Cullen says 2020 election effectively a referendum on tax

Written By: - Date published: 1:20 pm, March 7th, 2018 - 32 comments
Categories: business, capital gains, Economy, economy, election 2020, Environment, ETS, Financial markets, gst, Maori Issues, tax - Tags: , , ,

Chair of the Tax Working Group (TWG), former Labour Party finance minster, Sir Michael Cullen, today gave numerous hints that any proposed recommendations from the group are unlikely to be a radical shake-up of the tax system because of the need for political expediency.

In a revealing interview with Kathryn Ryan on RNZ, Cullen said that because Labour has said the group’s recommendations would not be enacted until after the 2020 election, the next election will effectively become a referendum on tax.

He described Labour’s commitment on this as brave (foolhardy?).

“It’s not exactly brilliant in terms of winning elections,” he said.

The TWG has already been largely neutered by the terms of reference which has proscribed any capital gains tax (CGT) on the family home, any hike in income taxes or GST, or reintroducing an inheritance tax.

The appointment of the clearly politically biased Cullen was rightly seen as controversial. During his nine-year tenure as finance minister Cullen had ample opportunity to introduce a CGT, but failed to address the glaring inequity in the tax system whereby income from labour is taxed and income from assets is largely tax-free.

Cullen made it clear he has not changed his view from when he was finance minister, that a CGT, particularly if applied to the family home, is political suicide, despite recent polls showing a significant shift towards a majority favouring a CGT.

“I don’t think there is the slightest prospect in the foreseeable future… of any New Zealand government going to vote to introduce a capital gains tax on a family home. It is a recipe to have a very short period of capital gains tax and very long period in opposition,” Cullen said.

In fact, Cullen gave an indication he quite likes the status quo and noted that radical tax reform is difficult to enact in MMP due to the difficulty of marshalling sufficient support from enough parties to pass legislation.

Cullen said the tax system had worked well for some time, although he was open to the idea of taxes to change behaviour in respect to the environment, as had already been tried with tobacco and alcohol.

He disputed claims that New Zealand had a broad-based tax system, noting that we don’t have hypothecated social security taxes, have no inheritance tax and very little tax on assets or wealth.

Environmental taxes, effectively another form of consumption tax designed to change behaviour, would clearly be an issue to be addressed for the TWG, he said. A problem with such a tax was that it tended to fall more heavily on people on lower incomes.

Taxpayers paid most of the costs of “externalities” caused by companies that pollute.

He noted the mining industry was taxed at a lower rate than other industries that cause less pollution.

“These are some of the issues that need to be addressed.”

He rubbished as nonsense the views of tax experts and economists who promote the efficient market hypothesis – the idea that taxes should not try to change behaviour because markets tell politicians what our best behaviour should be.

The main problem with introducing taxes to change behaviour, particularly to reduce pollution, is the transitional costs – particularly if whole industries and the people who work in them are disrupted.

Cullen said New Zealand had many environmental problems that had built over a long period, partly due to ignorance and partly due to past inaction.

Environmental taxes could impact relatively quickly, while CGT taxes took many years before revenue became significant. Cullen noted that a CGT on land values however, could have a rapid impact on farm values.

“It would have the potential risk of putting a number of farmers in a position where they had negative equity.”

In the long-term such a tax might be helpful in terms of curbing the excessive values put on farms, which is tending to exclude family concerns in favour of corporate entities.

A water tax would definitely be on the agenda. So long as it applied to all, it would not cut across trade agreements. Regional bodies mostly favoured the concept as it would help them deal with the rising cost of dealing with the politically sensitive issue of deteriorating water quality.

Maori also supported the idea, but Cullen said it was problematic there is no central Maori entity to discuss the issue that all Maori recognised. Cullen, who fell in a political hangi over the Foreshore and Seabed issue, said he had already talked to a range of Maori on the subject “and they all think there is a deal to be done”.

Such a tax would help Maori and NZ Inc, he added.

Cullen said that if the group decided on some form of extended CGT, then it was almost certain to be on realised gains rather than paying on the way through. By excluding the family home, it severely reduced the CGT base, but that did not mean it was not worth doing, Cullen said.
“There is still a large base on which a CGT could apply.”

The political problem for a CGT was that because it took a long time for revenues to come through, it was hard to set corresponding reductions in income tax or GST and given the short political cycle it was hard to sell politically and relatively easy to be reversed before its full effect was felt.

