September 11, 2024 • 23 mins
We may be two years away from our next general election, but the possibility of more tax is already being debated.
Labour is starting to warm the public up to the idea of a wealth or capital gains tax being part of their 2026 manifesto - with leader Chris Hipkins saying its necessary to deal with our ageing population.
The possibility of introducing either tax has been debated by the left, and rejected by the right, for years – but is it time we have that conversation?
Today on The Front Page, we discuss this with tax experts Robin Oliver from Oliver Shaw and Geof Nightingale from Geof Nightingale Advisory.
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You can read more about this and other stories in the New Zealand Herald, online at nzherald.co.nz, or tune in to news bulletins across the NZME network.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:05):
Cure. I'm Susane Nordquist in for Chelsea Daniels and this
is the Front Page, a daily podcast presented by the
New Zealand Herald. We may be two years away from
our next general election, but the possibility of more tax
is already being debated. Labor is starting to warm the
(00:26):
public up to the idea of a wealth or capital
gains tax being part of their twenty twenty six manifesto,
with leader Chris Hipkins saying it's necessary to deal with
our aging population. The possibility of introducing iver tax has
been debated by the left and rejected by the right
for years, but is it time we have that conversation.
(00:48):
Today on the Front Page, we discuss this with independent
tax experts Robin Oliver and Jeff Nightingale. To start this
discuss off, what do you make of Labour's position about
having a public discussion on tax?
Speaker 2 (01:05):
To you, Robin, I'm a tax person. I love public
discussions on tax, but we need to be grounded in
what's workable, what the impact on the economy of tax
options are, and then have a rational discussion on that basis.
Speaker 1 (01:21):
Jeff, I'm going to ask the same question of you.
Speaker 3 (01:23):
Well, I agree with Robin.
Speaker 4 (01:24):
I think it's very important to have a rational discussion
about tax. The funny thing is Labour's talking now about
capital gains tax again. We've been talking about capital gains
tax about as long as.
Speaker 3 (01:34):
I've been alive.
Speaker 4 (01:35):
I think the first time it was raised was the
nineteen sixty seven Ross Committee and it's been considered and
recommended and reviewed by many tax committees ever since. It's
a good conversation to have, and it's an important one
for a bunch of reasons. But it's a difficult conversation
for New Zealand to have.
Speaker 2 (01:53):
The conversation is not just about capital gains tax. It
should be about the basics of our tax system. Capital
gains taxes a relatively minor issue on the side, and
it's not just capital gains taxes. Michael Cullen desperately tried
to point out, it's how much of the gains you tax.
You can text some capital gains, not others, and what
(02:13):
have you. But you know, it's not just limited to
capital gains tax and the future of our tax system.
The focus, i think is on what happens the demographics
mean that the population is becoming older, especially on government expenditure,
particularly on the health site, also used on super and
how will we pay for that? A lot of that's
expediture side. But yeah, I do concede that we should
(02:38):
at least have a taxes to which is capable of
raising more money than we currently do.
Speaker 1 (02:42):
Jeff is the timing right to have this discussion on
taxes though? Is this a conversation that Kiwis want to
have given the cost of living crisis and the fact
so many people are already struggling to get by.
Speaker 4 (02:54):
I think it's a conversation that Kiwis want to have
for a couple of reasons. One, as Robin's rightly pointed out,
our long term fiscal position is looking pretty dire if
you look at the Treasury forecasts. If we change none
of the settings, by twenty sixty will be running deficits
operating deficits of about twenty percent of GDP, which is
(03:14):
clearly we just can't get there. So tax is a
very important component of that future. But it's also a
very important component of the present, even even after the
tax cuts that have come in recently. The combination of
fiscal drag of creeping tax brackets and not adjusting tax
brackets and raising incomes over the last twelve or thirty
years means we're taxing our sort of middle income and
(03:37):
is pretty heavily in the middle of the cost of
living crisis. So for both the short term and the
long term, tax is an important conversation for the government
to have all the people that aspire to be our
governors to have. If we don't broad in New Zealand's
tax base, that word and of all of that is
going to fall on salary and wag journals and on GST,
which is where the government gets most of its revenue.
Speaker 3 (03:58):
At the moment.
Speaker 2 (03:59):
We're unique around the world in that regard.
Speaker 4 (04:01):
It's the same economic strategy and plan and it's pretty simple.
It's spend more, it's borrow more, it's tax more and
worse outcomes.
Speaker 3 (04:09):
That's what it's going to be. Robin.
Speaker 1 (04:13):
Then you've got National saying that Labour's one solution to
an issue is to raise taxes. Is that fair commentary
from them?
Speaker 2 (04:21):
Well, I do think the fiscal position is very much
depend upon expenditure and more discipline and fiscal expenditure that
we've seen over recent years would be a good idea,
and then rethink things about New Zealand supervaluation and what
have you. But the future, when you look at the future,
it really is about the overall wealth of the country.
(04:41):
You can only tax as much as the country produces,
and so really everything's dependent upon us becoming a wealthier country.
And you look turning that into tax terms, we clicked
about one hundred million dollars now luckily of tax, and
if we increase GDP by one percent, it's one point
two billion dollars extra tax. And you put that into
(05:04):
context for capital gains tax recommended by color pretty severe
internationally capital gains tax that raised about five billion, So
a few percentage points in GDP makes all the different
in tax terms.
