The unholy trinity of National, right-wing blogs and the mainstream media are scaremongering about Labour et al’s proposed capital gains tax again. Because it’s new and because it’s a tax, it seems scary and there’s easy political points available in opposing it. But in fact most countries have capital gains taxes. New Zealand’s tax system is one of the most generous to the rich, and part of that is our anomalous lack of CGT.
The current scaremongery relates to inherited family homes of deceased family members. The impression John Key et al are putting across is that a grieving, struggling family will have to scramble to sell their deceased parents’ family home to avoid being stung with a hefty capital gains tax they can’t afford. IF that were the case, a one-month “grace period” certainly doesn’t sound like long enough to grieve, get organised & sell the house to avoid financial ruin.
But it’s NOT the case. Even without a grace period, only profit since inheritance – I repeat, profit since inheritance – would be taxable (and at a modest 15%). If a family inherited a house worth $400,000, and sold it a year later for $430,000, they’d incur tax of $4,500, but they’d get to keep the other $25,500. They’d still be $25,500 better off than if they’d sold the house straight away, and $425,500 better off than if they hadn’t inherited the house.
This is no different from inheriting any other profitable asset. Currently, if you inherit a company, and it makes $30,000 profit over the next year, you’ll be liable for 28% ($8,400) company tax on that profit. There’s no “grace period” there. And more importantly, there’s no “grace period” on the profits – 72% of which you’ll keep and no doubt enjoy.
So it’s extremely dishonest of Key to portray families inheriting profitable assets as somehow hard-done-by, simply because they’ll incur tax on those profits. Truly hard-done-by families are the families of (increasingly numerous) people who’ve never managed to buy a house (largely because of tax-free property investment). Those families will receive no inheritance (let alone profitable inheritance), and many struggle to pay for (increasingly exorbitant) funeral and burial costs.
Years from now, if my siblings and I inherit my parents’ house and it makes capital gains by the time we get around to selling it, we’re not hard-done-by if we incur tax on those gains. We’re lucky my parents own their home in the first place, and have something to leave us (in fact, something that continues gaining value until we sell it).
That said, I do tend to agree there should probably be a grace period of maybe six months, because the tax is supposed to target people who buy extra houses for profit, not people who gain an extra house by accident because a relative died. Besides, it may take some months to decide whether they’ll sell it, keep it as a rental, or have other family move in (in which case it remains a family home, thus exempt from CGT). But a grace period would be an act of compassion to people who don’t really need it; certainly not a demand of justice or need.
Of course, Cunliffe didn’t help his own cause by remembering the policy wrong and declaring unequivocally that the grace period will be one month. In truth, the length of the grace period is a detail that they’ll leave to an expert advisory group to work out. It was incompetent of Cunliffe not to know this.
Anyway, despite those two caveats: don’t believe the hype. Look into it, listen to David Parker’s explanation, think about it, etc. After doing so, no right-thinking person would think there’s anything to worry about.
I’m somewhat embarrassed to say that 5 1/2 years after graduating from the University of Canterbury, I’ve got myself embroiled in student media/politics again. But this time, instead of contributing to Pun Network News or trying (unsuccessfully) to bring down the UCSA status quo, I’ve responded to a face-palm-worthy Canta article defending inequality. I take aim at all-too-common, evidence-free, essentially religious arguments for inequality and capitalism. You can read it here.
I’m not embarrassed to have my article appear in a new alternative publication, Counta, set up by a group of students fed up with the anti-intellectualism and political illiteracy of mainstream student politics/media at Canterbury at the moment. Counta were happy to publish the response when Canta declined.
I’m also not embarrassed to say I was inspired to respond by a lot of evidence and research suggested by friends in MarxSoc, which enabled me to put together a well-researched response I’m pretty happy with.
So, although there’s plenty of disturbing, disappointing and depressing stuff happening in student politics at Canterbury, there’s also some encouraging signs in informed student resistance, and awesome groups like Students for Participatory Democracy, FemSoc, MarxSoc and UC POLS. These groups make me want to get embroiled in student politics again. If you’re at Canterbury (as a student or a staff member, like me), I recommend you check them out.
