Comment

By Peter Williams

This is a wealthy country. Last week Treasury told us that the Government is flush, and in the next five years it's going to get even more cash from us.

Here are some numbers.

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There'll be about 25 per cent more tax paid by 2023 and the IRD take will crack $100 billion in five years.

By then the Government will have a surplus of $8b.

Last year $77.5b was collected in taxes. Individuals paid $35b in income tax, together we paid $20.5b in GST and companies chipped in $13b.

There was just under $7b from customs, excise and road user charges, and over $2b taken from tax on bank interest and company dividends.

So it's pretty darn hard to do anything these days without being taxed.

What's more, according to figures from last year, 48 per cent of that income tax is paid by just 11 per cent of taxpayers, those earning more than $90,000 a year.

Yet 82 per cent of taxpayers, earning up to $70,000 a year, pay less than 40 per cent of the total income tax take.

When you consider that many of those earning up to $70,000 get tax credits and accommodation supplements, about one in four households pays no net income tax at all.

Our income tax regime takes from the high earners and gives to the low earners. That's what a compassionate and generous society does.

But according to this Government, our tax system isn't fair.

Therefore we need to be taxed in different ways. The Tax Working Group (TWG), chaired by Sir Michael Cullen, is determined to introduce a Capital Gains Tax (CGT).

The final report of the TWG is due late next month. But it's patently obvious they want to tax your assets either when you sell them, or as those assets increase in value over time.

Either way, it will be one of the major political discussions of 2019. What is recommended by the TWG will become the basis of legislation which Labour will want to be passed into law before the 2020 election, to take effect in 2021. It could be said with some certainty that if a CGT is passed into law before the next election, that election will be about CGT and not much else.

The major problem though is that most of your assets either won't be taxed, or already are. The family home accounts for about 42 per cent of the average family's net wealth. No government has the political courage to tax the increase in value of your house. The family home will not be taxed.

Another 14 per cent of household wealth is in fixed interest investments like bank deposits. They're already taxed.

There's not a heck of a lot left.

There's our KiwiSaver accounts. But for the Government to even consider touching them for more tax would be outrageous. The money both we and our employer pay into KiwiSaver has already been taxed.

The KiwiSaver manager pays tax on the increase in value of the scheme, even if they don't pay tax on the actual trades inside the fund. Then the KiwiSaver account holder collects the money accrued at age 65, tax free. It's called a TTE (tax, tax, exempt) scheme. A government plays with that at their peril.

What could be taxed then? It looks like investment property, holiday homes and New Zealand shares held directly by individuals in either listed or private companies.

Put a tax on rental property and the outcome will be higher rents.

Put a tax on individuals' share trading gains and investors will bail out to managed funds where the tax rates are lower. That will hurt the New Zealand sharemarket with serious implications for New Zealand business.

Tax the capital gain on the sale of a private business and you take away the incentive to invest and grow the business. Tax the increase in value of a business each year and business owners won't have much incentive to grow the company, let alone the cash flow to pay the tax.

The TWG says whatever it comes up with, it must be fiscally neutral. In other words, the total tax take must be no higher than what it is now.

But is there any mention of personal income cuts in the TWG reports so far?

Nope.

Has a Labour government ever dropped income taxes? Well, they did in the 1980s, but that was a Labour government like no other, and certainly not like this one.

Is there any suggestion GST will be lowered? The TWG says that won't happen.

Will company tax drop? The first TWG first report said that won't happen either.

It doesn't sound very fiscally neutral so far.

You see where this is heading?

Nowhere.

And that's before we know if Winston First is even prepared to support such a scheme.