About David Parker’s and Labour’s debate about taxation
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10:58 am, August 31st, 2024 - 69 comments
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Gerard Otto recently posted on his Facebook page an account of a Labour Party meeting, held on Waiheke, in which David Parker discussed taxation and ways in which Labour might address growing income inequality in New Zealand. That post has been taken up subsequently in the media, with an emphasis on the taxation debates in Labour.
I doubt if anyone is surprised by this coverage. The tax issue was front and centre before the election and remains so today. It is a major issue – perhaps the major issue – in rank-and-file member discussions in the Party, Growing inequality, coupled with the work on who pays what tax undertaken when Labour led the government, suggests that this is an issue that will not go away, Indeed, some, like me, believe that tax reform must be undertaken if Social Democracy is to survive in a post-Keynesian, increasingly unstable world.
The Party has already begun the process of policy determination. The Party’s Policy Council, replete with expertise, is actively involved with the tax issue. Policy Council has substantial power within the Party apparatus. In this and next year, Labour holds conferences able to determine future policy, that is, if members so choose, a mandate on the Parliamentary Party may be imposed. This fifteen-month window for action is important. If the membership does not lay down an unequivocal mandate on taxation in this period, policy setting will drift into the campaign process, notorious for its contingent thinking.
This also speaks to the operation of the Party. My support for the Policy Platform was grounded in a strong belief that a democratic party should allow members to determine policy, except in exceptional circumstances (for example, unheralded and urgent circumstances when in power). The membership of the Party values that role.
There is another current in play, unsurprisingly. It owes more to elite theory than participatory democracy, positing the existence of a parliamentary elite which, based on its experience and knowledge, should be entrusted with policy decisions. The Labour tradition has always shaded pragmatically into this way of thinking, especially when in power, but the constitutional framework of the Party, and members’ thinking, reject its principles.
One might say that taxation has lifted the lid on many things. One is the best way of protecting New Zealand, especially working people, from the travails of international political and economic insecurity. A second is the renewal of a sustainable Social Democracy in New Zealand. Third, it speaks to the role of Labour in New Zealand’s political system. Fourth, it highlights the democratic process within Labour. Perhaps the worst and the best of times.
Nigel Haworth
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So good Nigel can pop in to comment on Labour, Social Democracy and taxation from his winter base in the French Riviera.
If you want it, come back and fight for it.
Did you post this from your second home on the shores of Lake Wānaka?
🔥
Long way from the blackball hotel aswell!
Now, now, Ad, I live on a beach in the Far North–may I comment?
There are various levels and arenas of political struggle and inner party is one of the most fraught. NZ Labour has a major policy shift required and it is nice to see Nigel uttering that which for years shall not be named…Social Democracy.
also, we have the internet, it's not like people can't participate in participatory democracy from various place.
I am outed as a Francophile, who, in retirement spends a month or so in Europe every year, where we can see two of our Europe-resident children and their partners, whilst chewing the fat (and the croissant) with our local Communist mayor in a tiny Cantal hamlet. We will do something together on the political economy of regional dairy farming next year. Less exotically, this post was written in Auckland, where our other two children reside. I love Wanaka, too, where my brother lives, and gives the likes of Peter Theil a run for their money.
is that supposed to a argument in favour of a CGT? if so, I'm sold. lets do it
What snarky comments Ad and Muttonbird. Nigel is a great thinker and has contributed years to the Labour movement even before his involvement as LP Prez. I welcome the debate and his contribution.
I was pointing out Ad's hypocrisy.
Way back in the late 80s Nigel as an academic gave some good advice and support for a bunch of us South Auckland workers involved in a lengthy strike, including meetings at Auckland Uni and attending final mediation. His heart is with working class people.
I remember it well. Fresh off the 'plane and made very welcome by local unions.
It’s been pleasant to read Mountain Tui’s work also. There must be many sincere and strong voices with different experiences of the left within Labour and with a loyalty to Labour.
