A Twitter post of entrepreneurial businessman Sir Ian Taylor and Greens MP Chlöe Swarbrick yesterday. Photo / Supplied
OPINION
Sir Ian Taylor wrote an “open letter” to Greens MP Chlöe Swarbrick in this paper recently. An open response doesn’t seem untoward.
Taylor is an entrepreneurial businessman who has built world-leading IT companies, located them in his home town, Dunedin, kept them there and kept them growing through good times and bad.
His work has boosted our appreciation of environmental issues, sports and culture in enormous ways. He’s created high-value employment, produced innovative tech and grown the wider economy of Otago, all with unflagging dedication. He’s an outstanding New Zealander and we need many more people like him.
Taylor’s open letter concerned the Green Party’s new tax and benefits package, announced on June 11. That package includes a wealth tax, an income guarantee, child benefit reforms, a zero tax rate on everyone’s first $10,000 of income, a higher marginal tax rate for those earning over $180,000 and a higher corporate tax rate. The wealth tax includes private trusts.
The Greens say the package will make 95 per cent of all taxpayers better off. That’s everyone earning less than $125,000. Nobody has yet disputed these figures.
In fact, while there have been plenty of political objections, nobody has discredited the data or the analysis the Greens used to construct their policy.
Great to catch up with Sir Ian Taylor about education, climate action, taxes and that open letter. We can both strongly agree that a fairer, more transparent & collaborative economy is in the best interests of all NZers - and the more open public discussion about it, the better. pic.twitter.com/RVgWpntziM
— Chlöe Swarbrick (@_chloeswarbrick) July 3, 2023
Taylor’s worry is about the tax on trusts.
He makes it clear he’s not a “tax is theft” libertarian. He does not believe low taxes should be the goal of Government: he’s in favour of a capital gains tax and is himself “willing to pay more tax”.
He cheerily acknowledges some people call him a “chardonnay socialist”. He replies that instead of complaining about the “tax burden” and looking for loopholes, we should all be “proud to pay tax”. Three cheers for that.
But he draws the line at taxing family trusts.
Taylor reasons that businesspeople take enormous risks to establish companies, which generate both wealth and taxes. They use trusts to ensure that if their risks don’t pay off, they and their families will not lose their home or other assets.
It’s not fair, he suggests, to penalise the risk-takers we depend on for a functioning economy. He believes taxing family trusts would do that.
Critics of such a tax usually say they cause hardship, because family homes don’t generate income until they’re sold. But the Greens’ policy allows the tax to be deferred. Nobody will have to sell their family home or impoverish themselves because of it.
Taylor doesn’t address this. He seems simply to believe it’s wrong to tax assets held in trust, because that would punish the people who take risks to create wealth. “I don’t share this story because I think I am special,” he writes. But he kind of does.
He gives the example of a friend whose business generates $80 million a year in revenue.
“Let’s look at the tax he does pay, or collect for the IRD,” Taylor writes. It includes “$26m in PAYE and company tax”.
That’s just wrong. Businesses don’t pay PAYE. It’s a tax on wage and salary workers: PAYE comes out of our money, which we earned, and we pay it. The business merely collects it from us and forwards it to IRD.
Taylor says those taxes, along with GST, ACC levies and other contributions, add up to “$40m in tax, annually, generated by one person who had the courage to build a business and create those jobs”.
Again, it’s not one person. Most of those taxes exist because of what the workers do to enable their company to earn that $80m in revenue.
Workers – staff, employees, call them what you like – are not widgets being pushed around on a sorting tray. Workers create wealth. Without them, Taylor’s friend would be operating a niche business from his garage.
This was explained quite famously 156 years ago. Whatever else Karl Marx got wrong, it certainly wasn’t that.
Nor is the boss the only one taking risks or being forced to accept hardship in tough times. When profits sour, workers don’t get to decide who will be laid off. When a company fails, the subcontractors, suppliers and other creditors who took their own risks lose out, often very heavily.
Taylor says he nearly lost his own house during the global financial crisis, because at that time it wasn’t held in trust. But when he downsized his company at that time, some of his staff would have lost not only their jobs but an awful lot more besides. Who’s to say their pain was less than his?
Why even debate family trusts? Taylor, remember, believes we should be “proud to pay tax” and he would happily pay more himself. Yet he doesn’t support the tax policies of the only party in Parliament that has, to date, committed itself to those same ideas.
Just because of a trusts tax? Why pick at a thread if you think the broad design of the policy is what we need?
Arguing about trusts, whether Taylor intends it or not, provides a smokescreen for a couple of much more important issues: the role of big money in politics and our attitude to property.
As the Electoral Commission revealed last week, big donors are continuing to provide National and Act with massive war chests for this election.
While Labour and the Greens have each received a little under $500,000 in large donations this year, National received that much from a single donor. National and Act’s totals are many times greater than Labour and the Greens’.
What are these donors hoping to buy? No wealth tax? An easier ride for property speculators?
The Greens announced their new housing policy on Sunday. It includes a cap on rent rises and several programmes to speed up density and the construction of energy-efficient affordable homes.
Together with the wealth tax, it amounts to a concerted attempt to have everyone in this country housed decently.
Some commentators think the rent cap will drive landlords out of the market. They say the same about every proposal to improve renters’ quality of life, but there’s very little evidence it happens.
Still, the debate is worth having. Most people, after all, agree on the urgent need for more affordable housing. Most agree it’s appalling there are now almost 25,000 individuals and families waiting in motels, garages and cars for some kind of home to call their own.
But here’s a thought. Political conflicts of interest have been a hot topic lately, so why don’t we stop the worst conflict of all?
Over half of all MPs own investment properties, many through family trusts. That includes almost all the National MPs and about 45 per cent of Labour MPs. Their vested interest in the existing taxes and rules for property is blindingly obvious, but they’re allowed to vote on laws about these things anyway. How is that right?
New Zealand’s economy is distorted by the lack of equitable tax on assets, especially property, because property siphons investment away from other sectors, holding back productivity in those sectors.
Worse, the property market creates a barrier to first-home ownership, makes rents unacceptably high for many tenants and has driven the appalling rise in that waiting list. Resistance to taxing wealth, or land, or capital gains, or family trusts, has allowed this to continue.
Labour has steadfastly ruled out any kind of property tax, although it has tightened some of the rules around investment properties.
National intends to loosen those rules again. It will bring back no-cause rental terminations, encourage speculation by reducing the bright-line test and make property investment easier by removing the tax on interest payments.
National leader Christopher Luxon owns seven properties. Jack Tame asked him about the apparent conflict of interest this causes on TVNZ’s Q+A last month.
Luxon said the Cabinet rules don’t declare it a conflict of interest, which is true but doesn’t make it right. He also said he did not think his property income affects his judgment about taxing property income.
Also this: “What I’ve been really clear with everyone from day one is I’ve been incredibly transparent about it all.”
Indeed. The situation is perfectly clear.
Simon Wilson is a senior writer covering politics, the climate crisis, transport, housing, urban design and social issues, with a focus on Auckland. He joined the Herald in 2018.
The 19-year-old disappeared without her wallet or mobile phone.