Category Archives: Random people

Deborah Russell – MP for New Lynn?

Let’s talk about tax.

Or more particularly let’s talk about one of our own. Deborah Russell – tax academic  – who has recently put herself forward to become the Labour MP for New Lynn following David Cunliffe’s resignation from Parliament.

I first met Deborah in early 2005 when she joined Inland Revenue policy. Before she started there was discussion of her two unusual features. She had a PhD and – at that time – didn’t know anything about tax.

A month or two later  I was at meeting which Deborah and her manager attended. I can’t remember the point of that meeting but in it Deborah had to give a short outline of what she was working on – an FBT issue I think. In her two minutes she suscinctly and crisply nailed the point of the FBT rules, the current problem that needed fixing and the technical solution. Now tax peeps we all know how hard it is strip away the detail and simply convey the key messages and Deborah – ‘who didn’t know anything about tax’ – was doing that from almost the first day she started working in tax.

I also particularly remember the blissed out look on her manager’s face while she was talking. He couldn’t believe his luck. He had won the pools with her.

She became a well regarded member of the division as much for her intelligence and work rate as her good humour and willingness to help her colleagues – professionally as well as personally. All while she was the mother of quite young children herself. She had a number of unglamorous projects including creating a tax expenditure for bloodstock which would stick in the craw of any tax person – but she got on with it and made sure it was done properly.

In 2014 following a stint in Adelaide and having moved to Massey where she teaches incipient CAs tax (bless you) she stood for Labour in the safe National seat of Rangitikei. Again an unglamorous job but a necessary one for the Labour Party.

In the last year or two she has become the media’s go to person when they want sensible comment on tax. Impressively even though she is a Labour Party activist she has always been able to explain the issues in clear politically neutral way. Just like she did in that first meeting in 2005. So it is no surprise that these qualities have also make her a regular commentator on Q&A and National Radio.

If she becomes the Labour nominee she and her family will move to New Lynn. And like increasing numbers of Aucklanders they will face the full horror of the Auckland housing market. A horror not faced by those lucky enough to have always lived in Auckland. 

This will make her at one with the majority of her constituents. And combined with Deborah’s unfailing ability to do the work that is necessary – not just the high profile glamorous work – will make her a tireless advocate for the people of New Lynn. Plus she now has a national profile and can foot it effortlessly with the likes of Michelle Boag. So front bench material too.

Intelligence; clarity of thought; and good humour. As well as generosity of spirit and sheer dogged hard work.

And now the good people of New Lynn also have the opportunity to get that same blissed out look her manager did in 2005 – when they find she belongs to them. Look forward to seeing this.

Go well Deborah. New Lynn – and New Zealand generally – needs you in Parliament.

Andrea

Timothy W Edgar (1960 – 2016)

2016 has been some year. 

Donald Trump; Brexit and then the deaths of Leonard Cohen; David Bowie; Prince; George Martin; Helen Kelly; Zsa Zsa Gabor, George Michael as well as the heart attack of Carrie Fisher. But one friend has had a baby and two have got engaged – although not to each other – so not a complete write off.

One death though – that has recently made the international tax community poorer – was that of Tim Edgar a Canadian tax academic.

Tim originally trained as a lawyer – and taught at law schools – but a less lawyery person you could not meet. Cases drove him mental. Once in conversation he suggested that instead of the Courts we should just use a random number generator for tax avoidance. Although to be fair it would also work for any of the objective subjective cases like capital/revenue or residence. 

Odd numbers for the Commissioner – even for the taxpayer. Very fair. And would – he argued – have the effect that taxpayers would just stay away from anything that would get them put in the generator in the first place. Good policy outcomes with reduced fiscal cost. What’s not to love?

Tim came to Wellington with his family on sabbatical in early 2000s and worked in Inland Revenue policy. I can’t remember what he was supposed to be working on – GST possibly – but because of his ability and good humour very quickly became a sounding board and contributor to pretty much every team in the division.  He also lived close to me and our families had a lot to do with each other over that time. We introduced the Edgar family to the joys of Fish and Chips.

