Hickey on the tax bludgers

Written By: Marty G - Date published: 9:00 am, February 6th, 2011 - 62 comments
Categories: labour, phil goff, tax - Tags: bernard hickey

Bernard Hickey looks at the tax bludgers:

Tax avoidance, or tax minimisation in polite circles, has been the bane of our fiscal framework for the past decade.

What I find interesting is that we had a 66% tax rate until the late 1980s and tax avoidance doesn’t seem to have been a problem. What changed?

Labour’s introduction of the 39-cent tax rate was designed to shift some of the tax burden on to the wealthiest.

Instead, it helped create the biggest unintended consequence of the past decade. The boom in house prices from 2004 to 2008 was at least partially created by the imposition of this new tax rate.

An entire cohort of taxpayers spent years arranging their financial affairs to avoid the 39 cent rate. Often this involved creating family trusts or Loss Attributing Qualifying Companies to buy rental properties that made losses.

These losses were then claimed against regular incomes from salaries or wages.

I really wonder if LAQCs and trusts serve any legitimate purpose anymore or if they are nearly solely used for tax avoidance. I can’t be bothered finding out but I bet that back when the top rate was 66% LAQCs weren’t around and that’s one reason there wasn’t so much tax avoidance. If they aren’t being used for good reasons, should we get rid of them or replace them with something that does the job intended without being vehicles for bludgers?

In particular, the gap between the family trust rate of 33 cents and that 39-cent rate turned into a black hole for the Budget.

Many trusts were created simply to avoid the top rate.

That’s true. The 39% rate wasn’t a failure – it raised over $500 million a year but several hundred more was avoided and accountants and lawyers pocketed millions in the process, an artificial economy that saw money being expended on allowing rich people to be bludgers, rather than contributing anything to the national wealth.

National’s decision to remove the 39-cent tax rate was at least partly an admission that no matter how hard governments tried, the rich were able to structure their affairs to avoid that rate.

That might be the spin. But the truth is that National was just enriching the wealthy at everyone else’s expense, like it always does. Even if it is true that they wanted to eliminate the tax avoidance caused by the top rate, then they were just rewarding bludgers by legalising their bludging, and also giving a tax cut to all those who happily paid their fair share. An extremely inefficient case of throwing the baby out with the bathwater.

Legions of highly paid tax lawyers and accountants help the very rich avoid paying tax. There must be a solution. Transparency is the best form of disinfectant on this issue.

Norway has a long history of using such a disinfectant to keep its economy strong while being fair.

It publishes the net worth, income and tax paid of all taxpayers. It is controversial in Norway but it does mean there is nowhere to hide.

Property developers here who have never paid tax will be plain for all to see.

How would the tax avoiders feel if it was clear to their neighbours and relatives that they weren’t pulling their weight?

It would be one way to re-balance the debate and tackle an issue at the heart of New Zealand’s fiscal imbalances and social inequality.

Is there a politician brave enough to broach the subject?

The Greens? I don’t think public tax records would fly here but Hickey is right that there are solutions. We shouldn’t be stuck with simply saying either ‘tax avoidance is part of having a progressive tax rate’ or ‘lower the top tax rate to minimise tax bludging’. Other countries that are much wealthier than us, including Australia, have higher top tax rates and seem to get along just fine without a severe tax bludging problem. It’s loopholes in our system that allow it to occur. Reforming the two main vehicles for tax avoidance – LAQCs and trusts – must be the starting place.

62 comments on “Hickey on the tax bludgers ”

Comments are now closed

Colonial Viper 1

6 February 2011 at 9:29 am

Cunliffe knows about all the issues.

However, the question is one that Hickey has already implied – is there a political party out there willing to confront the highly organised wealthy and the professional service industry which serves their tax avoidance needs.

Well LAB, is there?
higherstandard 2

6 February 2011 at 9:38 am

If you have a tax system you will have people who try to avoid it.
If you have a welfare system you will have people who rort it.

Australia also has a substantive tax avoidance industry.

http://www.catatax.org/upiloads/Tax%20evasion%20and%20avoidance.pdf

and welfare abuse

http://www.dailytelegraph.com.au/money/money-matters/dole-bludgers-exploiting-weak-welfare-system-job-agency-campbell-page-says/story-fn300aev-1225896852646

All just human nature.
- Draco T Bastard 2.1
  
  6 February 2011 at 9:54 am
  
  No, it’s not human nature but the nature of the psychopaths which most people aren’t. Sunlight is still the best disinfectant.
- tea 2.2
  
  6 February 2011 at 9:59 pm
  
  and funily enough we slam welfare rorting, put those in jail who offend and treat tax evasion like the speed limit…
- Puddleglum 2.3
  
  6 February 2011 at 10:04 pm
  
  “If you have a tax system you will have people who try to avoid it.
  If you have a welfare system you will have people who rort it.”
  
