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