16 Jan, 2020 | Tax News
Uber stands as a poster child for the tech industry’s aggressive, and at worst frankly immoral business activities. It’s also the exemplar of why we cooperated in that loss of control.
Like other tech companies Uber established a network of subsidiaries in tax havens as part of its tax planning. But as the decade wore on initiatives such as the OECD’s Base Erosion and Profit Shifting (BEPS) and exchange of information work started to undermine the effectiveness of Uber’s tax structure.
In early 2019 Uber decided to fine-tune its tax planning by moving a subsidiary previously located in Bermuda to the Netherlands. This was in part in preparation for its initial public offering, but also in response to European moves cracking down on aggressive tax planning involving tax havens. As a result of the move, Uber reportedly created a US$6.1 billion Dutch tax deduction which it will be able to offset against future profits.
Uber’s transaction provoked questions in the Dutch parliament, prompting the state secretary of finance, Menno Snel (the equivalent of New Zealand’s revenue minister, Stuart Nash), to deny ever meeting any Uber representatives about the matter. Snel found out that Uber’s promises of jobs (it now has over a thousand employees in its Amsterdam office) come at a political cost.
Uber responded that it was “committed to openness and transparency with tax authorities around the world” and “faithful to both the letter and intent of the laws in the many jurisdictions where we operate.” Uber’s comments echo those of so many tech companies when challenged about their tax planning.
It will be no surprise to readers of Super Pumped: The Battle for Uber that Uber’s tax planning pushes the rules to breaking point. It’s the primary reason I refuse to use Uber.
I’m not alone in my distaste for such tax practices. New Zealand’s 2019 Tax Working Group in its final report commented: “The group has received many submissions about international taxation and the tax practices of multinational companies and digital firms. It is clear from the submissions that many people feel a deep sense of unfairness about the way in which the tax system deals with these firms. This is a worrying phenomenon: perceptions of unfairness have the potential to erode public support for the tax system as a whole.”
Although it’s easy to point the finger at Uber’s behaviour, at the same time it also illustrates how, despite apparently widespread public disdain for the aggressive tax planning activities of the tech sector, people continue to use their services.
For users the convenience and lower prices Uber offers outweigh any moral indignation about its tax and business practices. This is also true of other tech giants such as Apple, Amazon, Facebook and Google whose services and products are used by billions of people even as they facilitate live-streaming of mass-murder or pile up billions of dollars in tax havens. In effect, we love the sin but hate the sinner.
Exactly how much these tax practices cost New Zealanders isn’t clear. There is little public information available about the scale of the tech companies’ activities in this country let alone details of how much income tax they pay. Google, which has recently adopted “country-by-country” reporting as a means of giving more transparency to its results, did file financial statements for the year ended 31 December 2018. These show its income tax liability for the year was $398,341. (Intriguingly, the financials show the GST payable as of 31 December 2018 was $6,252,847 and that it owed over $81 million to an unnamed related party. I’ll leave you to guess where that might be located.)
By contrast, the last filed financial statements for the New Zealand subsidiaries of Facebook and Uber were for the year ended 31 December 2014. They, along with Mastercard and Visa, take advantage of Companies Office reporting requirements which only require overseas-owned subsidiaries to file financial statements if either their assets exceed $20 million or their total revenue is more than $10 million. Under the business model these companies appear to be using, the New Zealand subsidiary is usually paid a fee for “marketing” services provided to its parents. Unsurprisingly, these fees appear to be below the threshold for reporting.
The ability for the likes of Uber and Facebook to structure their affairs to minimise scrutiny is a direct result of a policy choice to put ease of business and lower compliance costs ahead of transparency. Apart from tax and a lack of transparency there are other downstream effects of that choice, namely a growing suspicion that New Zealand is a bit of an easy mark for money-launderers.
Even if the various OECD initiatives bear fruit and an international agreement is reached about the taxation of the digital economy, that will inevitably involve each government accepting a partial surrender of its sovereign taxing rights. This is particularly true of New Zealand because of our small size.
There’s a scene near the end of Danny Boyle’s Shallow Grave when Christopher Eccleston (an accountant) berates his flatmates Kerry Fox (New Zealand connection!) and Ewan McGregor (handsome journalist) for spending some of their ill-gotten gains. He warns them “That’s what you paid for it. We don’t know how much it cost.”