Speaker 1 (05:18):
Rob And there are other ways you can grow well
fo in a country right.
Speaker 2 (05:22):
Well, basically growing the economy is all about productivity. You
get more production, you get higher wages. How do you
get increased productivity to investment and using that investment wisely.
And our problem as a country is we're falling behind
Australia and that has real consequences to people. It means
(05:43):
that our medical people are doctors, nurses are skilled people
go to Australia where the wages are higher and that
puts enormous pressure on our social services. And so everything
comes down to, including your tax choices, is what does
it do to grow our economy and our income per.
Speaker 1 (06:02):
Here Jeff Robin made the point about this brain drain
to Australia. What do you make of the points he
brought up there?
Speaker 3 (06:20):
I completely agree with Robin.
Speaker 4 (06:22):
I mean, the fastest way to grow our tax revenues
is to grow our economy, and so the very first
thing government policies need to do is get economic growth
going on a sustainable basis, obviously, and the tax revenues
will follow. There is a secondary question, though, so Robin
quite rightly says, you know, we collect about one hundred
billion dollars a tax now against our GDP of three
(06:43):
hundred and something billion, and I'm not advocating for more taxes.
I think we need to into the future, we'll need
to trim expenditure in order to meet our revenue needs.
So tax is a proportion of the economy has run
at about thirty percent of GDP for years, and I
think that's a reasonable target. But who pays that tax
is a secondary question, and how we collect that tax
(07:07):
and bounded up in that.
Speaker 3 (07:08):
Is two issues.
Speaker 4 (07:09):
One is efficiency, So are we taxing the right things?
Are we affecting our economic development because we're not taxing
land and we are taxing other things. And then there's
an equity question is who are we collecting that tax from.
Are we collecting it mainly from people that spend money
through GST and people doing money through wages, or are
we collecting it off wealth? And those questions also have
(07:30):
to be resolved as well as the overall level of taxation.
Speaker 2 (07:34):
On that point, the problem is that if we tax
on wealth on capital enter that discourages investment and that
is an adverse to growing the economy. So we've got
to raise tax, and we've got to raise a substantial amount,
no matter what's your views it, and we've got to
do that in a way that is least costly as
(07:55):
possible to the economy.
Speaker 1 (07:57):
Time though, for the burden to be moved from income
tax to capital gains.
Speaker 2 (08:02):
Well, I mean there are issues for it against capital
gains tax, but I keep on saying it's not the
real issue. Fundamentally, whatever we do, we have to tax
people on the income and the facts are that we'll
always tax the middle income earners because that's where the
big amount of money is, and that's where the bulk
(08:23):
of the people are. So if you take our current
tax system on individuals, we talk about taxing ABO one
hundred billion, about half of that comes from tax on individuals,
and about half the tax on individuals is collected from
those people earning between seventy and one hundred and eighty
thousand dollars a year, and that's about eighteen percent of
(08:44):
the population of the individual tax backs. So the bulk
of our money comes from that seventy to or hundred
and eighty thousand dollars level. Yes, there are people at
the top, the top two percent. They paid twenty two
percent of our tax, but there's only eighty eight two
percent of a population is in that category. There's just
not enough people there to raise much more money.
Speaker 1 (09:07):
Jeff, what's your response to Robin's comments there?
Speaker 4 (09:10):
I would just raise a couple of points. The first
is on the productivity point. I think that in a
number of people think that New Zealand is by and
large of overinvested in land assets and underinvested in financial assets,
and part of the reason for that may well be
the absence of a general capital gains tax, meaning that
(09:30):
we are chasing tax free capital gains rather than investing
in financial assets.
Speaker 3 (09:35):
Which would in turn be used to drive productivity.
Speaker 4 (09:37):
So there's a potential efficiency loss in our tax system
at the moment. The second thing I'd say is that
I completely agree with Robin. The bulk of our tax
is inevitably going to be raised off the consumption and
the labor income of us, and there's no huge pot
of gold in squeezing much more out of the top
two percent. But there is an equity point, and that
(09:59):
is largely in New Zealand. We accept a progressive tax
system where the more you earn and the more you have,
the higher proportionally your burden is for tax, and in
the absence of a capital gains tax, the New Zealand
tax system overall is not that progressive as you get
up to the top end because the very wealth they
(10:20):
make most of their money out of capital gains. And
so if that equity issue persists, it can undermine, in
my view, the willingness of the middle class who are
paying the bulk of the tax to keep doing that.
And so that's a long term political issue. I think
that needs to be resolved.
Speaker 5 (10:40):
New Zealand has famously put a lot of their money
into property, which is really not a productive as seat.
A house just sits there and gains wealth, but it
doesn't make more houses. And so what you could argue
is that there is a case for a tax setup
that encourages people to invest more in the stock market
and in company that might produce more things rather than
(11:02):
in property.
Speaker 2 (11:07):
I agree with Deaf that land is a big issue.
I mean, seventy five percent of the capital gains tax
on colored group estimate cape of land, and that's our
big as set. That's what the Zelanders do. They borrow
money off Australia and bid up device of land. We
end up with noble land obviously, just more expensive land
and more debt and no more productive investment. So land
(11:30):
is a big issue. And the problem with that is
taxing land is politically extremely difficult because who owns the land.
