Close the loophole by knocking down the wall

Written By: - Date published: 8:43 am, May 20th, 2010 - 21 comments
Categories: budget 2010, spin, tax - Tags:

On Tuesday, John Key told us that we don’t matter. In fact, he said that we have to be taxed more to give money to the rich because they are so important and we are not. To top it off, he told us not to be ‘jealous’ (two insults there – assuming we are ‘jealous’ of the rich and invalidating any sense of injustice we feel).

Well, that went down like a cup of cold sick. So, now reducing the top tax rate isn’t about giving tax cuts to keep this vital (more vital than you) people in New Zealand. It’s about ‘closing loopholes’. The loophole is that if  a high income person runs their income above $70K through a company or trust they can end up paying 33% or 30%, rather than 38%.

How would you close the loophole? Well, you would make it impossible to abuse trusts and companies this way, eh?

Ah, but you’re not as cleverly as these Nats (probably why they’re so highly paid). Rather than closing the loophole they make the tax cheats’ job easier for them by abolishing the top rate altogether. ta da!

Historically, loopholes were gaps in castle walls or trench walls for firing arrows and guns. So, you can think of the Nats’ ‘solution’ to the tax loophole as like knocking down the castle wall as a ‘solution’ to the gap in it.

Put it another way, it’s like solving murder by making it legal.

But hey, it’s all about keeping valuable people (who must be rich, by definition) in this country, or about closing loopholes, or was it about boosting growth through the magic of trickle down (which is kind of like helping a dehydrated man by giving water to someone with an already full bladder and hoping they piss on him)?

Whatever, just don’t be jealous, OK?

21 comments on “Close the loophole by knocking down the wall”

  1. felix 1

    Startlingly similar to his solution to the “scientific” whaling loophole.

    Can’t wait til he decides to tackle the drink-driving problem.

  2. zonk 2

    ‘Tax cuts for all, but rich fiddlers may not smile’ Breaking news on the Herald.

    When ads are misleading they can be taken to court. Why doesn’t this apply to political advertising or the NZ Herald’s headlines?

    And surely a fiddler is a poor person’s violin player. Won’t be too many rich fiddlers then I would have thought.

  3. This should be compulsory reading for all Labour supporters to show why you lost the last election and why you’ll like to do the same next time. You won’t be able to move on until you admit to your mistakes.

    If the envy tax was introduced for “fairness” it’s hardly fair or effective when those who earn the most can legal avoid paying the highest tax rate. The approach here reminds of Kiwis and Warriors supporters of the past – they didn’t worry about the result, so long was we put a few big hits on the Aussies. The 39% was exactly the same – playing to the fans in the stand.

    Anyway, from my point of view, keep on this strategy as it’s bound to be as acceptable as it was last time.

  4. Armchair Critic 4

    You won’t be able to move on until you admit to your mistakes
    As much as I despise “but they did it too” arguments, I have to say I am sick and tired of this line. Until National admit their mistakes that created the leaky buildings debacle a large number of people will not be able to move on, in a number of ways. A grovelling and craven apology will suffice. And until it is forthcoming, please make sure you ask both Labour and National to apologise for their sins.
    Regarding the latest proposal to share the costs of repairing leaky buildings, I would like to see the costs levied as follows:
    5% paid personally by members of the Fourth National government (Ministers and MPs)
    20% paid by the National party, through fundraising from its membership.
    25% paid by people who voted National in the 1990, 1993 and 1996 elections, with the proportion increasing for every vote.
    15% from other taxpayers
    15% by ratepayers, through rates paid to their local council
    10% by industry bodies who did not voice opposition to the changes
    10% by affected homeowners

    • Armchair Critic 4.1

      Oops, meant as a reply to Daveski (3) above.

      • Daveski 4.1.1

        This is not a they did it too argument. This is a Labour got it wrong with the tax rates argument. The current scenario fails the fairness test any person would apply. If you are going to have a higher rate for rich pricks, then ensure everyone pays it. As it stands, many of the richest can circumvent this rate in part or full which is a complete nonsense.

        It would seem sensible to me that the left should be applauding moves to ensure that there aren’t loopholes.

        Further in terms of stupidity, Labour’s tax legacy was giving rich pricks tax advantages to buy second and third and other rentals at the expense of first home owners. And people on this site critcises steps that will correct it.

        • Armchair Critic

          FTR Daveski I wasn’t suggesting you were making a “they did it too” argument. I was apologising in advance for using one myself.
          My point was that all governments make mistakes, including some pretty serious ones with significant impacts. Asking one government to apologise for their mistakes without asking others to apologise for theirs indicates a degree of partisanship. No apologies or all apologies, I’m not fussed either way.
          And also, I’m aware that it is not possible to get National to take responsibility for their role in creating leaky buildings. Readers who get their knickers in a knot over my suggestion about actually getting National to take responsibility for their actions (heaven forbid that people should ever take personal responsibility) do so at their own risk.