Similarly, although we pay little or nothing for Facebook, Google, Uber, Netflix and their ilk, the full cost to our society of a lower corporate tax take, oligopolistic business practices, a hollowed-out local media, toxic social media and the rise of fake news is still not clear.
Addressing the aggressive tax and oligopolistic practices of the tech companies requires addressing a complex set of linkages: Reversing the trend of the past 40 years towards looser regulation of businesses; determining an acceptable set of rules for international taxation which recognises the vast and relatively sudden economic changes brought by the arrival of the digital economy; and recognising our complicity in enabling this state of affairs. Over the coming decade who will demonstrate the courage to take on this challenge?
This article was first published on The Spinoff
1 Dec, 2019 | Tax News
Inland Revenue says it is asking countries with tax treaties to share details about Kiwi hosts renting out their homes on Airbnb. by Ben Leahy
This article first appeared on the Herald.
Take care if you’re one of the thousands of Kiwis using Airbnb or other online websites to rent out a home; you could be in the crosshairs of Inland Revenue.
The Government agency has set its smart, new data robots loose on the sector in the hunt for tax cheats.
It’s also lobbying hard to get its hands on Airbnb’s company records.
It means you could be in line for a nasty letter or a fine should you have failed to report your rental income.
“Some of the records of activities, such as Airbnb, are held offshore. However we’re working to obtain this data via data-sharing agreements we have with many overseas tax authorities,” an IR spokeswoman told the Herald on Sunday.
Mike Rudd, tax director for accountancy firm Baker Tilly Staples Rodway, said the IRD publicly clarified the tax rules around short-term rentals in May, meaning there was no longer any excuse not to declare your income.
He expected a crackdown to begin in earnest at the end of the tax year.
“They will be matching up data automatically and spitting out a lot of nasty letters,” he predicted.
It’s a blitz triggered by the big money at stake.
Tax expert Terry Baucher from Baucher Consulting said people underestimate Inland Revenue at their peril
A Victoria University and IR study estimated in April that undeclared income from the so-called hidden economy was resulting in New Zealand missing out on about $800 million in annual tax. Chartered Accountants Australia and New Zealand put the figure in excess of $1 billion per year.
Builders, plumbers, and hotel and restaurant owners accepting cash payments and not declaring their income were among those initially in the department’s sights.
But bitcoin users, Uber drivers and Airbnb and other short-term rental hosts were now on notice as well.
Short-term rentals owners could get themselves into trouble by failing to declare the income they make from guests.
Those owning two or three short-term rentals on Airbnb or other platforms also ran the risk of racking up big tax debts under the goods and services tax if they didn’t fully understand the rules.
This was due to short-term rentals tending to bring in higher gross returns than normal rentals and so being more likely to earn above the $60,000 threshold at which GST must be paid.
Rudd said he had seen a number of people shocked to discover they were meant to have paid GST on their rental income as well as on the sale of homes used as Airbnb rentals.
Terry Baucher, founder of tax advisers Baucher Consulting, warned those who hadn’t declared their income that they were better off coming forward voluntarily.
If IR found undeclared tax, it would usually search back through five years of income at a minimum. If there had been deliberate tax avoidance, it could do an audit through a person’s entire tax history and may even prosecute for tax evasion.
Baucher said IR was also armed to the teeth with new data-matching capabilities having recently spent $1.9 billion – mostly on computer technology – in a major upgrade.
And the upgrade appeared to be bearing fruit already. IR’s latest annual report said that every $1 dollar spent hunting undeclared tax was now returning $5.65 to the tax coffers.
Tax data was also whizzing between New Zealand and other countries at an unprecedented rate. According to its annual report, IR received information about 700,000 financial accounts held overseas by New Zealand residents in the year to June 2019.
Baucher said he had one client use an overseas credit card to hire a campervan in New Zealand. IR saw the transaction and contacted the man, wanting to know where the cash had come from.
Baucher described IR’s ability to detect that transaction as like finding a needle in the haystack and yet it had been done using the old computer system, not the new one.
“People underestimate Inland Revenue at their peril,” he said.
The IR spokeswoman said the tax department’s first step in securing unpaid tax was to use education to encourage Kiwis to voluntarily declare their income.
This included holding regular free seminars around the country.
However, she acknowledged there was a “temptation” for users of “sharing companies” to under-report their income.
