Bernard Hickey has a column in the herald this morning calling for changes to New Zealand’s financial system. (http://blogs.nzherald.co.nz/blog/show-me-money/2009/11/1/steps-ease-squeeze/?c_id=3) This is not the first time he has called for changes, (I think it is the third), but is anyone actually listening?
The changes suggested are:
1 Introduce a capital gains tax to ensure the property-owning classes think twice before making losses to reduce their tax bills, comfortable they can make it back with tax-free capital gains.
John Key saying he would resign if this happened was probably a very dumb political move in the long run. All it is doing is allowing the rich to get richer through a giant hole in our tax system. We need to fix that hole now.
2 Introduce a land tax to broaden the tax system to include those who made $300 billion of tax-free capital gains from 2002 to 2007. Those without property face the biggest tax burden in the years to come. Without some change to tax the rich, the perceived unfairness will drive away our youngest and most productive generations.
Same as point 1 really, we need tax on land and property.
3 Introduce a single, flat tax rate at 25 per cent for the income, corporate and trust rate. Set a high tax-free income threshold to ensure the poorest taxpayers retain plenty.
The current progressive tax system is simply unfair and does nothing to encourage people to get ahead in life. A single tax system would be fair and balanced to all.
4 Shut down Working for Families and the Student Loan scheme to remove the ruinous marginal tax rates and debts that are building up.
Getting rid of WFF makes sense. The student loan scheme on the other hand is a whole lot harder. You either have to make the courses free (like they used to be pre 1990) or have someone else lend the money at interest. The current system works because anyone can qualify and it allows anyone the chance to get ahead.
5 Increase GST to 16.6 per cent to help rebalance the economy away from consumption and towards saving. Ensure the poorest who spend most of their income are compensated using extra revenue from the capital gains and land taxes.
As painful as this sounds it makes sense and we need to do it in time.
6 Reduce government spending growth over the next decade to return core government spending from the current 36 per cent of GDP to the 29 per cent that it was in 2004.
Yes. But what do you cut?
7 Intervene in local district and city councils to consolidate duplication, reduce their combined size, reduce their rates growth and focus them on freeing land for home building.
Home building can lead to problems in the long run. We can’t just turn all our land to houses we need the land for production and other industries.
8 Increase the Reserve Bank’s prudential liquidity target for banks so they are forced to raise more funds locally and rely less on cheap foreign funds. This will continue to reduce their profit margins, increase deposit rates, encourage local savings and reduce New Zealand’s vulnerability to market freezes.
Yup. Focus on New Zealand first.
9 Increase the amount of capital that banks must put aside when lending against land and property to discourage the heavy lending to property investors that powered the 2002-2007 property boom.
Again a great idea, but why would the banks do this when they make money from people doing this too?
10 Raise the retirement age progressively to account for longer life spans and reduce the pension progressively to 62 per cent of the average wage from the current 66 per cent.
I read yesteday that the pension age was introduced at 65 around 1900 when life expectancy was only 62, now we live 20 years longer, and the age needs to go up, otherwise we cannot afford it.
