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Gareth Morgan - Source: ONE News -
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Economist and fund manager Gareth Morgan, a member of the Tax Working Group that on Wednesday presented its tax reform proposals to the government, has given the group's proposals a mediocre four out of 10.
He says the working group agrees that the tax system is "broken", mainly as a result of people on high incomes transferring wealth into different vehicles to avoid paying the 38% top tax rate.
"The only people that pay the 38% rate are the mugs on PAYE, so on analysis that means the system is broken and it has to be fixed" he says.
Just how to fix it, is more problematic, with a disparity of views among the working group, he says.
Morgan pushed for taxing all capital rather than income, which would make it more difficult for high income earners to dodge tax responsibilities.
'I was saying 'forget trying to do it with income' because people just shift their income around into different vehicles and avoid, effectively, their fair share of tax," he says.
The working group's recommendation is to make a flat tax at the top end, whether that tax is on an individual, company or trust. The rates are currently 38% for individuals, 30% for companies and 33% for trusts, and the idea would be to lower the flat tax rather than raise it.
However, Morgan says this solution is problematic.
"When you put tax rates down like that is it's going to cost money. The issue then becomes where do we get the money from to do this?"
Raising the GST rate from 12.5% to 15% or 17.5% is one of the working group's answer to providing that revenue stream, but it is one that does not sit well with Morgan.
However, he says there are few options for generating the revenue if income taxes are flattened. The revenue must be found somewhere if changes are to be fiscally neutral.
Another of the working group's suggestions is a capital gains tax on investment properties in order to realise around $500 million each year of potential tax not currently collected.
However, Morgan believes the real problem with property investment is the easy availability of property financing, and that a tax targeting the property investor is not part of the real solution.
"What's happened to property around the world, not just in New Zealand, why it's all gone bananas is that banks are encouraged to lend on mortgage over and above all other forms of lending, so the real problem with property is the prudential supervision policies of central banks," he says.
He says the capital gains tax proposed falls short and he fears that bringing in selective tax rates will only encourage people to "play around the boundaries" even more.
He says the working group's recommendations overall are a "series of band aids" rather than fundamental tax reform.
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Add a Comment:
Post new commentmolynz said on 2010-02-27 @ 04:17 NZDT: Report abusive post
Any rise in GST will hurt lower income earners simply because most things will now cost more. I think there is a case for exempting lower income earners and retired people from paying any GST period.
Andrew Mackenna said on 2010-02-16 @ 23:21 NZDT: Report abusive post
Abolish GST. It remains as a significant politico-economic scandal from the Roger Douglas regime (1986); a consumption tax imposed by the founder of a consumption advocacy Party - ACT. Backed by the Business Roundtable, the Douglas project may have been to supplant PAYE with a rich-soft GST. His other 'reforms' transfered the tax 'surplus' to Treasury, cordoning revenue off from public spending. NZ has been caught between two ideologically converse tax systems ever since. - Andrew Mackenna, ChCh
Maureenl said on 2010-02-14 @ 18:36 NZDT: Report abusive post
so where are all the jobs coming from? I presume out of fresh air.I agree about the DPB been there done that.Don't agree on the job front. Not enough now world wide so what makes John Keys think he can pull jobs out of a hat.Teaching respect and Law enforcement would work better
sagekiwi said on 2010-02-14 @ 13:02 NZDT: Report abusive post
Increasing GST is going to adversely affect those on lower in comes, and benefit the better off, full stop. National has always had a policy of punishing the poor, and helping the wealthy.
Tayler said on 2010-01-22 @ 12:56 NZDT: Report abusive post
Imputed rental value of owner occupied housing (net of mortgage interest and some expenses) should be taxed as income. This was the case in the UK until the 1960's. It's explained on the internet - just Google it. No great mystery. The policymakers are undoubtedly quite aware of it but they choose to overlook it because it is politically very contentious. Clearly, failure to tax it amounts to a subsidy to owner occupiers effectively capitalised into higher house prices. Also it is inequitable that rent payers effectively do pay tax at income tax rates on the rental value of the property they occupy (they have to find a gross amount of income and pay tax on that before having a net amount of income with which to pay rent). Introduction, would broaden the tax base, remove a subsidy capitalised into higher house prices and remove a gross inequity.