“If that happens and people choose not to report their rental income, Inland Revenue will audit them where we need to,” she said.
Airbnb head of public policy for Australia and New Zealand, Derek Nolan, said the platform partnered with the Government to ensure it could do its job, as well as with rental owners to help them meet their tax obligations.
“We support a light-touch, mandatory data-sharing framework that not only takes data privacy laws into account, but makes it easier and cheaper for New Zealanders to pay their taxes across all sharing economy platforms,” he said.
What about the bed tax?
Inland Revenue might be calling on tax robots and international treaties to ensure Kiwi Airbnb users pay up, but Auckland Council has no such tricks up its sleeve.
Council brought in a new targeted rate, also known as a bed tax, last August for homeowners renting out their whole property or guest-house on websites like Airbnb or Bookabach.
Yet about two-thirds of eligible Airbnb hosts in Auckland have so far avoided paying the bed tax.
Council said the targeted rate would capture about 3800 of the approximately 8000 Airbnb properties in Auckland. But in the latest figures, just 1219 Auckland properties advertised on online platforms had been charged the tax.
The main obstacle has been finding the properties. Airbnb and other websites refused to share information about hosts on privacy grounds, and council officials have been forced to scour the sites manually.
Council also can’t call on its big-brother, Inland Revenue, to help.
“We currently have no plans to request the online provider information from IRD,” a council spokeswoman said.
So far short-term rental owners using Airbnb and other platforms had paid $461,765 through the bed tax.
What are the tax rules?
- When a person’s rental properties earn less than $60,000 they do not have to pay GST tax. Instead they must declare their earnings as part of their income and pay income tax.
- When the properties make more than $60,000 they have to register for GST and then pay GST (15 per cent) on the rent and on any future sale of the home. A tax adviser can help short-term rental owners in this situation claim deductions against the GST and against their income tax.
- Failure to accurately report income can result in tax penalties or, in the most serious instances, prosecution for tax evasion.
26 Nov, 2019 | Tax News
1966 and all that: The chequered history of entertainers, sports stars and tax
What have William Shakespeare, The Beatles, The Rolling Stones, U2, Norman Wisdom, Richard Burton, Boris Becker, Lionel Messi, Christian Ronaldo and Bobby Moore all got in common? They are but a few of the many, very many, actors, entertainers and sports stars who have found themselves in trouble (sometimes bigly) with the taxman.
One reason entertainers and sports stars run into money and tax problems so frequently is that they work in an industry where vast sums of money can be generated practically overnight from all around the world. Consequently, musicians and bands probably have some of the most complex tax affairs outside of multinationals. It’s therefore unsurprising many engage in elaborate tax planning and it’s equally unsurprising this sometimes comes unstuck with expensive consequences.
This Top Five looks at actors, musicians and footballers who left a tax legacy as well as an artistic one. Moreover, these tax legacies remain highly relevant today.
1. “Know you of this taxation?” (Henry VIII).
Despite his colossal cultural legacy, we know very little about the real Shakespeare. We do know that between 1597 and 1600 he appears in several rolls for the “lay subsidies” for the St Helen’s Bishopgate parish in London. Lay subsidies were a form of local wealth tax on local householders. The lay subsidy roll contained an estimate of a person’s wealth and the amount assessed.
It appears that in 1598 Shakespeare defaulted on his lay subsidy for the year of 13 shillings and four pence. It’s not known whether this debt was ever paid but since about this time he bought into the Globe Playhouse for £70, he was surely not short of money. This has led to much conjecture about whether Shakespeare was one of the first known tax avoiders of the entertainment industry.
Like so much else about the man, we’ll never know the truth about Shakespeare’s finances. I can’t help but wonder if the quip in Henry VI“The first thing we do, let’s kill all the lawyers” might reference some dud tax advice he received.
2. From Abbey Road to Exile on Main Street.
It appears The Beatles were pioneers in tax planning for musicians. Very early on in their career they were introduced to accountant Harry Pinsker who specialised in the entertainment area. (Pinsker’s first reaction was that “they were just four scruffy boys”).
One of Pinsker’s recommendations was a songwriting company Lenmac through which their earnings would be channelled. He successfully argued the company’s income should be taxed as trading income rather than investment income which would have incurred higher taxes.
Even so, the very high tax rates of the mid-60s (more than 90%) prompted George Harrison to write Taxman.
