Karl Rohde

Thoughts on life, politics, education and the arts

Tax. It’s a word that often instills emotion. Particularly if you are speaking to a small business owner.

There are two distinct camps here in New Zealand. Well three if you include those that just don’t give a damn about anything.

The first is that New Zealand is technically a low taxed country. This camp argues that by OECD standards, New Zealand tax rates are relatively low, especially compared to “socialist” countries such as Spain.

The other camp basically says based on our overall economic situation, New Zealand is highly taxed and our tax system is overcomplex.

So, lets take this a little deeper. It has been acknowledged that tax debt is increasing rapidly. In fact, officials have now acknowledged that Inland Revenue can not keep up. They are at breaking point, and only cases that meet certain criteria are now being dealt with.

This highlights the second camps primary opinion of New Zealand’s tax system. It is too complex. It is simply costing too much for businesses and the Inland Revenue to remain compliant. Essentially “dead money”. The government has several options here. Considering the prediction is an $8 billion tax debt by 2014, the government really does need to do something.

Camp one, who feel New Zealand is relatively balanced as far as taxation are leaning towards more punitive penalties to force people to be more compliant. Anecdotal evidence shows New Zealand already has one of the most punitive taxation compliance systems in the OECD, disproportionate to the actual “non-compliance” crime. And it must be taken into account that in New Zealand, the buck stops with the taxpayer, even if they pay professionals to look after their tax position. Inland Revenue do not care that your tax lawyer or accountant made a mistake, you as the taxpayer, are culpable for any errors. Not exactly endearing to “voluntary compliance”.

Now, we have the other camp, which I freely admit I am biased towards.

The second camp, largely made up of front line business people rather than bureaucrats or academics, are adamant that a simpler, flatter and less punitive regime will not only increase the overall tax take, but reduce government spending in the area of both tax management and treasury duties.

Their argument basically says treat tax as a flat cost, equal for all entities regardless of income, and make “expenses” counted against income black and white rather than the gray mish-mash it currently is.

So which is right? Flatter, simpler taxation that would be easier for IRD to manage/monitor or a more punitive system that punishes those who break the rules?

As a nation, the next five years are pretty critical. Will the current government have the balls to actually make a decision about the New Zealand taxation system? Only time will tell.

Back in January I set myself 7 achievable goals. You can read the background here.

The goals were as follows:

• Save $25,000
• Complete the draft of my first novel
• Ensure all tax is paid on time
• Earn at least 20% of my income from freelance writing
• Paint at least 2 paintings
• Hire and keep on the payroll at least two software developers
• Lose 5kgs of fat and replace with muscle

What stunned me, as we approach the half way point of the year, is I have not actually been tracking progress on these goals. this breaks one of the fundamental rules of having goals. Regular, and consistent progress and planning.

I actually told myself tonight that I had made no progress on my goals, then told my wife, and then felt somewhat disillusioned.

Then I decided I best check what the goals were, since I had not put them up on the wall.

To my pleasant surprise, I can confirm that the following has been achieved:

• Ensure all tax is paid on time
• Hire and keep on the payroll at least two software developers

I now have two staff, and am looking for a third. And all my tax is up to date, for the first time in ten years! It’s a great feeling to not owe money to anyone, especially the tax man. Officially, I am debt free.

Now, two out of seven is not that hot. Except considerable progress has been made on the savings, so not so bad.

The novel is well behind where it should be, and I have not touched a canvas for a very long time.

Although I am writing, none of it is paid work unless you count the Google Adsense revenue.

And I have probably gained 2kgs, and it’s not muscle either!

Goals need to change as life changes. So here is the revised, and more achievable list of goals for the remainder of 2009.

• Save $25,000
• Ensure all tax is paid on time
• Obtain a paid freelance writing assignment
• Hire and keep on the payroll at least two software developers
• Lose 5kgs of fat and replace with muscle

Five goals, easily measured. I will also endeavor to monitor them more regularly.

So what if any goals for 2009 did you have? How are you progressing?

“Reserved places for Maori have proven the ability of Maori students to rise to the challenge if they are given the opportunity.”
- Dr. Pita Sharples

Hogwash.

Maori who have been given an automatic place have preformed 4% less than their non-Maori associates according to Prof McCormack of AUT.

That indicates strongly that automatic admission is a mistake. They are basically given a silver platter and still can’t excel. They should be exceeding the level of success of other students.

According to Dr Sharples “We have seen how the dice are loaded against Maori, right through the school system.”

Really?

Education starts in the home. It’s not like Urban Maori don’t have access to public libraries. Instead of watching reality TV, they could read a book. Do they have books in their homes? Why is there a disproportionate number of Maori failing in schools?

