Cullen-led tax working group tasked with finding fairer tax system

Sir Michael Cullen will head the tax working group.

Rob Hosking runs the rule over the new tax working group.

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The government has appointed former Finance Minister Sir Michael Cullen to lead a tax working group tasked with brainstorming a fairer and more balanced tax system. 

Finance Minister Grant Robertson and Revenue Minister Stuart Nash announced the terms of reference for the group, which will come up with a series of recommendations by February 2019 which the government will then use to inform its policy direction at the next general election. Robertson said he isn't making a grab for cash. Reforms could be fiscally neutral and he had an open mind on whether a capital gains tax would be necessary. 

"The main goal here is to create a better, balanced and fairer tax system for New Zealand," Robertson said. "Our belief at the moment is that we do not have that."

The group has been told to consider the economic environment over the next five-to-10 years and how that's affecting changing business models, demographics and business practices; whether some form of housing, land or capital gains tax would improve the system; whether a progressive company tax with lower rates for small businesses would improve the system and business environment; and what role tax can play in delivering environment benefits. 

The government campaigned on establishing the working group, having dropped its policy favouring a capital gains tax to deal with massive gains in house prices after former leader Andrew Little judged it was part of the reason for Labour's losses at both the 2011 and 2014 elections. His replacement, Jacinda Ardern, again ruled out a capital gains tax on the family home during the 2017 election campaign, although Labour intends extending the so-called 'bright-line' test introduced by the previous government. That test currently makes gains on the sale of residential property sold by non-owner occupiers within two years of purchase taxable. The new government will extend that to five years. 

Roberston today said the government wants to address the issue where property speculators haven't paid tax on income from selling houses at a profit whereas salary and wage earners' incomes are captured. 

The working group is expected to comprise eight people, including Cullen, and while there will be tax experts, Robertson said input from business, working people, and Maori enterprise would also be sought. The rest of the group will be announced before Christmas. 

The group has been told not to look at increasing income tax rates or the rate of GST, inheritance tax, a tax on the family home, or the adequacy of the personal tax system and its interaction with the transfer system. It has been directed to look at technical matters already under review such as international tax reform targeting multinational profit shifting, and the tax department's business transformation programme. 

While the issue of applying GST to goods and services bought online from overseas could be dealt with separately and was not part of the working group's brief, Robertson said the group could examine exemptions from GST for particular categories of goods. Labour's coalition partner in government, NZ First, has campaigned for years to remove GST from fruit and vegetables. 

Robertson said the group will be able to look at the tax treatment on savings and investment, which has cropped up in previous reviews as an area in need of reform.

While personal income tax rates are out of scope, Roberston wants the group to dig into the changing nature of the workforce as the rising tide of automation and digitisation changes businesses' labour requirements. 

"In 10 or 15 years' time people might have multiple employers, might be working for themselves. The interaction between the tax they pay and those different roles is one of the issues we want to look at," he said. 

RELATED VIDEO: NBR View's Susan Wood and NBR political editor Rob Hosking talk to Revenue Minister Stuart Nash before a Thursday speech laying out the government's tax priorities (Nov 14)

(BusinessDesk)


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Cullen as Chair signals where this is all going. A bunch of left-wing academic stooges and a couple of industry wets.

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Yep, surprise, surprise....

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Where do I apply to be on this committee?

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The words "Cullen", "fairer" and "tax system" are at odds with one another in the same sentence.

Its tax n pillage time! RIP NZ economy.

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My hubby reckons this will have a few 'rich pricks' looking a bit worried.

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I think you'll find quite a few people that earn a lot less than the rich pricks will be a bit worried as well.
Don't forget Cullen is on record as saying anyone earning over $60k a year is wealthy.

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So who will decide how to define 'fair' when it comes to tax? It might be fair to have a regressive tax system, so when a taxpayer has pays a high amount, his or her tax percentage drops. A bulk discount, so to speak. A flat tax with everyone paying the same percentage on every dollar, seems fair to me. The tax system that doesn't meet the definition of 'fair' in any way, is a progressive tax system. So they should drop the nonsense and simply review the tax system to what they want, which is what they will do, without trying to tell us it's fairer.

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Correct. A flat tax is fairer. It is simple, if you are earning half of what your neighbour is earning, then you pay half the amount of tax he pays.

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Fairness and Micheal Cullen are not words that I would ever use in the same sentence. This is as predicted a stacked working group with hand-picked members to arrive at recommendations and findings that have already been decided. It has no credibility. It is a cynical exercise by Labour that should be rightly condemned.

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It does look a bit that way, doesn't it?

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Personally I think this is great. I only have great memories of Cullen as Finance Minister. NZ economy was strong and he got the country into a net debt position. The only people who seem to be afraid of such a working group are those that benefit from the current system.