  Also, “if you (try to) have a free market, you will have people who find more and more cunning ways to rig it in their favour and reap enormous rewards by doing so.”
  
  It’s the great unspoken, ‘unintended’ consequence of free market advocacy. As the history of Western capitalism makes abundantly clear, market rigging (in all its flavours from bought politicians on up) utterly dwarfs the kinds of welfare rorting you refer to, higherstandard. Yet, ‘free markets’ cannot defend themselves (and never will be able to) against such rigging since they depend on the same lawmaking and regulatory processes as does taxation and the welfare system.
  
  Adam Smith spoke of the “rulers of the world” and knew all about how they perpetually rigged the system as it then was.
  
  I think he genuinely thought his ideas would constrain them. Sadly, they were quickly embraced by those who realised that a ‘free market’ in which they had an unfair starting advantage and still could, in any event, get the rules changed should they wish, would do very nicely, thank you.
  
  Which, incidentally, is why nation-state governments came into existence and have, since then, largely been willing handmaidens of big business and banks. In more honest times this was widely acknowledged but now we are meant to look shocked and roll our eyes at anyone who even hints at such collusion.
  
  To put it simply, whenever free market rhetoric gets some democratic expression (i.e., when right wing governments get elected) the extremely wealthy always become palpably over-excited at how they will ‘rig and raid’ under its cover. Sad really. An idea with such noble aims at the beginning becomes – like almost all ideas – yet another vehicle for unjust exploitation.
  
  (Just thought: the term ‘free market’ is probably an oxymoron)
Draco T Bastard 3

6 February 2011 at 9:52 am

What I find interesting is that we had a 66% tax rate until the late 1980s and tax avoidance doesn’t seem to have been a problem. What changed?

IIRC, it was and was a major reason why Muldoon brought in Gift Duty.

I really wonder if LAQCs and trusts serve any legitimate purpose anymore or if they are nearly solely used for tax avoidance.

LAQCs shouldn’t exist. That’s an example of laws being written so that people can avoid paying the tax that they owe. All businesses should be ring-fenced as income/outgoings of a business don’t actually apply to any other business. Trusts have to be better regulated and watched so that they’re not used for tax avoidance.

I don’t think public tax records would fly here but Hickey is right that there are solutions.

Maybe not yet but it will come. The people do, after all, have a right to know how their wealth is used.

The entire tax system needs to be looked at and reworked so that everybody/business is brought under the same set of rules. A way to do this is to transition to a cashless society and have accounting software be an online service from IRD with automatic updating from banks/EFT-POS. A transaction happens it is immediately logged to the corresponding IRD numbers and taxed at that time.
- LynW 3.1
  
  6 February 2011 at 10:11 am
  
  Yes, a transaction tax seems the way to go. Has this option been discussed/debated on the Standard before?
  - KJT 3.1.1
    
    6 February 2011 at 12:02 pm
    
    I don’t know about the Standard, but it has been discussed in Frogblog among other places.
    
    The original capitalist economists such as Smith and Steglitz advocated that taxes should be on capital and land only. Not productive business or labour . To encourage the most efficient use of societies resources.
    RWNJ’s don’t read that part and most of the Neo-cons would consider that heretically socialist today. Unlike traditional conservatives, though, they have no principles however apart from the relentless theft of our wealth by those who are already the wealthiest.
    
    There is a good argument for taxing speculative flows. Both to discourage the practice and to shift taxes away from beneficial use of societies wealth.
- KJT 3.2
  
  6 February 2011 at 12:10 pm
  
  LAQC’s do serve a legitimate purpose. They help start up businesses which already have the odds stacked against them, to shift some of their tax burden to when the are making money.
  
  Unfortunately the unintended consequence was to assist people who are not in business to make a living, but as a cheap way of owning say a large yacht or hobby farm or to get untaxed capital gains.
  
  Private trusts have absolutely no reason for existence except to avoid tax, legal or matrimonial responsibilities.
  There is no reason why we should allow people to dodge their responsibilities by having a trust.
  Unfortunately so many people with political power have them that they are likely to remain.
  - Colonial Viper 3.2.1
    
    6 February 2011 at 12:16 pm
    
    LAQCs should probably have been created with a limited 2 year window of effectiveness. That way legitimate businesses could be started and given a reasonable time to turn a profit (which for most viable businesses should definitely be happening by year 3)
    - KJT 3.2.1.1
      
      6 February 2011 at 1:43 pm
      
      I think there are better ways to assist new business that cannot be gamed.
      Having done it I would say it is more like 5 years to break even unless you are unusually lucky. To make back your initial investment plus a wage for the first 5 years.
      It takes 2 years just to get known.
      - infused 3.2.1.1.1
        
        7 February 2011 at 2:45 pm
        
        It does. Took my business 3 years before people trust you. 4th year I finally started making a bit of money, 5 years is when I could fully support myself on a decent wage.
- Blondie 3.3
  
  6 February 2011 at 9:19 pm
  
  Um, am I the only person here aware that LAQCs will be defunct from 1 April 2011 (that is, in two months)?
  
