. My 'revenue' (i.e. salary and interest) are taxed every year.

There are costs associated with earning that salary, bu they are not tax deductible.

This is because I'm a person not a business. I've never seen a logical justification for that distinction.

According to a mate who works treasury on tax ... taxes generally should target things that cannot change to avoid tax - tax apple trees and the owner will cut them down. Tax land and he may plant apple trees to make money.

Revenue isn't something that can manipulated - without forgoing it.

profit is easily fudged by accrued costs.

I meant in businesses, I should have clarified.

Accrued costs are not fudges. Accruals are costs incurred in the financial period, but missed the cut when financial systems are run. Late invoices, invoices that are billed quarterly but cover part of the period, and so on.

MikeAqua

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#1791831 30-May-2017 15:50

tdgeek:

I meant in businesses, I should have clarified.

Accrued costs are not fudges. Accruals are costs incurred in the financial period, but missed the cut when financial systems are run. Late invoices, invoices that are billed quarterly but cover part of the period, and so on.

Revenue can be taxed.

GST is effectively a tax on revenue, bur there are credits for purchases that offset most of it.

So my understanding is that accrual accounting in the wider sense of the word is any cost /revenue that hasn't been realised in real cash terms.

They are highly vulnerable to manipulation if people have a mind to do so.

Mike

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#1791901 30-May-2017 17:55

MikeAqua:

tdgeek:

I meant in businesses, I should have clarified.

Accrued costs are not fudges. Accruals are costs incurred in the financial period, but missed the cut when financial systems are run. Late invoices, invoices that are billed quarterly but cover part of the period, and so on.

Revenue can be taxed.

GST is effectively a tax on revenue, bur there are credits for purchases that offset most of it.

So my understanding is that accrual accounting in the wider sense of the word is any cost /revenue that hasn't been realised in real cash terms.

They are highly vulnerable to manipulation if people have a mind to do so.

We are probably at cross purposes. Accounting hat on, accruals are costs incurred in the accounting period but not realised by way of invoice, hence not in the books. Cash isn't relevant. If you mowed my company lawn and hadn't billed me, I accrue it as an expense. If you haven't paid for goods you bought off me, thats not accrued, its already in the books as an asset. Debtors.

Going back to the thread, the basis is tax gathering by the Govt to fund the country. Income Tax is a biggie as is GST. You mentioned taxing behaviour. That gathers revenue but its purpose is behaviour. So yes, you can tax revenue. GST is levied on sales, less expenses, so thats not revenue. Its sales less expenses, which at the company end is sort of profit, but it ends up on the consumer.

You cant tax a company on revenue, thats unfair. You cant spend revenue. And as above, a company that sells at higher margin differs wildly from a supermarket margin.

Someone mentioned PAYE as a tax on revenue, revenue being salary. It is a tax on revenue, yes. But its more a share of the load, as the Govt picks up the tab on costs and we pay using PAYE as one share. And no, you cant claim expenses on salary, thats a weird though. While you can say an equity (business) is very similar to a person, in that they earn an income and incur expenses, its still a bit weird.

The key is are we taxed too much or unfairly. If the Govt isn't wasting money, we arent taxed too much. Unless we are still in the red or in the black. Being fair is difficult as you cant look at a percentage. A poor person has little or no PDI, a high paid person is mainly PDI, if we put aside jets and yachts. I'm digressing

tdgeek

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#1791902 30-May-2017 17:57

MikeAqua:

tdgeek:

I meant in businesses, I should have clarified.

Accrued costs are not fudges. Accruals are costs incurred in the financial period, but missed the cut when financial systems are run. Late invoices, invoices that are billed quarterly but cover part of the period, and so on.

Revenue can be taxed.

GST is effectively a tax on revenue, bur there are credits for purchases that offset most of it.

So my understanding is that accrual accounting in the wider sense of the word is any cost /revenue that hasn't been realised in real cash terms.

They are highly vulnerable to manipulation if people have a mind to do so.

You will need to explain that to me. Income and expenses cannot be faked, but trusts, company country location such as Apple and any legal but dodgy goings on are a problem. But your example would be good

Fred99

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#1791987 30-May-2017 20:34

sen8or:

David R. Kamerschen, Ph.D. — Professor of Economics.

No it wasn't and no he's not - check Snopes.

Anyway - as an "economics lesson" it's one sided as it neglects to look at a dynamic economic system where money is exchanged - the model assumes that "the rich" have money from which appeared from nowhere - or from swapping it amongst themselves. As you tax "the poor" - the disposable income that they transfer to "the rich" reduces. It's a crap simplistic model written by someone with an agenda.

