Tax Working Group Report & Related Matters

[drelly]

More accurately... (including ACC levy)

up to $14,000 pays 14.2 cents
$14,001 to $48,000 22.7 cents
$48,001 to $70,000 34.7 cents
$70,001 and over 39.7 cents

So someone who earns $70k a year actually pays about 25% tax. I do agree that the top tax rate cuts in far too early.

However, I believe that the "smarter and richer" still pay the great bulk of the tax take in NZ. Couldn't find a reference sorry!

[Bodmin]

From the Herald

The burden of personal tax is also high, with New Zealand again the third-highest in the OECD in percentage terms. In the 2009 Budget the top 1 per cent of taxpayers pay 15 per cent of the tax, while the top 3 per cent pay 26 per cent. It is not known if these high effective rates of tax contribute to our having the highest diaspora (population of New Zealand-born expatriates) of skilled workers in the OECD, but highly skilled people are mobile and sought after in the global economy.

http://www.nzherald.co.nz/politics/news/article.cfm?c_id=280&objectid=10618381

[Perry]

Yup but Goldmines are not a necessity that everyday people also aspire to own.

So can we now take it that you want to sub-divide
businesses into what you determine to be a necessity
and/or are things people aspire to own and tax-treat
them accordingly to your classifications?

I gave you one salient example of how a business
functions, showing that PI was similar. Your reply
didn't appear to address that. More of a change-
the-subject tack.

So John starts a bakery. He has a range of set-up
costs which will take years to pay the debts off, so
the bakery will not make a profit for some years.
But because bread is the staff of life, it's OK for John
to claim tax losses for those years?

Of course, if we took the "enough of this nonsense -
one simple law for all" approach, what tax should
ex-politicians pay on their PAYE tax-payer subsidised,
post-parliamentary-sinecure soft, easy lifestyles?

[Perry]

The most stunning example of a lack of horizontal [taxation] equity is of course capital profits. Someone who earns a wage or salary of $100,000 and pays tax of $27,550 (at the varying progressive tax rates) can be compared with someone who sells their holiday home with a profit of $100,000 and pays no tax.

Huh? Comparing an annual income with a one-off?
No wonder people's minds get screwed over, when
such drivel passes for informed comment.

[foss]

I was heartened by this new item today. Someone, an academic no less, agrees with us:

nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10618558

quote: "It is often said that special tax rules exist for property. This is not correct. It is simply that property is easily understood by investors, is able to be geared and the resultant interest on borrowings is fully deductible against rental income, as is various other expenses including non-cash expenses such as depreciation."

Hooray! Pity it wasn't in the headline for the world to see.

Now to convince the tax working group ...

[JohnJackson]

So can we now take it that you want to sub-divide
businesses into what you determine to be a necessity
and/or are things people aspire to own and tax-treat
them accordingly to your classifications?

You missed the point.

The fact that houses have value outside of any 'PI company' and are in fact owned mainly by non-PI's makes it unlike any other business.

If a bakery or goldmine was also something people used for recreation and so had innate value (in fact equal value to both businessman and recreational owner) even if non-productive, then they would be 'safe as houses' also as no matter how poorly the operation is run they could still get there money back due to the inherent value.

This means banks are happy to lend at low equity ratios which leads to neg gearing (negative cash flow) which for an individual rental may turn positive over time, but as more properties are brought the overall portfolio can be maintained negative indefinitely. Result: No tax ever paid despite growing many millions of dollars worth of wealth.

Perry, you wanted to show people that PI is identical to all other businesses so it is fine to use the same tax rules. I have shown how they are distinctly different in a way that matters in terms of leverage (banks will lend on low owners equity), negative gearing, and the resultant tax advantages.

[Perry]

You missed the point.

I don't think that I have, at all.

Perry, you wanted to show people that PI is identical to all other businesses so it is fine to use the same tax rules. I have shown how they are distinctly different in a way that matters in terms of leverage (banks will lend on low owners equity), negative gearing, and the resultant tax advantages.