  Yeah, existing LAQCs can remain… but as they will lose the ability to pass losses through to shareholders, they’ll be little different to a closely-held company.
  
  People can choose to use a LTC (Look Through Company) instead, but as they’ll have to pass both profits AND losses through to shareholders, it’ll be pretty much the same as a partnership for tax purposes (although there’d be a few advantages to the LTC format; limited liability springs to mind).
  
  Whilst I totally agree with the author’s sentiments regarding LAQCs, I’m not sure why it’s necessary to write an article saying why the government should do what it already DID in the last budget – after all, LAQCs will be obsolete in a matter of weeks?
  
  http://taxpolicy.ird.govt.nz/news/2010-10-12-qualifying-company-reforms-questions-and-answers
Lanthanide 4

6 February 2011 at 10:05 am

I live LAQC’s have already been substantially neutered by National in the last budget, to the point that they are now completely pointless – they don’t provide anything that a regular company structure doesn’t provide.

I’ve heard them now described as being “look-through companies”, because you can no-longer attribute your loss against the income stream of a private individual, but you can see what private individual it is that is benefiting from the company directly.

I don’t know all the details, hopefully someone else will chime in or do some googling.
- Blondie 4.1
  
  6 February 2011 at 9:41 pm
  
  Yes, you’re right, LAQCs have been pretty much made obsolete in National’s last budget.
  
  However you’re slightly misinformed regarding LTCs. LTCs are similiar to LAQCs in that company losses will be transferred to shareholders, but different in that company profits must also be transferred to shareholders.
  
  That is, unlike an LAQC whereby profits could be retained in the company, and taxed at the company tax rate (which was lower than the highest individual tax rate), in an LTC both profits and losses are distributed to the shareholder.
  
  I don’t think the general public will be able to see which individuals are benefitting from an LTC – as they will be closely held companies, with only a few shareholders, I’d imagine that company profits/losses would be a private matter, known only to the shareholders, IRD, their accountants and whoever else the shareholders choose to inform – maybe their bank manager or lawyer. I don’t think increased visibility or public accountability is anything to do with the reason they’re called Look Through Companies – so much as that any profits/losses go straight “through” the company and are included in the shareholders taxable income.
Herodotus 5

6 February 2011 at 10:11 am

“That’s true. The 39% rate wasn’t a failure – it raised over $500 million a year “- And Marty how much of this tax take could be attributable to tax creep . Yuo know the system when school teachers, nurses and the like were initialy under the threashold then as tax threasholds were not adjusted for inflation, we all paid more tax and watched as our disposable pay brought less and less, no wonder the cost of living is so high. Prices go up yet the govts with some underhanded laws take more and more. Result life is difficult under a blue or red banner.
Goff and co have no physical attributes to really tackle the case, just deck chairs on the Titanic.
And another gem from the Herald. The boom of the 99-08 that so many here palce as a basis to hhe suceess of Labour- There was nothing substainable to it. Emperors clothes anyone.
And just to balance it Patrtial SOE sales is not the answer either. Nat have almost gone too far making some think of a GREENER future !!!How shard that is to say 🙁
http://www.nzherald.co.nz/opinion/news/article.cfm?c_id=466&objectid=10704199
- Colonial Viper 5.1
  
  6 February 2011 at 10:25 am
  
  The boom of the 99-08 that so many here palce as a basis to hhe suceess of Labour- There was nothing substainable to it. Emperors clothes anyone.
  
  Yes there was an element of truth there but LAB can take credit for using the boom to pay off public debt and prepare us for the storm of the GFC.
  
  The main thing in LAB’s economic management which can be faulted is the meteoric expansion of a credit/personal debt bubble they allowed. This went on to fuel the property bubble and a massive drop in housing affordability for their core support base – ordinary workers. That was sorta dumb and pandered to the property investing/speculating class.
  - Herodotus 5.1.1
    
    6 February 2011 at 2:30 pm
    
    The govts overseas debt increaded marginally over this period. About 1/4 of our debt was repaid. There were “other assets” that were set to nett off on our debt. Such asssets as Student Loand $10b and the increase of investments such as NZSF that would never have these profits realsied to cover other govt expenditure. Also as a means to “assists” banks with there liquidity issues, the Res ABnk was allowed to reduce the funds that banks had to hold in reserve. Thus increasingthe availability of loan to the market. refer Brian Gaynors column above with the in oveseas debt 81% of GDP to current 132%. This with Current account deficit issues (That were never addressed by Lab or Nat) does not leave as great a picture that many here paint as a legacy from Lab. Just this broken record of nil govt debt. Great headline but little substance. Strawman when given adequate analysis.
RedLogix 6

6 February 2011 at 10:13 am

Really….a dissapointing lack of going on thought here.