It's farmers, the elderly and EWI and I can see
the theoretical argument for more tax on LAD and people
buy LAD for the increase and values that it will produce,
and I understand that, and I agree that there is
(11:51):
a good case for taxing it, but to target the
elderly farmers and EWI to meet our future tax burden
is sort of a hard one to sell.
Speaker 1 (12:01):
Speaking of the elderly, we've got an aging population here
in New Zealand. Chris Hipkins sees that twenty one percent
of the population will be over sixty five in the
next ten years. How are we meant to pay for
that if we don't raise taxes, Jeff.
Speaker 4 (12:16):
That is the difficult question, and I'll be one of
those people. There's two big expenses we've got coming at us.
One is national superannuation and that's because we have a
universal scheme, and the second is our health costs. The
National superannuation affordability. You know, it's affordable at the moment,
but it's not going to be affordable in a coming
decade or so. So you've only got a couple of choices.
(12:38):
You can raise more taxes, or you can reduce eligibility.
And again that's where I think a capital gains tax
has some appeal because most of the capital gains are
earned by people over sixty five. Because at the end
of your life, your economic life cycle, you've accumulated capital,
and you're more likely to accumulate capital gains that are
the same people we're giving a universal national superannuation payment too,
(13:02):
and so an element of self funding there feels to
me to be a sensible thing to consider.
Speaker 1 (13:08):
Gee, if you're saying that superannuation will not be affordable
in the next decade, so we've got ten years effectively
as that we were saying to introduce another tax.
Speaker 4 (13:18):
Or make decisions about age of eligibility or coverage. I mean,
I'm not in I think there is some real benefits
in a universal national superannuation. It's easy to administer, it's equitable,
it doesn't have perverse incentives, but it's expensive. You know,
your other option could be to start means testing national
super but that brings with it a whole lot of
other sort of policy and behavioral challenges.
Speaker 1 (13:40):
Robin, what do you have to say about Jeff's comments there?
Speaker 2 (13:42):
Well, I agree with New Zealand supers. It's actually a
good scheme. It means that New Zealand is over sixty
particularly over sixty five, are more in the workforce than
any other country I'm aware of. We have a very
high number of sixty five plus people in the workforce
working and that's a good way to manage aging population,
(14:05):
and that's largely accomplicable to the fact that we don't
means test dexillance super But really the real pressure on
the aging I think will be healthcare and including geriatric care.
And if we do have to raise more revenue, I mean,
the capital gains tax doesn't raise much and most of
that's from land and that's difficult. Anything else is basically
(14:27):
reduces our productivity, and we have to increase our productivity
if we want to have a prosperous society of old people,
so we need more wages and more prosperity. I would
just increase TST. I can't see why not everybody pays
for it, and it also has the good feature that
people who are retired still pay it because they're consuming
(14:49):
not working. So actually it's a way of moving the
tax burden into the non working part of the population,
which is increasing.
Speaker 1 (15:07):
As raising GST a good idea from your perspective, JEF.
Speaker 4 (15:12):
I think it's certainly worth considering. We've been to that
tap twice. GST started at ten percent, then went to
twelve and a half, it's now at fifteen. The thing
about raising GST, there's a couple of issues that might put.
Speaker 3 (15:24):
A ceiling on raising GST.
Speaker 4 (15:27):
The first issue is simply as GST gets higher, the
incentives to avoid it gets stronger. That there's pretty low
avoidance of GST in New Zealand. It's a pretty efficient tax.
It all gets collected and as the rate goes higher,
the incentives to avoid it gets stronger, So you want
to consider that. And the second thing, which is more
difficult is it's a regressive tax because if you're on
(15:50):
a lower medium income, you consume all of your income
and most of it, apart from your mortgage payments, will
be subject to GST. If you're on really high income,
you save half your income and you don't immediately pay
GEST on it.
Speaker 3 (16:01):
You do when you spend those savings.
Speaker 4 (16:03):
So that regressivity goes against the progressive nature of the
New Zealand tax system. And there are some solutions for
that in terms of lifting benefits or changing tax rates
at the low end. But that regressivity would be a
reason why I wouldn't immediately reach for a GST raise.
Speaker 1 (16:19):
Okay, Robin, let's took through some of these taxes now,
starting with a capital gains tax. It's been discussed, debated, recommended,
and ruled out. Multiple times before.
Speaker 5 (16:29):
The International Monetary Funds released it's yearly report into New Zealand's.
Speaker 4 (16:33):
Economy, repeating calls for an overhaul by adding capital gains
and land taxes.
Speaker 1 (16:38):
I've already said that I still believe in it, but
I have given my word you will not have a
capital gains tax under a labor led government. I lead
about one hundred and thirty countries have some form of
a capital gains tax, and about thirty do not include
New Zealand. Is it time we catch up and introduce one.
Speaker 2 (16:57):
I'm not quite a logically opposed to capital gains taxes.
