Thursday, 21 January 2010

Tax “reform.” It’s not rocket science, it’s theft. [Update 3]

There’s one aspect only of the Tax Reform Group’s recommendations I have any time for: If NZ is going to be wealthier, then NZers need to consume less and produce more.

Fair enough.  The intelligent commentator distinguishes between the two: consumptive expenditure uses up stuff without replacing it; whereas productive expenditure uses up stuff in order to create more stuff.  The more productive spending, the more productive we are.  The more consumption spending we do, the less productive we are (especially if we’re consuming our capital.)

This is just basic economics, but it’s ironic that it’s being said in the same spending season as all the Keynesians are talking up spending as if it’s the cure to syphilis.

So much for the consistency of mainstream economists.

So saying it makes sense, but (even given today’s rampant Keynesianism) it’s hardly a feat like discovering gravity to say it. Because if they have the intelligence they are supposed to, they would recognise that the biggest consumer of stuff round here is the government—and recommend the government stop.

No such luck. instead they’re recommending that we give the government more.

So much for the “logic” and acumen of the Tax Reform Group.

And the government is talking up a change away from taxes on the production side at the same time as their Nick Smith is imposing new taxes on production to protect the Earth Mother Gaia.

So much for the “logic” and acumen of this government.

The Tax Reform Group insist that we give the government more (and have no fear that we will). 

They insist on soaking residential property investors for example, and commentators like this moron over at Bernard Hickey's leap into print cheering on the increased rents on tenants and the tax-man’s hand being thrust into a new pocket.  That moron is just one among many completely blind to the irony of giving tenants an accommodation supplement with one hand (which has helped push rents up to unsustainable levels), while taking the cash back with a tax on their landlord.

So much for the ability of economic commentators to know what the fuck is going on.

The only thing we can be sure of is that when anyone talks up a new tax, a legion of talking heads with nothing in them will leap up to cheer on the tax man.  Soak the rich, soak the poor, soak the landlords, soak them more. That’s just the thing to get the commentariat cheering.

This latest bunch of academic done-nothings insist on a “new” tax on land, for example — and commentators like David Farrar and Bernard Hickey leap about excitedly, announcing that this new tax will (somehow) avert the growth of future housing bubbles.  Commentators like David Farrar and Bernard Hickey say this despite evidence from all around the world that not one market that had such a thing managed to avoid any such thing; and evidence from here at home that we have pretty significant land taxes already, thank you very much.

And not only that, commentators like these two  appear utterly oblivious to the all too obvious fact that the housing bubble was itself the product of a borrow-and-spend mentality flushing out of the system under the Reserve Bank’s impimatur (what George Reisman calls counterfeit capital), coupled with a restriction on land supply created by the toxic swill of ‘Smart Growth.’ 

An inflationary demand combined with restrictions on supply!  Who would have thought you’d see a bubble!? Not these two, anyway.  And not the Tax Reform Group either. (For an extra mark, work out what will happen bubble-wise when an additional tax is placed on the suppliers of developed land.  Answers on a postcard please.)

There’s certainly more than one thing broken here, but the Tax Reform Group (and the various commentators who are mostly too dim to see past their next tax return, or the last economic report) just can’t see them. 

So instead of trying to fix the country’s woes with a new tax, here’s a few home truths the Tax Reform Group failed to wrestle with but should have:

  • that the Reserve Bank’s credit spigot needs to be capped, and the country’s town planners need to be told to take a hike. 
  • that if they’re serious about taking taxes off productivity, they immediately take an axe to their new cap-and-tax scheme. (Copenhagen’s over boys.  No need to grandstand now.)
  • that if they’re serious about lowering the the “price” of rents, and with it the value of rental property, they think seriously about calling a halt to the Accommodation Supplement.
  • that if they’re serious about reducing consumption, then they get pretty damn serious about reducing their own (and the way to start that is to begin attacking the culture that demands that need is an entitlement).