As I’ve said many times before, but no-one seems to get it, if losses are ring-fenced into a company they do not disappear. They simply accumulate until at some time in the future the company makes a profit, and then they are unwound against tax otherwise owed.

LAQC’s were not a means of avoiding tax… they merely shifted it in time.
- Lanthanide 6.1
  
  6 February 2011 at 10:16 am
  
  Incorrect. First result from google:
  
  “Why Have a Loss Attributing Qualifying Company (LAQC) as your Investment Vehicle?
  
  A loss attributing qualifying company (LAQC) is simply a normal company that has elected to be an LAQC. LAQC stands for loss attributing qualifying company, which means that the losses your rental property makes are allocated to the individual shareholders to offset against their personal income, thus resulting in a lower provisional liability or a refund of PAYE paid.
  
  With a normal company, if the company were to make a loss, losses can only be offset against future profits. “
  - Colonial Viper 6.1.1
    
    6 February 2011 at 10:22 am
    
    Yeah Lanth has got it right. LAQCs shift losses against any other personal income (eg salary). It reduces the amount of PAYE you owe.
    
    I had friends who were depreciating anything and everything to do with a property to make it look as “lossy” as possible.
    
    If you could reduce your apparent annual income from $90K p.a. to $70K p.a. (using $20K of “losses” from an LAQC) you got to avoid the top PAYE rate altogether.
    - RedLogix 6.1.1.1
      
      6 February 2011 at 10:56 am
      
      Again total bullshit… you are looking at the total tax liability at one point in time only.
      
      When a company is tightly held by one or perhaps two shareholders (usually family) then the tax position of the individual paying PAYE and the company paying Company tax is effectively the sum of the two entities combined over time.
      
      The effect of avoiding the top tax rate of 39% is pretty minor in the overall picture and is often offset by the fact that many residential landlords are actually putting after-tax PAYE income back into the company to keep it afloat.
      
      But my crucial point that even lath quotes, is that ring-fenced losses do not disappear, they are offset against future profits. Given that those future profits are future income for the company owner, tax losses today are a tax reduction for that same person in the future.
      - Lanthanide 6.1.1.1.1
        
        6 February 2011 at 11:02 am
        
        Yeah, but there’s a clear element of tax avoidance comparing the two cases:
        1. Lose $5,000 in an LACQ and offset it against income tax and save on your 39% marginal rate.
        2. Lose $5,000 in a regular company and carry it forwards to the next financial year, and have it offset against your profit at a 30% marginal rate.
        
        The LACQ is allowing you to get the extra 9% tax deduction, and get it now, not later. From time-value-of-money, money now is worth more than the same amount of money later.
        
        RedLogix 6.1.1.1.1.1
        
        6 February 2011 at 11:13 am
        
        You comparing incompatible tax rates.
        
        The Company tax rate prior to 2008 was 33%. At that time even without an LAQC many ordinary landlords came nowhere near paying the top 39% PAYE rate. And besides the top tax rate now is only 33%.
        
        2009-2011 the company tax rate is 30%
        
        Post 2012 the company tax rate is 28%
        
        http://www.ird.govt.nz/business-income-tax/paying-tax/tax-rates/bit-taxrates-companytax.html
        
        The gap is not necessarily 9% for most people at all. Besides in the example you give above 9% of $5000 is only $450, which means a lot to many folk…. but it’s likely less than the accounting fee for the LAQC… ie not very big beer at all.
        
        Your point about having the deduction now as against in the future is the important one…. and begs several interesting questions if you think about it.
      - Colonial Viper 6.1.1.1.2
        
        6 February 2011 at 11:06 am
        
        is that ring-fenced losses do not disappear, they are offset against future profits. Given that those future profits are future income for the company owner, tax losses today are a tax reduction for that same person in the future.
        
        Yep, that’s the theory. But consider that those LAQCs were never intended to be run at a profit or indeed will ever be run at a profit, either now or in the future.
        
        RedLogix 6.1.1.1.2.1
        
        6 February 2011 at 11:15 am
        
        Oh…well if you want them run at a profit…watch rents rise 25%.
        
        Besides most ordinary landlords are in the business long-term and do intend to run at a profit in the future.
        
        higherstandard …
        
        6 February 2011 at 11:34 am
        
        Most ‘ordinary’ landlords are in it for a tax (avoided/evaded) free capital gain.
        
        RedLogix …
        
        7 February 2011 at 9:49 am
        
        Look about you hs… not much in the way of ‘capital gains’ going on in the market for the foreseeable future.
        
        And given that there is sod all in the way of positive cash flow from most rentals… in fact many landlords are subsidising their tenants with cash from their own PAYE tax-paid income…. you have to ask what the hell are they doing it for?
        
        Oh.. maybe I told you all so?
        