It is incup and therefore obviously should be considered. But
the devils in the detail, and it has to be
on a realization basis. I think it means you don't
get losses if discourages entrepreneurial investment. All of that sort
of stuff is a cast forward on land, as I've said,
(17:18):
But that's really the real political difficulty. And I hated
the aspect of a colored one, which basically put an
extra tax burdened on shareholders in terms of gains on shares,
meaning that we increase the tax on New Zealanders investing
in domestic companies, but we kept it the same for
(17:40):
fig designing New Zealand shares, and we made it the
same for Neator's own fine shares. So increase the tax
on New Zulanders early domestic shares, don't change everything else.
Will have less news of designing New Zealand shares and
more news of it designing feign shares. That's the opposite
of what we want to have. That's less investment in
the economy.
Speaker 1 (17:59):
In terms of a capital tax, are there any examples
of countries who are doing this well and collecting a
lot of revenue from it?
Speaker 4 (18:06):
Generally capital gains taxes the research I've seen, they seem
to collect between sort of one to one and a
half percent of GDP when they are fully fledged. Takes
years to build up to that level, So it's not
a pot of gold. It's not going to solve our
revenue shortfall crisis. But you know, five billion dollars our
next budget, we're going to have an operating allowance of
(18:26):
less than a billion, So five billion dollars you can
do some infrastructure, You can do some things with that.
I wouldn't be turning away from that. I think that
Robin's right, most capital gains taxes in other OECD nations,
and they've virtually all got them.
Speaker 1 (18:42):
You know.
Speaker 4 (18:42):
They're full of political compromises and exemptions and loopholes, and
they're complex to administer. So there are all of those
downsides of a capital gains tax. But in my mind,
as we look forward from both an efficiency and inequity
perspective potential revenue shortfall, I think we should be sensibly
considering one and seeing if we can iron out some
(19:03):
of those design faults of other jurisdictions in a New Zealand.
Speaker 1 (19:07):
Version, Robin onto a wealth tax now, which you said
is a terrible idea. Is there a risk that a
wealthfall capital gains tax will drive people away from investing
in New Zealand and therefore accelerating our brain drain.
Speaker 2 (19:20):
Well, a capital gains tax is pretty normal overseas. I
don't think if peeding of the capital gains tax thirty
nine percent would be for the outragers internationally, but it's
in the norm internationally. A wealth tax would be right
after it, and fewer countries are having them. And yes,
any form of wealth tax which aim to raise any
(19:41):
material amount of money the wealthy would leave it will
absolutely leave a lot of people with over ten million
dollars ago will leave the country and they'll go to
maybe Australia and we will lose out big time.
Speaker 1 (19:55):
Jeff, is the threshold for this tax set high enough
for a wealth tax?
Speaker 3 (20:00):
Well, I'm on this one.
Speaker 4 (20:01):
I'm one hundred percent with Robin. I think a wealth
tax would be a bad idea. I'm not sure that
we'd have as much capital flight as Robin forecasts, but
maybe I'm Pollyanna. But the wealth tax has two problems.
The first is valuation. Much of New Zealand's value is
held in the hands of private businesses, and you don't
have a quoted value for those shares. And a business
(20:23):
is only worth what you can get for it when
you sell it, and businesses are volatile and value, so
it's very hard to value in order to impose the
wealth tax. And the second problem is liquidity. You don't
have any cash necessarily to pay the wealth tax. And
so you might have a very valuable family business that
in one year makes a loss and it's still very
valuable because in futures it will make profits. How does
(20:44):
it pay the wealth tax if it's made a loss?
And so those two problems for me mean I would
rule wealth tax out and Captain Gain's tax to me
looks like a better option because you've got a value,
you've got a transaction, you've got a value, you've got
liquidity to pay it.
Speaker 3 (20:58):
So I'd agree with Robin.
Speaker 1 (20:59):
Let's see end with a bit of a pitch from
you both in a nutshell, if a political party came
knocking asking for your tax policy idea for twenty twenty six,
what would your recommendation be. Starting with you again, Robin.
Speaker 2 (21:12):
My recommendation is we've got to have more fiscal discipline
than we've shown in the past. And I think that's
all political parties, and we should try to keep our
tax burden roughly no highlands. Now it's about thirty five
percent of GDP, and I think anything more is hard.
But if we need more money, we've got to collect
(21:33):
the money from the where the people have money, and
there's a large number of them, and that's the middle class.
And I would say, well, if we need more money
for caring of the elderly healthcare, we put on GST,
increase TST, and avoid all these other very taxes which
basically undermine productivity and investment, and one thing I would say,
(21:59):
you can, I give that capital gains tax. I said,
by the way, but a wealth tax is the most
disastrous idea.
Speaker 1 (22:06):
Jeff, what would you say?
Speaker 4 (22:07):
So I'd be lobbying the government or an incoming government
to carefully design and introduce a comprehensive capital gains tax
in a relatively stripped down way to try and avoid
the worst impacts on productivity that Robin points out. As
the revenues from that capital gain tax rose, I would
recycle those into tax cuts.
Speaker 3 (22:28):
At the lower end.
Speaker 4 (22:29):
And the reason for doing that there's a bunch of
technical reasons around marginal tax rates, but also in order
to get more disposable and come to more people. And
then in the future, if you do need to increase
the proportion of tax taken out of the economy, you
have a capital gain structure that can be dialed up.
So that'd be my tax policy prescription.
Speaker 1 (22:50):
Robin and Jeff an interesting debate about New Zealand's tax system.