MikeAqua

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#1792289 31-May-2017 12:39

tdgeek:

You will need to explain that to me. Income and expenses cannot be faked, but trusts, company country location such as Apple and any legal but dodgy goings on are a problem. But your example would be good

I don't think anyone would fake income for tax reasons, but cash from sales can be skimmed.

Expenses can be manipulated - you have hit on the international mechanisms-of-artful-dodgery already.

Domestically, small business owners can fob all sorts of private expenses off onto their company.

Some of it is legal but still questionable: Like the Hypnotist's 4WD Hilux (with minimum possible sign-writing) I saw recently. What does a hypnotist need a 4WD ute for? The answer was revealed by the fact it was attached to a boat trailer for an ~8m boat ... hopefully the business doesn't claim the boat as an expense as well.

Some owners' loading of private costs (groceries, fuel etc) onto their businesses goes unreported and then there is diversion of cash. The IRD tolerates a certain amount of this by not investigating it if expense and revenue looks believable for the type of business.

Admittedly it's small individual amounts. Collectively it adds up and it's unfair to us PAYE chumps who pay tax on every dollar we earn. I don't see the economic benefits to justify providing small business owners favourable tax treatment - small business seems to be failure from the perspective of economic trickle down.

I still don't understand why it's fundamentally unfair to tax business revenue (at a low level) but not personal revenue (at high level). IRD already taxes businesses in advance for profit they have not yet made ... provisional tax.

Basically I'm in favour of taxing every single entity that generates revenue in NZ a small % of that revenue - trusts, religion the whole lot. The only exceptions being government institutions (pointless) and charities who do genuine humanitarian work - not those that are classified as charities due to their public education (i.e. activism).

Admittedly a danger of taxing revenue is that it would incentivise people to hide cash sales. But we allegedly have plenty of that now ...

I'll drop this topic now

Mike

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Geektastic

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#1792299 31-May-2017 12:59

MikeAqua:

tdgeek:

You will need to explain that to me. Income and expenses cannot be faked, but trusts, company country location such as Apple and any legal but dodgy goings on are a problem. But your example would be good

I don't think anyone would fake income for tax reasons, but cash from sales can be skimmed.

Expenses can be manipulated - you have hit on the international mechanisms-of-artful-dodgery already.

Domestically, small business owners can fob all sorts of private expenses off onto their company.

Some of it is legal but still questionable: Like the Hypnotist's 4WD Hilux (with minimum possible sign-writing) I saw recently. What does a hypnotist need a 4WD ute for? The answer was revealed by the fact it was attached to a boat trailer for an ~8m boat ... hopefully the business doesn't claim the boat as an expense as well.

Some owners' loading of private costs (groceries, fuel etc) onto their businesses goes unreported and then there is diversion of cash. The IRD tolerates a certain amount of this by not investigating it if expense and revenue looks believable for the type of business.

Admittedly it's small individual amounts. Collectively it adds up and it's unfair to us PAYE chumps who pay tax on every dollar we earn. I don't see the economic benefits to justify providing small business owners favourable tax treatment - small business seems to be failure from the perspective of economic trickle down.

I still don't understand why it's fundamentally unfair to tax business revenue (at a low level) but not personal revenue (at high level). IRD already taxes businesses in advance for profit they have not yet made ... provisional tax.

Basically I'm in favour of taxing every single entity that generates revenue in NZ a small % of that revenue - trusts, religion the whole lot. The only exceptions being government institutions (pointless) and charities who do genuine humanitarian work - not those that are classified as charities due to their public education (i.e. activism).

Admittedly a danger of taxing revenue is that it would incentivise people to hide cash sales. But we allegedly have plenty of that now ...

I'll drop this topic now

You could always take advantage and start your own business if it is so beneficial....

tdgeek

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#1792314 31-May-2017 13:02

MikeAqua:

tdgeek:

You will need to explain that to me. Income and expenses cannot be faked, but trusts, company country location such as Apple and any legal but dodgy goings on are a problem. But your example would be good

I don't think anyone would fake income for tax reasons, but cash from sales can be skimmed.

Expenses can be manipulated - you have hit on the international mechanisms-of-artful-dodgery already.

Domestically, small business owners can fob all sorts of private expenses off onto their company.

Some of it is legal but still questionable: Like the Hypnotist's 4WD Hilux (with minimum possible sign-writing) I saw recently. What does a hypnotist need a 4WD ute for? The answer was revealed by the fact it was attached to a boat trailer for an ~8m boat ... hopefully the business doesn't claim the boat as an expense as well.