        KJT …
        
        6 February 2011 at 11:46 am
        
        The LAQC rules and the lack of a real CGT allow many speculative ventures to offset there losses against tax, but avoid paying tax on their gains. They do not shift the taxes in time because the venture never makes a taxable profit.
        
        Queen street farmers, charter yacht owners, company cars and property speculators (landlords) are all means of avoiding tax while receiving tax free benefits.
        
        If you have enough money to afford a good accountant there are many other ways of legal tax avoidance. The ultimate being shifting/hiding/spending the money in a tax haven, Like Ireland, or a place away from where you earn the income, like Hawaii.
        
        They do intend to make a profit in future. By avoiding taxes.
        
        IRD should be able chase them as tax rebates for new businesses including LAQC’s were supposed to make it easier for entrepreneurs to start a new business.
        
        I know many people who own rentals. Not one would make a profit on renting.
        
        If you tax the speculative income from housing, and better yet had a land tax. House prices should drop to the level that landlords who are in it as a long term profit making business can make money on renting at reasonable rates.
        
        Descendant Of Smith …
        
        6 February 2011 at 12:13 pm
        
        Well yeah IRD could chase up if they didn’t have to keep reducing staff – I hear 70 jobs going at our local office and plenty more elsewhere around the country.
        
        I wonder under John Key’s stewardship how many front-line jobs have been lost across the public service and how this matches up to his promise to remove back-line jobs to free up more resources for front-line services.
Tania 7

6 February 2011 at 10:38 am

What I find interesting is that we had a 66% tax rate until the late 1980s and tax avoidance doesn’t seem to have been a problem. What changed?

There was Tax avoidance in the 80’s where employees received Fringe Benefit type items instead of Salary …. Rent free house, cars, food vouchers to reduce the amount of salary they received because they did not want to pay to much tax …. up until FBT was introduced people received these benefits tax free.

The introduction of FBT removed this tax free benefit….tax avoidance
- Lanthanide 7.1
  
  6 February 2011 at 11:04 am
  
  Yeah, a guy at my work said his sister used to work at a company that gave *all* of the staff company cars, and not crusty old junkers, as a way to pay them more without paying tax.
- Descendant Of Smith 7.2
  
  6 February 2011 at 12:07 pm
  
  What changed was that we had a baby boom generation who inherited a substantial amount of wealth from their parents, grandparents and often aunts whose husbands were killed in WWII, who paid off their mortgages earlier than 60,who grew up with full employment and free education, with jobs for youth and people with both intellectual and psychiatric disabilities provided for through jobs in government departments such as NZR and the Post Office, who had a level of income where most people could support a family on one income -though sometimes this took overtime to achieve, where support for families was paid on a non-income tested basis so we didn’t have the same level of benefit envy that the more well-off felt they were paying for someone else, where we had school leavers opportunities to work in government departments if there were no jobs for them in the privates sector – through both apprenticeships e.g. even hospitals had their own electricians and carpenters.
  
  This generation once their kids had left home and been educated then decided to dispossess later generations of the same advantage by removing all those supports, turning us into a me me me society, by reducing taxation that would have paid for their future superannuation, by competing against each other for rental properties and pushing housing affordability up, by working out that the country owed them a favour – not that they owed future generations the same opportunities they had.
  
  Of course not all of that generation have benefited but the forgetting of that generation of what laid the foundations for them to be successful has always been to me to be mind-blowing.
  
  Sure it wasn’t all perfect and there were still issues but life was a lot more equitable for everyone.
  
  But they have all the votes and so their you go.
  
  Anyway they’ll be dead in twenty years and life will be different yet again.
  - KJT 7.2.1
    
    6 February 2011 at 12:25 pm
    
    Take a deep breath. D of S.
    Your generation will inherit the baby boomers wealth. We have to die sometime.
    You already have much more possessions than we had. Courtesy of your parents.
    With much fewer of you for more jobs you will have a lifetime income much higher than the boomers.
    The generation before us did not leave much. They voted to give themselves more money than they paid in taxes and for free superannuation amoung other things.
    They left us with 28% interest rates and 45% deposits to buy a house when they had 3% interest loans. They sold their farms, given to them free on servicemen’s settlements, at prices inflated by welfare payments to farmers while the next generation lost their land due to farm incomes being to low to pay the loans.
    Not to mention 66% taxes to pay for them.
    Most of the people speculating in property were trying to save for retirement and leave something to their kids. All the other means of investment in NZ like shares and finance companies are very dodgy as you know.
    Many more of your generation could go on to tertiary education because you could offset the costs until later with loans.
    
    I, along with most of the later boomers know we are unlikely to get superannuation because national will have given away all the products of our hard work to the wealthiest 0.5%. Despite paying for our elders and our kids education.
    
    Despite this many of us are opposing asset sales, fighting AGW, advocating measures to lower house prices and trying to get rid of a Government that wants to load our kids with debt while selling income earning assets so our kids lives are better.
    