After that period in Wellington, we kept in touch and our paths crossed a number of times including a joint stint presenting an OECD course in India. Again his depth of knowledge and good humour made him very popular with the participants while his North American tipping practices made him popular with the staff at the hotel.

By the mid 2000s I had become completely obsessed by hybrids in the way my children were with pokemon. So I wanted to analyse them and their effects for my masters dissertation. There was a small difficulty in that there was no one in New Zealand with the expertise who could supervise me. So I approached Tim. 

With his usual good humour and generosity – although possibly it was the opportunity to earn $100 in NZ foreign exchange that clinched it – he agreed. And within 2 weeks I had a parcel of the key items of the hybrids literature in my mailbox. Not sure that is standard operating practice for most supervisors. But then Tim wasn’t most people.

At the time (2004- 2006) there were two views on hybrids. The first – dude get over it countries can do what they like aka the sovereignty argument and the second – it is double non -taxation/ bad aka the economic distortion argument. I wasn’t fully convinced by either view. Tim, however, was very firmly in the latter camp and – quelle surprise – history has proved him right.

Tim was a high level strategic person – but in the sense that he did actually have big picture insights – rather than just someone who can’t cope with complexity or detail. He was expert in Financial Arrangements; GST; international tax; tax structuring or pretty much anything he decided to have a look at.

I particularly remember him sharing his views on formulary apportionment which is touted by parts of the left as the ‘fair’ way to allocate worldwide tax revenues. The thing is – he said – there is nothing normative about allocating through source and residence. What that has going for it though – is that all the countries agree. Formulary apportionment throws all that up in the air – and who knows where you’ll end up?’

We last caught up around his fiftieth birthday – which I am embarrassed to see is almost 5 years ago. He shared with me the changes in his personal and professional life and how proud he was with how his children were doing. He was more subdued than previously but was looking forward to the next stage of his life.

I don’t think this and similar articles was what he had in mind though – particularly as he was always so fit. I struggled to find a photo that represented how I remember him. Even this one which I swiped from his uni’s obituary doesn’t show the exuberant enthusiasm he had for discussing any one of the topics around his head.

I had him on my list of people to contact now I have left the reservation but sadly this post will have to do instead. I will however always remember the laughter, the low ego/high ability combo and the non-standard approach to thinking about tax.

So go well my dear friend. Hail and farewell.


Andrea

Imputed what?

Let’s talk about tax (and imputed rents).

In one part of the now infamous interview between Gareth Morgan and Paul Henry; when Gareth is trying to explain to Paul that Paul owning a big house or a flash car did have value to Paul – Gareth is talking about imputed rents.

Michael Cullen’s tax review in 2001 – the one that had Shirley Jones as a member that wasn’t the mother of David Cassidy – produced an interim issues paper. In that paper from page 37 there is a proposal to tax imputed rents. I will define it in a minute promise – currently just doing the preamble flow. The media and news – coz in those days people didn’t get their news anywhere else – went absolutely nuts. There was a line doing the rounds that the Beehive’s switchboard was jammed following the release of the issues paper – and that was just from the 9th Floor (HC) to the 7th (MC).

I don’t think Helen Clark’s government could distance themselves from it fast enough.

So what is an imputed rent?  Told you I would get there in the end. The way I like to think of it is the rent you save to the extent you own your own place. That value is then income to you as is the case with the dividend rules where a shareholder lives rent free in a house owned by the company.

Strictly speaking the ‘correct technical’ analysis has you both paying non- deductible rent and receiving taxable rent. In the same way renters pay non-deductible rent to landlords for whom it is taxable income. In this analysis you are both renter and landlord.

Yep I prefer my way too.