If you want some sort of “step change,” those simple things need to come first.

UPDATE 1: Slight change in text and title.  And the addition of a swear word.

    “Libertarianz  leader Richard McGrath said the National Government needs to grasp the nettle and slash state spending so that taxes can be reduced across the board.
    ““The agonising by Bill English over which taxes to cut, and which to increase, demonstrates a clear lack of direction,” he said. “This government clearly has no intention of reining in the profligate spending habits of its predecessor. And if it doesn’t stop spending, it has to keep taxing.”
    “My party can name dozens of departments, ministries and boards which could be axed tomorrow - and no-one would miss them. . .”

 Read on to see some examples.

UPDATE 3: Cactus Kate lets rip:

    “All this talk of "tax neutrality" makes me rather ill. When you are running deficits you need to cut government spending. No talk of that is there?
    “I don't understand Hickey's crusade against landlords, perhaps he doesn't own a rental property. As for the depreciation on buildings - Farrar states most buildings don't depreciate in value? WTF?
    “If anyone has sold a rental property they would know a thing as ‘depreciation recovered’; that is, on any sale in which you make a gain, you have to pay the bloody deductions back in any case.
    “Fund Managers, NZX operators, share scammers - I can understand their self-interest on the Tax Working Group. Pity others can't.
    ”I'm independent of the matter having no NZ stocks or property. All it seems like is new ways to thieve from all walks of life.
    “The suggestions are so poor that we can now only put faith in English and Key that true to form they will decide it is all too bloody hard so they do nothing.”

23 comments:

  1. Shouldn't the quotes be around "reform" rather than "tax"?

    PS Word verif = NONGS. So true.

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  2. Brilliant Post. I voted National because they said they would reign in and reverse the massive spending of the last decade not devise new ways of fleecing me. As a landlord I pretty much doubled my rent when the accomodation supplement came in.
    We bought another property last year, spent 30k renovating it all spent locally with GST, we sold it made a 28k profit on it and paid tax on the profit. Any particular reason why I should be burnt at the stake by Hickey et al. I guess gareth Morgan wanted my money in his dud super scheme or Weldon wanted it in his rubbish NZX or Shewin would prefer it on deposit in his clients (what tax rate should I pay) banks. Up them all i dont line in North Korea.

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  3. "And the addition of a swear word."

    Keynesianism was already there...

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  4. Sean Fitzpatrick21 Jan 2010, 15:43:00

    @Anon

    You are not alone - we find a lot of folk voted N/ACT to get rid of Hullun Cluck and her ghastly tax and spend finance minister and are now gutted to see all their hopes pretty well dashed.

    Fact is the Nats could never really reduce taxes without cutting costs and reducing the size of the massive bureaucracy that Labour had built up - something the Nats lost the gonads to do once John Key was in the drivers seat.

    But then, when have the Nats ever, ever made any serious attempt to reduce the size of government?

    My advice to you as to all others in a similar spot is, to quote The Who "don't get fooled again".

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  5. Superb article PC and it's so true. Keep those insightful and intelligent blog posts coming.

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  6. Bernark Hickey is an idiot. He prefers to agree with or align himself to the socialist economic policies of both National & Liarbour.

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  7. Richard McGrath21 Jan 2010, 16:50:00

    Just in case anyone missed it, there is a Libz press release today offering Bill English suggestions on some money saving schemes.

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  8. Fantastic Peter, I waited for you to do the hard work this time critiquing these self-interested fuckwits.

    All this talk of "tax neutrality" makes me rather ill. When you are running deficits you need to cut government spending. No talk of that is there?

    I don't understand Hickey's crusade against landlords, perhaps he doesn't own a rental property. As for the depreciation on buildings - Farrar states most buildings don't depreciate in value? WTF?

    If anyone has sold a rental property they would know a thing as "depreciation recovered", that is on sale if you make a gain you have to pay the bloody deductions back in any case.