    More of your generation vote for “sexy” Key because they are too young to remember that National always stuffs things up..
    - Descendant Of Smith 7.2.1.1
      
      6 February 2011 at 12:43 pm
      
      I suspect I’m more of your generation – it’s my kids that struggle with finding work and having worse pay rates than I had when I left school in 81.
      
      The trouble with much of that property wealth is that it is overvalued – maybe areas like Auckland will maintain some value but much of the rest of the country won’t – particularly rural areas.
      
      I’ve always felt my kids will be able to pick up a house cheaply in their 30’s / 50’s whereas we were just able to but ours in our twenties.
      
      It’s also conceivable that much of that wealth will go to foreign companies running retirement villages and rest-homes. I had a mate who was a funeral director and those firms were all being approached by American companies to but them – I know he couldn’t resist their offer.
      
      I wasn’t moaning – I was just trying to illustrate what changed.
      
      I should have added empathy ( or rather the lack of) for the worse off in our society is also a significant change.
      - KJT 7.2.1.1.1
        
        6 February 2011 at 1:38 pm
        
        My kids are struggling to find work too, but I am encouraging them to forget that and get some trade or professional skills instead so they will be in a good position in a few years when the boomers start retiring.
        
        At least their skills will be in demand in Australia, China and Europe if not here.
        
        The whole swing of social dialogue to the new rights, selfish individualism is something I find very discouraging..Even Muldoon,, DD Eisenhower, Adam Smith would be considered far to the socialist left if they were around today.
tsmithfield 8

6 February 2011 at 12:03 pm

Guess what. Governments have been trying to close off tax loopholes for as long as there have taxes. But there are still loopholes. This is why Labour’s plan to raise revenue by taxing the rich more is doomed to fail. Closing off tax loopholes is a game the government is always playing catch-up on but never actually catching up.

So far as bludgers are concerned, surely that would better describe those who pay no net tax at all (due to family support etc exceeding the amount of tax paid). These people are living off the back of others without contributing anything back in return. The rich pay the bulk of the tax, so how can they be called bludgers?
- Colonial Viper 8.1
  
  6 February 2011 at 12:11 pm
  
  Guess what. Governments have been trying to close off tax loopholes for as long as there have taxes. But there are still loopholes. This is why Labour’s plan to raise revenue by taxing the rich more is doomed to fail.
  
  Not an excuse for not carrying on to close loopholes and gain more Govt revenue. Its a financial battle and both sides work at it. If the Govt stops, the private sector will not. It will continue to develop new ways to exploit the system.
  
  The rich pay the bulk of the tax, so how can they be called bludgers?
  
  They actually need to pay far more. Particular those who have organised their affairs to be asset rich and income poor. Why?
  
  To help stamp out poverty in NZ. 50% of NZ’ers earn less than $28K p.a. This is a travesty.
  
  Only 5% make a decent income in this country. $90K p.a. and more. Everyone else struggles and struggles. Those on the median full time working income of $41K still have it hard. And there are people who try and get by on just half that.
  
  I don’t particularly care if someone has to give up on buying their bi-turbo V8 BMW and settle for the V6 version instead, if they can contribute more to making our society one where no one, no child, is left behind.
- KJT 8.2
  
  6 February 2011 at 12:15 pm
  
  The rich are bludgers because they get the bulk of the benefit from services provided by tax, not to mention being subsidised by underpaid wage earners, then a large proportion, half according to the tax working group, avoid paying..
  - tsmithfield 8.2.1
    
    6 February 2011 at 2:43 pm
    
    Duh. You say what???
    - KJT 8.2.1.1
      
      6 February 2011 at 2:54 pm
      
      You mean the wealthy don’t get the most benefit from; an educated workforce, Police protection of their property, property protection regulation, rules that support them burgling wage earners, Wff and tax payer funded healthcare and housing that enable them to have workers at below cost, bailouts when the market fails, a civilised mostly crime free society, roads and rail to deliver goods and all the other things paid for by tax.
      
      The half of the wealtheist that do not pay tax are bludging much more than a few beneficieries.
      - tsmithfield 8.2.1.1.1
        
        6 February 2011 at 3:08 pm
        
        I agree that the self-employed rich probably don’t pay much personal tax, although they often own companies etc that do pay tax. If the company tax rate is lower than the individual tax rate then the wealthy will tend to declare their income as company income and have it taxed at the lower rate. It is the wealthy PAYE earners that can’t avoid the higher rate.
        
        Anyway, looking at it either way, your argument doesn’t have much validity.
        
        Colonial Viper 8.2.1.1.1.1
        
        6 February 2011 at 3:59 pm
        
        I agree that the self-employed rich probably don’t pay much personal tax, although they often own companies etc that do pay tax
        
        And of course they pay GST on their Bollinger and their X5’s, so that makes it OK.
        
        Oh come to think of it they actually probably don’t, it likely goes through one of their GST registered entities.
        