And yesterday, Mickysavage from The Standard responded to the latest idiot millionaire (good at making money, not so good at fact-checking National spin) to whom the corporate media has given uncritical voice to trumpet this propaganda. He says it better than I can:
Rod Drury: “What I’d like to see is the Government have another term because they’ve had two terms where they got the debt sorted …”
Mickysavage: “Such economic illiteracy coming from such a senior businessman is a worry. It obviously needs to be repeated that in June 2008 Labour had paid off
allcrown debt and the crowns accounts showed a slight surplus. By September 2013 net Crown debt had reached $60 billion and increases in debt are predicted for years to come.
Of course many will then trot out Key’s mantra that Labour had left the country with a decade of deficits but this statement is essentially a lie. The Global Financial Crisis was the cause of the sudden change in the country’s finances but instead of Helen Clark and Michael Cullen being blamed I can suggest many other names of those who should take responsibility. Names such as Wall Street, Morgan Stanley, Bear Stern and my personal favourite Merryl Lynch. Because it was a bunch of robber merchant bankers that brought the world’s economy to its knees.”
Here’s a couple more graphs and a couple more quotes, to help illustrate the various impacts of the GFC (for which Key was partly responsible), the 2010 tax changes (which made tax regressive for the majority of incomes), and the Canterbury earthquakes.
However, please note that the main point of this blog was never to say National have been irresponsible with their deficits and debt (I tend to think they have been, but it’s a complicated question). The main point was to show that the right-wing suggestion that Labour are irresponsible with deficits and debt is completely unfounded.
“The estimated cost of the Canterbury rebuild has been increased … Mr Key said the budget would also show the estimated net cost of the earthquakes to the Crown would rise from about $13 billion to about $15 billion.”
“Tax as a proportion of GDP is slightly below OECD averages and has declined markedly over the last few years … New Zealand has, like other countries, faced a cyclical decline in tax revenue as a result of the global financial crisis but there were also important policy steps which reduced tax revenue between 2004–05 and 2009–10.”
I’ve written a sequel blog on the equally pernicious lie that National are better for employment than Labour, because (it’s assumed) beating up beneficiaries and keeping wages low are good for unemployment.
Grant writes off Max Rashbooke’s book, and indeed all concern about inequality, as “the zero-sum fallacy; the idea that there is a set amount of cash in the economy.”
This is one of the worst straw man attacks I’ve seen in a while.
In fact, Rashbrooke et al understand better than our government that money is a relative measure, only meaningful insofar as it represents access to wealth/resources. It doesn’t matter how much total cash there is in the economy… what matters is:
a) how much resources/wealth there are in the economy, because that’s what determines how big the pie is.
b) how much cash you have in relation to others, because that’s what determines how big or small your slice of the pie is.
Total cash doesn’t affect the pie at all (if it did, Zimbabwe would be the richest country in the world).
Total cash and total resources are not ‘zero-sum’ phenomena. But percentage of access to cash and resources is (that’s the whole point of a percentage – it always sums to 100).
Rashbrooke (and, like, actual evidence and stuff) are concerned with inequality because when one person’s percentage of cash goes up, someone else’s ability to access available resources necessarily decreases. And when that’s too unequal (even when the pie’s huge) it causes numerous health and social problems across the whole society.
Grant is the one guilty of a fallacy: the idea that money is an absolute, not just a relative measure; so if there’s more total money in an economy, that automatically means there’s more wealth/resources available to people. This is more than just a fallacy, it’s a properly religious phenomenon – idolisation of money.
Post-script – extra responses to a few of Grant’s stupidest comments
“There’s no evidence that rising social and health problems are a result of income disparities.”
I’m actually astonished to see this much wilful blindness, even in corporate media. Huge amounts of research – very widely available – offer compelling evidence that inequality causes many social/health problems – from murder to community breakdown to high teen pregnancy rates. A journalist doing their job would acknowledge this evidence even if they disagree with its analysis. Grant doesn’t indicate whether he disagrees, whether he’s ignoring it, or whether he doesn’t know it exists … he simply says there’s “no evidence.”