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The New Zealand economy was in a recession when Micheal Cullen left the Beehive. And that recession had nothing to do with the GFC, Cullen, Clarke, Labour and NZF had put the country into recession before the GFC started. So if you think that's 'great' economic management I feel sorry for you.

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Here's some facts you may wish to consider...
Recession 1967 (National), Recession 1978 (National), Recession 1982 (National), Recession 1991 (National), Recession 1997 (National), Recession 2008 (Yes, you are correct...Labour). Point: economic cycles occur despite governments not because of them.

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Keep those alternative 'facts' coming, Two Pennies. I love them. The recession in 2008 had nothing to do with economic cycles.

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If you are going to point the finger at Labour for supposedly causing the 2008 recession, you should similarly acknowledge the 3.50% p.a. increase in NZ economy in the 7 years leading up to that - whilst Labour was in power - or was that in spite of them?

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Come on now, didn't the Labour govt at time, ride on the back of a booming world economy, while sitting back and doing nothing, while the cost of living went through the roof. It's why they were voted out.

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That's my point. To give credit to a Govt for growth is debatable as it is to point the finger for a recession.

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You are wrong on both counts.

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Rental crisis has already started! Soon tenants will have no where to live so that Labour can be fair to a few first home buyers who want a bargain!?

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Answer TAX TAX and more TAX is the secret to New Zealands economy being the greatest and Smile just Smile and you can win any election even if you dont have the votes!

Bully Landlords and Chinese people!

First home buyers wanting to live next to their parents in Remuera can get a bargain price!

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This is actually good news. A tax plan in writing by Feb 2019... well before the next election (assuming they get that far). It will be laid bare for all to see just what is planned and how fair it is.... and we can wave goodbye to crooked Jacinda with her crooked smile and crooked lies.

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Yawn

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That Grant Robertson is even prepared to entertain GST exemptions for womens' sanitary products (but not condoms) and basics such as food and vegetables exemplifies the rank naivety of Cindy's Coalition Government (backed by the 7.2% Party). This committee will be used to legitimise the Labour party's politics of envy and they won't stop at capital gains taxes.

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You are right. It's a clear and determined effort by the Left to introduce a tax on assets. If it was a genuine look at fairness in the tax system, it would be made up with a far more neutral bipartisan committee of taxation experts looking at ALL of the tax system, not just selected parts of it. You certainly wouldn't be putting a hopelessly compromised and biased former Labour Party hack in charge of it. Or if LAbour were honest about it being about fairness and wanted to keep Cullen on board, why not bring in Ruth Richardson, Bill Birch or even John Key to balance things out? No chance of that because this is an exercise in pure political BS.

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And we should all be screaming at the Tax Committee: please leave GST without exceptions alone. NZ's indirect taxation system works well and has a high compliance level precisely because it is simple. Any tax expert will realise this in two seconds flat. But Mr Michael Cullen?

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Amen to that. Our GST model is envied worldwide by other tax administrators. Leave well alone.

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Totally agree. There are other mechanisms to support lower socio economic parts of our society. Tinkering with the existing simple-broadbased GST system is not a good move.

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Roger Douglas is the man for the job.

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You've got to be kidding. The guy was a failed pig farmer, knew how to sale assets cheap, and never did a wider economic analysis of these sales.

Small countries cant afford to let big business gain a controlling interest in essential assets. What other countries banks are controlled by overseas interest? Its those interests that have put the house prices where they are today; all to benefit their predominantly overseas shareholders that dont give a rats ass what the consequences are for the wider community.

Back to the topic. If you have all the answers then how are we going to continue to fund the current social system we have, when the majority can hardly pay their rent? Let me give you a clue. They have to start taxing capital, and the growing rent generation will be voting for it shortly.

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With 700,000 on super, 400,000 on WFF, 330,000 on welfare direct, 200,000 on interest free student loans, add PPl and 1,7 million ACC claims. Do you think Richard our social system is a tad overdone?

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Will a fair tax system now target the 55% of the population who make a net tax contribution of nothing?

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Just leave my tax-free wealth gains alone!

Tax the workers or something!

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Why Tax the Property market when it is dead and no one can sell in Auckland?

Stop Bullying the Landlords who are only proving accommodation to families in their community.
The Tax payer is getting thousands of private rental houses for free!

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Landlord provide at their own cost and risk including on going maintenance to the taxpayers of New Zealand for FREE to provide thousand of tenants and families accommodation without any COST!

Why would the Taxpayers of New Zealand want to Tax a FREE provided millions of dollars housing to the community?

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Only by examining the tax strategies of the wealthy will you ever identify what makes a system fair. How can you attack what you cannot see?