It starts at home. And it really is up to the individual to dream of something better.

Automatic admission is just further entrenchment into a social welfare attitude.

Death has been on my mind a lot the last few weeks.

It seems strangely morbid that I have become so fascinated with the harsh reality of life, being death.  I don’t know why it has become so important lately.  Obviously there is death all around us, on the radio, in the newspaper and on TV, but it has never really had any influence on me in the past.  Not that I recall anyway.

Could it be that turning forty in less than six months has something to do with it?

This weekend has been particularly bad. Reading about the poor boys left without parents and losing their sister in the tragic accident on State Highway 30 near Benneydale, east of Te Kuiti.  Their lives will never be the same, having lost their family in one single moment of poor judgement by one of the drivers.

Gone to is the partner of Dennis Lattimer, a well-known mural artist from Opunake.

It also reminds me of the poor young girl who lost both her parent from an accident at a rail crossing. The tradegy is enough to catch your breath,

All of these thoughts about death have made sure our insurances are up to date, and provide sufficient coverage to take the financial worry away in the event of a family tragedy, although my wife does jokingly suspect I am planning to top her off.

People don’t like planning for these sorts of things.  But in my opinion it’s important to have contengencies.  Especially if you have a young child.

So, what insurance and plans have you got in place?  When was the last time you checked your insurance policies?

The major points and funding allocations from the 2009 Budget delivered today follow:

THE UNWASHED

* Super Fund contributions suspended: The Government will suspend automatic contributions to the New Zealand Superannuation Fund. A contribution of $250 million is to be invested with a direction to focus on local markets in 2009/10. Future contributions will be decided annually.

* Tax: Planned tax cuts for 2010 and 2011 will be deferred.

THE DETAILS

* Employment: Unemployment is forecast to peak at 8 percent in the December quarter of 2010.

* Expenditure: New core Crown expenditure is $2.9 billion.

* The books: Record deficits of $7.7 billion and $9.3 billion are forecast in 2009/10 and 2010/11 respectively.

* Economic forecast: Treasury forecasts the economy will “trough” this year, with growth to shrink by 1.7 per cent in the current year to March 2010, then gradually rise in the three years to March 2013 by 1.8 per cent, 2.9 per cent and 4 per cent respectively.

* Debt: Treasury estimates that without policy changes gross government debt would reach 48 per cent of gross domestic product by 2013 and 70 per cent of GDP – about $227 billion – By 2023.

MAJOR ANNOUNCEMENTS

* Home Insulation Programme: Insulation and clean heating grants of up to $1800 for over 180,000 homes. Grants up to $3000 for Community Service Card holders. Budget of $323 million over the next four years.

* Health: $3 billion additional investment in health including $750 million in 2009/10 including:

- $2.1 billion funding for District Health Boards to improve services and meet population pressures;

- $70 million funding to meet a goal of 800 more health professionals to increase elective surgery capacity;

- $103.5 million for maternity services;

- $245 for health infrastructure including starting constructing 20 new dedicated elective surgery theatres.

* Education: $1.3 billion in new operating spending between 2008/09 and 2012/13 and $340 million in capital spending. New spending includes:

- Increased school funding including money to increase teacher numbers and salaries;

- $523 million boost for the 21st century building programme to build new schools, modernise existing schools and expand capacity;

- $36 million to support improvements in numeracy and literacy standards;

- $51 million so that special education students can access support from the Ongoing and Reviewable Resourcing Schemes.

* Law and order: $701 million in operating funding and $256 million in capital funding over the next four years. Major initiatives include:

- $163 million in operating spending and $20 million in capital to put 600 new police onto the streets by 2011;

- $219 million in operating spending over four years and $146 million capital over the next two years to construct nearly 1000 extra prison beds through increased double bunking at five prisons;

- $24 million in capital over the next three years for initial design and planning work for further additional beds;

- $205 million in operating spending over four years and $51 million in capital over the next two years to manage the increased number of offenders serving community-based sentences and improve the quality of parole and home detention management.

* Infrastructure: The major infrastructure announcements are:

- Increased investment in the State Highways of about $1 billion over the next three years, lifting the total amount spent on the highways to about $1 billion a year.

- $290 million for the already-announced $1.5 billion ultra-fast broadband to the home programme.

* Research and development: $114 million in new operating spending and $17 million in capital, across the forecast period, for research, science and technology.

* Treaty of Waitangi: $22.4 million to accelerate Treaty of Waitangi Settlements.

All in all a rather uneventful budget. I’ll be posting my opingion on this in the next day or so.