So it is a benefit or a tax break that owner occupiers get that renters don’t get. And it has been there for like EVAH so no one really realises. Except in their heart they do. Imputed rents is the basis of the received wisdom that you should always pay off your mortage ahead of making other (taxable) investments.

Now the thing is that strictly speaking under the ‘correct technical’ analysis if you start taxing the income you need to also allow deductions. But I am not sure if our friend the private and domestic exclusion for deductions would let it thru.

This isn’t a problem for TOP as their tax will be based on productive capital as measured in the capital account of the National Income Accounts. Ok good. There is though the small matter that nothing else in the tax system is actually based on this concept . So maybe – just maybe – there could be some tax design issues.

Now being the solutions focussed individual that I am – I thought I’d put together another way of taxing imputed rents. Yes I know there is more to the TOP tax policy than this – but there are limits to my powers. I also can’t do a blind thing about political acceptability either – so I am sticking with what I know.

How to tax imputed rents in four easy steps.

Step one. Divide the value of your mortgage by the value of your property. Council valuations will be fine.

Step two. Go to the MBIE website and look up your area, number of bedrooms and find the potential rent for your property. There are three bands. Take the median one. Why? Made it up. No one can be trusted not to self assess the lower band and  I can’t cope with the arguing.

Step three. Take the rent in step two and multiply by 52 weeks or how ever long you have lived in your property. If no mortgage put this number in your tax return in the rents box. Joint owners – yes you can divide it by number of owners. Put that number on your tax return.

Step four. Those with mortgages who are still playing. Multiply step one’s number by step three’s number. This is the amount you aren’t paying tax on. Deduct it from the full amount in step three and put it on your tax return. Yes joint owners can divide here to.

Of course it still suffers from the problem all made up or presumptive taxes do that there hasn’t been any cash come in to help pay the tax. But I would hope – to paraphrase one of my commentators – it was more intuitive and less weird to the punters than something based on a percentage of value. Even if the outcome is broadly similar.

Now of course the economists may hate it. But as economists don’t have to explain things to clients or taxpayers – give the accountants this one.

Namaste.

Nineteen to Nine

Let’s talk about tax (and Michael Woodhouse).

Any reader of these august pages would be left in no doubt I have a bit of a professional crush on the outgoing Minister of Revenue.

Now all of that may seem seriously weird given that he is a member of a centre right government and I am an out lefty – social progressive please. Except that here’s the thing. So is he. 

And before you protest Hon Mike let’s look at your record. Highlights include:

  • Tightening up the foreign trust rules; 
  • Making foreign debt capital pay tax in a way they haven’t for decades; 
  • Releasing a discussion document to remove the too good to be true hybrid mismatches and 
  • Is thinking about considering finally taxing multinationals properly. 

All stuff that would be more at home in a Green Party manifesto than the Business Growth Agenda. Now until this week I would have thought him a solid performer but not exactly a political operator. And its not like that is a bad thing. Chilled out entertainers get on my nerves.

But then the Herald stuff started on Wednesday. Bylines and headlines of the government taking unilateral action and the Opposition saying it wasn’t going far enough. What?  How was any of this news?

Going through all the detail – coz that is what I do – here are the facts:

  • In June  Hon Bill and Hon Mike announced they were doing lots of multinational stuff including reviewing the interest  limitation rules which is a big ticket way of not paying tax.
  • A month ago Hon Mike announced there would be a discussion document on the whole diverted profits tax thing and interest deductions in February. I never covered it coz it looked quite sane and thought I’d wait for the detail.
  • The reality of a discussion document in February is that while it might make a bill before the election. There is no way it can be passed into law by the time we go to the polls. So it will be become the next government’s problem to actually make it happen.
  • Wednesday the Herald gets an advance copy of a cabinet paper probs also written a month ago. It says no to an actual diverted profits tax but proposes a bunch of stuff based on the work the OECD that should broadly have the same effect but without the drama of overriding our tax treaties.
  • Oh and of course tax is inherently unilateral. Some how that seems to have got missed.
  • The other thing that got missed is there was no detail on any moves to counter interest deductions. That is important but hard. And according to the June statement from both the boys was coming out this year. Waiting. Waiting.