For example:
I am a financial advisor, my sole client is a family trust where I am a discretionary beneficiary. I write off 25% of my household expenses under my business as I work from home.

My company has 2 directors - and 2 cars. One is a Ferrari 430 with 10k on the clock and the other is a Porsche 997 Gen 2 Turbo with 10k on the clock. I get the depreciation from both vehicles as a tax credit. At the end of financial year I will sell both the vehicles to myself at book value. If I choose to on-sell the vehicles at more than book value this gain will be an nontaxable personal capital gain.

Company A owns the house I live and work out of - it is a property investment company that invests in building homes and renting them out.

Company B owns the land under the house I live and work out of - it again is a property investment company but invests in land only.

All entities are ultimately owned by a trust (for the protection of creditors and passing on assets to my children after death vs new wife and her boy toy) and although a trust has a higher tax rate - this tax rate is only applicable if income is passed through the trust and taken as distributions. For the meantime I am happy with getting a management fee from all said companies.

Given the above it allows me to save alot of money vs the average employee when it comes to tax. Ie my cell phone bills, internet, vehicle, petrol, IT equipment, even furniture are assets of a business and therefore I get the GST refund and depreciation tax credit from these items. Even my suits are tax deductible as "uniforms" and these are 2-4k suits.

I grew up poor and yes, this system is NOT FAIR, but tell me what are we supposed to do when we're given the opportunity to LEGALLY decrease our tax liabilities, do we not take advantage of it?

If anyone has the data do this - pull up Auckland property sales for the last 15 years (focus on Parnell). Now look at sales and purchases out of the ordinary - ie if a property sold in 2006 for $3m and then sold in 2016 for $4m you know somethings not quite right there.

The problem is not only tax but how the wealthy are able to ring fence assets from creditors and potential claims. When the business liquidates the tax man is in most cases the last to get/never get paid.

...and how the wealthy are able to pay themselves/each other through capital gains vs income by eg. transferring ownership of property or assets at less than market value.

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So your point is, you are able to do all that you are doing, and why not if you are able to do so under NZs current tax laws. So will this so-called tax working group look into what you, and others like you are benefiting from? I would say no. For the simple reason that the types that are tasked with making changes to the tax system, are more than likely benefiting from it in the same way that you are, and that they are not going to want to penalise themselves are they. Still I could be wrong, but in my heart of hearts, I suspect not.

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There are a couple of little flies, or fish hooks if you will, in your argument. If you are the beneficiary of a discretionary family trust, the Trustees are not obligated to exercise their discretion in your favour. That is they don't have to give you anything on a year by year basis. Also, you have made no mention of who the other discretionary beneficiaries are or indeed how many Trustees there are or even what the terms of the Trust Deed is.

Moreover, the Trustees are obligated to administer the Trust in accordance with Trust law and the terms of the Trust Deed. And before they can go around willy-nilly flinging assets in all directions for the sole purpose of allowing only one of the discretionary beneficiaries to avoid paying tax, they need to make sure they are in full compliance with their legal obligations as Trustees, not least of which is that they are acting in the best interests of the beneficiaries otherwise IRD may come to the conclusion that the Trust is a sham and have it declared as such. And look out if that happens to you.

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Exactly. The fish-hooks in the argument are not unlike the ones they used back in the days of the whaling industry.

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Let's say the trustee's are my parents, god-mother, aunt and a family solicitor. The primary beneficiaries are my naturally born children, secondarily my nieces and nephews. I, as well as my siblings are discretionary beneficiaries.
(Note - where beneficiaries are discretionary this is not considered to be part of "relationship property").

The trust is to protect wealth/income generating assets for future generations.

To be clear there is no tax avoidance in play, it's simply structuring and administering assets in various structures in order to maximize returns, part of which is minimizing tax liabilities.

In my capacity as a director of Company A that is owned by Trust A I am entitled to management fees. In my capacity as a discretionary beneficiary I am not automatically entitled to distributions. If I take a distribution from the trust, the effective tax rate is higher than splitting management fees between my wife and I (the two directors of Company A). Also, as my accountant clearly pointed out to me - company related trips are tax deductible - for example - travelling to Europe for 2 weeks to explore investment options.

The point I was getting at is that changes in tax policy alone is not enough, there needs to be serious changes in the rules surrounding legal structures and accounting policies. Not only on the personal or SMB level but also in large enterprises. A holistic approach is lacking.

Let's forget about MNC's, just focus on NZ based companies where NZ legislation can have some effect.

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Few New Zealanders would want Michael Cullen at the helm of anything. GST was introduced to provide a flat tax rate of 15%. Very simple and very effective. Just get on with it?

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