A tax expert says achieving a fair tax system is hard, but not impossible.
A UN committee is calling on governments to check their tax policies are being applied proportionally to wealthier individuals.
It says regressive and ineffective policies could disproportionately affect low-income households, women, and disadvantaged groups.
Denton Tax Partner Bruce Bernacchi told Kerre Woodham tax can become disproportional when measuring how much tax is paid overall against incomes.
He says New Zealand sticks out because higher income-earners are earning capital gains but not paying tax on it.
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Speaker 1 (00:06):
You're listening to the Carrywood and Morning's podcast from News Talks.
Speaker 2 (00:10):
He'd be a statement from the United Nations Committee on Economic,
Social and Cultural Rights is questioning the fairness of GST.
They say consumption taxes such as value added GST as
we know it tax can have adverse impacts on disadvantaged
groups such as low income families and single parent households,
(00:31):
which typically spend a higher percentage of their income on
everyday goods and services. Is there such a thing as
a fair tax regime to discuss? I'm joined by Denton's
tax partner, Bruce Binaki a very good morning to you.
Speaker 3 (00:45):
Good morning, carry Is there such a thing as.
Speaker 2 (00:48):
A fair tax regime or just a least unfair tech
tax regime?
Speaker 3 (00:52):
Well, I think that I think there can be such
things a fair tax regime. But it's a very subjective concept,
isn't it ruming what what might be fair to one
person could be seen as as grossly unfair. And I
think the furious thing about the UN's report is so
we actually have one hundred and seventy five countries that
(01:13):
operate a GST, or VAT as it's known in Europe
and other countries system and so you're basically calling out
pretty much the entire world as operating unfair taxation systems
and having these sort of consumption taxes.
Speaker 2 (01:28):
Yes, because you know, as I understand it, the GST
was sold as a way of getting those who participate
in the black economy, those who don't pay taxes, who
live outside of of you know, a pa ye scheme,
and that way we can collect money off them when
they spend.
Speaker 3 (01:48):
But yet that, yeah, that was going to Sorry, that's
absolutely right. It's a very efficient tax. It's very hard
to avoid, you know, whenever you buy anything in this country,
and regardless of how much you earn, you pay gs T.
And you compare that, as you say, to the black economy,
the cash economy, people who may be in business for themselves,
(02:12):
not declaring the income, not paying income tax or we've
seen a spate of companies going into liquidation recently with
large amounts owing to inland revenue of unpaid income taxes
and paye collected from their employees that never finds its
way to the government. When GST is just a great
way to collect tax.
Speaker 2 (02:29):
But it is true that if you are on a
low income, you don't have the choices to make when
it comes to how you spend, and there are some
things you simply cannot avoid buying.
Speaker 3 (02:42):
That that's right. But the id's actually looked at this
and said, look, overall, you know, the imposition of GST
on people is broadly proportional. And that's because things like rent,
for example, doesn't have GST on it, So that's going
to be a large amount. You know, for a lot
of low income families, rent is going to be a
large amount of the expenditure and there's no GST on that.
And they tend to find as people's income rises, you
(03:04):
would expect the amount they spend rises not to the
same level, but they start spending more on stuff that
does have GST. So when you look at it just
from the amount of tax that people are paying on
their spending, it's it's not that disproportional where you start.
If you start measuring how much tax you pay overall
GST and income taxes compared to your income, that's where
(03:26):
the arguments about it being regressive are because you have
higher income earners, you know, earning capital gains, and that's
that's what sort of famously makes New Zealand stick out
that you have people earning capital gains that aren't paying
tax on it.
Speaker 2 (03:37):
Do you think it's inevitable we have a capital gains tax.
Speaker 3 (03:43):
Probably yeah, I like at least it doesn't. I mean,
I kind of think it's inevitable. And I know they
won't be appealing to a lot of your listeners, but
I think it is. We are an outlier. You know,
it has been recommended by an independent review of the
New Zealand taxation system looking specifically at our system, that
was done five years ago by the Tax Working Group.
(04:05):
And the thing is if if you actually introduce it,
you can then use that to lower tax rates across
the board. I mean, New Zealand has had this long
standing principle of we should have a taxation base with
a broad base and a low rate, and at the
moment the tax base isn't as broad as it arguably
should because we don't tax capital gains. And if you
introduce it, that could allow you to fund tax reductions.
(04:28):
And I think that is you know, you know you
can't tax you ay into prosperity, obviously, but I think,
you know, if you could actually use that to fund
reductions and taxes and get people more incentivized to work
more or fund a reduction in corporate tax and get
more investment in businesses rather than people going out and
just making capital gains all the time. I think that
could be a positive thing for the economy.
