• Treasury recommends capital gains tax

The comments button is at the bottom right of this post.

This is from the NZ Herald:

…Treasury Secretary John Whitehead told an Institute of Directors function yesterday. “And at the risk of being chased down by an angry crowd with pitchforks and flaming torches, yes this should include consideration of moving the boundaries to tax more capital gains – for example on investment property – and shifting more of the tax base towards consumption,” he said.

Without changes to the tax system, there was a real risk that the Government’s revenue base would be unsustainable in the medium term, given growing international competition for capital and skilled labour, and an ageing population.

“A key priority has to be reducing effective marginal tax rates and increasing the rewards for effort. There is a growing view that the high mobility of our skills base means high personal income taxes are especially harmful for New Zealand’s growth and productivity,” he said.

[...]

“I know there is a lot of passionate debate on this matter, but capital gains or property taxes would be beneficial for encouraging investment in productive activity.

[...]

Such a shift would be challenging. “But now, when hopefully we are at the bottom of the business cycle, is the most propitious time to make these changes.”

If Whitehead’s salary is $1 per annum it’s far too much, judging by this pile of nappy filler.

I have four comments to make, and the colour of the comment corresponds to the part of the article that’s in the same colour:

1) as I said in my earlier post, the percentage of the GDP that the government steals is far too high and this is having a negative effect of the economy. Yet the journalist is pushing the government line here, i.e. “We must maintain the tax take”.

2) Incredible: he got something right.

3) Economics 101: you need cash – capital – to start and run a business. Investments are one way of generating that capital, and therefore a capital gains tax reduces the amount of capital available for starting and running various forms of “productive activity”. A capital gains tax reduces the amount of available capital in two ways: by stealing some of that capital and by discouraging investment. Therefore, despite what Whitehead says, a capital gains tax discourages investment in “productive activity”.

Whitehead is also an implying that investments aren’t a productive activity, which is nonsense because they’re producing wealth.

4) The patient is on the floor writhing in agony and fighting for survival, yet Whitehead wants to give him a solid kick in the gonads. Well done that man.

Here’s a specific example of the harms of a capital gains tax, from your local supermarket. I spoke to the owner of a supermarket, who told me that the tax-home pay of supermarket owners was often less than what their department heads get. Naturally I asked why he bothered owning a supermarket when the pay was low, and he said that it was all about the capital gain when he sold up. Surely a capital gains tax will discourage people from making such investments, which generate wealth for many employees. Supermarket owners also have the option of increasing their prices to cover the capital gains tax, in which case you will be bearing the cost of the capital gains tax.

I understand that many farmers are also in it for the capital gain, so a capital gains tax will have a direct effect on a huge chunk of our economy. Again, the cost of that effect may be passed on to you.

Socialist/Marxist doctrine, under which our present government operates, says that businessmen are bad because they exploit the workers; that’s why the government likes taxes that target the rich, e.g. a capital gains tax. Businessmen actually put their capital (cash) on the line and carry the risk involved in starting businesses; those businesses then employ people and make those employees wealthier, whilst the businessman’s profit is his reward for taking a risk (and his reward for risking death by a thousand regulations). Therefore the way to make everyone wealthier is to encourage entrepreneurs, and a capital gains tax is precisely the wrong thing to do.

The government should stop this nanny-state economic micromanagement, bring in a flat personal and corporate tax rate of 5-10%, and scrap all other taxes. That’s the equivalent of giving the poor patient a dose of morphine.

What to do you think about the prospect of a capital gains tax?

Related post:

Graduated income tax, rates, and the Communist Manifesto

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• Budget 2009

I’m not going to attempt an in-depth analysis, but here’s three points for you to consider:

1) Stopping the planned tax cuts. This move can be described in three words: stupid, stupid, and stupid. The Socialists/Marxists in Wellington have the idea that your money is better off in their hands and they say that they will use the money to “lead the country to recovery”. It’s more like leading it to ruin, because giving money to the state is like giving money to an alcoholic: it just gets pissed away.

In 2009/10 the government will take more than 30% of GDP in taxes. Studies have shown that a tax take of 15-23% of GDP leads to economic growth and anything more kills the economy; 23% of GDP can be had from an income tax rate of about 10% plus the miscellaneous taxes that plaque our lives*. Naturally I favour a simpler (cheaper) tax regime plus low taxes that will foster growth as has been shown overseas; with a flat income tax rate of 5-10% and no other taxes the economy would take off like a cat does when a child tries to give it a bath (it would also address the chronic shortage of medical professionals because the government could afford to pay a competitive wage and the tax regime would be attractive).

