Let’s make New Zealand a tax haven

There’s a lot of talk about “cracking down on tax havens” at the moment, as high-tax Western countries want to crank up taxes to spend their way out of the recession, and want to stop people who disagree with their policies from moving their money somewhere else.

But what is a tax haven? Not a dodgy regime of crooks as some might imply – no-one would invest their money there as it wouldn’t be safe. A tax haven is essentially a stable country with low taxes. According to the OECD, the UK, the USA, Germany, Switzerland, and Austria are all tax havens, as they offer low tax rates to foreign investors to encourage people to invest in the country. Sounds a sensible idea to me.

A government is basically a service provider. One government offers to provide state services (such as law enforcement) for a certain price. Another may offer the same services for less. This results in competition, driving down overall tax rates, just as competition between supermarkets drives down the cost of food.

But certain high-tax nations now want to gang up on a few low-tax countries to force them to give up the personal details of people investing money in them. Rather than making themselves more competitive so people choose to keep their money there, they want to steal business back from other countries that are offering a better deal.

Let’s illustrate this with supermarkets. Fruit and vegetables are generally cheaper from specialist growers markets than from the supermarkets. But what if Foodstuffs and Progressive (the owners of virtually all NZ supermarkets) banded together and told your local greengrocer that they had to give them the personal details of all their customers or they would undertake “protectionist policies” to drive the greengrocer out of business?

Such behaviour would be immediately stamped on as “anti-competitive”, and a breach of privacy. But when governments do the same thing, are we supposed to think it is ok? That’s a big double standard.

What right does any government have to pressure another into changing their tax laws, or giving up the personal details of individuals?

Furthermore, not all foreign investors do so to avoid taxes. It can be very important for investors to have their personal information protected. Jews invested large quantities of money in Switzerland during the 1930’s to protect it from the Nazis – what if their personal details had been given up? There are plenty of oppressive regimes at the moment that you wouldn’t want to keep any money in – Zimbabwe for example. But you certainly wouldn’t want Mugabe knowing you had money stashed away in Liechtenstein…

We must not destroy vital personal privacy laws just to satisfy a short-term greed for tax revenue.

No, if we want to ride out this recession, we need more people investing money in New Zealand. And if there is a crack-down on other tax havens, there will be wealthy people looking for somewhere else to invest. Why don’t we draw that money here?

So lets slash taxes, guarantee personal privacy, and make New Zealand a tax haven.

To have your preconceptions about tax havens blown away, I’d recommend this excellent short video series by the Centre for Freedom and Prosperity:
The Economic Case for Tax Havens
The Moral Case for Tax Havens
Tax Havens: Myths vs Facts

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Sir Roger Douglas’ economic plan

Now I won’t say I agree with every detail of his plan, but Douglas certainly seems to understand why we are in the mess we are in better than any other politician.

As voters, we seem to have bought the false notion that we can all be made wealthy through government. Elections have become an opportunity for politicians to promise they will take more money off you, only to give it back to you in another way – a gold card for superannuitants, a tax credit for working families, or an interest write off for students. If we each pretend that we can be made wealthy through taxing others, then we’re destined for poverty. We are increasingly relying on others – be they foreign lenders or domestic taxpayers – to sustain our way of life.

You don’t hear that sort of straight talking every day from politicians!

Douglas’ plan is to set up an alternative taxation system that you can opt into – with low taxes but you must pay for your own health care and superannuation – or you can stay in the current system. There would certainly be practical problems with maintaining two separate systems alongside each other (such as having some people eligable for state-funded healthcare while others are not), but it is an intriguing idea, and a good contrast with National’s plan. Read his full plan here.

On the tax side, he is proposing a tax-free threshold of $30,000 for individuals, $50,000 for families, and 15% taxation above that, with a flat 15% tax rate for business. That would really draw industry back into the country.

But there is a big “marriage tax” in there – note that if you have two single incomes your tax-free threshold is collectively $60,000, while if you marry it is now only $50,000 (plus a certain amount per child). It would be far better to have a $60,000 tax-free threshold for families, and not incentivise family breakdown. You should never subsidise something unless you want more of it.

On the welfare side, he is proposing:

To ensure that families are able to adequately provide for themselves, there will be a guaranteed minimum income for families. The guaranteed minimum income will ensure that, should they find themselves earning less than the tax-free threshold, families will receive a tax credit to boost their income.

The problem with this is that there is little incentive to work at all – it is unclear but reads like you have a guaranteed tax-free income of $50,000 (inflation adjusted to boot), which you can live on quite comfortably especially if you don’t have the expenses of having a job (fuel to get to work, work clothes etc). Even if you have to be doing some work to get it, there is little incentive to work more than a couple of hours a week. It is only for families, but if you don’t have to be married to call yourself a family it could be claimed by flatmates – this is far higher than the student allowance!

A guaranteed minimum income is a simple way of providing a welfare safety net, however having it set so high is likely to be a strong disincentive to work. Or you can work, and still get your free money. Consider this scenario.