Some owners' loading of private costs (groceries, fuel etc) onto their businesses goes unreported and then there is diversion of cash. The IRD tolerates a certain amount of this by not investigating it if expense and revenue looks believable for the type of business.

Admittedly it's small individual amounts. Collectively it adds up and it's unfair to us PAYE chumps who pay tax on every dollar we earn. I don't see the economic benefits to justify providing small business owners favourable tax treatment - small business seems to be failure from the perspective of economic trickle down.

I still don't understand why it's fundamentally unfair to tax business revenue (at a low level) but not personal revenue (at high level). IRD already taxes businesses in advance for profit they have not yet made ... provisional tax.

Basically I'm in favour of taxing every single entity that generates revenue in NZ a small % of that revenue - trusts, religion the whole lot. The only exceptions being government institutions (pointless) and charities who do genuine humanitarian work - not those that are classified as charities due to their public education (i.e. activism).

Admittedly a danger of taxing revenue is that it would incentivise people to hide cash sales. But we allegedly have plenty of that now ...

I'll drop this topic now

Fair points. Yes, small businesses that can use cash can exploit the availability of cash. Expenses are harder as they can be audited, but thats also open to creativity.

Revenue is hard to tax at a company level though. One million turnover can mean a lot different bottom line between companies. What if you made a loss, you would still get taxed. Back in the day they saw that GST exceeded its first years expectations, as that caught the spending of black market and theft proceeds.

MikeAqua

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#1792396 31-May-2017 15:12

tdgeek:

Revenue is hard to tax at a company level though. One million turnover can mean a lot different bottom line between companies. What if you made a loss, you would still get taxed. Back in the day they saw that GST exceeded its first years expectations, as that caught the spending of black market and theft proceeds.

It might be hard on the company, but I guess it could be paid provisionally just like company tax is now.

If a company is losing money then I guess they will go broke faster. But if they are losing money that is inevitable eventually.

From the consumer perspective business failure is actually one the fingers on the 'invisible hand' of the market.

Possibly the middle finger, maybe the one the doctor uses ...

Mike

MikeAqua

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#1792400 31-May-2017 15:21

Geektastic:

You could always take advantage and start your own business if it is so beneficial....

I have one.

But it's small amounts of work here and there for particular organisations so I do it as scheduler contractor. It's administratively a very simple approach but it comes with a 33% tax rate.

It's legal to claim expenses but I don't have any I could with any honesty attribute to the business.

Mike

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#1792487 31-May-2017 17:36

MikeAqua:

Geektastic:

You could always take advantage and start your own business if it is so beneficial....

I have one.

But it's small amounts of work here and there for particular organisations so I do it as scheduler contractor. It's administratively a very simple approach but it comes with a 33% tax rate.

It's legal to claim expenses but I don't have any I could with any honesty attribute to the business.

Start a bigger one..!

My wife just got caught by the latest extension of the withholding tax nonsense. Not introduced well by IRD - the agency she does some work for alerted her to the requirement and our accountants seemed to know little about it.

Information was scarce as to things like what happens if you are already paying large amounts of Provisional Tax and suddenly find yourself required to pay Witholding tax as well - did you get double taxed until the end of the year or could you reduce PT accordingly and so on.

6FIEND

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#1792900 1-Jun-2017 09:20

sen8or:

Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this... <snip>

That does a great job of contexting the problem. Regrettably, the general consensus in modern society is that anything less than the "few" paying over the odds to meet the needs of the "many" is, incongruously viewed as somehow unfair.

Treasury analyse the total tax contribution across household deciles every few years... The result is depressingly unsurprising:

This graph shows the "total money transferred" from the govt (Benefits, Working for Families, Etc.) to each household decile less the "total tax paid" (including both income tax and GST).

So - the bottom 60% of NZ households effectively pay no tax at all. (and the 10% in the 7th decile only just make a net positive contribution)

All of the spending in NZ on Healthcare, Education, Infrastructure, etc. is funded by the top 30% of NZ households. But those "rich picks" are always last in line for tax relief when the govt finds that it has taken more than it needs to meet it's costs. (a.k.a. Budget Surplus)

6FIEND

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#1792907 1-Jun-2017 09:26

...if anyone is interested, the underlying data is also informative.

Eg. This prime example of "Middle Aged Male Privilege"

Anyone interested in the Treasury Report itself can find it here (courtesy of Victoria University)

shk292

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#1793030 1-Jun-2017 12:08

Are those graphs opposite in sense? Ie, the bottom one indicates that middle-aged men are strong net beneficiaries of the system if it's the same sense as the one above

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