Posts Tagged ‘Fabians’
Death tax to help Government dying for more revenue?
Apparently Inland Revenue Department officials were looking into a return of ‘death taxes’ (estate duty), last year presumably as part of the effort to broaden the tax base and raise more revenue.
For some reason this didn’t make it on to the Tax Working Group’s list of options to do the same.
BigCake presumes this means that a new death tax (either estate duty or inheritance tax) ain’t part of next week’s Budget.
Estate duties or estate taxes are payable on the death of an individual and are imposed on the deceased’s estate in its entirety. Inheritance taxes are also payable on the death of an individual but imposed on the beneficiaries who receive benefits or property from the deceased.
Estate duty (40% of the estate) in New Zealand was abolished back in 1992 as part of “reforms” to make tax system more efficient and fair. Not sure, but we may have been the first country in the world to take this step.
Most countries have inheritance taxes. Ireland has replaced its estate tax with an inheritance one.
According to the Tax Policy Centre, a progressive inheritance tax gives donors an incentive to spread their wealth more broadly, because the recipients can claim an exemption and take advantage of the progressive tax rates, reducing their effective tax rate.
They are also considered easier to administer.
BigCake got thinking about death taxes because an inheritance tax (40% on all transferred wealth over $200,000) is included in the mix in the winning entry for the Fabians Alternative Budget competition.
Other interesting ideas (some of which I’m not sure the Fabians would be totally comfortable with, so good on them) include:
• A 15% capital gains tax excluding owner occupied homes
• The Reserve Bank altering excise tax on fuel as a tool to address inflation
• Means testing super
• Raising the super entitlement age from 65 to 68 by 2018/19
• Offer student loan writeoffs for those residing in New Zealand (the budget was written by university students!)
• A 15% tax credit for all investment over $20,000 in research and development.
Not bad.
Post GFC world just like old world, but with less money. It’s got to be better than this
Richard Florida’s new book “The Great Reset” has a vision for a post Global Financial Crisis world based on a “fresh era of growth and prosperity”.
Florida (famous for The Rise of the Creative Class and the business empire built on the book) says this will offer “surprising opportunities for each of us”.
One of the early topics that interested BigCake was one he called “What future?”
Some of it can be seen in content around the need for a balanced view of where we’re at, and heading to, as a nation as opposed to narrow income-based measurements. Also around things like the need for more ambition, the clean and green future…
A concept that appealed was the “resilient economy”, expounded by Jamais Cascio, one of Foreign Policy magazine’s Top 100 Global Thinkers of 2009.
“Any economy that enabled the creation of institutions that were too big to fail —that is, whose failure would threaten to collapse the system,” Cascio says “could never be thought of as resilient. And, as the early 21st century rolled along, resilience is what mattered, in our environment, in our societies, and increasingly in our economics.”
I see the Fabians have also picked up on the idea.
Anyway, back to Mr Florida and his future vision.
In an interview with the Atlantic magazine, he says he tends to be an optimist. “If you look at past crises—like the one in the late 19th century and the one that came with the Great Depression—they tended to last about 20 years from beginning to end. But most importantly, these are periods of great technological innovation, and they’re periods in which our economic geography gets completely and massively shifted.”
Promoting his book on his Creative Class website, he says among the forces he sees behind the next lot of shifts will be:
• New consumption patterns and new assumptions about “ownership” that are less centered around houses and cars.
• New forms of infrastructure that speed the movement of people, goods and ideas. Broadband figures big time here.
• A radically altered and much denser economic landscape organized around megaregions that will drive the development of new industries, jobs and a whole new way of life.
You get some ideas of what all this might mean in the Atlantic interview where he says he thinks it’s a waste to spend money on building bigger roads. “But it would be worthwhile building smarter roads, pricing our roads effectively and making some smaller changes in building regulations and zoning codes”.
Regarding housing, he asks: “How are we going to grow if people are forced to spend the largest share of their income on this product that isn’t really contributing to economic growth? And how we shift to much more rental housing could be part of that conversation” He suggests homeowners are a “little bit more miserable than renters”.