Speaker 2 (04:49):
When you look back. I mean, I think it's just
been a fundamental change in psyche in the community. Psyche,
hasn't it Because when we had tax at sixty nine
cents in the dollar, that was a way of leveling
everybody out. Most people worked, most people were expected to work.
Most people you know, you could, as Muldoon famously said,
(05:11):
you know all the names of the people during an
unemployment benefit. And it was a It was a leveler.
And now we have fundamentally changed. We don't want everyone
to be the same. We don't want everybody to have
the same outcomes. By taxing so that your incomes reduce
some mind goes up.
Speaker 3 (05:32):
Well, I think there is still quite a disproportionality an
income tax if you look at the stats. Right, So,
the top three percent of earners pay twenty four percent
of the income tax, and I think it's the top
twelve percent of earners end up paying half of it,
right So, And that's because so we've eliminated those top rates.
But what we've done instead is we have a lot
(05:53):
of you know, working for families benefits, you know, family
boosts and other benefits for low income people. And so
you've sort of done it that way while not having
these ridiculously high tax rates. When you sit facing a
high tax rate in the top sixties percent, we think, well,
what's the point. I'll just put my feet up and
go the golf course, will go to the beach, right,
So you got it. It's a balancing act between having
some proportionality and your income tax regime, which I think
(06:15):
everyone accepts is necessary, but still not disincentivizing people from
going out and working harder and growing the economy, which
benefits everybody.
Speaker 2 (06:22):
Yeah, it does. When it comes to the capital gains tax,
it is going to have to be bipartisan, isn't it,
Because no party wants to be the one that brings
it in because it'll be the last thing they do.
Speaker 3 (06:36):
Well. I'm on record saying I think it has to
be the national party that brings it in because it's
like being the death now of labor for countless elections,
and so you know, maybe it needs to be because
the Labor Party brought in GST, which is arguably regressive
tax on its own voting base. So maybe you need
National to bring in a capital gains tax. But you know,
ideally you'd get you know, some bipartisan support and say, okay,
(06:59):
well we're going to introduce this and then we're going
to do X y Z to you know, relieve tax
burden else we're in the system, and try and get
some economic growth and productive sectors. But yeah, it's it's
just been a political football for decades really and it's
something just needs sorting out. But that mean that the
current coalition government's not going to introduce it. Let's let's
(07:21):
let's be real. It's a fair way. Yeah, it's and
we'll even even you know that none of the three
parties in the coalition is going to introduce it, although
I suspect, you know, some of their own internal economists
probably tell them it's not a bad idea, But I
I just can't see it happening anytime soon.
Speaker 2 (07:37):
No, even though we are that outlier, is there there
must be I mean, the brains trust within the coalition
government must be desperately searching for other ways to raise
revenue because they need it, yeah.
Speaker 3 (07:52):
And I think I mean, I think we have to
discuss previously ideas around actually reducing things like the corporate
tax rate to try and grow overall economic activity and
try and do some something bold. I mean, we've had
it's flown under the radar recently, but some tax changes
confirmed that will that will take take place with it
(08:14):
take effect from the first of April, changing the taxation
of foreign migrants to New Zealand. And that's actually imposing
a capital gains tax on all their equities that they
if they owned before they came to New Zealand, if
they sell them while they're here. But that's moving away
from a very unfair system that just tax them on
(08:35):
a notional five percent deemed return that they may never
have earned. And I actually advise some of these people
coming here and they're not adverse to a capital gains
tax at all. That doesn't put them off coming to
New Zealand because everywhere taxes capital gains. So I think
it's looking at some of that. You're not going to
be able to impose a new tax. I don't think
or increase taxes in the current environment. I think it's
(08:57):
what can we do smartly to increase economic activity, and
whether that's reducing the corporate tax rate and tweaking the
setting so we get more a high network people investing here,
or we really say, well, these are the sectors of
the economy that we want to grow and maybe sort
of target you know, offshore investment into those sectors and
give them some tax concessions. I mean, I think the
(09:18):
days of us having a very vanilla tax system and
not looking at targeted measures to increase activity in sectors
where we want that activity to sort of gone. I
mean it's sort of every country for itself a little
bit at the moment, right, and I think we've got
to take a look at, well, what's the right thing
for news in London and what can we do to
tweak our tax settings to get some growth.