Because of the ageing population, it was however likely that more tax would have to come from capital taxes than labour.

Cullen downplayed the size of intergenerational issues on taxation saying that while the new generation was paying some fees for tertiary education, two thirds were still covered by the government, loan interest was zero if you stayed in the country, and now the first year of study was free.

New Zealand was much better placed than most nations in terms of its government debt “and there was no need to panic over the size of the problem.”

The TWG will next week publish a background paper outlining the current tax position and the options available to the group.

People can submit to the group on submissions@taxworkinggroup.govt.nz

(Simon Louisson is a retired journalist who reported for The Wall Street Journal, AP Dow Jones Newswires, New Zealand Press Association and Reuters and briefly was a political and media adviser to the Green Party.)

32 comments on “Cullen says 2020 election effectively a referendum on tax ”

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  1. Sparky 1
    7 March 2018 at 1:32 pm

    Of course its going to be all about tax. This is no surprise given the “social welfare” extended to MNO’s under the TPP11.

    All this “largess” needs to be paid for somehow. Interesting how tax on Joe public’s private assets is suddenly “essential” after years of it not being so. Yet big corporations continue to pay nominal tax and now to add insult to injury expect a hand out if they don’t get their way?

    How does that stack up? Of course it doesn’t but with enough manure from the MSM the seeds of ignorance will grow and what was unpalatable to the sheeples today will be a-ok by 2020? Well maybe. Fingers crossed.

  2. Kat 2
    7 March 2018 at 1:34 pm

    The right leaning media hacks are starting to ramp up the discourse. Hoskings over at the Herald is busy selling the coalition as a “tax and spend” govt who will raid all our pockets with more taxes. Hoskings has the temerity to accuse the coalition of “fiscal ineptitude” with any future measure of borrowing. Compare this to the billions borrowed by the last National govt and one has to ask whose hand is up the back of Hoskings shirt. Its blatant spin designed to attract the votes from the vacuous swing voters that National desperately need to put up some show next election.

  3. greywarshark 3
    7 March 2018 at 2:21 pm

    Thanks for putting this up Simon L. I couldn’t bear to listen, knowing that there is so much that could be done at the micro level where it would be hugely advantageous to the low incomes strugglers. But I felt it was likely to be about how to operate the
    large earth-moving tax machine with Cullen and his ilk sitting about 3m from the ground shifting levers. The earth doesns’t move for the poor, they just get run over.

    I will have to bring myself to study what they are doing handling the tax questions
    around the circle like a hot potato or ‘pass the parcel’. By the time we get to see what approaches have been packed, there is nothing but a few large golden rings at the end. Only for the ones that rule them all.

  4. patricia bremner 4
    7 March 2018 at 2:32 pm

    I for one will be reading the tax report and making suggestions. Anyone who thinks Michael Cullen won’t have the ordinary guy’s interests at heart is being foolish.

    His Kiwi saver has meant many current retirees have something more than basic super.

    He personally owns one modest home. He has been an excellent servant for NZ.

    We need to put things in place that bring about changes in behavior towards the environment.

    Perhaps a surcharge on cows/cattle per acre over a certain stocking level.? Things of this nature.

    Whatever they decide, thought will have gone into fairness usefulness and simplicity.

    More grist to their elbow, and shut your cake hole Hoskings.

    • greywarshark 4.1
      7 March 2018 at 2:38 pm

      Sorry Patricia but I think he is failing to help the individual struggler. Try working from the bottom up Michael, you’re all at sea I think. Row the boat ashore.

    • Siobhan 4.2
      7 March 2018 at 3:17 pm

      Your average renter is going to need a whole lot more than Kiwisaver to cover their rent when they retire.

      Which is a further kick in the guts given that people relying on Kiwisaver are already at agross disadvantage compared to landlords.

      https://www.stuff.co.nz/business/money/92207613/kiwisavers-harshly-taxed-compared-to-property-investors-book-claims

      • patricia bremner 4.2.1
        7 March 2018 at 4:04 pm

        That was changed by Key’s Government. The rental issue is under housing.

    • Ian 4.3
      7 March 2018 at 10:00 pm

      How many houses does Helen Clark own? Taxinda has just bought a $2 million house.For a homeless person that must look simply unfair.
      Cullen is the wrong man for that job ,because he hates rich pricks and went to the wrong school.Hosking is bang on the money and acres went out in NZ 50 years ago.

