Tuesday, August 01, 2006

Michael Cullen's blatant lies about tax

Hattip: "The Business" / NZ Herald
In particular I take umbrage with one particular part of Michael Cullen's latest speech:
"We are proposing to match Australia's corporate rate without burdening business with all the other onerous taxes Australians suffer - namely, a capital gains tax, stamp duties, payroll taxes and compulsory superannuation"

I was of course very glad to hear that we have no tax on capital gains here in New Zealand.  I will now no longer have capital gains declared in my tax returns.

Compulsory superannuation in Australia is not a tax - I can self-collect and self-manage my own superannuation fund.  Strangest tax I've ever seen with no money ever going to anyone else but myself.  As compared to our compulsory superannuation here which is a tax, or the upcoming Kiwisaver scheme that the Government determines where the funds can be invested; close to a tax.

Stamp Duties - OK, a fair point there until you look at the context of the discussion: business competitiveness.  So then the question becomes how many companies own their own land / buildings?  Sure this will be a consideration to some - but given that most businesses tend to lease their premises stamp duty is something a person worries about.

Payroll Taxes - Yay, I suppose 1 out of 4 specific examples isn't bad.

But this seems to be about MC's rate of telling the truth anyway given the "We have never had Treasury price a party policy" --> "We didn't get treasury to price  interest free student loans" --> "We got treasury to do one costing of  interest free student loans" --> "We got a treasury costing of interest free student loans, and then had them change the assumptions to give us another one..."
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backin15 said...

IIQ, super is taxed three times in Australia. Going into the fund, as it appreciates, and at payment. It isn't paid into consolidated funds, sure, but it is a compulsory payment extracted from your wages/salary. The difference between what you may do in NZ is that you must do it here (and the dollar is subject to greater discounting there compared with her).

Payroll tax is just a tax pure and simple and capital gains likewise - not just payable on buildings and land by the way.

What was your other objection?

iiq374 said...

Backin15 - In Australia super contributions are taxed at 15%, way below the standard tax rate. In New Zealand your super contributions are made *after tax* so thats not exactly in NZ's favour. The appreciation is also taxed at the 15% rate - in NZ at your general taxation rate. And at payment NZ and Australia are the same.
Michael Cullen was trying to paint NZ as having no Superannuation Tax in comparison to Australia - whereas NZ actually has a higher taxation on Superannuation, and the superannuation payment itself just cannot be considered a tax. IE he lied.

He then tried to state NZ has no Capital Gains tax - a lie. I never said Australia didn't have one, but that his statement that NZ doesn't was false. In NZ it is also payable on *anything* that makes a capital gain.

Stamp duty is mainly irrelevant to corporations - not always, but frequently. Given that he was differentiating between the taxes payable by businesses this wasn't a lie, but as I said in the post - misleading.

I agreed that Payroll tax is payable in Australia and not NZ, it is the one thing he was not misleading about.

burt said...

Dr Cullen is famous for this sort of crap. In 1999 he stated that the proposed top tax rate of 39% was moderate compared to the US where the top rate was 48%. He just forgot to mention that at that time the top US rate kicked in at $400,000 USD ($600,000 NZD).

Stupid numb skull Labour supporters would have gone - ohhh, just as well we are not going to be taxed as hard as the US.... 39% is pretty good really.

backin15 said...

Hang about IIQ, I think you're missing the point. NZ does not have a compulsory super scheme, Australia does. That's the point Cullen was making and its perfectly valid.

To characterise a compulsory super scheme as a super tax is far from misleading. That's what Cullen said.

Yes super contributions in Australia are almost pre-tax dollars - that was my original point. This is the first point at which they're taxed. The value of your fund is also taxed at 15% and then as it is paid to you, it is taxed again. My point is that Cullen said Australia had a super tax and it does. It is hardly a lie.

Second, capital gains applies quite differently in Australia compared with NZ and Cullen is absolutely right to point this out. For instance, you pay capital gains on your house here and not in NZ (let me assure you that having owned property in NZ, not having to pay capital gains is a major advantage). Again, Cullen's comments are anything but misleading.

You've conceded payroll tax.

Mayren said...

Just dropping a comment since you were nice enough to leave one for me. :)

Have you ever heard the saying "The only things in life you can count on are Death and Taxes?"

iiq374 said...

backin15 - I suspect we may end up having to agree to disagree cos this is going in circles a bit but:

Cullen was talking about corporate taxes - he was not talking about taxes which the employees may come across in their daily lives. So for capital gains it is how that affects corporates / businesses that matter. And there the capital gains is the same. A business must pay capital gains on their property just like any other type of profit.
Just like my example in the original post specified - I'll now not declare (tongue in cheek) any capital gains for my business, apparently there is no tax on it here according to MC.

To characterise a compulsory super scheme as a tax is completely misleading - it is not a tax.
And your argument about the special rates in and out it is a Non Sequiter against which it is understandably hard to argue. Those rates are effectively subsidies. If that 9% of your income (or soon optionally 12%?) had been paid to you rather than put into the superfund you would have been taxed at a higher rate.
If you are trying to argue that being given a discounted rate for certain dispensations (which you cannot otherwise get) is a tax then we've got a long way to go before we can even argue the point - let alone agree on an outcome.

And I think you missed the point of the phrasing Cullen used. He was not comparing the compulsary vs non-compulsory nature of super-annuation. He classified Australia as having a SuperAnnuation Tax that corporations have to pay that is not paid in NZ. If the money did not go into nominated accounts (like NZ) then it would be a tax. Going into a compulsory saving scheme for that person is not a tax.

backin15 said...

We don't entirely disagree though I think calling him a liar is just too strong to be justifiable.

If you're an employer here, you have to pay a number of on-costs that don't apply in NZ (for staff) and you're subject to capital gains tax in more areas of commercial activity than in NZ. These are pretty indisputable.

I don't know that calling the super contributions a tax is too far from the mark. It is compulsorily extracted from your payment at source - to say nothing about the limited control you have over it as an investment. That it's not sucked into consolidated funds distinguishes it and that it is paid to you as an entitlement to your own funds also differentiates it from tax.... However, for employers and contributors, it sure as hell feels like a tax.

iiq374 said...

Feeling like a tax doesn't make it a tax. And one of the people in a country you would hope that can actually make that distinction is the Minister of Finance. In his role deliberate misleading of that kind is blatant lying and also extremely unprofessional.

If he had brought up those other charges as his examples I wouldn't have a problem - but he didnt.

With regards to capital gains I am unaware of any exclusions that businesses can use at all in New Zealand. Timing of realisation may be different, but that doesn't change the existance of a capital gains tax here that MC denied existed.

Again if this was the first time that his speeches contained such misnomers then it becomes more forgivable - but he continues to repeat these points as a mantra to defend his position, and they are just purely incorrect.