And on an altered landscape, Florida asks: “Who would have thought 150 years ago, when more than 50 percent of Americans worked in or around the agricultural sector, that those people could be absorbed and have higher incomes and live more productive and prosperous lives in cities? I think the same kind of phenomenon holds true today. My hunch is we have enough knowledge to build denser cities and mega-regions while preserving more of our natural spaces and becoming a greener, more sustainable nation across the board.
“This can happen if we give it some thought. We just have to understand that our urban, our geographic pattern is what really sets the conditions for growth.”
BigCake doubts it’s that easy, but it does fit the ideas in yesterday’s post that we need to cast a wider net in our search for ways out of our economic rut.
Hold your horses and your wallets. Cutting taxes = silver bullet. Don’t think so
Okay, lowering company taxes will be good for our economic growth prospects.
But BigCake thinks supporters of a company tax cut may be getting overly excited about how good. Same goes for personal taxes, but for the moment I’ll stick to company ones.
How much (and how) businesses pay tax affects investment and growth (Ireland till the last year or so would be a positive example). This post is not an argument against tax changes likely to be announced in next month’s Budget.
We just shouldn’t wet our pants over what they’ll achieve.
New Zealand already has a sh!t hot business tax system. In the World Bank’s Ease of Paying Taxes rankings, New Zealand comes in 9th in the world in “total tax burden” which measures, for small and medium-sized businesses:
• the number of payments
• time spent complying with tax laws
• the total tax rate – the different taxes and contributions (eg, labour, social and property taxes), payable after accounting for deductions and exemptions.
So as far as Kiwi exporters are concerned, they already have an advantage tax wise against domestic companies operating in our top markets.
Investors looking at New Zealand apparently like to focus on the actual headline company rate (30 percent), but it’s hard to believe they’re so unsophisticated they can’t look at the big picture.
Don’t forget also that we had a company tax rate of 48% in the early 1980s and went on the have what was regarded as one of the best tax systems in the world. Make much of a difference? Nah, not really.
Currently we may have a relatively high total tax rate (53rd in the world in the World Bank rankings), but this is massively offset by how easy it is to pay tax here (and that’s a cash benefit to business).
So for sure more could be squeezed out of our rate, but if you look at the World Bank’s figures we’re already pretty low by OECD standards at least.
Unless you’re sitting on a lake of oil, or set up as a tax haven, low tax rates are not necessarily an indicator of strong growth. Eg:
- Timor-Leste 0.2% (of profit)
- Vanuatu 8.4%
- Maldives 9.1%
- Namibia 9.6%
- Qatar 11.3%.
This puts some perspective on our 53rd position and total tax rate of 32.8%. More relevant would be our leading trading partners like:
• Australia 48% total tax rate
• China 63.8%
• UK 35.9%
• US 46.3%.
Basically BigCake thinks tax cuts are one of the lazy off-the-shelf theories that have a lot of appeal for those pursing them (for obvious reasons) but in the real world don’t make much difference, unless you do something spectacularly bad or good.
Neither of which are on the agenda.
But (repeating myself) sensible cuts can make some positive difference and as a result we should be trying to lower tax rates in ways that are fair to all New Zealanders and encourage growth.
But no silver bullet here I’m afraid.
Okay, smart arse you got any better ideas? BigCake is still figuring this out (hey, it’s just me Econ 101 guy, not a think tank), but he reckons it’s something to do with the way we look at the problem.
He spotted a presentation from BERL Chief Economist Ganseh Nana given to the Fabian’s Better Future project that nicely frames the way he (currently) thinks about the problem
Economic solutions shouldn’t be seen predominantly in terms of house prices, interest rates, ratings, inflation, debt and (not on Nana’s list) tax. What we should be focusing on is skills and knowledge, businesses, networks, innovation, technology, people etc and with less of an emphasis on the aforementioned.
Economists and policy wonks obviously don’t ignore innovation etc, but they tend to get fixated with tax and stuff in ways that mostly don’t seem to answer BigCake’s questions.
BTW high tax rates are a good indicator of a stuffed economy:
• Congo 322% (of profits)
• Gambia 292.4%
• Burundi 272.6%
• Sierra Leone 235.5%
• Central African Republic 203.8%.