      • Pat 4.3.1
        7 March 2018 at 10:07 pm

        Hosking has never been bang on about anything

      • Delia 4.3.2
        7 March 2018 at 11:05 pm

        He hates rich pricks? He is one. Maybe you need to get over your green eyed jealousy of everyone who has done better than you.

  5. Ad 5
    7 March 2018 at 2:33 pm

    Sir Michael should STFU until there are findings.

    If this government is dumb enough to make radical changes to the tax system when they have every chance of addressing
    – climate change,
    – regional development,
    – transport,
    – health,
    – education,
    – social welfare, and
    – poverty
    in a sustained economic boom with really low inflation and headline unemployment, then they do not deserve to be in government. No matter how many time the Prime Minister gets pregnant.

    They are not that dumb, and Sir Michael should STFU on the politics of tax reform.

    • greywarshark 5.1
      7 March 2018 at 2:45 pm

      I don’t know Ad about how dumb they are – how do you measure it yourself?
      But I am sure they are going to do great, and just by replacing National they have started a pollyslip equivalent to Kaikoura’s. But I want to see them do more for the ‘liddle people’, of whom there are so many, and they can start talking about low-hanging fruit even.

      I would also like to keep a running post, say once a week, where someone has written a sensible request for a listening ear and a change in simple policy, not too costly, and then we print the answer from the relevant Minister and Department and just see how things are going towards getting change on our pet subject that we know a fair bit about. And it would measure the interest that the Minister has in being involved with the thinking and concerned part of the polity so they don’t get locked into that ‘beltway’ Thorndon culture.

      Any interest to form a core group for input?

    • Antoine 5.2
      8 March 2018 at 6:07 am

      Cullen’s comments seem to have been intended in large part to calm the electorate by ruling out various unreasonable options. Seems like a useful thing to do at this point.

      A.

  6. Bill 6
    7 March 2018 at 2:41 pm

    because Labour has said the group’s recommendations would not be enacted until after the 2020 election

    They have? I thought Ardern said something along the lines of reserving the right to bring in taxes or whatever off the back of this review during the election campaign.

    So am I remembering things wrong? Or did NZ Labour do a flip flop? Or is an unelected tosser presuming to call the shots?

    • patricia bremner 6.1
      7 March 2018 at 5:12 pm

      No, Jacinda Ardern said nothing would be changed ’till 2021, after the election.
      Google Jacinda Ardern NZ taxation.

      • Bill 6.1.1
        7 March 2018 at 5:52 pm

        22 Aug. Labour will wait to hear what a planned tax working group recommends on the matter, Ardern said – but waiting to act until after the 2020 election was too long. It would not apply to the family home, she said.

        But then.

        14 Sept. “We will undertake the work and we will take it through to legislation. But no outcomes from the tax working group will come into force until the 2021 tax year – ie 1 April 2021,” Finance spokesman Grant Robertson said.

        So I remembered right and wrong, and a flip flop in an election period may not be a flip flop…or something. 🙂

        Though (and this just crossed my mind), what about taxes that aren’t an outcome of the Tax Working Group? Perhaps there’s wriggle room.

        Which doesn’t shift my opinion that ‘Sir’ Michael should fuck off to “wherever High Priests of dead religions go.

        • alwyn 6.1.1.1
          7 March 2018 at 6:44 pm

          ” ‘Sir’ Michael should fuck off to “wherever High Priests of dead religions go”
          .
          And give up his spot at the trough?
          You really must be joking if you think that is going to happen.
          How much of the $4,000,000 allocated to the group will end up in Michael’s capacious pockets do you think?

        • mikesh 6.1.1.2
          9 March 2018 at 11:51 am

          “Within the 2021 tax” year means that new measures could come into force prior to the election. He presumably means the 2022 tax year.

  7. One Two 7
    7 March 2018 at 6:44 pm

    Money = Debt

    Who does the present and future taxpayer owe $100bn+ to and at what rate of interest…

    Talking about tax is perverse without explaining to the entire nation…

    Why the government ‘must’ tax more/borrow more from offshore…

    With the stroke of a pen any and all social and infrastructure requirements can be fully funded into the future and to completion…

    Not doing so is the proverbial finger to the entire country…

  8. cleangreen 8
    7 March 2018 at 6:49 pm

    I like what he said here as we know that the anti environment lobbyists have been steering past Governments and we need to stop them doing this to the new Government now.