“One, two, three, four, one, two
Let me tell you how it will be
There’s one for you, nineteen for me
‘Cause I’m the taxman, yeah, I’m the taxman”
Pinsker ultimately suggested the formation of Apple Records as a tax effective means of managing the band’s revenue. His efforts did not go unnoticed by the Beatles. During rehearsals of their final album Let it Be, the band started singing Harry Pinsker instead of Hare Krishna.
The Rolling Stones weren’t as well managed as The Beatles and in 1971, facing huge tax bills, they moved to the south of France where they recorded one of their greatest albums: Exile on Main Street. The title was a deliberate reference to their tax exile.
Having also fallen out with Decca Records and their manager Allen Klein, the band took control of their affairs at this time by forming their own record company. They also established a Netherlands company to shelter their income. This started a trend which other bands including U2 would follow.
The Rolling Stones move into tax exile didn’t attract much criticism at the time, perhaps because the rates of tax they then faced were so high. Forty years on attitudes have changed.
U2 were in town recently and their tax practices have drawn increasing criticism. Lead singer Bono has been accused of hypocrisy after he was linked to the Panama Papers.
In 2015 Bono and U2 were criticised for making changes to shift royalties through the Netherlands to take advantage of a special concession. Now it appears this concession is ending.
If U2 still haven’t found the perfect tax structure they were looking for, The Rolling Stones should remind them “You can’t always get what you want.”
3. The slapstick clown with a tax lesson for crypto-asset investors.
The British comic
Sir Norman Wisdom rose to fame in the 1950s playing a hapless but good-natured incompetent who somehow through a combination of slapstick humour and good fortune saves the day.
Contrary to his clownish on-screen character, Wisdom was a very shrewd investor, and this ultimately resulted in one of the more notable and still influential tax cases of the 1960s.
In 1961 Wisdom invested in silver ingots as a hedge against a possible devaluation of the British Pound, eventually realising a profit of £48,000 (about £800,000 today). At a time of very high personal tax rates Wisdom claimed the profit was a tax free capital gain (the transaction occurred prior to the introduction of capital gains tax in Britain).
Wisdom won in the High Court but in 1968 the Court of Appeal in Wisdom v Chamberlain (Inspector of Taxes) determined that the transaction was in the nature of trade and therefore taxable. Wisdom paid the tax due and outraged by the high taxes then went into tax exile in the Isle of Man where he lived until his death in 2010.
His case is often cited when considering whether a transaction is of a revenue or capital nature. In 2017 Inland Revenue cited it in a “Question We’ve Been Asked” on whether the proceeds of the sale of gold bullion would be income. (The short answer is almost certainly).
Inland Revenue also consider some crypto-assets to have similar characteristics to bullion. It is therefore probably only a matter of time before some crypto-asset investors will need to acquaint themselves with Wisdom v Chamberlain and Norman Wisdom’s unwilling tax legacy.
4. Gone for a Burton.
Richard Burton was probably too busy being one of the great actor hell-raisers of the 1960s to be paying attention to the price of silver bullion. Yet, he too has left a tax legacy, one of particular relevance to many of the thousands of Britons currently living in New Zealand.
Burton became a tax exile in the late 1950s after taxes had reduced his earnings of £82,000 for 1957 to £6,000. (Allegedly he subsequently remarked “I believe that everyone should pay them [taxes] — except actors.”) Burton moved to Switzerland where he lived until his death in 1984.
Burton was buried in Switzerland, apparently in a red suit together with a copy of Dylan Thomas’ poems. However, many years earlier when he was married to Elizabeth Taylor, Burton had acquired two burial plots for himself and Taylor in the Welsh village where he had been born. And this proved extremely costly for Burton’s estate.
Inland Revenue argued successfully that the presence of the burial plots together with his Welsh themed funeral meant that Burton had never lost his UK tax domicile. Accordingly, his estate worth just over £4 million had to pay a total of £2.4 million in Inheritance Tax.
In my view Inheritance Tax represents the greatest tax risk to anyone either born in the UK or who owns assets situated there. The lesson from Richard Burton’s death is that Inheritance Tax could still apply many years after a person has left the UK.
5. England, One; HM Inspector of Taxes, Nil.
November 22 was the anniversary of when England won the Rugby World Cup in 2003. In the wake of England’s unexpected defeat by South Africa I saw a perhaps rather too gleeful tweet asking if 2003 was destined to become English rugby’s equivalent of England’s sole football World Cup win in 1966.
