OnPoint by Keith Ng


From the floor of the Tax Working Group

Update #6: Morgan wants a flat 25% tax, a $10k univeral allowance, 1.25% capital tax (not CGT, but tax on capital). Conceptually wonderful idea. Clean and beautiful. So's communism.

Update #5: Gareth Morgan: "The biggest suckers in the tax system are PAYE earners. Suckers. So the government lets them have rental property, just as a sop."

Update #4: $213 billion invested in rental property. 5 times the size of our stock market. Recording a tax loss of $500m. Negative tax (subtracted from other taxes) of $150-200m. ZONK!

Update #3: Really picked up with Norman Gemmell from Treasury. First, he pinpoints the issue that right-wingers have been saying since 2005 - that Working for Families creates a high marginal tax rate and reduces incentives to get into work. It's particularly salient since WFF is high on the list of things that'll be reviewed.

It's split into two parts - there's the "100% marginal tax rate" that's often cited, but that's just one point for people earning around the $20,000 mark. Even Susan St John says that this is a poorly-designed part of the system, though noting that it only affects about 3000 families.

Gemmell's more interesting part was about abatement: That the whole problem of high effective marginal tax rate (EMTR) is caused by abatements (getting less in benefits) as you climb up in income. The way to lower EMTR is to lower abatements, but that means more people on higher incomes getting more benefits. Conversely, if we stopped high income people getting benefits, people on the margin will get hit with a very high EMTR.

Getting rid of the first bump in the EMTR is quite doable - but the trying to smooth out or wind up the boundaries in who gets WFF is going to be a fundamental struggle.

Update #2: Oh, right, nearly forgot. Alignment to 30% is going to cost $1.65b. Roughly. Ch-ching!

Update #1: Dull morning so far here at the TWG. Where's Don Brash to spice things up when you need him?

Bill English make a dig at government spending, saying that the productivity for the rest of the economy is sound, it'the productivity of the public sector that needs to be scrutinised more.

Stuck will ruling out capital gains tax, but remained coy on other options like land tax.

Made a point that fiscal drag will put the average earner into the top tax rate by 2022, if nothing changed, and this was unacceptable. Which means that something had to give.

Bob Buckle and Rob McLeod basically laid out the aims, which is to find a way of paying for an alignment of the personal/trust/companies rate to 30%. It's about ironing out the kinks in the tax system, which is fairly apolitical stuff. But with to lower the personal rates, they've got to put in something else, which wanders back into political territory again.

Yawn. Hope this gets more interesting.

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