It’s been good to see some of these return to The Standard or perhaps rightly some newer voices come through- though I always enjoy MickeySavages work! It’s just alarming that he’s still the ‘sensible’ one on this site. Though he must be much younger than Biden or Trump…or at the very least somewhat!
this is an encouraging post.
Do any Labourites want to have a crack at explaining how members determine policy?
Labour also has a Policy Council elected after an election and policy committees selected from people who put their CVs forward (at the same time as Policy Council) – the terms of both run to the next election.
The policy committees work on policy remits based on subject area – item 4 above is the domain of these committees.
Policy Council puts together the manifesto based on the last manifesto, their own work, spokespeople's work and annual conference voting.
Members can also start a dialogue with MPs and spokespeople directly and participate in policy workshops as they happen.
What Craig H said.
Also, ask the leadership questions. We have Jill Day coming to our LEC at our next meeting.
Great Post, so let me address it instead of taking lazy potshots at its Author.
On the one hand, professionalisation and corporatisation of politics have increased to a point at which it has become the domain of (and for?) the so-called Professional Managerial Class (https://en.wikipedia.org/wiki/Professional%E2%80%93managerial_class). Sadly, this is not affecting only parties of the Right.
On the other hand, guiding principles of deliberative democracy suggest that anybody can tackle even the most complex issues.
I think that Labour leadership and membership need to work together more closely and in unison instead of adhering to corporate dogma that ‘management knows best’.
When a serious point or two is raised on our blog, it bad enough when "so called lefties" take pot shots, and so much worse when a real lefty does.
I think Labour lost its way last election, as a faction felt threatened by David Parker's indepth look at Taxation, and who paid and at what level. It was a huge talking point, and handled with more grassroots feedback, we may have had cut through.
Hipkin's Captain's call cut the conversation dead.
I stopped contributing in that week, wrote and said I would not contribute any more money, 'till I saw a more grassroots version of social democracy.
So what Nigel has to say resonates with me. I think we need Social democracy discussions from the Grassroots up, not Top Down.
See Incognito’s thoughtful post.
Na it's symptomatic of the left wing problem, there is few that appear to rub shoulders with us out here, shit I've been in spitting distance of 3 nat mps in the last year, I did refrain btw.
I don't always agree with what you say Patricia, but I always listen to what you say. I'm a lifetime left voter, usually left of Labour. I vote tactically but this year I was so pissed off with Hipkins with his "captain's call" and the Greens generally, I voted party vote TPM, because I liked their focus, and electorate vote Greens, because it doesn't matter under MMP and it's the nearest thing I have to a party whanau.
Since the election I've rejoined the Greens as in "do you want to have any party/political influence or not" and Hipkins is doing a good job as "Leader of the Opposition" along with the stellar Chloe Swarbrick.
Personally I believe the role of Leader of the Opposition should be up for debate rather than going by default to the leader of the biggest party, so Swarbrick should be leading not Hipkins, or at the very least they should be a tag team.
My fear is that Labour are irredeemable, centrist neoliberals rather than even social democrats. David Parker seems to have integrity, but Hipkins not so much.
Fantastic stuff Patricia.
Patricia : Labour had a CGT in its policy for 2011 and 2014 – we lost both elections. It was pulled by Jacinda after 2017 when she couldn't get NZ First to vote for it. Chippy's Captain's Call was, I think, an attempt to neutralise National et al's attacks on tax increases in the election debate – while they were promising "tax relief":. I didn't agree with it and it was probably misguided, but nor did it stop my contribution and determination to keep the CoC out. Voltaire said "don't let perfection be the enemy of the good." Look what we have now.
Surely any decent leftie knows we need to tax the rich.
Even the middle class are losing ground as the rich buy up all the assets.
However, what I don't know, is what is the most effective type of tax? One that really addresses inequality. Inheritance? Capital gains? Wealth? Financial transaction?
Or land tax?
it would be great if Labour could go back to the work it was doing on the various options and present them to the public as points of debate. Now is the perfect time. Not because NZ should necessarily do what Labour suggest, but because as the biggest progressive party, we need to hear their ideas and for them to lead not by telling us what should be but by naming the issues and ideas and solutions and engaging the public on that.
