The problem with taking GST off of food has little to do with the revenue cost of the policy, it's that it's just dumb to begin with. Any gains to households are smaller than those that could be achieved through other instruments, and there's long-term cost to the integrity of the tax system.
So I won't put time into figuring out the numbers on the revenue cost. The policy's dumb regardless of the number.
I feel the same way about National's proposed tax on foreign house buyers. There's no good reason for imposing the tax; NZ has never had a foreign-buyer problem, it has and continues to have a regulatory-barriers-to-building problem. Make sure it's easy to build and let people build and buy houses if they want to build or buy houses.
But I don't want to burn cycles on figuring out whether the revenue raised by the tax would be closer to $700m/year or $200m/year. The policy's just dumb.
It looked like National wanted to get its tax threshold adjustments up before PREFU, which meant hanging them on spending cuts would make them hostage to PREFU.
So they made it standalone, funded by a bundle of other things that seem like generally bad ideas.
Messing around with depreciation settings for revenue-raising purposes. What, are we supposed to pretend that commercial buildings don't depreciate whenever there's a revenue need?
Setting a tax on foreign buyers of more expensive NZ houses (maintaining the ban otherwise) that has no good basis and could cause problems around tax treaties - or at least for perceptions of our adherence to their spirit.
Trying to make foreign-based casino websites pay company tax in NZ on NZ revenues, on threat that they might set some nationwide internet filter blocking access to IP addresses known to be associated with noncompliant foreign betting sites. ISPs should be pipes, not filters. This is obnoxious and dumb.
It breaks decent internet policy while also being entirely avoidable by a VPN. And when they find the policy unworkable, what are they going to do? Give NZ banks and credit card companies a list of forbidden transaction counterparties? Make them run some giant new AML compliance regime around whether they process transactions to sites that could be foreign gambling? It's all just bad and dumb.
And remember how National accidentally banned iPredict? Well, now I watch Betfair's markets on the NZ elections. Are they going to break that too? What are they doing to do, assess GST on the house's rake on winnings where those winnings accrue to NZ-based clients? Would Betfair be arsed to keep track of that, or would they sooner block dealings with clients who are unfortunate enough to be stuck with governments stupid enough to try this kind of thing?
Anyway. Thomas Coughlan asked me for comment on the foreign buyer thing before the new workings were up from Reddell et al. Here's what I told him (
he used some, mainly that I'm punting on putting a number on this stuff).
“Taxing foreign buyers is better than banning them from purchasing houses. New Zealand has an ‘it’s too hard to build’ problem, not a foreign-buyer problem.
I’d be nervous about making a hard call on National’s revenue numbers on the foreign buyer tax without having access to the underlying workings. If there are a lot of properties that transact in the $10m+ range, it wouldn’t take many such sales to hit the annual revenue figures National has suggested. 500 $10m properties would do it, or 250 $10m properties and 500 $5m properties per year. A single $30m house would bring in as much tax as fifteen $2m houses. But I haven’t the background figures that would tell me whether those are huge numbers, or small numbers, relative to the number of houses in those price ranges – or relative to the number of wealthy people who’d never become NZ tax resident who might be keen to purchase a second expensive home in NZ. Perhaps the current very low dollar would help. $10m NZD is only $5.9m USD!
I’m less concerned about National’s foreign buyer tax revenue figures than I am about the revenues from the proposed tax on overseas betting agencies. It seems optimistic to assume that a lot of them would choose to comply with NZ registration requirements rather than remind NZ-based customers about how to use a VPN to get around proposed web filters. And I’d far prefer that National fund inflation-adjustments to the income tax thresholds by getting government expenditures even down to the levels that Ardern had promised, pre-Covid, than with taxes that make little sense even if the numbers on them happened to work out.”
Dan Brunskill asked me for comment after he had a copy of the Reddell et al workings. Here's what I told him (
he used some of it, mainly me avoiding weighing in in absence of the other side's workings - but man I do not want to adjudicate between those. The policy is too stupid to be worth the cycles.)
"In the 2019 Budget, Labour projected that 2023 Core Crown spending would be 28.8% of GDP. Instead, it is now 32.5%, and expected to drop to 31.4% of GDP by the end of the forecast window – if Labour sticks to its promised fiscal envelope.
Paring government spending back to what Labour had promised, pre-Covid, would have given National plenty of room for inflation-adjusting the income tax thresholds. Getting long-term Core Crown expenditure, as a fraction of GDP, back down to what Labour had promised in 2019 would free up over twelve billion dollars, or about seven thousand dollars per household.
Instead, they're embroiled in disputes about the amount of money that would be raised by a tax that never made much sense in the first place. Foreign buyers were never the problem. Regulatory barriers to building were and still are the problem. There was no good case for either banning, or taxing, foreign buyers. A tax is less restrictive than a ban, but hardly makes us seem friendly to foreign investors. And it seems inconsistent with the spirit of our international tax agreements.
Without having the Castalia workings to see where the difference in figures comes from, it is hard to adjudicate between the two. There seems to be a case worth answering.
But between this problem, the implausibility of raising much revenue from foreign gambling sites, and the undesirability of plugging revenue holes with adjustments to depreciation, National should have been looking harder at the spending side."
The only real tax cut is a spending cut. Will look forward to what National winds up having to say on the spending side.
National supporters really ought to be able to hope that National could get Core Crown spend down to levels no higher than Ardern promised (as fraction of GDP) in the first Wellbeing Budget.
Remember the first Wellbeing Budget, 2019? The one that was meant to solve all the world's problems with sunshine and rainbows and unicorns and lots of government wellbeing spending?
Is it crazy to expect a National-led government to not want to outspend Ardern 2019? Lots of room for inflation-adjusting tax thresholds if they can get back even to what Ardern promised in 2019....