Now from these little factoids Hon Mike got four articles in the Herald and me tomorrow in The Spinoff. Wow. Breathtaking. And – it is worth repeating  – all on a subject announced at least a month ago that cannot become law in this term of government.  And and he got a complete free pass on what he didn’t mention – interest deductions.

Sir. I have underestimated you. A solid performer AND a player.

And now you are leaving me and picking up ACC. But the real news is the change in your ranking from 19 to 9. This week has paid off for you.

Now I am not sure if I am going to find that Hon Judith is a closet lefty. But just in case my advice is:

  • Carry on with the work on withholding taxes and particularly look at how vulnerable workers are treated and their risk of tax evasion;
  • Interest deductions. Coz it is actually a key plank of work of OECD and is on a permanent foreshadow; and
  • Keep an eye of those intermediaries and what they are doing with taxpayer data.

But otherwise good luck. I am pleased that Revenue is going to a senior Minister and none of this ‘outside cabinet’ nonsense. Michael Wood is going to have his work cut out for him marking you.

Namaste

Gareth responds 

I wouldn’t normally create an entire post for a commentator. But hey it is my blog and not everyone is dedicating themselves to overhauling our country in a socially progressive way. Also I did devote an entire post to them so only seems ‘fair’  – as much as I dislike that term – to do the same for the response.

There must be a technologically prettier way to reproduce his comments – but until number one son comes home for Xmas – this is the best I can do. 

Namaste.






‘But if, baby, I’m the bottom you’re the top’

Let’s talk about tax.

Or more particularly let’s talk about the recently announced tax policy of The Oppportunities Party – TOP.  They are proposing to impose a tax on a deemed or imputed return on capital to the extent tax of that level is not paid already. Kinda like a minimum tax. With proceeds going to fund income tax reductions on labour income.


TOP is a party set up by millionaire businessman and commentator Gareth Morgan to change the political discourse in New Zealand. Your correspondent is particularly fascinated as her eighteen year old self voted for a party set up by a millionaire businessman and commentator Bob Jones who set out to change the political discourse in New Zealand. I was righty then and lefty now and both parties were set up to scratch itches on the body politick.

Bob Jones got no seats but he did get 20% of the vote. Today that would be almost the Greens and New Zealand First level of representation.

Now the New Zealand Party never really got into policy much beyond Freedom and Prosperity. TOP however is much geekier and actually plans to release policy ahead of even deciding to register. And their first released policy is one on tax. And and it seeks to tax capital more heavily and lessen the tax on labour. Woohoo. Speak to me baby.

Now New Zealand’s tax system is one designed by economists, drafted by lawyers and administered by accountants – so what could possibly go wrong. Nonetheless all three groups have their own languages and blind spots. It is a marriage that mostly works but only if all three groups keep their eye on the policy development and respect each other’s strengths.

Another perspective is that of the high level ‘strategic’ people versus the detail people. Again each have their strengths but also the ability to talk past and frustrate the snot out of each other. Working at Treasury I was surrounded by the former. To the younger members of this cohort I would always consul them to stay with the process – even when it became boring. As because detail people speak last – they speak best. And what eventuates  may not be what the high level strategic people with the higher number of hay points actually had in mind.

In tax a classic example is the Portfolio Investment Entities rules. If you look at the early high level papers it was all about taking away the tax barriers to diversified pooled investment in shares. What we ended up with was the ability to have cash PIEs, land PIEs and single equity investments. Giving us almost a nordic tax system with the taxation of savings. So somewhere the high level strategic people disengaged or conceded to technical design issues that gave some unintended and quite important consequences.

