Hone Heke Tax and Comment


Hone Heke Tax at bottom and Comment at top
1.       A country needs a certain level of tax to fund its social programmes, community infrastructure spend, junkets of politicians etc
2.       The tax system doesn’t change the quantum of tax needed unless it reduces the compliance and enforcement costs
3.       The “better” tax system is the one that has less drag on the country
4.       While I do not think that the concept of “fair” exists as this depends on individual’s personal philosophy, a tax system has to be perceived by individuals as being fair otherwise they will look to avoid or minimise it
5.       You need to be careful that you are not seduced by the appearance of a 1% transaction tax as it is low and generates a higher income for the worker as per the example in t he option two in the email below.  One person may only see 1% of their expenditure go in tax but the price of goods will rise and so  the 1% tax plus the rise in the price of goods will equate to the current tax..  In fact the argument in the email that the 1% transaction tax raises more revenue means that tax has to go up – more revenue = higher tax – it is just it will be less obvious
6.       The current system is a mis-mash of ad-hoc add ons – patches to fix a system that doesn’t have a clear underlying philosophy.  It has a range of inequities
7.       For example there are 11 different ways I can choose to expose myself to BHP shares and each has a different tax treatment.  This is wrong
8.       Our tax system, in my view, can only be fixed by a radical change.  We should through out the current system and put in a new system
9.       When you have change you create winners and losers.  This is not a problem and doesn’t mean that it is more “fair” or less “fair” – just different.
10.   Some of the losers will suffer unreasonably.  Therefore if we adopt a radical change we also have to say that if this creates a problem for you, you can go to the IRD, present your case and it has the authority to transition you to the new system over a maximum of 5 years but it will only use this discretion when there is clear and material disadvantage and it has wider implication son employment etc
11.   The problems with the current system is that there are two many rules and not enough principles
12.   Whatever tax system we create it must generate sufficient income to fund what the government should be doing – no more and no less.  It should be simple and easily enforced.
13.   Individually we will have views on what we prefer, I for example prefer single rate tax systems (eg a flat tax) as it is very clear, doesn’t create distortions and I can support the lower income taxpayers by having a zero rated exemption
14.   I think that there are two tax systems that are worth thinking about
a.       One based on transactions and if we do it has to be universal ie no exceptions – the last thing we want is fresh fruit and vege transactions exempt
b.      One based on income with no expense exemptions
15.   One of the issues with the current tax system is that you pay tax on Income less deductable expenses.  This allows some people to manipulate their taxable income but others can’t.  It means that companies pay little tax, the self employed can structure their affairs to minimise tax etc.  It also means that capital flows to where you get the highest deductible expenses etc and not where it is best for the economy.  If all expenses became non-deductible then the tax would be the tax rate times the income.  Companies would think twice about expenditure as they need all expenditure to be productive.  This will be particularly true for big capital intensive projects.
16.   Both a transaction tax and a true income tax can be set low and people will be less likely to look to minimise them.  However both encourage the growth of the black market and will make the black market harder to police
17.   So yes we should focus on the efficiency of the tax system and a transaction tax would be better than the current mess but so would anything.  What is really important though is that we are more critical of what the government actually spends our tax dollars on.  Most people will pay tax if they can see community benefit as opposed to individual benefit as the individual normally is a politician.
18.   There is no issue with administering a transaction tax.  Banks already change fees on the basis of transactions
19.   What we have to remember that if the government collects more tax, the person at the bottom of the food chain pays more.  These are probably Hone’s supporters – this is just one of those unintended consequences.  To solve this issue you have to reform something other than tax – you need genuine competition, transparency, educated comment (ill-informed comment in the media should be a crime) and principles and not rules.
20.   What about:
a.       Half the number of MPs – better still reduce it to 25
b.      Make the MPs salary equal to the National average wage (NAW)
c.       Make a cabinet minister’s salary equal to 1.5 times the NAW
d.      Make the PMs salary 2 x NAW
e.      Make the maximum salary of a taxpayer funded role 4 x NAW
f.        Reduce the number of legislative changes that are allowed to be done in a year unless you get 100% of MPs voting for it.  At times they change things because they need to do something with their time
g.       Limit the maximum period you can be an MP to 12 years
h.      Require automatic retirement of MPs if they cannot demonstrate that they helped improve the education outcomes, personal safety etc
i.         Get rid of the Cullen fund
j.        Put the super age up to 70 for those currently under 50 over the next 20 years
21.   Isn’t great to live in a country where you can debate and discuss things.  Wouldn’t it be great if we lived in a country with better law and order, better education and people focused on productive things and not compliance costs.