        So much for that idea.
        
        KJT 8.2.1.1.1.2
        
        6 February 2011 at 4:19 pm
        
        Really.
        
        Someone else who’s ideal society is Somalia.
        No taxes. The rich do what they like.
      - the pink postman 8.2.1.1.2
        
        6 February 2011 at 4:21 pm
        
        I well remember a Waikato farmer telling me ‘with pride’ That the day he pays tax will be the day he sacks his accountant. He used the state to educate his kids , the State health , and everything else that was going. This is a what the majority of the very rich and farmers think .What a smug lot. No wonder they vote National .
        
        KJT 8.2.1.1.2.1
        
        6 February 2011 at 4:26 pm
        
        Still waiting for a farmer to prove he pays taxes.
        
        No takers yet.
        
        Dosn’t stop them from running around with their hands out every time there is too much or too little rain though.
      - M 8.2.1.1.3
        
        7 February 2011 at 12:03 am
        
        ‘You mean the wealthy don’t get the most benefit from; an educated workforce, Police protection of their property, property protection regulation, rules that support them burgling wage earners, Wff and tax payer funded healthcare and housing that enable them to have workers at below cost, bailouts when the market fails, a civilised mostly crime free society, roads and rail to deliver goods and all the other things paid for by tax.’
        
        Too true KJT – anyone remember how Shipley had her angio on the tax payer? If she really had the courage of her free market convictions she would have booked herself into the nearest private hospital and paid all the costs herself. The wealthy always want to double dip and then lecture the poor.
- Draco T Bastard 8.3
  
  6 February 2011 at 12:18 pm
  
  Governments have been trying to close off tax loopholes for as long as there have taxes.
  
  TS’s reason on why things shouldn’t be changed is because it’s never worked before despite all the evidence that it’s worked before.
  
  So far as bludgers are concerned, surely that would better describe those who pay no net tax at all…
  
  You mean like the creator of Trademe?
tsmithfield 9

6 February 2011 at 2:42 pm

“TS’s reason on why things shouldn’t be changed is because it’s never worked before despite all the evidence that it’s worked before.”

I didn’t say governments shouldn’t try to close down loopholes. Just that its not a very reliable to rely on income from cutting down tax-loopholes because more tend to appear to replace the ones that have been closed.

“You mean like the creator of Trademe?”

Probably him too. At least he gives a lot back to society, and he probably doesn’t take much out of it. Anyway, you’ve helped me make my main point. The government can close down as many tax loopholes it likes and I bet Morgan still won’t be paying tax.
- Colonial Viper 9.1
  
  6 February 2011 at 4:04 pm
  
  The government can close down as many tax loopholes it likes and I bet Morgan still won’t be paying tax.
  
  A simple CGT would have done the job.
  - Herodotus 9.1.1
    
    6 February 2011 at 7:23 pm
    
    Not sure that a CGT would have had any impact into the sale of Trademe, depending upon how the ownership was held, as there are holding coys trusts etc.
    As a note trusts are not big in Aussie-partially due to that there are no tax advantages in this form of ownership, and there are potentially disadvantages attached to trusts. Funny as Trusts are a very English concept. If Sam was so concerned re tax then let him open up his structure and tax advice that he was given. There could be the situation whereby the coy & ownership structures were setup to min tax, if that was the case then ……
    Everyting trusts, LACQ’s have there place, yet given extremely poor tax legislation and implications of consequence create huge loopholes that generally only the wealthy can and have taken advantage of.
    If we all did it, they would be closed by lunch time tomorrow, and this is were many ( esp followers of this site) should IMO hold Lab to task, as they could be seen as working for the opposition. But then in 84 and 99 the wealthy benefited to a far greater extent than the average Joe, and quoting IrishBill ” the first ACT government”and adding “the second ACT fifth Labour government”
- Draco T Bastard 9.2
  
  6 February 2011 at 6:48 pm
  
  I didn’t say governments shouldn’t try to close down loopholes.
  
  Actually, you do as the rest of your paragraph here proves. You believe in the simplistic (and really stupid) idea that closing loopholes automatically opens more making it neutral.
  
  Probably him too
  
  No, especially him and all the others like him. I’m also sure that there’s a lot of other people out there who would give just as much back to society as he does if they’d had the same opportunities available as he did. The biggest problem, IMO, with our unequal society is that it restricts opportunity and destroys self-confidence in a huge proportion of the population.
  - M 9.2.1
    
    7 February 2011 at 12:09 am
    
    The whole ‘but he gives back to society’ is a method of deflecting criticism in much the same way people go on about Key donating his pay to charity.
    
    People like Bill Gates and Warren Buffet would do better to to pay their staff more and perhaps embarrass others into doing so – it’s not like they can’t afford to.
big bruv 10

6 February 2011 at 5:45 pm

“we need to eliminate the avenues for bludging.”