Engaging members first is what is needed. That is happening right now with discussion going on all over the motu.
that's great to hear, thanks!
Yes and because that grassroots appears to have begun I am contributing again. Jacinda used to reach out and ask what we thought was needed. (Or her team did) That stopped when Chris Hipkins took over. Now I believe he is a good man, who had big shoes to fill. When you are 83 you can not be sure you will even see the next election!! So like many I over reacted in despair. I remember saying what austerity would do, and Belladonna saying have a lie down and a cup of tea. For a while I disengaged. Incognito Darien and Nick Rockell and Otto gave me heart again. When I watched Chris Luxon in the house, crouching snarling sending waves of hate across at Jacinda, I recognised he was signalling to those angry people outside the house, to all who hated the control of the lockdowns and the medical calls that were made. He would use every trick to gain power, and he was an Atlas follower. So Ad's comments reminded me the Left need to remain resolute. So for what it is worth I am back on board again.
Some ideas
1.Progressive taxation on companies – as per the USA. Larger companies pay a higher rate – 33 cents instead of 28 cents.
Reduce some other companies to 25 cents tax.
2.A 10% surcharge (3.3%) on banks and supermarkets.
Use the money to develop business finance (development) and loan insurance (cheaper loans) and support competition in the market.
3.A 5% stamp duty on houses over $2M.
4.A wealth tax (and restoration of the bright-line test), while a CGT and estate tax is developed. With the wealth tax paid credited to the estate tax liability. The purpose to realise revenues more quickly.
5.A 1% mortgage surcharge on landlords.
I'm inclined to think we should scrap GST and make income tax more steeply progressive. This in effect would be a return to what we had prior to the 4th Labour Government.
The point of the change was to encourage savings, rather than spending – but instead of savings for productive investment, we got speculation in property (no CGT, and the removal of the estate tax).
That and the decline in wages relative to business profit (ECA and decline of unions with globalisation) has diminished home ownership.
The consequences include the under-funding of government – the decline in public services and infrastructure followed.
The neo-liberal right of private health insurance and private schools (or gated community school zones) cares naught about this – they retain citizenship because of the taxation regime we have, their children live abroad and yet will do the same. They are our rentier class, and their settler vs indigenous Maori divide and conquer game is their form of the Trumpian red MAGA Cap populism.
It's really a reprise of a combination of Massey's colonial "supremacism", Hannan's assimilation and a pro American policy of Cold War era, all to distract us from the class order of rule being imposed across government.
Luxon, being of a prosperity gospel religion sees it as the natural order of rule of the landlord class (of the time when property ownership was required to vote).
We are now falling below 60% property ownership and trends are for it to be below 50% by 2050.
The default answer of the Left appears to be to increase taxes. However, on its own, this does little to nothing to lift productivity that grows the overall tax base.
So, in addition to progressive taxes and increased tax breaks & credits for low-income people, Labour could introduce tax incentives for R&D, tax exemptions & credits for green investments (e.g. insulation of homes in areas that are economically deprived), and tax deductions for training, educating, and up-skilling of low-income workers. When designed and targeted well, these initiatives could boost job opportunities for low-income workers.
I'd look at a boost to the roll out of solar power to homes (capability and funding).
Maybe the 1% mortgage surcharge funding it for both landlord and other properties.
Allowing people to intern/work for training while on benefits.
https://www.rsm.global/insights/2024-guide-rd-tax-incentives-across-australia-and-new-zealand-key-considerations
The problem with NZ is that we don't have any significiant taxes on property capital gains, at least compared to any other nations in the OECD.
This gives considerable advantage to financial and unproductive economic parasites. Which is what we see.
If someone can show me how economic productivity increases without those kinds of taxes to limit capital growth and rentier economic attitudes in our or any economy, then I will support swinging inheritance taxes, capital gains taxes, and wealth taxes, land taxes. In fact any taxes that drive economic rentier parasites away from NZ as far as I am concerned.
About the only capital taxes I don't like are those that are based on innovation and company growth. They pay company tax. Shareholders pay PIR. I think that the IRD has enough computer power to deal with them.