Speaker 2 (09:39):
Going always fantastic to talk with you. Thank you so
much for your expertise. That is Bruce Binaki, Denton's tax partner,
talking this statement from the UN Committee on Economic, Social
and Cultural Rights questioning the fairness of GST and then
we sort of deviate it into capital gains tax because
we kind of had to
Speaker 1 (09:58):
For more from Kerry Wood and Mornings, Listen Live to
News talks that'd be from nine am weekdays, or follow
the podcast on iHeartRadio
You're listening to the Carrywood and Morning's podcast from News Talks.
Speaker 2 (00:10):
He'd be a statement from the United Nations Committee on Economic,
Social and Cultural Rights is questioning the fairness of GST.
They say consumption taxes such as value added GST as
we know it tax can have adverse impacts on disadvantaged
groups such as low income families and single parent households,
(00:31):
which typically spend a higher percentage of their income on
everyday goods and services. Is there such a thing as
a fair tax regime to discuss? I'm joined by Denton's
tax partner, Bruce Binaki a very good morning to you.
Speaker 3 (00:45):
Good morning, carry Is there such a thing as.
Speaker 2 (00:48):
A fair tax regime or just a least unfair tech
tax regime?
Speaker 3 (00:52):
Well, I think that I think there can be such
things a fair tax regime. But it's a very subjective concept,
isn't it ruming what what might be fair to one
person could be seen as as grossly unfair. And I
think the furious thing about the UN's report is so
we actually have one hundred and seventy five countries that
(01:13):
operate a GST, or VAT as it's known in Europe
and other countries system and so you're basically calling out
pretty much the entire world as operating unfair taxation systems
and having these sort of consumption taxes.
Speaker 2 (01:28):
Yes, because you know, as I understand it, the GST
was sold as a way of getting those who participate
in the black economy, those who don't pay taxes, who
live outside of of you know, a pa ye scheme,
and that way we can collect money off them when
they spend.
Speaker 3 (01:48):
But yet that, yeah, that was going to Sorry, that's
absolutely right. It's a very efficient tax. It's very hard
to avoid, you know, whenever you buy anything in this country,
and regardless of how much you earn, you pay gs T.
And you compare that, as you say, to the black economy,
the cash economy, people who may be in business for themselves,
(02:12):
not declaring the income, not paying income tax or we've
seen a spate of companies going into liquidation recently with
large amounts owing to inland revenue of unpaid income taxes
and paye collected from their employees that never finds its
way to the government. When GST is just a great
way to collect tax.
Speaker 2 (02:29):
But it is true that if you are on a
low income, you don't have the choices to make when
it comes to how you spend, and there are some
things you simply cannot avoid buying.
Speaker 3 (02:42):
That that's right. But the id's actually looked at this
and said, look, overall, you know, the imposition of GST
on people is broadly proportional. And that's because things like rent,
for example, doesn't have GST on it, So that's going
to be a large amount. You know, for a lot
of low income families, rent is going to be a
large amount of the expenditure and there's no GST on that.
And they tend to find as people's income rises, you
(03:04):
would expect the amount they spend rises not to the
same level, but they start spending more on stuff that
does have GST. So when you look at it just
from the amount of tax that people are paying on
their spending, it's it's not that disproportional where you start.
If you start measuring how much tax you pay overall
GST and income taxes compared to your income, that's where
(03:26):
the arguments about it being regressive are because you have
higher income earners, you know, earning capital gains, and that's
that's what sort of famously makes New Zealand stick out
that you have people earning capital gains that aren't paying
tax on it.
Speaker 2 (03:37):
Do you think it's inevitable we have a capital gains tax.
Speaker 3 (03:43):
Probably yeah, I like at least it doesn't. I mean,
I kind of think it's inevitable. And I know they
won't be appealing to a lot of your listeners, but
I think it is. We are an outlier. You know,
it has been recommended by an independent review of the
New Zealand taxation system looking specifically at our system, that
was done five years ago by the Tax Working Group.
(04:05):
And the thing is if if you actually introduce it,
you can then use that to lower tax rates across
the board. I mean, New Zealand has had this long
standing principle of we should have a taxation base with
a broad base and a low rate, and at the
moment the tax base isn't as broad as it arguably
should because we don't tax capital gains. And if you
introduce it, that could allow you to fund tax reductions.
(04:28):
And I think that is you know, you know you
can't tax you ay into prosperity, obviously, but I think,
you know, if you could actually use that to fund
reductions and taxes and get people more incentivized to work
more or fund a reduction in corporate tax and get
more investment in businesses rather than people going out and
just making capital gains all the time. I think that
could be a positive thing for the economy.
Speaker 2 (04:49):
When you look back. I mean, I think it's just
been a fundamental change in psyche in the community. Psyche,
hasn't it Because when we had tax at sixty nine
cents in the dollar, that was a way of leveling
everybody out. Most people worked, most people were expected to work.