About time!

So you finally agree we should get tough with DPB and dole bludgers?
- KJT 10.1
  
  6 February 2011 at 6:43 pm
  
  Only when there are sufficient good jobs for them all. If there are not, as now, then it is impossible to know who is bludging and who genuinely needs help.
  
  We can start by getting those who use their family trusts to avoid paying for their kids keep.
  - big bruv 10.1.1
    
    7 February 2011 at 8:10 am
    
    “good jobs” KJT?
    
    Not everybody is going to have a “good job”, that is a fact of life.
    
    A job is a job, if you don’t like the one you have then invest in yourself and get a better one, do not sit back bludging from your fellow tax payer because you think you are worth $25 an hour when your skill level dictates that you are worth $13.
    
    We can start by making all long term dole bludgers work for their benefit, we can start by getting rid of the DPB and we can start by removing WFF.
    - Colonial Viper 10.1.1.1
      
      7 February 2011 at 8:38 am
      
      NZ requires 100,000 additional jobs paying $20-$30/hr.
      
      Unfortunately as a country our employment market has been hollowed out by 25 years of neoliberal free market mismanagement and we do no longer have the depth or variety of industry to actually support this.
      
      Further our business leaders and the NACT Govt are actively engaged in a programme of wage suppression.
      
      big bruv’s whine about people having poor skill levels is a complete misdirection.
      
      Our young graduates know that prospects are shit in this country. That’s why they leave. That’s why we have almost 600,000 NZ born NZ’ers living in Australia now.
      
      Head to the Gold Coast and pick up a waitressing job paying AU$24/hr (and double time for stat days). In NZ he is quite right – you’ll be lucky to get NZ$13/hr because NZ workers are underpaid and we have weak unions.
      - big bruv 10.1.1.1.1
        
        7 February 2011 at 9:40 am
        
        Viper
        
        What you have conveniently overlooked is that most of those “young” graduates left during the term of the Labour government.
        
        It would be great to have another 100,000 jobs paying $20-$30 an hour, tell me Viper, where are they coming from if not from the private sector, the same private sector that people like you want to drive overseas by making them pay far more tax (far more than is their share)
        
        And really Viper, are shelf stacker’s and car groomers worth $20-$30 and hour?
        
        The answer Viper is one that you will never accept because it goes against your hard left ideals, the answer is much less government, lower taxes and an end to the culture of social welfare parasites.
        
        orange whip? 10.1.1.1.1.1
        
        7 February 2011 at 10:53 am
        
        No-one goes to Australia for the tax rate bruv.
        
        They go there for double the wages.
        
        big bruv …
        
        7 February 2011 at 10:59 am
        
        Double the wages, better weather, better race relations, better attitude to work and life, far less PC, far more prepared to accept personal responsibility.
        
        See what ten years plus of John Howards leadership has done for Australia, now compare that to the nine years of NZ under Helen Clark.
        
        Australia went ahead under Howard and the conservative government, NZ went backwards under Clark and a Labour government.
        
        Colonial Viper 10.1.1.1.1.2
        
        7 February 2011 at 11:17 am
        
        Sorry big bruv, NZ private sector is shit at creating jobs paying $20-$30/hr, that’s why skilled young NZ’ers are continuing to leave for Australia.
        
        As whip said – you’ve missed the point completely. Australia is not about lower taxes. Its about higher incomes.
        
        And NACT not only have no clue how to raise incomes for most NZ’ers, they are against it and actively campaign for widespread wage suppression.
        
        As for your BS comment re: what are shelf stackers and car groomers worth – that is exactly my point. This country needs to be employing chemical engineers, software developers, quality assurance specialists, machine designers, SCADA programmers etc. Jobs which pay not just $20-30/hr but $30-$40/hr.
        
        But as I said – all neoliberal free market ideology has done (led in the past by both NACT and LAB) has gutted our productive real economy.
        
        So yeah, now we have an economy with low paid car grooming, shelf stacking, coffee making jobs.
        
        Thats the economy you’re backing mate, the one where business makes their profit by relying on lowly paid serfs.
Gooner 11

6 February 2011 at 9:33 pm

The best comment here is the one that said governments for eternity have been trying to catch up with tax dodgers yet have never caught up. If you pass another law though, it’s bound to work this time.

The other notable thing about this thread is the lack of real knowledge about LAQCs.

I’ve said this many times on many websites and blogs, yet people fail to comprehend. So I’ll say it again. LAQCs are not set up for the sole reason to offset tax against personal incomes. Anyone can do that by owning property in their own name, and they will do so now that LAQCs are abolished.

The real purpose of LAQCs was twofold: 1) easy transferability of shares and therefore tax efficiency; & 2) no depreciation clawback on the sale of the property because the shares are sold (when the company turns a profit) rather than the property being sold.

With LAQCs now go(ing), both those go. But importantly, the ability to offset losses remains.