The fact that the next sentence peddles an evidence-free stereotype (“Poor people get diabetes because they eat junk food, not because Sir Peter Jackson is rich.”) is the icing on the bullshit cake.
“Key to the inequality fantasy is that New Zealand is a neo-liberal rich-man’s paradise but the facts do not support this. Bill English said… [bla bla bla] Half the population are net beneficiaries.”
He goes on to uncritically parrot Bill English’s dishonest press release that I addressed a couple of blogs ago. If Grant was doing his job as a journalist and applying some critical thinking, he’d realise English’s figures show the opposite of what he claims.
Grant thinks workers should be grateful for being “net beneficiaries” of state assistance… grateful for a situation where their subhuman wages mean they don’t contribute much to the tax coffers, let alone to their own families, and Working for Families subsidises their employers to keep paying these sub-human wages. How much more grateful should the rich be for being “net beneficiaries” of a system that facilitates and supports such grossly unequal wealth?
“Economic growth is driven by innovative entrepreneurs adding to the total economy. They sometimes become rich by retaining some of the extra wealth they created.”
I don’t even know where to start with this statement, except to note that it’s pure ideology. He equates economic growth with ‘wealth,’ ignoring the fact that economic (GDP) growth doesn’t just include productive, wealth-producing activities, but destructive ones like crime, pollution and credit card debt. And he simplistically suggests ‘wealth’ is created by “innovative entrepreneurs,” rather than by the contributions of all workers; those who’re given the opportunity to utilise their creative/innovative skills, and those who aren’t.
The next sentence, where he uses a doctor as his archetypical example of a rich wealth-creating entrepreneur, reveals his ideological assumption that the rich become rich by doing good for the world. A better example of the very highest income earners would be a currency trader who makes much more than a doctor by producing nothing, just manipulating pieces of paper and numbers on computer screens.
Later in the article he again waxes lyrical about how much wealth the rich create, and how grateful we should be for their work. He also mentions how hard-working they are – predictably failing to provide any statistics linking hard work to high income. In fact, income and wealth distributions are way out of proportion to how hard people work… (unless the richest 1% percent work 10-16 times as hard as the average NZer).
“Poverty has many causes, welfare dependency amongst them, but blaming the hard-working for the failings of the indigent is not a solution.”
Grant is doing even worse – blaming the hard-working poor (like people working two jobs cleaning toilets on minimum wage to feed their families) for their own poverty. Despicable.
Well, I didn’t intend two blogs about Bill English in a row, until I saw this press release, where he cynically manipulates statistics to try and show that inequality is equality. English claims the tax system has become “more progressive” since National’s 2010 tax changes, because a higher proportion of income tax revenue is coming from the richest earners.
He’s ignoring one rather important point about income tax: You pay a lot of income tax if you earn a lot of income.
It’s not surprising that the top 12% of households (and 6% of individuals) are paying proportionately more income tax than they were in 2008, because they’re earning proportionally a lot more money. (The above graph shows the top 10%’s incomes rose from about $85,000 to $100,000 from 2008-2011, while the median income stagnated at about $30,000).
Simply put, the rich are contributing a bigger slice of the tax pie because they’re earning a bigger slice of the income cheesecake. This is not something to be happy about, and certainly doesn’t mean taxes are more “progressive.”
Let’s go back to high school for a sec: A progressive tax system partially offsets inequality by taxing higher incomes proportionally more than lower incomes. Income taxes are typically progressive (e.g. Bill English’s $297,400/yr is mostly taxed at 33%, while his toilet cleaner’s $14/hr is mostly taxed at 17.5%). Sales taxes like GST are flat (15% across the board), but in practice regressive, because they take up more of the poor’s incomes than the rich’s.
National’s 2010 tax changes made tax more regressive – the lowest income tax band (under $14,000) dropped 2%, while the top band (over $70,000) dropped 5%. Company and investment tax dropped too, but GST increased. Basically, in a time when tax needs to get more progressive to help combat inequality, National gave tax cuts to the rich instead.