Actually the problem is that NZ doesnt have any significant taxes on property….the gains have already been made
Rates are a property tax so it is good to see them rising now. But rates are nowhere near enough. Either a Wealth Tax or a Land Tax is needed. Capital Gains Tax is complicated and often raises. little revenue….the proceeds are highly variable.
The problem is that rates rising is dealing with a problem left by previous generations who haven't paid their part in repairs, refurbishment, and replacements. Mostly because they have effectively taken the profit from drops in capital values from depreciation of infrastructure in the form of reduced rates and taxes.
The problem with NZ is that we don't have any significiant taxes on property capital gains, at least compared to any other nations in the OECD.
This gives considerable advantage to financial and unproductive economic parasites. Which is what we see.
Not really. The seller's capital gain is, in effect, paid for by the buyer, who pays for it from his own tax paid income.
"Rentier income" is actually non productive income such as rent, interest and, probably, excessive salaries, all of which get built into production costs and push up prices thereby. Capital gain is an effect of rising prices rather than a cause. Rentier income is actually taxed, but that doesn’t change the price effects.
This is not to imply that rentier income is not justified: I suppose nobody would wish to lend money or property to another without receiving a return for doing so. However a (social credit) government may well decide to lend out fiat money for productive purposes.
You're describing the residential housing?
Problem is of course that the purchaser isn't paying for the capital gain from their income.
They are paying for it and the interest payments from their future income. The majority of the payment is made from funds from a bank, typically using capital from offshore. Something like 80% of that offshore capital has never paid any taxes in NZ.
Offshore capital are unlikely to pay much more taxes and rates, because the banks and finance institutions are adept at pushing in costs from offshore to reduce local profits that they have to pay tax on. They usually wind up paying little for local deposits, so probably most of the capital in NZ is held offshore for better returns.
Anyway on the sale, there is no capital gain tax being paid up or has been paid up front. Certainly not while the brightline test has been dialled back to 2 years – a time period designed to maximise short-term capital gains and reduce any capital going into something productive like building property.
The seller takes whatever market rise there has been, and pays no tax on the income that they made off the property. If they are dealer or an investor, they buy another property. If they were a householder then do one of two things typically.
They buy a house that costs more – ie upsize. Or they downsize, the latter typically heading into empty nest and retirement. May pay some tax interest earned, but this steadily reduces as they enter retirement and have a reduced income over time.
As an example, I'm currently paying PIR of 17% and probably less on income tax on super that I got in June. Last year I averaged income tax of 30.5% on my gross income for the year. Then the PIR was at 28%.
Or spend a lot on overseas holidays in a way that doesn't return too much tax here. I am avoiding that, having done way too much local and international travel for work since I was 20.
BTW: The seller is also dumping the ALL of the current and future infrastructural costs including wear and tear on things like roads, schools, demographic change, etc on to the next buyer. In theory this should be pre-paid for over the 60+ years of most infrastructural assets. In practice it never is.
Wastewater pipes and their inevitable rate rises to fix and replace them are dumped on the suckers who haven't worn them out. It is dropped on a narrow generation who pay for the infrastructure of future generations. Look at why we have a few hundred billion in infrastructure to build in the next couple of decades.
Anyway the capital gain is likely to have limited tax paid on that income ever again. The costs of capital gains (as you say) are going to be dumped on suckers who are paying student debt, sky-high rates, and paying for the ever increasing hospital bills and superannuation of the people who are often sitting in multi million dollar homes or on piles of capital gains, and have no income to pay taxes on.
People ask why they don't have grand-kids around?
That is because their kids can't afford to have kids, they can't afford to buy house here because the wages are low compared to housing prices, and they and any grand kids leave NZ for places that have more rational tax policies.
This is what 40 years of a housing price spiral and a capital gains bonanza have left us with. An unproductive economy that like Shane Jones trumpet export revenues rather than export profits. A country that has a massive infrastructural deficit that makes it hard to develop profitable industries because most capital is unproductively driving a largely untaxed property price spiral.