    “Cullen said New Zealand had many environmental problems that had built over a long period, partly due to ignorance and partly due to past inaction.
    Environmental taxes could impact relatively quickly,”

  9. CHCOff 9
    7 March 2018 at 8:03 pm

    That would be good, more NZ1st is better for the New Zealand society, which is better for adding to sustainable and stable relations in the global context.

    The most immediate systemic tax break, for the general population (and in particular middle classes and lower), across the board, would be the reversal of immigration trends or negative rates.

    The record rates of National (cough cough) to this have been an dis-proportionate tax hike essentially, to the middle and lower classes of society, the vast majority of the population. In the instances of the plum job contractors and the like, who would whine about this, are actually whining about demand and supply market signals that are more anchored to real value creation in the wider economy being re-asserted, rather than that associated with rigged socialistic back room wheeling and dealing without regard to supply side realities that do not come from their own demands!

  10. Whispering Kate 10
    7 March 2018 at 8:36 pm

    Like National Superannuation, any major changes in taxation would have to be decided across all the parties – that, obviously is never going to happen. As Sir Michael said anybody who makes radical changes in taxation is not going to remain in power. Its a stalemate which ever way you look at it – stymied and never going anywhere. The impoverished of this country will just have to suck it up and get used to it.

    I did like the thoughts he had on taxing polluters – that would be a positive thing to do. Anybody who thought there would be changes in the tax rates and taxing the higher paid more have their heads in the clouds. Never going to happen. Too many troughers and the lure of power is a heady thing.

    Wartime had grand coalitions whih worked together, maybe when the oceans are covering our coastal areas and we are in deep doggy do seriously with the climate, grand coalitions will be a possibility – but for taxing the wealthy, not in our wildest dreams.

    • Carolyn_Nth 10.1
      7 March 2018 at 8:47 pm

      Well, that’s a depressing situation.

      I guess the only thing that will change this is if there’s massive pressure from the flax roots for change… but even then?

    • KJT 10.2
      7 March 2018 at 9:25 pm

      Interesting that the majority polled in support of a CGT, but the “pundits” reckon it is an election loser.

      Not everyone has 6 houses.

      Wellington groupthink, perhaps?

      Same “pundits reckon socialism is an election loser. Until just before the election when both the big parties, suddenly discovered, child poverty and starvation wages?

      • Antoine 10.2.1
        8 March 2018 at 4:44 am

        Cullen was saying that CGT _on the family home_ is an election loser. Sounds right to me.

        A.

        • KJT 10.2.1.1
          8 March 2018 at 4:58 pm

          Just needed to exclude family homes under the median price.
          Everyone, except the ACT party, understands why Key should have paid taxes on the ten million profit, on his “family home”.

      • Nic the NZer 10.2.2
        10 March 2018 at 11:43 am

        The introduction of a CGT will see significant long term impacts on many voters for which most people have zero experience of and poor ability to predict (and there will be lots of speculation about the consequences). That is then balanced against the upside would see the elected government (one with a long history of reneging on its election promises on both sides of the house) issuing a compensatory income tax cut or significant spending increases (which it fundamentally can do both of anyway without a CGT, e.g both sides of the house are typically trying to run a surplus in government and that is their voluntary political preference).

        I think the reasons its an election loser are pretty much baked in.

  11. UncookedSelachimorpha 11
    7 March 2018 at 11:36 pm

    Sounds like Cullen understands some of what is wrong, but simply thinks nothing can be done due to political expediency.

    A failure of vision and leadership, unfortunately.

  12. Antoine 12
    8 March 2018 at 4:46 am

    You guys are annoyed with Cullen cos he’s not gonna tax enough, the right is annoyed with him cos he’s gonna tax too much, so he’s probably pretty much in the sweet spot!

    A.

    • KJT 12.1
      8 March 2018 at 5:01 pm

      So long as we cannot afford health care, education, super, apprenticeships, infrastructure and removing poverty, while overseas companies, and the wealthy, dodge tax, taxes are too low!

  13. Tanz 13
    10 March 2018 at 8:49 am

    Cullen, unelected, is out there scaring the electorate with his rhetoric of lets tax everything. Not to worry, the CoL will be kicked to touch come 2020, and Winston won’t be able to save them twice. So can’t wait to see natural justice restored. Governments need to earn power, not get it by default. After all, it’s the voting taxpayer who gets drained. Over half the electorate voted against Labour, who only know how to tax and spend.