All of this came back to me when I read the TOP tax policy. Clearly designed by economists – and cleverly so – but sadly lacking in input of the other two tax disciplines. So as a tax accountant who is regularly mistaken for a lawyer I thought I’d  step up and help them out. Here goes:

General aka random irrelevant points that say more about the reviewer than the reviewee.

One. While Gareth didn’t – I enjoyed the envy tax reference. Coz does this mean taxing labour is a pity tax, or a tax on despair or a tax on barely getting ahead? I am all in favour of taxing envy. Let’s also tax greed, sloth, lust and the rest of the hell pizzas. There’s no risk of that tax distorting those human behaviours after all.

Two. For readers who have been keeping up, a regular whinge of mine is how we effectively give deductions for loss of capital when gains are not taxed. This would be overcome through the minimum tax on wealth (or assets). So under this proposal such capital losses would effectively become valueless. Rejoice.

Three. If you are going to get a bunch of extra money – instead of reducing taxes on labour income – the tax welfare interface is IMHO a much more worthy candidate for any spare money. But maybe the universal basic income is the next cab off the rank.

Specific points that might actually be helpful

One. It is true property ownership is a feature of the rich list but so is serial entrepeneurship – Graeme Hart, Diane Foreman and someone Morgan. Now a key part of entrepeneurship is loss making in the early years. There is some attempt to address this with a potental deferral of up to three years of the tax. The question I have is this long enough? Isn’t Xero still loss making? 

Now the received wisdom is that innovation is a good thing hence all the fricken R&D subsidies.  With a much less benign tax system for innovation – will this mean that some of the dosh is simply recycled back to small firms via Callaghan? And so maybe not all will go to reduce taxes on labour income? 

Two. Is it a tax based on wealth or assets? Both are mentioned in the proposal but they aren’t the same. Capital is used a lot in the proposal and depending on whether you are talking to an accountant or an economist can mean either assets or wealth. But here is why it matters. Assets is the total of all the stuff you have legal title to, wealth is the amount that no one else has claims on. And the difference between the two is usually debt but could also be trade creditors, intercompany advances or provisons or accruals. Not all of these generate tax deductions.

So if it is a tax on assets, is it fair to tax people on stuff that other have claims on? I doubt it. A bit of language tightening here would be cool.

Three. Valuation. For property and things like shares market valuations are not too hard. Businesses – however – wow. There will be what the financial accounts say but then there will be what someone is prepared to pay. Usually some multiple of  Earnings Before Interest and Tax – EBIT. And what about valuing implicit parental guarantees from non- residents. The choice then is to be completely fair between all forms of wealth and be a bit arbitrary and compliance cost heavy or not but not tax all forms of wealth evenly. Up to you.

Four. Who owns the wealth? From the vibe of the proposal I would say the intention is that the ultimate owner of the wealth pays the tax. However structurally wealth is likely to be held through many trusts, holding companies , limited partnerships and possibly in individuals own names. This is not insurmountable for design but will involve complicated grouping rules and possibly flows of notional credits to make it work. Perhaps have a look at the actual tax rules for imputation, mixed use assets or cashing out R&D losses to see if you still have the intestinal fortitude for what it will mean to make this work.

Five. Compliance costs. Now I don’t want to overplay this but comforting assurances that if you’re paying enough tax you’ll be fine means – two sets of calculations. The old rules will need to be applied which are not compliance lite and then the new rules willl need to be applied. And after addressing the issues above – they won’t be any picnic either.

But good luck. Perhaps in practice a tax solely on property might work. But after working through their policy I can’t help feeling all this is why countries just cut their losses with a realised capital gains tax.

And thanks for playing. First policy  – one on tax – still impressed.

Namaste

A plague on all your houses

Let’s talk about tax.

Or more particularly let’s talk about the tax free status of religion.

Your correspondent has just started the first stage of yoga teacher training (YTT). Three lots of 8 11 hour days spread over 6 months. It still surprises me as I have no desire to actually teach yoga. I do have a great desire to further learn the history and philosophy of a practice that has seriously helped me get my sh!t together. But not actually teach. Oh and anyone who is reading this who is doing it too and not already a teacher – totes non-deductible as it is a capital expense.