          • Daveski

            AR – fair comments. I accept that there is no argument against standardising all rates at 35% or even 38% (altho there is the Australian company tax rate as a peg). However, it defies believe we should accept that the very top earners don’t pay the top tax rates. No one can justify that, especially those of us who are salary earners and can’t legally rort the system 🙂

            • Draco T Bastard

              And yet the most effective way of closing the loophole would be to put everyone on the same rules rather than keeping a minority of people on one set of rules that gives them privilege and the majority of people on another set of rules that denies them the same privilege.

  5. ianmac 5

    Remember Morgan the Younger and his ability to pay no tax? (A brave lad by the way.) I wonder if the coming changes announced by Key will cause a change for Mr Morgan? Wonder if he will comment?

  6. Not all the rich will leave but enough could. Plenty have already. Call Fay, Richwaite and Gibbs what you want but the IRD can no longer receive tax off their combined incomes of $500 million. That’s a $150 million loss to the revenue base from just THREE ‘rich pricks’ moving to Switzerland or England. You just dont get it do you. The rich can be tax domiciled out of NZ and come here for the three months or summer and enjoy the lifestyle and get to keep more of their money. The English and Swiss treasuries get to use their tax money. When the wealthiest 5% pay 50% of the tax if only 1% more of this income bracket decide to leave NZ then that’s 10% of the potential tax base gone. Where do you make that loss up from? Raising taxes on the middle class? Higher taxes on the 4% of ‘rich pricks’ left to accelerate their departure even more?

    Study after study shows that tax increases = reduced revenue take due to tax avoidance and migration vs tax cuts leading to higher than expected revenue flows due to reducing the incentive to use avoidance structures and fewer wealthy citizens emigrating to lower tax juristictions. Its not rocket science.

    This was directed to me from a user at kiwiblog …whats The Standard take on it ?

    captcha : reduced

    [lprent: you mean the people at the Standard – authors and/or commentators. The Standard itself is a dumb machine with non-opinionated software. ]

    • Bright Red 6.1

      my take on it is that when you add the Confederation tax, the Canton tax, the land tax, and the capital tax, Switzerland has a more progressive tax system that ours, and the likes of Fay Richwaite will be gaming it too.

    • uke 6.2

      It demonstrates really well how globalisation has enabled capital flight. It’s a no-win situation. Maybe a “solution’ would be to tighten the rules along the lines of:

      – If a NZer wants to reside in another country for tax (avoidance) purposes, then they must permanently relinquish their NZ citizenship. Their property and business interests in this country will be confiscated.

      – Only NZ citizens may own real estate or controlling interests in local businesses.

      – Those caught avoiding tax should be treated as “terrorists’, as economist Loretta Napoleoni has argued, for financially attacking the ability of the State to function. And treated accordingly.

      (Hope this message doesn’t double-up below. Replied in the wrong place and requested deletion. Cheers)

      • Draco T Bastard 6.2.1

        Pretty much agree with all of that.

      • insider 6.2.2

        Wow, what an economic and political agenda. New Zealand as the South Pacific North Korea or ZImbabwe. Imagine all those people going on OEs having their property confiscated and citizenship stripped. That’ll keep all those teachers here instead of them infesting London schools avoiding our taxes.

        No doubt there will be complementary laws banning NZers owning absolutely anything anywhere but here. It’s only fair, surely? ANd a we;ll get our whole new branch of Al Qaida with all these economic terrorists – then we’ll really hit the world stage.

        • uke

          Yeah, just a coupla ideas.

          Of course, there used to far tighter restrictions on foreign ownership, capital flight, and financial speculation in this country. Guess we were virtually North Korea then, eh? It all seemed so “normal”.

          But then I suppose you could argue that a tax evader/avoider is really a “freedom fighter”.

          • insider

            “Of course, there used to far tighter restrictions on foreign ownership, capital flight, and financial speculation in this country. ”

            Yes my father had to get Muldoon’s signature as Minister of Finance in order to get enough foreign currency to buy a computer for his organisation.

            “Guess we were virtually North Korea then, eh? It all seemed so “normal’.’

            Yes and we used to send children up chimneys and doctors advertised the benefits of smoking. That seemed so normal, then.

            “But then I suppose you could argue that a tax evader/avoider is really a “freedom fighter’.’

            Well no doubt the libertarianz would 🙂

            • uke

              Well, I’m not sure that foreign currency controls are really quite in same league of “evil” as child chimney-sweeping, but maybe that’s just me…

              BTW, I realised there already are Al Qaida-style economic terrorists. They go by names like Goldman Sachs and we have some in NZ too. Join your local cell today! FTW!

    • pollywog 6.3

      yeah sorry…i meant, what’s the Standardista take on it 🙂

      …so am i right in thinking fay, richwhite and gibbs will be looking on from afar and saying, ‘they’ve dropped the personal taxrate for ‘rich pricks’ by 5%, must be about time we moved back home then’ ?

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