Tax isn’t fair – deal with it

Over the next year or so, there could be some huge changes to the way you will be taxed in New Zealand. There are a lot of strange assumptions, which are driving the recommended changes. A bunch of “experts” and academics called the “Tax Working Group” have come up with recommendations. However, here I thought it worth going back to one of the basic assumptions – A fair tax.

The headline at the moment is that property investors don’t pay tax, and in fact rort the system by getting tax refunds. This is because if you make any losses in your rental properties (and most of us do because rents in New Zealand are kept artificially low) then you can offset these against your income from a job and therefore pay less Income tax.It is blatantly ignored that you can do this with any business. Property investors (like us) are thought of as greedy “rich pricks” (a term coined by the typically potty-mouthed ex-finance minister Michael Cullen).

Of course, we personally are considered even more evil and greedy because Hubby has a well-paid job. It escapes most people that we worked our arses off to get qualified in order to earn that money. It’s not fair!

So – why do people think it’s unfair that we use a system to allow us to pay less tax?

Because most people have been conned into thinking that Tax is inevitable. Like death. Only it isn’t.

The fact is you do not have to be in anyway rich to legally cut your taxes. You just have to be smart. You also need to get your head round the fact that paying money you earn to someone else is not actually fair, and that the richer you are – the more you pay – is even less fair.

Let’s put it this way:

  • If someone comes into your house and steals your TV – you go to the police and make a report. You make a claim against your insurance and get the money back to replace the TV.
  • You don’t for one minute consider it fair that someone has come into your home and taken something that they may not be able to afford, and therefore have a right to steal it from you, because it’s not fair that you had the money to buy it and they didn’t.
  • And yet – the government takes say 30% of the money you earn, and gives it to someone else. And you think this is OK because it’s called tax.

Here is something else to think about:

  • While there is no “tax-free limit” to earnings for low income people the way there is in the UK, the bottom 40% of households pay no income tax because they get benefits to compensate.
  • Yet the top 10% of earners in New Zealand pay 42% of the total income tax take.
  • If you take out the 40% of people that effectively pay no tax because they get refunds distributed from higher tax payers, we are then responsible for a whopping 76% of the income tax take.

And yet we are the greedy ones for not wanting to pay so much of what we work our butts off to earn. Hell alone knows how much we would collectively pay if we didn’t have a way of offsetting tax.

It’s also worth noting that the HUGE tax benefit that property investors fleece off the government in Tax Refunds accounts for just 1.6% of the entire tax take.

Yep – we are about to get nailed to a cross then burned alive for a whopping 1.6% of the total tax budget – which will then be given to other people. I personally don’t think any of this is going to make that 40% who want our blood any richer.

But I could be wrong.

Over the next week or so we will be going over the recommendations (and they are just that – recommendations) and highlighting what they mean – good and bad.

If you want to see a good and funny illustration of why “tax cuts for the rich” are so wrongly maligned – have a look at this blog post: How tax cuts work.

And for some interesting facts about just how many evil greedy property investors there are in New Zealand – read Are Kiwis really obsessed with property?

And for a light hearted look at just what we personally think of the Inland Revenue (in any country) – take a look at Inland Revenue Humour.