They are paying for it and the interest payments from their future income. The majority of the payment is made from funds from a bank, typically using capital from offshore. Something like 80% of that offshore capital has never paid any taxes in NZ.
Whether future or present makes no difference. A lot of borrowers making repayments in a piecemeal fashion over a number of years is likely to be equivalent to one borrower making one lumpsum payment in the present. And the payments are still being made from the borrower's income, even if the bank's finance is coming from overseas.
Anyway on the sale, there is no capital gain tax being paid up or has been paid up front.
Why would that be desirable given that the borrower is not receiving a tax deduction in respect of the capital gain that he is paying for ?
The seller takes whatever market rise there has been, and pays no tax on the income that they made off the property.
The seller pays tax on the income he receives from the property: i.e the rental income. Capital gain is not income (except where the property has been purchased with the purpose of resale).
BTW: The seller is also dumping the ALL of the current and future infrastructural costs including wear and tear on things like roads, schools, demographic change, etc on to the next buyer. In theory this should be pre-paid for over the 60+ years of most infrastructural assets. In practice it never is.
These costs should be met by the tenant since it is the tenant who benefits from the infrastructure etc.. A landlord will usually pass these costs (where they appear as rates) on to the tenant as part of the rent.
This is what 40 years of a housing price spiral and a capital gains bonanza have left us with. An unproductive economy that like Shane Jones trumpet export revenues rather than export profits. A country that has a massive infrastructural deficit that makes it hard to develop profitable industries because most capital is unproductively driving a largely untaxed property price spiral.
Capital gains are an effect of rising property values, not a cause. One needs to look at the underlying economic factors to ascertain the causes of rising property values: e.g. shortage of properties, excessive lending by the banks, perhaps too many landlords. These factors may be encouraging investers to overinvest in property rather than in productive economic activity, but one is "putting the cart before the horse" if one blames capital gain
Bullshit. Only if they make a profit, which most landlords usually do not from income. (I must dig out the OIAs that show this clearly). The key to not doing that is to have costs that roughly match the income. Rates, insurance and financing costs being some of the major costs, the latter mostly.
It is routine for landlords, especially the ones with a number of properties to not make a profit because they leverage the property to not make one. Using the one or more properties to leverage ownership of others.
Residential property investors are typically mainly constrained on their incomes by the ability of tenants to pay. Something that has been increasingly apparent to be constrained when you look at the rate of house prices increases against a much slower rate of growth in rents over decades.
Effectively investors are increasingly becoming bludgers on the state and people who actually pay taxes providing tax income support in the form of housing benefits and working for families. They farm tenants for as much as they can extract while making capital gains.
Yes, and also expending considerable effort in trying to keep the rates that they pay down as it reduces their ability to realise capital gains profits. Which is leads directly to infrastructural debts.
Actually no. That is just the excuse used by people who don't clearly understand basic investment strategies, or more probably do only two well.
Landlords and property investors are not passive in political and economic decisions about property, they are usually heavily involved in making them for their own benefit. You only have to look at the published donations to political parties and lobby groups to understand that.
At least a third of all large donations to the parties of the current government are from property owners with large housing investments. If the visibility on smaller donations were visible, it would probably rise to closer to 50%.
Capital gains are the direct cause of rising property values. The reason is obvious when you look at the investment risk vs returns in NZ – ie the basis for all investment decisions. Why would anyone invest in building new or redeveloping properties, with the higher associated risk levels, when you can make more money from spiralling property values, at virtually no risk to original capital? Which is exactly what has been happening.
The rate of growth in housing has been falling behind population for many decades. This is especially the case since the landlord lobbies managed to stop the state building or assisting to build significiant amounts of affordable housing back in the early 90s, as well as getting the government agencies to sell off their stocks of housing – mostly to property investors and landlords.
Consequently the rate of growth in property values in NZ has been far greater than any other safe financial investment for the 45 years I have observed it. So the capital available from local and offshore sources has poured into buying existing properties and not into more productive but riskier investments in building housing or even building businesses.