Now because I was about to get seriously busy I was planning to invoke the ‘except when there isn’t clause’ on my Monday posting commitment. But then as if we all hadn’t suffered enough with the earthquakes, floods, and closing of non-earthquake  prone buildings – we got Brian Tamaki

It’s the gays fault. 

Awesome. 

Strangely that pearl of post-truth wisdom from Bishop Brian has made some people so super mad that they have launched a petition to have Destiny Church’s tax free status removed. Interesting. Because of course the fact that they are a registered charity not only means they are tax exempt on any income but also that through the donations tax credit the government effectively gives them one dollar for every two given to them.

And now on my Facebook feed are coming questions – ‘so why is religion tax exempt?’. To which I’d reply ‘historic reasons‘. Advancement of religion is one of the four heads of charity. Alongside advancement of education, relief of poverty and other matters beneficial to the community.

Historically the churches were our welfare system. And even now a lot of social services are undertaken by church based groups. But that would still fit under the ‘relief of poverty’ head.

And religion and church going is beneficial to many people. In fact there is no additional ‘public benefit’ test for the religious head coz it is just presumed to be beneficial to the community. 

Now I would argue I get similar benefits from my yoga practice. So yeah it does seem a tad anachronistic given the country is increasingly secular. And the gay thing is interesting too. As although the state has said marriage is between two consenting adults  – that is a step too far for our churches.

But if advancement of religion were removed; churches would then have to make their case that what they did was a matter beneficial to the community and that it had a public benefit. 

Perhaps not lead with Bishop Brian.

Namaste

Ruining childhoods one tax working group at a time

Let’s talk about tax.

Or more particularly let’s talk about who Labour should put on their tax working group if/when they become the next government.

Earlier this year Ghostbusters was remade with women in the lead roles. Reviews were quite binary being ‘absolutely brilliant’ or ‘its ruined my childhood’. The latter review is quite a big call when as a mother I am sure I messed up my children far more than any movie. Clearly these gentlemen – and I use the term very loosely – were blessed with parental experiences far superior to wot I provided.

But it got me thinking what would a tax working group remix look like with women in the key roles. In 2001 Shirley Jones – who wasn’t the mother of David Cassidy – was one of the five members of the review group and in 2008 Susan St John was a kinda ring in member in the 2008 Tax Working group. That’s it. Hardly stellar or at all representative of the smart kick arse women I came across in my time in tax.

So I thought I’d put together a long list for the next lefty government to pick from.

All these women I have either worked with, professionally disagreed with – often strenuously – and/or been influenced by. They span academia, private practice and the judiciary. They are all top of their game. I have excluded current public servants.

And yeah a number are personal  friends  – I hope even after this post – but that has never been a limiting factor for people putting such lists together in the past.

So who are the Daraenys Targaryens of tax best able to advise a next government wanting to ‘rebalance the tax system’.

Chair Dame Susan Glazebrook have no idea if sitting judges can serve on working groups but hey this is a blog post I can assume all the can openers  I want. She was co author of the still widely used book on financial arrangements which are seriously hard. She had a distinguished career as a tax lawyer and was well respected on both sides before going to the High Court in 2001. A serious brain mixed with good judgement. Couldn’t think of anyone better as Chair.

Members

Lisa Marriott – Chartered Accountant and Associate Professor in tax at Victoria. Author of the seminal work on the differences of treatment of tax evasion and benefit fraud in the criminal justice system.

Susan St John – Economist and Associate Professor at Auckland University. Expert on tax benefit interface – or lack thereof.

Teresa Farac – Chartered Accountant and Partner at Deloittes. Never met anyone with her depth of technical knowledge. On technical issues she is always right. Just accept it.

Joanne Hodge – Lawyer and former Bell Gully partner. Astute and insightful mind. Has now given up tax twice. So seriously impressive judgement.