Most people you know, you could, as Muldoon famously said,
(05:11):
you know all the names of the people during an
unemployment benefit. And it was a It was a leveler.
And now we have fundamentally changed. We don't want everyone
to be the same. We don't want everybody to have
the same outcomes. By taxing so that your incomes reduce
some mind goes up.
Speaker 3 (05:32):
Well, I think there is still quite a disproportionality an
income tax if you look at the stats. Right, So,
the top three percent of earners pay twenty four percent
of the income tax, and I think it's the top
twelve percent of earners end up paying half of it,
right So, And that's because so we've eliminated those top rates.
But what we've done instead is we have a lot
(05:53):
of you know, working for families benefits, you know, family
boosts and other benefits for low income people. And so
you've sort of done it that way while not having
these ridiculously high tax rates. When you sit facing a
high tax rate in the top sixties percent, we think, well,
what's the point. I'll just put my feet up and
go the golf course, will go to the beach, right,
So you got it. It's a balancing act between having
some proportionality and your income tax regime, which I think
(06:15):
everyone accepts is necessary, but still not disincentivizing people from
going out and working harder and growing the economy, which
benefits everybody.
Speaker 2 (06:22):
Yeah, it does. When it comes to the capital gains tax,
it is going to have to be bipartisan, isn't it,
Because no party wants to be the one that brings
it in because it'll be the last thing they do.
Speaker 3 (06:36):
Well. I'm on record saying I think it has to
be the national party that brings it in because it's
like being the death now of labor for countless elections,
and so you know, maybe it needs to be because
the Labor Party brought in GST, which is arguably regressive
tax on its own voting base. So maybe you need
National to bring in a capital gains tax. But you know,
ideally you'd get you know, some bipartisan support and say, okay,
(06:59):
well we're going to introduce this and then we're going
to do X y Z to you know, relieve tax
burden else we're in the system, and try and get
some economic growth and productive sectors. But yeah, it's it's
just been a political football for decades really and it's
something just needs sorting out. But that mean that the
current coalition government's not going to introduce it. Let's let's
(07:21):
let's be real. It's a fair way. Yeah, it's and
we'll even even you know that none of the three
parties in the coalition is going to introduce it, although
I suspect, you know, some of their own internal economists
probably tell them it's not a bad idea, But I
I just can't see it happening anytime soon.
Speaker 2 (07:37):
No, even though we are that outlier, is there there
must be I mean, the brains trust within the coalition
government must be desperately searching for other ways to raise
revenue because they need it, yeah.
Speaker 3 (07:52):
And I think I mean, I think we have to
discuss previously ideas around actually reducing things like the corporate
tax rate to try and grow overall economic activity and
try and do some something bold. I mean, we've had
it's flown under the radar recently, but some tax changes
confirmed that will that will take take place with it
(08:14):
take effect from the first of April, changing the taxation
of foreign migrants to New Zealand. And that's actually imposing
a capital gains tax on all their equities that they
if they owned before they came to New Zealand, if
they sell them while they're here. But that's moving away
from a very unfair system that just tax them on
(08:35):
a notional five percent deemed return that they may never
have earned. And I actually advise some of these people
coming here and they're not adverse to a capital gains
tax at all. That doesn't put them off coming to
New Zealand because everywhere taxes capital gains. So I think
it's looking at some of that. You're not going to
be able to impose a new tax. I don't think
or increase taxes in the current environment. I think it's
(08:57):
what can we do smartly to increase economic activity, and
whether that's reducing the corporate tax rate and tweaking the
setting so we get more a high network people investing here,
or we really say, well, these are the sectors of
the economy that we want to grow and maybe sort
of target you know, offshore investment into those sectors and
give them some tax concessions. I mean, I think the
(09:18):
days of us having a very vanilla tax system and
not looking at targeted measures to increase activity in sectors
where we want that activity to sort of gone. I
mean it's sort of every country for itself a little
bit at the moment, right, and I think we've got
to take a look at, well, what's the right thing
for news in London and what can we do to
tweak our tax settings to get some growth.
Speaker 2 (09:39):
Going always fantastic to talk with you. Thank you so
much for your expertise. That is Bruce Binaki, Denton's tax partner,
talking this statement from the UN Committee on Economic, Social
and Cultural Rights questioning the fairness of GST and then
we sort of deviate it into capital gains tax because
we kind of had to
Speaker 1 (09:58):
For more from Kerry Wood and Mornings, Listen Live to
News talks that'd be from nine am weekdays, or follow
the podcast on iHeartRadio
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