History clearly shows that reducing tax rates increases the tax take, but all the Wombles of Wellington can think of is keeping their sticky mitts on your money. The present taxation levels are simply parasitic and it’s no wonder that the patient is sick.

2) Stopping the contributions to the Cullen Fund (for future superannuation costs) was sensible. However, if the government adopted the tax regime described above they’d have more than enough money to pay for the superannuation that they shouldn’t be providing.

3) If you’re in the financial dung the first thing to do is trim discretionary spending. Here’s some of what this government should, in my humble opinion, cut:

• $50m cycleway. The idiocy of this beggars belief.
• $323.3 million over four years for home insulation and “clean heating devices”. Why should you pay for the insulation and heating in someone else’s house?
• $34m for broadband internet in schools, when schools can’t even get the three R’s right.
• $10.5m extra over four years for arts, including $3.4m for ballet. Presumably you’re happy to be paying for ballet so a few people can watch it. All arts spending should stop immediately because there is no rational reason for state funding of the arts.
• $290m for high speed broadband in 2009/10, out of a total commitment of $1.5b. Let the private sector sort it out, and make it easy for them to do so.
• $52m for defence. Our defence forces are a joke, and they’ll still be a joke after spending another $52m on them.
• $11.7m over four years for the “financial adviser watchdog”. “The implementation of the Financial Advisers Act and the Financial Service Providers Act will help restore confidence in the financial markets by introducing a minimum standard of competence for financial advisers,” Commerce Minister Simon Power says. “It will also place the supervision of financial advisers with a central regulatory body, the Securities Commission.” How wonderful, more regulations and more compliance costs. Anyone who trusts a financial adviser just because they’re “government approved” is an idiot, therefore this scheme has nothing to recommend it. Caveat emptor.
• $1.2m to “strengthen local networks and give a voice to community groups that are often not heard in government processes”. Apparently this is necessary “because local organisations often did not have the opportunity to engage in the policy processes of central government”. What’s the point in talking to a government that just nods politely and does what it intended to do in the first place?

(source)

Admittedly cutting those expenses would like jettisoning the Titanic’s silverware, and I’m not pretending that removing these things will stop the ship sinking, but I do want to show you that there’s plenty of frivolous government spending.

We have the same problem that the people on the Titanic did: the master has steered us into dangerous waters and we’re sunk. We need a new ship  – a new fiscal regime – and a new master.

What are your thoughts regarding the budget?

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*I’ve Been Writing by Richard Prebble, p102

Election 2008: choosing your slave master

New Zealand elections are a farcical process because we get to say who we want our slave master to be, but we do not get to express our opinion about the legitimacy of the governmental system. Nor are we allowed to say whether or not we want a government that has no legal constraints upon it and therefore has absolute power over us – power which is backed with guns and prisons.

No, we are only allowed to say which slave master we think will be the least cruel, so our country is only one step better than a one-party state that holds sham elections. We should be grateful that we have elections at all, because there is nothing that prevents the government from cancelling all elections: whatever “rights” we have in law exist solely because our beneficent masters keep them there as long as they find it convenient to do so¹.

Why do I refer to the government as a slave master? Because there is a body of opinion amongst constitutional lawyers which says that the government stole sovereignty (ultimate authority) from the citizens and rendered itself illegitimate when it passed the Constitution Act 1986².

I also refer to the government as a slave master because most New Zealanders have to work for four or five months each year just to earn enough to pay their taxes, so they are enslaved for those four or five months.

As Leo Tolstoy said:

The essence of all slavery consists in taking the produce of another’s labor by force. It is immaterial whether this force be founded on ownership of the slave or ownership of the money that he must get to live on.

Whichever way you vote you will still be enslaved, so this is not a “free land” as our national anthem says. The state is always your enemy, and as a classical libertarian I am opposed to that enemy and seeking freedom. The first step to freedom is realising that you are a slave.

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1. the fact that Helen Clark was able to breach the Bill of Rights with the Electoral Finance Act shows that the government is able to break laws with impunity: to put it another way, laws are only effective whilst the government chooses to make them effective because the government is truly above the law. It also shows that we cannot expect to receive any protection from the Queen or the Governor General, who is chosen from a list supplied by the Prime Minister.

Section 18 of the Bill of Rights codifies the right to vote: if the government can use the Electoral Fiance Act to take away the government-given right to freedom of expression in s14 of the BoR they can also take away our government-given right to vote.

Click here to view a long but very interesting article on the legalities of the EFA.

2. Update: I was remiss in not citing my source: click here, here, and here.