Kirsty Keating – Lawyer; Partner at EY law and former Senior Solicitor at IRD. A tax disputes expert – or tax controversy as they delightfully call it. Sees the results of when good tax policy goes bad as well as the operation of the department in its full technicolour glory.

Emma Richards – Lawyer; Director at PwC and a million years ago was an analyst in IRD’s Rulings unit. One of New Zealand’s top tax technicians. If I ever had a hard transaction – I would want her on it.

Deborah Russell – Senior Lecturer in Tax at Massey, former Senior Analyst at IRD and a woman with views. Her inclusion on the list is a tad surreal though. Not through lack of merit – but more that she could be the Minister of Revenue commissioning this group on a change of government.

Susan Guthrie – Economist and co author with Gareth Morgan on the Big Kahuna. Whatever its practical or political acceptability issues, it does interface tax and benefits and is always worth coming back to as a counterfactual.

Anne-Marie Brook – Economist, Policy Fellow at Motu and former senior Treasury Official. Past work on tax and savings now looking at Human Rights and economic success. Macroeconomics background including stints at Reserve Bank and OECD.

In fact I don’t know about a ‘long list’. It all looks pretty good to me – albeit a bit too white. Whether it is enough to make little girls want to grow up to be tax geeks – couldn’t tell you. Need to ask a little girl.

Grant and James – you’re welcome. But how about doing the same for your own parties economic representatives? The Nats have Paula. Do you want them to out progressive you?

Namaste

Everything is connected to everything else

Let’s talk about tax.

Or more particularly let’s talk about about a case I mentioned last week in the alignment post. It was quite controversial at the time within the tax community and did leak out a bit into the general public. As is often the ‘case’ tax is just an overlay on other interesting stuff. 

Also thought of it again wot with the junior doctors strike and how the consultants would be helping over that period. I guess coz its Health that means its not strike breaking?

Anyway back to the case. Penny and Hooper (last names) were both specialist doctors earning shed loads of cash in Christchurch fixing the bung knees of those who were in denial about the length of their running careers and had yet to find yoga.

Now these gentlemen were  unremarkable in that they weren’t big on paying tax according to the progressive tax scales that applied to little people and so adopted a structure recommended by their accountant. I mean everyone was doing it and what could possibly go wrong. In fact even John Shewan – of Shewan report fame – said it was bog standard behaviour.

The wheeze was that they put their businesses into a trust which at that time had a lower tax rate (33%) than the little people faced who earned over $60,000 ( threshold increased at some point but detail not relevant) 39%.

The Commissioner who was a he at the time – yes Virginia men can be senior public servants – was not best pleased.  He used a bunch of words like ‘tax avoidance’,’market salary’ and ‘not’and made them pay tax like the little people. Go Team Commissioner.

The tax community also used a bunch of words like ’emmently foreseeable’; ‘lack of certainty’; and ‘chilling effect on investment’. Well maybe not the last set but that is never far away when the big people are being made to pay tax.

Anyway the Commissioner won; tax accountants lost; largely graciously ate that and everyone moved on to the next tax dept v tax community stousch.

There was some commentary at the time about how this was more than a tax case – at which point I got very excited – only to find it was about trusts could be looked through and weren’t as inviolable as people thought.

But what was never discussed was how two men who were educated at the state’s expense presumably before student loans; weren’t bonded; and whose business was almost wholly paid for by the taxpayer via ACC  were earning so much money. I guess it was before the days of ‘joined up government’.

I also guess Labour’s ‘three years free’ policy will also remove what little royalty we currently get from the taxpayers’ investment in such lovely people.

All the more reason then guys to make sure misalignment works and they do actually pay the top tax rate.

Namaste


 

 

 

 

 

Taking the Michael

Let’s talk about tax.

Or more particularly let’s talk about the current Minister of Revenue Hon Michael Woodhouse.


