The biggest problem with NZ First having scuppered Jacinda’s proposed Capital Gains Tax (CGT) is that the subject will never go away. Even if Jacinda adheres to her promise to never introduce it, the next Labour leader will bring the subject up again. It doesn’t matter what the proletariat thinks; as we all know, from the 2016 US election and the 2019 UK election, voters are “deplorables” and have no idea what they are voting for. The next Labour leader, whoever that is, will bring it back into play, the Greens will start to jump up and down with excitement and the whole darned debate will start up again. You can be sure of it.
And as sure as night follows day, on the second day of 2020, the subject of tax reform has been raised again by our beloved messiah, Shamubeel Eaqub. It has the same feel about it as Brexit had: the people don’t want it, but they are stupid. Let’s keep pushing for it and eventually, everyone will come around to our way of thinking. Shamubeel might want to have a little chat with Jeremy Corbyn about that attitude.
Our tax system has worked pretty well so far. But the pressures will grow over coming decades. The two most immediate threats, from my view, are demographics and decarbonisation.
A big chunk of taxes comes from a cut of wages. But as the population ages, the tax burden will grow for a shrinking base of taxpayers.
Popular myth No 1, constantly bandied about by Shamubeel and his ilk is that we have an ageing population. In fact, as I have pointed out before, the median age in New Zealand is currently 37.3 years. Most of those 37 year-olds either already have children, or they will, at some time in the future. Until a person can be born at the age of 65, we do not have a serious problem with an ageing population.
One glaring discrepancy was on how we tax savings, where land was lowly taxed compared to all other forms. This leads to the natural conclusion that we should explore some kind of land tax that is broad based but low.
Because land cannot run away, it is a relatively easy thing to tax.
Stuff.
(The old mantra is that socialists will tax anything that moves. Clearly they will tax absolutely everything.)
I assume he is talking about taxing land that is held, rather than land being sold. Land sales are, in fact, taxed in many cases – on those in the business of property development, and under the Bright Line Test. No. We are talking about some kind of annual levy on landowners, which is exactly the sort of tax that Michael Cullen so desperately wanted to impose on all those ‘rich pricks’.
But, those who have ever studied Taxation 101 know that the first underlying principle of taxation is that it must be fair. There is nothing fair about imposing a tax on an asset that produces no income, and therefore no way to pay the tax. If land produces income, as in farming, then that income is taxed elsewhere. This proposal is like taxing a courier driver for his courier income and then imposing a special tax on his van. It is stupid, inequitable, and would cause financial hardship in many cases, where there is no income to pay the tax from.
Another problem with this idea, of course, is that all the expensive land is in the cities, usually under houses, but the family home will have to be exempted from this tax. So the poor unfortunate guy living on his lifestyle block in Murchison will be paying land tax every year, whereas homeowners in Herne Bay, with sections worth a million dollars, get off scot-free. It was partly this kind of inequality that scuppered the CGT last year, but at least CGT would only have been applied on the sale of a property. Eaqub’s latest idea will result in a financial burden year after year.
The idea of a land tax goes back to the days when only the extremely wealthy owned land. They employed serfs to do the work and made bucketfuls of cash. These days, there are few barons left. Most farmers work extremely hard and have large loans, owners of lifestyle blocks often plant lots of trees and while their wealth may be in the land, it is unrealised wealth. If we could all dig down into a rabbit hole and find wads of cash, the idea of a land tax would be fair enough. Unfortunately, that is not yet possible.
Eaqub studiously ignores the fact that the current tax system is, in fact, mostly fair. Income taxes are graduated, and thanks to Working for Families, many people on low incomes actually pay no income tax at all. I simply do not understand why there is this constant call for more fairness in the tax system when it features policies like that. How can paying no income tax be ‘unfair’ to low-income families?
No. This is just yet another attack on the perceived ‘rich’ and yet another attack on farmers. No doubt there is a climate motive in Eaqub’s thinking too, but therein lies one fatal flaw. A land tax will not just affect those evil dairy farmers who provide us with one of the staples of life. It will also affect orchardists, crop growers and foresters. Yes, even kale growers will have to pay land tax. Watch out for an increase in the price of mung beans. Watch out also for a dramatic drop in the number of trees being planted, as landowners look to sell up to avoid the tax.
And who will they sell to? They will sell to foreigners. Yes, that’s right. Eaqub has globalism in his sights too.
Landlords will no doubt be affected, which is all part of the plan. Eaqub hates landlords with a passion. If such a tax were introduced, it is likely that only the land under a family home would be exempted, which means this would be another cost on rental properties. Eaqub believes that, as time goes on, more and more people will be forced to rent, but he never explains how landlord bashing policies are going to make this situation any better. Already, we have landlords leaving the rental markets in droves, selling up and taking their untaxed capital gains with them, and a land tax might well be the final straw for those few landlords game enough to stay on.
You must remember that Shamubeel Equab is the economic writer who told everyone to rent rather than buy a house… and then went out and bought a house for himself and his family because they ‘needed the security’ that owning a house brings. In other words, it is OK for other people to be turfed out of their rentals on an all too frequent basis, but that is not good enough for the Eaqub family. With that level of barefaced hypocrisy, I am amazed that he has the nerve to voice his opinion anywhere again, but it is, as we all know, OK if members of the elite do it.
All in all, this is a bad idea. This prevailing idea that we should tax the ‘rich’ into oblivion fails to see the bigger picture: it is landowners, mostly in the form of farmers, that are the backbone of our economy, and hitting them over and over again with levies and taxes when their income is at best unpredictable is a great way to destroy our economic powerhouse.
Taxation is never an incentive, in any shape or form. The success of this country has been built on the back of hard work and enterprise. Now people like Eaqub want to destroy that, all in the name of equality. One has to wonder, however, exactly who is really in need of equal treatment these days – the low-income family paying no income tax? Of course not. Eaqub, like Michael Cullen, can never resist an opportunity to stick it to those ‘rich pricks’. Nothing has changed in 2020.