Thanks for joining us today. That's it for this e
of the front page. You can read more about today's
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dot endzet The Front Page is produced by Ethan Sills.
(23:10):
Patty Fox is a sound engineer. I'm Susie Nordquist. Subscribe
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the headlines.
Cure. I'm Susane Nordquist in for Chelsea Daniels and this
is the Front Page, a daily podcast presented by the
New Zealand Herald. We may be two years away from
our next general election, but the possibility of more tax
is already being debated. Labor is starting to warm the
(00:26):
public up to the idea of a wealth or capital
gains tax being part of their twenty twenty six manifesto,
with leader Chris Hipkins saying it's necessary to deal with
our aging population. The possibility of introducing iver tax has
been debated by the left and rejected by the right
for years, but is it time we have that conversation.
(00:48):
Today on the Front Page, we discuss this with independent
tax experts Robin Oliver and Jeff Nightingale. To start this
discuss off, what do you make of Labour's position about
having a public discussion on tax?
Speaker 2 (01:05):
To you, Robin, I'm a tax person. I love public
discussions on tax, but we need to be grounded in
what's workable, what the impact on the economy of tax
options are, and then have a rational discussion on that basis.
Speaker 1 (01:21):
Jeff, I'm going to ask the same question of you.
Speaker 3 (01:23):
Well, I agree with Robin.
Speaker 4 (01:24):
I think it's very important to have a rational discussion
about tax. The funny thing is Labour's talking now about
capital gains tax again. We've been talking about capital gains
tax about as long as.
Speaker 3 (01:34):
I've been alive.
Speaker 4 (01:35):
I think the first time it was raised was the
nineteen sixty seven Ross Committee and it's been considered and
recommended and reviewed by many tax committees ever since. It's
a good conversation to have, and it's an important one
for a bunch of reasons. But it's a difficult conversation
for New Zealand to have.
Speaker 2 (01:53):
The conversation is not just about capital gains tax. It
should be about the basics of our tax system. Capital
gains taxes a relatively minor issue on the side, and
it's not just capital gains taxes. Michael Cullen desperately tried
to point out, it's how much of the gains you tax.
You can text some capital gains, not others, and what
(02:13):
have you. But you know, it's not just limited to
capital gains tax and the future of our tax system.
The focus, i think is on what happens the demographics
mean that the population is becoming older, especially on government expenditure,
particularly on the health site, also used on super and
how will we pay for that? A lot of that's
expediture side. But yeah, I do concede that we should
(02:38):
at least have a taxes to which is capable of
raising more money than we currently do.
Speaker 1 (02:42):
Jeff is the timing right to have this discussion on
taxes though? Is this a conversation that Kiwis want to
have given the cost of living crisis and the fact
so many people are already struggling to get by.
Speaker 4 (02:54):
I think it's a conversation that Kiwis want to have
for a couple of reasons. One, as Robin's rightly pointed out,
our long term fiscal position is looking pretty dire if
you look at the Treasury forecasts. If we change none
of the settings, by twenty sixty will be running deficits
operating deficits of about twenty percent of GDP, which is
(03:14):
clearly we just can't get there. So tax is a
very important component of that future. But it's also a
very important component of the present, even even after the
tax cuts that have come in recently. The combination of
fiscal drag of creeping tax brackets and not adjusting tax
brackets and raising incomes over the last twelve or thirty
years means we're taxing our sort of middle income and
(03:37):
is pretty heavily in the middle of the cost of
living crisis. So for both the short term and the
long term, tax is an important conversation for the government
to have all the people that aspire to be our
governors to have. If we don't broad in New Zealand's
tax base, that word and of all of that is
going to fall on salary and wag journals and on GST,
which is where the government gets most of its revenue.
Speaker 3 (03:58):
At the moment.
Speaker 2 (03:59):
We're unique around the world in that regard.
Speaker 4 (04:01):
It's the same economic strategy and plan and it's pretty simple.
It's spend more, it's borrow more, it's tax more and
worse outcomes.
Speaker 3 (04:09):
That's what it's going to be. Robin.
Speaker 1 (04:13):
Then you've got National saying that Labour's one solution to
an issue is to raise taxes. Is that fair commentary
from them?
Speaker 2 (04:21):
Well, I do think the fiscal position is very much
depend upon expenditure and more discipline and fiscal expenditure that
we've seen over recent years would be a good idea,
and then rethink things about New Zealand supervaluation and what
have you. But the future, when you look at the future,
it really is about the overall wealth of the country.
(04:41):
You can only tax as much as the country produces,
and so really everything's dependent upon us becoming a wealthier country.
And you look turning that into tax terms, we clicked
about one hundred million dollars now luckily of tax, and
if we increase GDP by one percent, it's one point
two billion dollars extra tax. And you put that into
(05:04):
context for capital gains tax recommended by color pretty severe
internationally capital gains tax that raised about five billion, So
a few percentage points in GDP makes all the different
in tax terms.
Speaker 1 (05:18):
Rob And there are other ways you can grow well
fo in a country right.
Speaker 2 (05:22):
Well, basically growing the economy is all about productivity. You
get more production, you get higher wages. How do you
get increased productivity to investment and using that investment wisely.