There were lots of cool things I got to do when I was at the Treasury. My particular fave though was getting to coordinate the legislation that went through on Budget Night under urgency. I probs didn’t have to be there the whole time but through a combination of excessive diligence and deep love of the atmosphere in the House I was.

Urgency can go to 10pm on a Thursday and midnight on a Friday. So you can imagine it can get pretty surreal at times. And pretty much the only people who are there the whole time are the respective chief whips – or is that chieves whip – and an overly conscientious Treasury legislation coordinator. Although the formers and the latter NEVER interact.

It was in my first year of doing this gig that I noticed the Government Chief Whip Michael Woodhouse. There was just something about him that I liked. Whether it was the way he said: New Zealand National Party – twelve thousand million, Maori Party three, Act 1, United Future 1; or the way he seemed to be part of the National Party team while also not being part of some of the rougher baracking; I couldn’t say. Regardless the man impressed me.

Fast forward to him joining the Cabinet and becoming Hon Mike. He was Minister in charge of the changes to workplace safety. Now your correspondent with her left leaning tendencies was not best pleased with the final outcome but in her view Hon Mike took one for the team. Let me explain.

The original Bill was one that was widely consulted on and had agreeement of Business and the CTU. That would not have happened without Hon Mike’s ministerial sanction and support. Cabinet as well but a Minister has to take a paper to Cabinet and that would have been MW or a predecessor.

As an aside this would have been a great piece of work to have been an official on – at the beginning anyway. A chance to make the world a better place and a form of redeemption after Pike River. Although I understand that the Forestry death toll was also uppermost in the heads of those involved in this work. Regardless at times like this there is nothing better than being a Public Servant.

As a further aside I really do hope there were some juniors on this work. As watching how this piece of work turned from a ‘hands across the water’ bipartisan love fest into a partisan bureaucrat’s nightmare would seriously season a junior official and be the stuff of a Treasury senior analyst interview. Either that or send them screaming into the waiting arms of the private sector. And as I tell my children, and anyone who will listen, good experiences are not always pleasant ones.

But back to the topic and enter backbench revolt stage left. Hon Mike and his officials were then scrambling to make the best of a bad job. And it wasn’t pretty – worm and lavender farmers but not dairy farmers – geez.  Big ups to Sue Moroney for spotting that – shows an attention to detail that politicans are often not big on. But here’s the thing  – in all the resulting fallout all of it landed on Mr Woodhouse. Not the PM, not the Cabinet, not the National Party – all on Hon Mike. I was so impressed.

For his sterling work on this he was then ‘rewarded’ with the Revenue portfolio. Since Michael Cullen handed it on, it has been a pretty junior Ministerial position – often outside Cabinet. This continues to surprise me as it can be one of the harder gigs. For everyone else, they have to make decisions on giving stuff to people or not giving stuff to people. The MoR has to make decisions on taking people’s stuff off them in the first place. And none of them go quietly.

So how is the boy going?

  1. Took some of the crap on foreign trusts. Tick. Didn’t manage to shield the PM this time – but geez there are limits to anyone’s powers on that one.
  2. Commissioned and got the Shewan report through Cabinet. Tick.
  3. Got the changes to the non-resident withholding rules which make foreign capital pay tax on interest income in a way they haven’t done in decades – through Cabinet and into a bill. Tick.
  4. Plans to extend the scope of withholding taxes generally. Tick.
  5. When proposed to give away money – it was at least intelligent. Tick.
  6. Plans to do other base maintenance – On verra.

Now some could argue this stuff should have happened years ago. And maybe it could but Hon Mike wasn’t in charge then. So for an interim ranking I’ll give him the same ranking I always got at the Treasury as a Principal Advisor  -‘meets expectations’. Because like the Treasury my expectations are always very high.

For the final review and ranking we will have the benefit of the  2017 tax expenditure statement which will show just how good a gatekeeper he is. More that statement on Friday.

Namaste

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