Monday, 25 February 2019

Free Press, 25 February 2019 - Rust Never Sleeps

CGT Campaign So Far

ACT’s anti-capital gains tax campaign, has taken off. It has been well covered in the mainstream media, with David Seymour making the case against the tax on the AM Show here. Over 3,100 people have signed ACT’s petition and generous donations have seen the campaign’s video messages shown to 31,000 through paid online promotions so far. Thank you to everyone who’s supported the campaign so far.

A New Campaign

ACT has launched a second campaign, this time in favour of educational freedom at What’s it all about? Stuff are carrying a David Seymour column on the Tomorrow’s Schools Review here. It begins: “Late last year, when most of us were bouncing between school prize givings and Christmas preparations, the Government proposed the biggest education reforms in three decades.” Please check out the public meetings scheduled on this topic here.

The Review

The Tomorrow’s Schools Review has flown under the radar but is arguably the most significant policy reform that this Government has introduced. In short, it will transfer all rights and responsibilities over a school from parent-elected boards to ‘Education Hubs.’ Each hub will govern approximately 125 schools and in turn be governed itself by appointees of the Minister of Education. It is the greatest centralisation of power since the Muldoon era.

The Road to a Capital Gains Tax

The Treasury has a handy paper answering ‘how much tax did the average person pay if they earned another dollar?’ It starts off in 1907, when the average person got to keep 99.6 per cent of their next dollar. That’s right, the average person faced a marginal tax rate of 0.4 per cent. Things rapidly deteriorated until 1982 when the average person paid 44.6 per cent on their next dollar, thanks to a top income tax rate of 66 per cent.

Arrive, Sir Roger

Roger Douglas’s reforms halved the top tax rate and generally set New Zealanders free. By the end of the 1990s (with a little help from Ruth Richardson) there were only two income tax rates (19.5 and 33). Averaged out, we faced a marginal rate of only 26 per cent, the lowest since taxes were raised to fight World War II.

Rust Never Sleeps

Michael Cullen said ‘the rich have had it too good for too long,’ and the Helen Clark regime introduced its ‘rich pricks’ tax of 39 per cent. The average rate hit 31 per cent by 2009, as inflation pushed more people into the top tax bracket. The Treasury study stops there but we can guess a couple of things. The 2010 tax cuts will have reduced the average marginal rate by removing the 39c envy rate. Years more fiscal creep then pushed more people into higher tax rates again. Call it a draw.

And More Rust, Take I

The 2010 tax cuts also nearly halved the bottom tax rate, from 19.5 to 10.5. This was monumentally stupid, almost nobody pays the bottom tax rate for their next dollar, so it doesn’t change the incentive to work, save and invest for many people. But, giving practically everyone a break means lots more tax on the few who do pay the top rate.

Never Forget

One of the unfortunate legacies of the Key Government was inheriting a tax system where the top rate was twice the bottom rate (39/19.5) and leaving one where the top rate is three times the bottom rate. That is not leaving New Zealand no worse than one found it. Steven Joyce was even able to boast that National had made income tax more progressive. Today, five per cent of adults pay one third of all income tax, while half of all adults pay only eight per cent of all tax. We wish we were making this up.

Getting Rustier, Take II

In 2016, National came up with the ‘bright line test’ meaning you had to pay tax on any gains made on a second home sold within two years. As Free Press predicted at the time, if you agree with a two-year bright line test, why not five years? Labour agreed and made it so. Now, how can you argue against a capital gains tax if you supported a bright line test? You can’t.

The Need to Push Back

The current Government are continuing a trend that Michael Cullen started 20 years ago. Labour and National have both made tax more progressive and increased taxes on capital. This is why we need an ACT Party in New Zealand. Somebody has to stop the rot and say ‘this game of playing citizens off against each other with increasingly complex tax structures has got us nowhere. There is just as much complaint about inequality as ever, but we pay higher taxes. We should go back to one flat rate of tax on income and no taxes on capital.’

We Need Your Support

The IRD raised $84 billion in tax last year. Outside election year, ACT runs on only a few hundred thousand. Please make it a fairer fight by supporting ACT.