  • You have no job, and are surviving on government handouts.
  • A farmer takes pity on your family, gives you free accommodation in a spare house, free use of a work vehicle and as much produce as you can eat.
  • Out of gratitude you “help him out” on the farm.

It’s a win-win situation:

  • You get almost all your expenses for free and pocket most of your welfare money, effectively earning far more than most farm workers.
  • The farmer gets a cheap worker.

It is impossible to completely avoid such fraud, but it would help if the “guaranteed minimum income” were set at a level of basic subsistence, to provide for those out of work while encouraging them to actually get a job. Requiring a couple to be married to qualify would help the money go to genuine families, although people could marry just to get the cash. Giving part of it in food or accommodation vouchers would help to discourage fraud, although not prevent it. It would also help if you only lost 50c of your tax credits for every dollar you earned – meaning even if you can only get a part-time job you will still end up with more cash in the hand, rather than working hard and ending up with the same pay as if you did nothing.

So Douglas’ plan needs some work, in my opinion. But it offers a good alternative perspective to National’s current big spending plans, and I hope Key is willing to listen and incorporate some of Douglas’ ideas.

Family Party on Economic Crisis

The Family Party have released our strategy on the economic crisis. As we analysed the issue we found that our policies were already very good regarding the global situation. Our strategy:

  • Recognises that we need a cross-party response, and we wish to work with the expertise of National and Act post-election to manage the crisis.
  • Promotes economic activity within NZ to work out of the crisis.
  • Eases the burden on families during the crisis.

I would encourage you to read the full strategy. Some key points are:

  • Keeping more money in the economy through
    • Lower taxes
    • Reducing bureaucracy
    • Repealing the ETS, withdrawing from Kyoto
    • Interest rate cuts
    • An urgent review of all public sector expenditure
  • Helping families through
    • Targeted tax cuts (GST off essentials)
    • Favouring NZ companies for government contracts (maintaining employment in NZ)
    • Maintaining and expanding (where possible) employment in law enforcement and defence
    • Work-for-the-dole as a final resort if despite all the above unemployment still rises significantly, if you are paying people the dole anyway they may as well be doing something useful

We support a government guarantee of deposits because everyone else is doing it, and we risk funds being moved over to countries where there are these guarantees if we don’t do it too, risky as it may be. But our guarantee would only be extended to reputable firms and would be reviewed every six months, so is far more sensible than Labour’s very risky all-inclusive long-term guarantee.

I believe this is a very balanced response to the crisis, and takes care of the key issues for both families and the wider economy. But we recognise that we don’t know everything, and we need a National-led government to have the expertise to manage this crisis, with us in there too to ensure families are supported.

National undermines Working For Families

National’s economic package, including their proposed tax cuts, has been released. Overall it is fairly sensible stuff, a range of tax cuts across the board that is funded by tweaking Kiwisaver, and removing the tax credit for research and development – both policies can be criticised certainly, and I need to look more into the R&D issue before I can conclude this is ok, but remembering we are in tough economic times I think they are probably being reasonable.

But the policy also includes an “Independent Earner Rebate” for people not receiving Working For Families tax credits.

The package would cover those earning between $24,000 and $50,000 and would give workers $10 a week in the first year, eventually rising to $15 a week.

The whole point of Working For Families is to give extra help for families as opposed to single people. If you give similar tax rebates to single people as well, you destroy the entire point of having tax rebates in the first place. If they are going to treat everyone the same they may as well just ditch WFF and cut tax by an equivalent amount in a way that will benefit low-income earners. Far less paperwork, same result.

Furthermore, they are adding more bureaucracy and more central government expenditure around the tax system, when they claim to be trying to reduce bureaucracy. And instead of just working families being on a benefit, now pretty well everyone in the country would be on a benefit. This is actually more socialist than Labour’s policy.

This shows why we need a National-led government rather than a Labour-led one, because on the whole National should be better at managing the economy. But it also shows why we need National in coalition with minor parties, ideally The Family Party and Act, rather than ruling alone, to keep them on track and ensure they don’t have free reign to do whatever they like.

EDIT: They may be more cunning than I thought. If they canned WFF they may risk losing the election, but if they give an equivalent tax rebate to everyone they could get people used to this then propose in a few years canning both and introducing an equivalent tax cut, thus getting rid of WFF while retaining public support. Hmmm, in that case we really need The Family Party in there pushing for income splitting to ensure families aren’t forgotten about.

Tax cuts

The Family Party is aiming to work towards a lower, flatter tax structure. This means as you earn more money, you don’t get penalised as heavily as your income moves into higher tax brackets.

But whenever you propose anything like this, people complain that you are giving more money to the rich than you are to the poor. Well, that is completely untrue. The rich pay the majority of the tax take anyway, you are just allowing them to keep a little bit more of their own money. But this is easy to forget.

Homepaddock has an excellent illustration that I would encourage you to read here, that shows who is actually benefiting from our tax system. It is most certainly the poor, and no tax cuts for the “rich” will change that.