Regards

Michael Chamberlain

Hone Heke Tax (Financial Transaction Tax)
Money and stock that is traded through the foreign exchange market and the NZX (New Zealand Stock Exchange) are not taxed despite engaging in economic activity that can produce significant profits. The figures below represent the annual stock and currency flows through NZ. In the last financial year we had $9.3 Trillion flowing through NZ where a 1% tax on stock and currency exchanges would have brought in 93 Billion – nearly double the revenue under the current tax system.

Year Stocks Currency Total 1% of Total Current Tax Revenue
07/08 $28 B $11.8 T $11.828 T $118 B $ 53 B
08/09 $26 B $11.3 T  $11.326 T $113 B $ 56 B
09/10 $22 B $  9.3 T $  9.322 T $  93 B $ 55 B

Option one

  • A 1% Financial Transaction Tax is imposed on stock and currency exchanges only. 1% goes directly to the Reserve Bank of New Zealand (RBNZ) at the point of the transaction, made possible by new software;
  • Current unfair tax system remains in place with the FTT as an additional tax;
  • IRD will still be required and tax evasion will still be possible.


Option two

  • A 1% Financial Transaction Tax replaces all taxes. 1% of all transactions (whether it be buying chewing gum or paying wages) goes directly to the RBNZ at the point of transaction when using EFTPOS or transacting with a bank;
  • A 1% tax for a cash transaction is still picked up when businesses or individuals bank their money;
  • Using an ATM will still require a 1% tax taken from the same account;
  • GST not required other than the 1% FTT – this will effectively drop the current 15% GST to just 1%;
  • PAYE (Income tax) not required other than the 1% FTT – this will effectively give wage earners a ‘take home pay-rise’, for example, someone earning $500 a week with a 20% PAYE will increase their take home pay from $400 (20% of $500 = $100) to $495 (1% of $500 = $5) – an increase of $95 a week or $190 a fortnight;
  • IRD and all tax complexities including paperwork will not be required – saving $700 million annually. This also means that tax evasion will be impossible;
  • Unlike the current tax system, a 1% FTT creates a more equitable and fairer society.

Potential implications under option two

  • Opponents will primarily come from the banking cartels, money traders and their political agents in govt including PM John Key – a former money trader with Merrill Lynch based in London and Wall Street;
  • Some within the finance industry have stated that a single nation cannot impose a FTT on their own as it may cause money and/or stock being shifted to another country that do not have an FTT. This is pure speculation. A 1% FTT could actually bring more money to NZ because there would be no business tax other than a 1% FTT – effectively making it much cheaper, and therefore attractive, to do business here;
  • Ideally, a global FTT is desirable, however if a go alone FTT caused money and/or stock to flow out of NZ to another country, it would have to be a 40% reduction before the govt loses revenue, while at the same time significantly increasing ‘take home wages’ and ‘dropping prices’ for goods and services;
  • Nothing short of an economic revolution is urgently required to head off a total collapse of the financial system – this is a last ditch attempt to halt that probability – hence the reason why Chancellor Merkel and President Sarkozy are pushing hard to have an FTT created in the European Union. A financial collapse of the EU will in turn collapse the global financial system soon after;
  • Creating a 1% FTT in NZ on our own will highlight responsible leadership from us and will more than likely induce other countries to follow suit – everyone is broke;
  • Some opponents will assert ridiculous arguments and try to say that there is no software that can facilitate a FTT system, or that the transactions will “clogg” up communication lines. Rubbish. A working model already exists in the EU where an emissions levy on all air travel tickets is collected at the point of transaction.


Messages – Vote for a 1% Hone Heke Tax (option two)
(just to offer something to think about)
“give a little, or lose the lot”“wages up, prices down”
“no more GST, no more PAYE”
“fair tax, fair wealth distribution, fair society”
“no more IRD, no more tax evasion”

Note: John Key was recently reported to have said that the Greens are “dreamers” in response to their economic plans. The Nats may respond to the Hone Heke Tax in like terms as they did to the Greens leading into the election – if Mana can gain traction with the media on the issue. The reality is that it is John Key who is the dreamer if he believes that the economy can carry on the way it is. The Right Wing are trying to get a different result while using the same methods – a definition for insanity. Right wing Nats = dysfunctional economics.