All businesses differ from one another in some way or other.
What banks will/will not do is something of a red herring. The
Basel II Agreement discussed elsewhere on PT shows why.
I doubt if banks lend based on a PI's perceived tax advantages.

Result: No tax ever paid despite growing many millions of dollars worth of wealth.

I don't mean to be harsh, but that is just nonsense - depending
on what you describe as 'wealth.' I see it as no more than some
sort of hedge against erosion of purchasing power consequent
on malfeasant government policy economic/fiscal, mostly.

Do recall that income tax is called that because it's paid on income.
If you were to start a hugely successful alternative to TradeMe and
sell it for many millions more than your 'investment,' some time in
the future, how would that differ - and how should it be treated
differently - to PI?

Thus far, we do not have a socialist, greed-based wealth tax in NZ.
But once your hypothetical "No tax ever paid despite growing many
millions of dollars worth of wealth" folk start to spend those dollars
of alleged 'wealth,' they will surely pay GST on it, plus RWT on their
invested $$$ to that point, so "no tax" is simply not true.

Further, I am a small-scale buy-and-holder with little if any chance
to 'make millions' at some time in the future. I suspect many other
PIs - on or off this forum - are much the same.

[Gatekeeper]

The difference I see is that banks (under Basel II) treat "business" differently than they do "residential housing". Therefore many PI's lend on different terms to business, but are treated the same for tax. That's the anomoly!

Banks are encouraged to loan to PI's over business because banks can hold less capital reserves than they can for a "real" business loan. Treat PI's as a business and lend to them under the same terms under Basel II rules and I believe that may go a long way to fixing the problem with no tax changes at all.

Basel III is coming soon, and it may be addressed. Good!!!!!!!

[drelly]

True it is an anomaly but business is clearly a lot riskier than property.

[PC]

Isn't the risk of making loans related to security & income?

Business will hopefully have much better income than a property.
But unlikely to have any saleable assets to offer as security.

Banks make 2% margin on interest.
Which means losing the principal component by a default hurts the bottom line a lot.

So of course lending to someone who can offer security for the principal is lower risk.
No anomaly at all!

Ultimately businesses will sell shares and avoid banks & interest payments altogether.

[tricky]

Result: No tax ever paid despite growing many millions of dollars worth of wealth.

You disappoint me, JohnJackson.
Tuck the socialist clothcap back in the drawer.
I look forward to your opinions as it forces me to re-examine mine.
Perhaps you could reword the above quote.

[drelly]

Ultimately businesses will sell shares and avoid banks & interest payments altogether.

Except for the 80+% that go bust and the bulk of the survivors that never offer shares. And many of those simply close down without being onsold.

[Hound]

Encouraging all the Mums & Dads, who would otherwise invest in property, into business would be a recipe for disaster. For the Mums & Dads.

The banking lobby must not be underestimated here. What they say goes on behind closed doors.

[roseneath_rat]

Regarding the breaking of term deposits vs breaking loans it boils down to the 'golden rule' :

"Whoever has the gold makes the rules."

[roseneath_rat]

Except for the 80+% that go bust and the bulk of the survivors that never offer shares. And many of those simply close down without being onsold.

This stat is vastly over-stated. The statistic that is abused is the 'number of limited companies that do not continue beyond the third year of operation.' This is not the same as going bust... it reflects the reality in business that businesses start up, are sold to another owner or the business chances to the extent that a restructure is appropriate. EG- building company "ABC Development 1 Limited" sets up, builds 3 townhouses, sells & then gets wound up. "ABC Development 2 Limited" is set up for the next development. New cafe starts up, owners run it for a few years then sell it to somebody else. ABC Food Limited ceases trading, but XYZ Food Limited sets up to trade in its place.

I would say the true number of businesses that start up & then genuinely fail is less than half.