On the other hand, the RFU’s Treasurer possibly breathed a sigh of relief after the final as apparently the squad stood to win bonuses totalling over £6 million.
Anyway, back in 1966 the English Football Association rewarded its world cup winning squad with £1,000 each. (About £15,000 in current terms or only 30% of the English Premier League’s current AVERAGE weekly wage of £50,000). Enter the Inland Revenue stage right in the form of HM Inspector of Taxes Mr Griffiths. He considered the amounts paid to England’s captain Bobby Moore and cup-final hat-trick hero Geoff Hurst were taxable as they formed part of their remuneration.
The case finally reached the High Court in 1972 where Mr Justice Brightman ruled the £1,000 payments were non-taxable as they had the “quality of a testimonial or accolade rather than the quality of remuneration for services rendered”. A convincing one-nil win then.
Other footballers haven’t fared so well against the taxman: Lionel Messi and Christian Ronaldo are unquestionably two of the greatest players of this generation, but their tax planning has not matched their sublime footballing skills. In 2017 Messi had a 21-month jail sentence for tax fraud commuted to a fine. This was in addition to a voluntary €5m “corrective payment” he and his father had made in August 2013. Earlier this year Ronaldo was fined €18.8 million for tax evasion and given a suspended 23-month jail sentence.
5B. Beware the Ides of…November?
Finally, 22nd November, was also my father’s birthday. It’s actually a pretty momentous, if not infamous, day in history. Most notably in 1963 when President John F Kennedy was assassinated (with both Aldous Huxley and C.S. Lewis also dying on the same day the obituary writers had a very busy day). Charles de Gaulle was born on this day in 1890 and Angela Merkel became German Chancellor in 2005.
There’s a tax connection in convicted tax evader and serial tax exile Boris Becker who was born on this day in 1967 and the obligatory Kiwi connection is the death in 1982 of the pioneering aviator Jean Batten.
Lastly, Margaret Thatcher resigned on this day in 1990 (as a result of, you shouldn’t be surprised to hear, a Conservative Party split over Europe). This was not only a pretty funny 60th birthday present for Dad but also something of a rich irony as he was a staunch Thatcher supporter. Miss you Dad.
30 Oct, 2019 | Tax News
IRD’s efforts to crackdown on hidden economy ‘five years late’: tax expert
Reproduced from The Herald
Inland Revenue is “five years late” to tackle the mammoth issue of the country’s estimated billion-dollar “hidden economy”, a tax expert says.
Inland Revenue collected $77.9 billion worth of tax revenue in the 2019 year, but experts estimate that it is missing out on at least $1b more as the country’s self-employed are under-reporting their income by about 20 per cent.
A Victoria University and IRD study released in April estimated that New Zealand is missing out on about $800m in its annual tax take. Chartered Accountants Australia and New Zealand believe this is likely to be in excess of $1b each year.
The tax department yesterday announced it had carried out a series of unannounced raids on hospitality businesses in the Queenstown and Central Otago region – new measures in a bid to curb unreported cash sales and staff being paid cash under the table.
Using court-issued search warrants, IRD raided three hospitality businesses and made unannounced visits to six others. It seized wage records, computers and other business records, along with information on employer-provided accommodation, working for Families Tax credits and payroll matters.
It found that businesses were paying staff in cash without PAYE being deducted, and documents revealed some were making cash deposits into private bank accounts without being returned for GST or income tax.
IRD says it would continue to use the strategy to catch operators failing to comply with tax law, but Terry Baucher, founder of Baucher Consulting, says IRD has in recent years took its “eye off the ball” as it became “too focused” on its business transformation programme rather than growing hidden economy.
“The business transformation programme should have happened five years ago, at the very latest,” Baucher told the Herald. “We don’t know the size of the hidden economy and that’s the point coming out … my view is that this sector is bigger than people realise, much bigger.
“Inland Revenue is now returning its focus on to this matter. With its new upgraded systems I think it has got better data matching abilities – they are now enhanced, so it can now go about this with a renewed vigour.”
Baucher said New Zealand’s GST system enabled it to pick up on under-the-table activity.
“Because our GST is so comprehensive, I believe that policymakers, that means Inland Revenue, have been a little complacent about the extent of the cash economy.”