    Fund Managers, NZX operators, share scammers - I can understand their self-interest on the TWG. Pity others can't.

    I'm independent of the matter having no NZ stocks or property. All it seems like new ways to thieve from all walks of life.

    The suggestions are so poor that we can now only put faith in English and Key that true to form they will decide it is all too bloody hard so they do nothing.

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  9. Sean Fitzpatrick21 Jan 2010, 17:31:00

    @Cactus

    "If anyone has sold a rental property they would know a thing as "depreciation recovered", that is on sale if you make a gain you have to pay the bloody deductions back in any case."

    In other words, don't ever dare to aspire to pay less tax by becoming something other than a wage earner. So much of "ambitious for New Zealand" right?

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  10. Cactus

    "Fund Managers, NZX operators, share scammers - I can understand their self-interest on the TWG"

    That's exactly the point! Those snivelling wee rortists are out to get hold of more of other people's wealth. If they can see to it that real estate is hobbled as an investment category, they expect that more people will come to them for investment "services" and "advice". Then they can charge more of their lovely commissions and fees. And then they can play all their tricks to separate people from their own money.

    As someone who remembers seeing friends wiped out by these awful pricks in '87, '92, '99, '08 etc. my advice is under no circumstances should anyone ever invest in stocks (unless you know everything about the company you are investing in to great detail and precision) or a finance company (same deal about possessing specific and detailed knowledge) or a fund (see previous about knowing stuff). At least with real estate you can live in the place if necessary. You can see it and touch it every day. Give your money to the vermin and you'll never see which way it was taken from you. It'll be gone and consumed long before you realise (almost like govt!).

    LGM

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  11. I do not disagree LGM, in fact that's one of my main point. The Group has been hijacked by those interested in bumping up Kiwisaver, the NZX etc.... boring. In other words, blindly handing over your money to supposed "experts" to manage for you when historically the NZ stockmarket tanks and cleans people out in the process. Housing has never done that.


    Sean - YES!

    Bloody hell now I will have to go read the thing to give it a proper damn good fisking that it deserves.

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  12. Only one person, ever, in the National Party had the strength of character, conviction and philosophical bent to cut the state - Ruth Richardson. She oversaw a big cull of quangoes in 1991, the cut in welfare benefits and single handedly ensure the enormous budget deficits that Labour created post Douglas lasted barely one electoral term.

    For handing them that, the Nats knived her in the back after 1993. Of course it would be fair to say the majority of the sheeple (who voted Labour, Alliance and NZ First at the time, but thanks to FPP we were saved from that for three years) went along with it.

    Muldoon was right that the public don't know what a budget deficit is, whether that still applies today is unclear.

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  13. I'm sick of Farrar's blog apologetic defense of everything the government does.

    He is incapable of taking a hard line with his beloved National Party and deserves to be labelled as a true sycophant.

    Farrar has no shame.

    Key continues to hesitate. The guy is a wimp.

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  14. Erikter

    Right on! David needs to decide what sort of political commentator he wants to be. Defender of the government in charge as at whatever day he likes to comment or get off the fence and attack stupidity.

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  15. is the Moron you allude to over at Hickey's blog Andrew VP of the NZPIA or one of the commenters thereafter, if so which one expactly do you take to task.
    Mort

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  16. @Mort: I'd thought it was a guest post, but it looks like the moron is Hickey himself.

    Andrew Wilson is quite rightly berating what would be an orchestrated attack on residential property investors, and the best thing the slack-jawed Hickey can find to say in response to the outright theft proposed is "the world will not end," and "they can afford it."

    What a complete and vicious bastard.

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  17. This comment has been removed by the author.

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  18. As someone who remembers seeing friends wiped out by these awful pricks in '87, '92, '99, '08 etc. my advice is under no circumstances should anyone ever invest in stocks (unless you know everything about the company you are investing in to great detail and precision) or a finance company (same deal about possessing specific and detailed knowledge) or a fund (see previous about knowing stuff).