And our problem as a country is we're falling behind
Australia and that has real consequences to people. It means
(05:43):
that our medical people are doctors, nurses are skilled people
go to Australia where the wages are higher and that
puts enormous pressure on our social services. And so everything
comes down to, including your tax choices, is what does
it do to grow our economy and our income per.
Speaker 1 (06:02):
Here Jeff Robin made the point about this brain drain
to Australia. What do you make of the points he
brought up there?
Speaker 3 (06:20):
I completely agree with Robin.
Speaker 4 (06:22):
I mean, the fastest way to grow our tax revenues
is to grow our economy, and so the very first
thing government policies need to do is get economic growth
going on a sustainable basis, obviously, and the tax revenues
will follow. There is a secondary question, though, so Robin
quite rightly says, you know, we collect about one hundred
billion dollars a tax now against our GDP of three
(06:43):
hundred and something billion, and I'm not advocating for more taxes.
I think we need to into the future, we'll need
to trim expenditure in order to meet our revenue needs.
So tax is a proportion of the economy has run
at about thirty percent of GDP for years, and I
think that's a reasonable target. But who pays that tax
is a secondary question, and how we collect that tax
(07:07):
and bounded up in that.
Speaker 3 (07:08):
Is two issues.
Speaker 4 (07:09):
One is efficiency, So are we taxing the right things?
Are we affecting our economic development because we're not taxing
land and we are taxing other things. And then there's
an equity question is who are we collecting that tax from.
Are we collecting it mainly from people that spend money
through GST and people doing money through wages, or are
we collecting it off wealth? And those questions also have
(07:30):
to be resolved as well as the overall level of taxation.
Speaker 2 (07:34):
On that point, the problem is that if we tax
on wealth on capital enter that discourages investment and that
is an adverse to growing the economy. So we've got
to raise tax, and we've got to raise a substantial amount,
no matter what's your views it, and we've got to
do that in a way that is least costly as
(07:55):
possible to the economy.
Speaker 1 (07:57):
Time though, for the burden to be moved from income
tax to capital gains.
Speaker 2 (08:02):
Well, I mean there are issues for it against capital
gains tax, but I keep on saying it's not the
real issue. Fundamentally, whatever we do, we have to tax
people on the income and the facts are that we'll
always tax the middle income earners because that's where the
big amount of money is, and that's where the bulk
(08:23):
of the people are. So if you take our current
tax system on individuals, we talk about taxing ABO one
hundred billion, about half of that comes from tax on individuals,
and about half the tax on individuals is collected from
those people earning between seventy and one hundred and eighty
thousand dollars a year, and that's about eighteen percent of
(08:44):
the population of the individual tax backs. So the bulk
of our money comes from that seventy to or hundred
and eighty thousand dollars level. Yes, there are people at
the top, the top two percent. They paid twenty two
percent of our tax, but there's only eighty eight two
percent of a population is in that category. There's just
not enough people there to raise much more money.
Speaker 1 (09:07):
Jeff, what's your response to Robin's comments there?
Speaker 4 (09:10):
I would just raise a couple of points. The first
is on the productivity point. I think that in a
number of people think that New Zealand is by and
large of overinvested in land assets and underinvested in financial assets,
and part of the reason for that may well be
the absence of a general capital gains tax, meaning that
(09:30):
we are chasing tax free capital gains rather than investing
in financial assets.
Speaker 3 (09:35):
Which would in turn be used to drive productivity.
Speaker 4 (09:37):
So there's a potential efficiency loss in our tax system
at the moment. The second thing I'd say is that
I completely agree with Robin. The bulk of our tax
is inevitably going to be raised off the consumption and
the labor income of us, and there's no huge pot
of gold in squeezing much more out of the top
two percent. But there is an equity point, and that
(09:59):
is largely in New Zealand. We accept a progressive tax
system where the more you earn and the more you have,
the higher proportionally your burden is for tax, and in
the absence of a capital gains tax, the New Zealand
tax system overall is not that progressive as you get
up to the top end because the very wealth they
(10:20):
make most of their money out of capital gains. And
so if that equity issue persists, it can undermine, in
my view, the willingness of the middle class who are
paying the bulk of the tax to keep doing that.
And so that's a long term political issue. I think
that needs to be resolved.
Speaker 5 (10:40):
New Zealand has famously put a lot of their money
into property, which is really not a productive as seat.
A house just sits there and gains wealth, but it
doesn't make more houses. And so what you could argue
is that there is a case for a tax setup
that encourages people to invest more in the stock market
and in company that might produce more things rather than
(11:02):
in property.
Speaker 2 (11:07):
I agree with Deaf that land is a big issue.
I mean, seventy five percent of the capital gains tax
on colored group estimate cape of land, and that's our
big as set. That's what the Zelanders do. They borrow
money off Australia and bid up device of land. We
end up with noble land obviously, just more expensive land
and more debt and no more productive investment. So land
(11:30):
is a big issue. And the problem with that is
taxing land is politically extremely difficult because who owns the land.
It's farmers, the elderly and EWI and I can see
the theoretical argument for more tax on LAD and people
buy LAD for the increase and values that it will produce,
and I understand that, and I agree that there is
(11:51):
a good case for taxing it, but to target the
elderly farmers and EWI to meet our future tax burden
is sort of a hard one to sell.