In effect property prices have starved the NZ economy to the point now that a housing speculative bubble is making the whole economy highly unprofitable. All for the benefit of a relatively small number of politically connected donors of the parties in our current government.
That is why this government has once again cut building affordable housing actually being built, and why our housing construction sector is once again going into a major slump. It competes directly with the 'right' of landlords to induce artificial housing scarcity for their own profit.
Bullshit. Only if they make a profit, which most landlords usually do not from income. (I must dig out the OIAs that show this clearly). The key to not doing that is to have costs that roughly match the income. Rates, insurance and financing costs being some of the major costs, the latter mostly.
These landlords are purchasing with the intention of reselling and should, therefor, be caught by brightline tests. If they lie to IRD about their intentions then they are committing fraud and, while that fraud may be difficult to detect, I don't think honest landlords should taxed just for the sake of catching the fraudsters.
Actually no. That is just the excuse used by people who don't clearly understand basic investment strategies, or more probably do only two well.
Whether or not a tax is applicable should be based on the facts of each situation, not on whether or not the taxpayer "understands investment strategies". If a landlord is not earning any rental income then he should not be paying any tax, unless of course he would be subject to the brightline test. The latter situation will only arise however if he has purchased with the intention of reselling.
Also the fact that the brightline test has been reduced to two years is irrelevant. If a landlord/landowner purchases with the intention of reselling he will be liable for the tax regardless of the period of tenure, providing of course that he is honest in his disclosures to the tax department.
PS: I think "intention" is not a particularly useful way of determining tax liabilities anyway. A better idea where a landlord is making no rental income would be to impute to him a risk-free-rate-of-return and tax that, as advocated by Gareth Morgan in his book The Big Kahuna, and which later pushed as Opportunies Party policdy when he led that party.
Problem with the brightline test is that they have now dropped it back to 2 years. Which makes it pointless.
I don't think that 'intention' is useful. It just leads to ambiguity and expensive legal issues.
Personally for the revenue, economic and simplicity reasons I'd just levy a straight percentage of land sales value on all land title transfers before there are any title transfers from the seller. The seller pays it as part of the settlement process. This is pretty much what happens for all title changes anywhere when finance is involved.
Probably do it on the land values, not improvements, because ultimately the crown still has ultimate ownership and responsibility for all land. Call it a land transfer tax. Let it be handled by LINZ who maintains the land information database.
If any social redress is required, then treat it as recoverable taxable rebate against income or company taxes of the seller. Much the same as working for families does.
Then fiddling capital gains and even complexity doesn't come into it.
It would better if the government brought in legislation that allowed only the government to buy and sell land. Of course once a government has acquired land in this way, it would not need to resell it; itcould, instead, lease it out. Any would-be landlord would then have to lease the land from the government, in which case any capital gain would accrue to the crown. I would assume virtually all capital gain is in the land.
I realise this would be something of a long shot.
Howzabout rather than increase taxes, bringing untaxed activities under the tax umbrella? By that I mean Financial Transaction Tax.
Lots of untaxed goings on plus is essentially unimpactful on the have-nots.
Labour should not necessarily settle for the usual (orthodox & ideological) tools but do some lateral creative thinking about options that might actually work. Take a bunch of ideas to the members and then flesh out the best ones to take to all New Zealanders. Initiate genuine conversations, with clear & honest communication, and bring the people alongside.
Seems to hang a lot on a definition of productivity, right? I mean Jeff Bezos apparently found it highly productive for employees to pee in bottles while on shift, but this mostly seemed to benefit Amazon.
Heh! Good point.
What’s the correct terminology, in your view, is it output?
Dont think output is even a viable measure of productivity, problem being comparing across products/sectors. If anything I would target productivity to mean hourly wages earned, but that is already a statistic.
The problem is across the neo-liberal era productivity (sales per hour worked) has run streets ahead of hourly wages anyway. I dont think that will be addressed with fiscal policy, and also dont see why supporting that trend would be a good Labour economic policy.