    Funny how personal responsibility flies out the window when it comes to risk and investment.

    As far as finance coys are concerned I can tell you that the current malaise is not the least bit of a shock to anyone - at least not to those who were paying even a little attention.

    You know who I feel sorry for in all of this? Absolutely no one. I can't imagine who it is I'm supposed to feel sorry for.

    Oh and NZX is one of the best performing indexes in the world - despite what Cactus Kate says. No one gets wiped out unless they are totally stupid.

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  19. "No one gets wiped out unless they are totally stupid".

    Most legislation is created Ruth with the intention that people are totally stupid.

    While you may be educated in stocks, for most NZers not only is it foreign but they are inept at it. They also do not accept the risk involved. 1987 is still fresh in their minds.

    While housing remains a risk-free investment, with no cyclical boom-bust, people will prefer it to stocks.

    As for "best performing stock market" well last year that title I believe was won by Brazil, Russia, Peru and Indonesia coming next with Sri Lanka.

    Any of your money going there?

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  20. Ruth

    My comment was advice to other people who may or may not be interested in it. They are responsible for their own evaluations and decisions. Whether they take my advice or not is a matter for themselves. That IS their exercising of personal choice- a choice for which they ARE personally responsible.

    How exactly does personal responsibility "fly out the wondow" because I presented some advice?

    ---

    "No one gets wiped out unless they are totally stupid."

    That is not what I've observed, Ruth. Still, let's bear it in mind when you experience a serious set-back.

    ---

    Yes, the present recession/depression was no surprise, not to those who were familiar with Von Mises, Reisman, Shiff, Polleit, Shostak, Rogers etc. etc. etc.

    ---

    As for the NZX, you have got to be making a joke. Surely?

    LGM

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  21. Here are the returns for investors over a range of time periods for the various markets. (Note: All returns are in local currency terms, the results are period specific and 10 years is the more important number which, while not long, is indicative of the underlying trend).

    US Stocks: 1-year +28.0%, 10 Year -0.3%
    NZ Stocks: 1-year +19.4%, 10 Year +5.9%
    BRIC (Brasil/Russia/India/China): 1-year +79.9%, 10 Year +14.5%
    Australia: 1-year +41.5%, 10 Year +10.0%
    UK: 1-year 29.6%, 10 Year +1.9%
    Japan: 1-year +8.4%, 10 Year -4.3%

    Now given that *money is gold* - let's see what happened to gold over the 10 years if instead you had purchased gold instead of stocks:

    Gold (USD) 1-year +27.0%, 10 Year +292.0%

    Now since gold is money, you actually don't get a return from holding gold, you just hold the purchasing power of your money. Seems to me that an investment in any stock market could not keep up with the *significant* loss of value (purchasing power) caused by governments debasing their currencies. (Now, it is true, I have ignored currency changes but these were not that significant and therefore do not change the central lesson here - that governments (including the NZ government) have done immense damage to their economies and currencies and therefore the standard of living of their citizens.

    Julian

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  22. I spent a bit of time looking at the performance of gold in each currency so as to better (and more fairly) compare the performance of each stock market over the last ten years.

    Over last 10 years, on an annualised basis (which was the way I reported the stock market returns above - i.e. in the case of NZ stocks, 5.9% per year for 10 years) then the 'return' on gold was:

    NZ dollars: 10.7% per year
    Aussie dollars: 11.1% per year
    Japanese yen: 13.2% per year
    UK pounds: 14.8% per year

    and the return for gold in US dollars was 14.7% on an annualised basis.

    Again, usual caveats apply,(and I don't have the data at hand for the BRIC countries) but seems like the NZ, UK, Japanese, and US markets got nowhere near keeping up with changes in the purchasing power of their currencies (if you view gold as money). Australia fared better however, with their market's return approaching that of gold.

    Julian

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