Speaker 1 (12:01):
Speaking of the elderly, we've got an aging population here
in New Zealand. Chris Hipkins sees that twenty one percent
of the population will be over sixty five in the
next ten years. How are we meant to pay for
that if we don't raise taxes, Jeff.
Speaker 4 (12:16):
That is the difficult question, and I'll be one of
those people. There's two big expenses we've got coming at us.
One is national superannuation and that's because we have a
universal scheme, and the second is our health costs. The
National superannuation affordability. You know, it's affordable at the moment,
but it's not going to be affordable in a coming
decade or so. So you've only got a couple of choices.
(12:38):
You can raise more taxes, or you can reduce eligibility.
And again that's where I think a capital gains tax
has some appeal because most of the capital gains are
earned by people over sixty five. Because at the end
of your life, your economic life cycle, you've accumulated capital,
and you're more likely to accumulate capital gains that are
the same people we're giving a universal national superannuation payment too,
(13:02):
and so an element of self funding there feels to
me to be a sensible thing to consider.
Speaker 1 (13:08):
Gee, if you're saying that superannuation will not be affordable
in the next decade, so we've got ten years effectively
as that we were saying to introduce another tax.
Speaker 4 (13:18):
Or make decisions about age of eligibility or coverage. I mean,
I'm not in I think there is some real benefits
in a universal national superannuation. It's easy to administer, it's equitable,
it doesn't have perverse incentives, but it's expensive. You know,
your other option could be to start means testing national
super but that brings with it a whole lot of
other sort of policy and behavioral challenges.
Speaker 1 (13:40):
Robin, what do you have to say about Jeff's comments there?
Speaker 2 (13:42):
Well, I agree with New Zealand supers. It's actually a
good scheme. It means that New Zealand is over sixty
particularly over sixty five, are more in the workforce than
any other country I'm aware of. We have a very
high number of sixty five plus people in the workforce
working and that's a good way to manage aging population,
(14:05):
and that's largely accomplicable to the fact that we don't
means test dexillance super But really the real pressure on
the aging I think will be healthcare and including geriatric care.
And if we do have to raise more revenue, I mean,
the capital gains tax doesn't raise much and most of
that's from land and that's difficult. Anything else is basically
(14:27):
reduces our productivity, and we have to increase our productivity
if we want to have a prosperous society of old people,
so we need more wages and more prosperity. I would
just increase TST. I can't see why not everybody pays
for it, and it also has the good feature that
people who are retired still pay it because they're consuming
(14:49):
not working. So actually it's a way of moving the
tax burden into the non working part of the population,
which is increasing.
Speaker 1 (15:07):
As raising GST a good idea from your perspective, JEF.
Speaker 4 (15:12):
I think it's certainly worth considering. We've been to that
tap twice. GST started at ten percent, then went to
twelve and a half, it's now at fifteen. The thing
about raising GST, there's a couple of issues that might put.
Speaker 3 (15:24):
A ceiling on raising GST.
Speaker 4 (15:27):
The first issue is simply as GST gets higher, the
incentives to avoid it gets stronger. That there's pretty low
avoidance of GST in New Zealand. It's a pretty efficient tax.
It all gets collected and as the rate goes higher,
the incentives to avoid it gets stronger, So you want
to consider that. And the second thing, which is more
difficult is it's a regressive tax because if you're on
(15:50):
a lower medium income, you consume all of your income
and most of it, apart from your mortgage payments, will
be subject to GST. If you're on really high income,
you save half your income and you don't immediately pay
GEST on it.
Speaker 3 (16:01):
You do when you spend those savings.
Speaker 4 (16:03):
So that regressivity goes against the progressive nature of the
New Zealand tax system. And there are some solutions for
that in terms of lifting benefits or changing tax rates
at the low end. But that regressivity would be a
reason why I wouldn't immediately reach for a GST raise.
Speaker 1 (16:19):
Okay, Robin, let's took through some of these taxes now,
starting with a capital gains tax. It's been discussed, debated, recommended,
and ruled out. Multiple times before.
Speaker 5 (16:29):
The International Monetary Funds released it's yearly report into New Zealand's.
Speaker 4 (16:33):
Economy, repeating calls for an overhaul by adding capital gains
and land taxes.
Speaker 1 (16:38):
I've already said that I still believe in it, but
I have given my word you will not have a
capital gains tax under a labor led government. I lead
about one hundred and thirty countries have some form of
a capital gains tax, and about thirty do not include
New Zealand. Is it time we catch up and introduce one.
Speaker 2 (16:57):
I'm not quite a logically opposed to capital gains taxes.
It is incup and therefore obviously should be considered. But
the devils in the detail, and it has to be
on a realization basis. I think it means you don't
get losses if discourages entrepreneurial investment. All of that sort
of stuff is a cast forward on land, as I've said,
(17:18):
But that's really the real political difficulty. And I hated
the aspect of a colored one, which basically put an
extra tax burdened on shareholders in terms of gains on shares,
meaning that we increase the tax on New Zealanders investing
in domestic companies, but we kept it the same for
(17:40):
fig designing New Zealand shares, and we made it the
same for Neator's own fine shares. So increase the tax
on New Zulanders early domestic shares, don't change everything else.
