KIWI PARTY and Tax Changes - Summary Version

The Kiwi Party
Press Release
8 February, 2010

Former MP and Kiwi Party spokesperson on taxation Gordon Copeland today released his Party’s response to the Tax Working Group’s Report ahead of Prime Minister John Key’s response next Tuesday.

He agrees with some of the recommendations but disagrees with others.

1 The top personal rate of tax should be aligned with the trust rate to stop the rort.

2 The current loopholes in Working for Families should be fixed but income splitting for couples with dependent children should be introduced.

3 The current tax regime on residential properties must come to an end but should not be replaced with a notional return system. Rather depreciation should only be deductable if the value of the property declines.

4 The personal tax thresholds should be aligned with those in Australia, less 2 cents*, rather than reduced to a top rate of 30%. If the Government bangs on about trans-Tasman tax harmonisations then why not do it?

*at 2cents in the dollar below Australia the New Zealand tax scale would be as follows:
$0 to $6,000               Nil
$6,001 to $35,000      14.5 cents
$35,000 to $80,000    29.5 cents
$80,000 to $180,000  37.5 cents
$180,000 +                  44.5 cents

N.B. the Australian GST rate is 10% vs. NZ at 12.5%

5 The proposed 2.5% increase in GST, taking it up to 15% (compared to 10% in Australia-they must be joking!), is unaffordable for families and those on low incomes & should not proceed.  It is only proposed because the Working Group want to reduce the top personal rate to 30 cents; a huge wealth transfer to the better of at the expense of families & the retired. GST should be removed from rates.

6 The company tax rate should be lowered to incentivise reinvestment.  The 8 cent gap between the top personal rate and the PIE rate should be reduced to 3 cents but not eliminated, to incentivise long term savings.

7 The land tax proposal should not proceed. We already have a land tax. It is called “rates”.

8 The special 20% tax rate on new plant & equipment should be removed.

NB: This press release comes in two versions. The second (below) is more detailed & explains the rationale.

Contact: Gordon Copeland
Party President
Ph: 04 388 9805
Cell: 027 472 6998

TAX SYSTEM MUST BE FIXED-BUT WORKING PARTY HAVE SOME OF IT WRONG.
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Former MP Gordon Copeland, the Kiwi Party’s spokesperson on taxation, has welcomed the Report of the Tax Working Group on Taxation but proposes alternatives to the draconian 2.5% increase in GST & the land tax.

“There is no question that aspects of the present some what piecemeal tax system are broken and need to be repaired & I commend the Working Group on the thoroughness of their report” said Mr Copeland.

“The Government needs to fix several matters.

(a) The top personal tax rate & the trust rate must be aligned. The present system allows many, including some of our wealthiest, to avoid paying tax by redirecting income through a trust. That is fundamentally unjust.

My start point in matters of this sought is to consider a nurse who works long hours in the intensive care unit at a hospital. That nurse pays tax on every dollar earned. The same is true for most other employees since their tax is deducted at source as PAYE.  It is only the self employed or those wealthy enough to employ tax consultants who are able to significantly reduce their tax.

(b)The current loopholes in the Working for Families (WfF) identified by the Working Party. However the Kiwi Party would go further by supplementing WfF with income splitting for married couples with dependent children. Dovetailing those two approaches would also assist in reducing the present high effective marginal tax rates for families who receive WfF.

(c) The overly generous tax write offs for depreciation on residential rental properties. As the Working party points out this makes no sense when the value of these properties is in fact increasing due, in the main, to the increase year by year in the underlying land value. The present system both distorts investment and increases house prices to the detriment of young families endeavouring to buy their first home. The Kiwi Party is committed to making housing affordable again so that fewer families need to rent a home in the first place.

(d) The 20% depreciation loading on new plant & equipment should go. It is better to reduce the company tax rate.

However we differ from the Working Party on a number of matters including:

(a) The desirability of reducing the top two personal thresholds to 30 cents. No rationale is advanced for the proposed 8 and 3 cent in the dollar reductions for better paid kiwis. We believe that it would be better for the thresholds in New Zealand to mirror the rates in Australia; less say 2* cents. The Government bangs on about trans-Tasman tax harmonisation so why not practice what it preaches in this important area?

*at 2cents in the dollar below Australia the New Zealand tax scale would be as follows:
$0 to $6,000               Nil
$6,001 to $35,000      14.5 cents
$35,000 to $80,000    29.5 cents
$80,000 to $180,000  37.5 cents
$180,000 +                  44.5 cents

N.B. the Australian GST rate is 10% vs. NZ at 12.5%

(b) There is no need for the company or PIE rates to be aligned with the top personal rate. A lower company rate, which will likely be forced on us by Australia anyway, incentivises the reinvestment of profits within the business and is a key driver of economic growth so long as it is accompanied by fiscal integrity measures. Likewise an increase in the top PIE tax rate to just 3 cents below the top personal rate (down form the present 8 cents) incentivises savings; another key driver of economic growth.

(c) We do not agree with a deemed notional risk-free rate of return basis for the taxation of residential rental properties. We should always aim to tax actual returns and a notional tax would simply replace one inequitable tax with another. For example major repairs & maintenance expenditure on rental properties is bunched and needs to be deducible in the year in which the expenditure occurs. A better approach is to adopt much lower rates of depreciation and make appreciation in the value of the property taxable up the limit of the depreciation claimed, with any difference carried forward to subsequent years.

(d) We do not agree with a 2.5% increase in GST to 15% (compared to 10% in Australia - they must be joking!). It is a regressive tax and is simply unaffordable for the great majority of families, the retired & beneficiaries. Indeed the Kiwi Party would remove GST from rates.   In any event an increase in GST by as much as 2.5% is only being proposed  because the Working Party are recommending a reduction in the present 33 cent & 38 cent  personal rates to 30 cents, the effect of which is an enormous wealth transfer in favour of the better off at the expense of families and the retired.

(e) We do not agree with a land tax. We already have one .It is called “rates”. Nor, like the proposed 2.5% increase in GST is it necessary if we maintain a reasonable top rate of personal tax as per paragraph (a) above.” 

ends

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