Interesting to see the term post-Keynesian applied in the post. Maybe the various meanings of this should be unpacked. In economics there are two schools taking names after Keynes, these being the new-Keynesian (Krugman, Samuelson, Summers) and post-Keynesian (Keen, Davidson, Mitchell). One of the principal disagreements is if John Hicks correctly summarised the general theory in his work, connecting Keynes to the IS-LM theory and implying that monetary policy can be the only tool needed to administer economic policy (with fiscal policy relegated to balancing taxation and spending at least longer term). Or as post-Keynesians argue that the general theory actually claims a potential general short fall of fiscal policy is possible and economic outcomes may be improved with increased public spending.
I get the impression post-Keynesian in this post means the end of a period where the available tax take was seen as sufficient to balance sufficient public spending, with the future likely to require significant more tax collection to make such a balance work.
On the other hand however with UK Labour taking office and immediately announcing austerity in favour of unpopular tax increases, maybe actual alternatives to behaving as Tory light should be considered. The very real benefits of expanded public spending should also be considered on their own terms.
Post Keynesian here refers to the replacement of the 1930s-1970s Accommodation, in which Keynesian thinking played a crucial role. It makes no reference to contemporary “schools” of post-Keynesian thinking in Economics, about which I hesitate to comment in brief.
There are many issues with wealth taxation, in particular they can harm the investment necessary to achieve growth required to fund social spending, if some in the business community decide to take their lot and leave.
For this reasons, I far prefer a residential land tax, on all residential property, including the family home. Every real person (over 18) is allocated a residential real estate portfolio, based on what they own (or actually control personally), and are allowed a $1.5m tax free threshold. In this instance, married couples would be able to divide their $3m property (or even $3m property portfolio). Any amount exceeding this, would be subject to a 0.7% annual tax.
E.g.
Couple control $5m property portfolio
Each person deducts their $1.5m tax free allowance
$3m remains.
This $3m is taxed at 0.7% = $21,000
Trusts (trustees) and companies (shareholders) owning residential real estate would be obliged to disclose their real person ownership allocation. Rates of land tax would vary for special cases (e.g. iwi land, rural/working land), whose primary purpose is not housing people.
Land taxes cannot be avoided through creative accounting. A further benefit of this is mass disinvestment by property barons. Hopefully even saving money as well on the accommodation supplement.
This is based on the title prices, based on the last council valuation, or historic purchase price, whichever is most recent, and not the freehold value (i.e. less any mortgage outstanding).
The business community are still going to get upset with a land tax because most indulge in amateur landlordism as a side hustle as a way to build mini fiefdoms.
Whenever a charity collector comes to my door I politely thank them, and send them on their way, ears ringing with a short, gentle diatribe on how the progressive tax system should be doing their job.
NZ has a very poor philanthropic culture, perhaps because it has historically been an egalitarian welfare state, and I don't want to see philanthropy have to increasingly fill the widening voids in the social system, but what if a wealth tax were coupled with tax credits for contributions to social support or infrastructure projects.
Probably a dumb idea, too expensive, and the rich pricks would inevitably find a way around it.
Right now, wealth creators use plenty of social and infrastructure resources but the beneficiaries are largely restricted to immediate family.
They will be still upset, but they can't exactly take their land away in the same way that they could take their capital away (as in a real business, that we want to encourage).
They could only sell, and in an environment fostering cheaper house prices, they would be forced to either take the hit in sale price, or obliged to hang on to it and pay the tax.
How would it work in a multiple owner model? Maori land?
It's more than 30 years since we drafted the FTT proposal into Green economic policy and still nobody has ever hit the media with a credible reason not to use it.
Labour's timidity seems to have become congenital in the interim, sadly. However tax policy no longer provides the semblance of social equity that it did when I was a kid in the '50s – from a design perspective limiting income would work better.
If a patrician like Plato, operating in the heart of the Athens establishment, can advocate a 4:1 ratio between highest & lowest earners, I see no excuse being available for Labour. The ratio in corporations topped 300:1 earlier this century so anyone serious about solving the inequality problem needs to grasp that capitalism maximises the return to owners and share-holders by design – so we must shift away from that prescription.
Would an FTT apply to mortgages ?
Agree +100%