Will have less news of designing New Zealand shares and
more news of it designing feign shares. That's the opposite
of what we want to have. That's less investment in
the economy.
Speaker 1 (17:59):
In terms of a capital tax, are there any examples
of countries who are doing this well and collecting a
lot of revenue from it?
Speaker 4 (18:06):
Generally capital gains taxes the research I've seen, they seem
to collect between sort of one to one and a
half percent of GDP when they are fully fledged. Takes
years to build up to that level, So it's not
a pot of gold. It's not going to solve our
revenue shortfall crisis. But you know, five billion dollars our
next budget, we're going to have an operating allowance of
(18:26):
less than a billion, So five billion dollars you can
do some infrastructure, You can do some things with that.
I wouldn't be turning away from that. I think that
Robin's right, most capital gains taxes in other OECD nations,
and they've virtually all got them.
Speaker 1 (18:42):
You know.
Speaker 4 (18:42):
They're full of political compromises and exemptions and loopholes, and
they're complex to administer. So there are all of those
downsides of a capital gains tax. But in my mind,
as we look forward from both an efficiency and inequity
perspective potential revenue shortfall, I think we should be sensibly
considering one and seeing if we can iron out some
(19:03):
of those design faults of other jurisdictions in a New Zealand.
Speaker 1 (19:07):
Version, Robin onto a wealth tax now, which you said
is a terrible idea. Is there a risk that a
wealthfall capital gains tax will drive people away from investing
in New Zealand and therefore accelerating our brain drain.
Speaker 2 (19:20):
Well, a capital gains tax is pretty normal overseas. I
don't think if peeding of the capital gains tax thirty
nine percent would be for the outragers internationally, but it's
in the norm internationally. A wealth tax would be right
after it, and fewer countries are having them. And yes,
any form of wealth tax which aim to raise any
(19:41):
material amount of money the wealthy would leave it will
absolutely leave a lot of people with over ten million
dollars ago will leave the country and they'll go to
maybe Australia and we will lose out big time.
Speaker 1 (19:55):
Jeff, is the threshold for this tax set high enough
for a wealth tax?
Speaker 3 (20:00):
Well, I'm on this one.
Speaker 4 (20:01):
I'm one hundred percent with Robin. I think a wealth
tax would be a bad idea. I'm not sure that
we'd have as much capital flight as Robin forecasts, but
maybe I'm Pollyanna. But the wealth tax has two problems.
The first is valuation. Much of New Zealand's value is
held in the hands of private businesses, and you don't
have a quoted value for those shares. And a business
(20:23):
is only worth what you can get for it when
you sell it, and businesses are volatile and value, so
it's very hard to value in order to impose the
wealth tax. And the second problem is liquidity. You don't
have any cash necessarily to pay the wealth tax. And
so you might have a very valuable family business that
in one year makes a loss and it's still very
valuable because in futures it will make profits. How does
(20:44):
it pay the wealth tax if it's made a loss?
And so those two problems for me mean I would
rule wealth tax out and Captain Gain's tax to me
looks like a better option because you've got a value,
you've got a transaction, you've got a value, you've got
liquidity to pay it.
Speaker 3 (20:58):
So I'd agree with Robin.
Speaker 1 (20:59):
Let's see end with a bit of a pitch from
you both in a nutshell, if a political party came
knocking asking for your tax policy idea for twenty twenty six,
what would your recommendation be. Starting with you again, Robin.
Speaker 2 (21:12):
My recommendation is we've got to have more fiscal discipline
than we've shown in the past. And I think that's
all political parties, and we should try to keep our
tax burden roughly no highlands. Now it's about thirty five
percent of GDP, and I think anything more is hard.
But if we need more money, we've got to collect
(21:33):
the money from the where the people have money, and
there's a large number of them, and that's the middle class.
And I would say, well, if we need more money
for caring of the elderly healthcare, we put on GST,
increase TST, and avoid all these other very taxes which
basically undermine productivity and investment, and one thing I would say,
(21:59):
you can, I give that capital gains tax. I said,
by the way, but a wealth tax is the most
disastrous idea.
Speaker 1 (22:06):
Jeff, what would you say?
Speaker 4 (22:07):
So I'd be lobbying the government or an incoming government
to carefully design and introduce a comprehensive capital gains tax
in a relatively stripped down way to try and avoid
the worst impacts on productivity that Robin points out. As
the revenues from that capital gain tax rose, I would
recycle those into tax cuts.
Speaker 3 (22:28):
At the lower end.
Speaker 4 (22:29):
And the reason for doing that there's a bunch of
technical reasons around marginal tax rates, but also in order
to get more disposable and come to more people. And
then in the future, if you do need to increase
the proportion of tax taken out of the economy, you
have a capital gain structure that can be dialed up.
So that'd be my tax policy prescription.
Speaker 1 (22:50):
Robin and Jeff an interesting debate about New Zealand's tax system.
Thanks for joining us today. That's it for this e
of the front page. You can read more about today's
stories and extensive news coverage at inset Herald dot co
dot endzet The Front Page is produced by Ethan Sills.
(23:10):
Patty Fox is a sound engineer. I'm Susie Nordquist. Subscribe
to the Front Page on iHeartRadio or wherever you get
your podcasts, and tune in tomorrow for another look behind
the headlines.
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