IRD estimates that approximately $256m worth of income was not reported in 2018 and 2019 – about $108.8m identified in 2019, and $148m in the 2018 year.
According to its annual report, for every $1 spent on efforts to crack down on the hidden economy, IRD received about $6 in return revenue last year.
“They targeted getting $4.59 [back] so they were 20 per cent above what they were expecting,” said Baucher said.
IRD research has found that the proportion of people participating in cash jobs was beginning to decline. In 2011, 34 per cent of people said they participated in cash jobs.
This is now down to 27 per cent, while just 16 per cent of people said they were now likely to ask for a cash price discount compared with 27 per cent previously.
About 49 per cent of people said cash jobs were acceptable, down from 72 per cent from 2011.
Baucher said IRD’s unannounced visits and raids to its assessed “high-risk businesses” would have a positive impact on tackling New Zealand’s hidden economy.
He said New Zealand could also follow Sweden by implementing a surcharge or similar for cash payments.
Inland Revenue customer segment leader for micro, Richard Philp, said there were 90 tax evasion prosecution cases before the court, and that IRD was making progress on the issue.
“The construction industry and the hospitality industry are two industries that typically represent a higher level of cash transactions, and particularly with the hospitality industry, there are small amounts one-by-one but collectively they can build up to be substantial amounts of cash suppressed and not declared annual GST returns,” Philp said.
The IRD first began focusing on a crackdown on cash payments in the hospitality industry about three years ago. Unannounced visits to businesses, however, are a new strategy the tax department is undertaking to clawback tax owed.
“Cash jobs undercut legitimate operators so our goal is not to prosecute everyone but to have enough examples and representation around our enforcement work that helps guide people to do the right thing.”
18 Jul, 2019 | Tax News
The role of a finance minister is hugely important as they together with their Treasury department set the direction for an economy. Tax is a major part of any finance minister’s responsibilities, but for some finance ministers tax reforms are the key part of their legacy. Here are five finance ministers with a huge tax legacy.
Jean-Baptiste Colbert was the finance minister (Comptroller-General of Finances) for King Louis XIV of France between 1661 and 1683. His quip
“the art of taxation consists in so plucking the goose as to obtain the largest number of feathers with the least possible amount of hissing”
remains as true today as it was in the seventeenth century.
The entrenched interests of the French nobility prevented Colbert’s attempts to raise taxation to fund Louis XIV’s wars. He could not raise direct taxation on the French nobility, but he increased indirect taxation from which they were not exempt – an early example of broadening the tax base.
Henry Addington succeeded William Pitt the Younger as British Prime Minister and Chancellor of the Exchequer in 1801. Pitt introduced the first income tax in 1798 to help fund the Napoleonic Wars, but Addington repealed it in 1802 following the Peace of Amiens.
Addington’s repeal was short-lived because war broke out again in 1803 and the tax was re-imposed. Addington’s income tax is significant for two reasons: firstly, it introduced withholding at source with the equivalent of a resident withholding tax on interest paid by the Bank of England. Secondly, it adopted a schedular system splitting classes of income into separate “schedules” which remains the case in Britain today. Addington’s income tax was more broadly based than Pitt’s – doubling the number of taxpayers with the result that although the original maximum rate at 5%(!) was half that of Pitt’s income tax, the tax take more than doubled.
Income tax was abolished after the Battle of Waterloo and all records were destroyed to protect privacy a measure rather foiled since duplicates had already been sent to The King’s Remembrancer (yes, really).
Sir Geoffrey Howe was Margaret Thatcher’s first Chancellor of the Exchequer. He was the first finance minister of modern times to start the trend of reducing very high income tax rates in favour of higher taxes on consumption. In his first Budget in 1979 he lowered the top rate of income tax from 83% to 60%, whilst raising the standard rate of Value Added Tax (GST) from 8% to 15%.
Howe did not have a reputation as a sparkling wit. His Labour predecessor Denis Healey, famously quipped that debating Howe was “like being savaged by a dead sheep”. However, it was Howe’s devastating resignation speech in 1990, after falling out with Thatcher over her approach to Europe, that precipitated the revolt that ousted her.
Don Regan was President Ronald Reagan’s first Treasury Secretary, the American equivalent of a finance minister. Regan was a supporter of Arthur Laffer’s supply-side economic theory. He tested the hypothesis by introducing the Economic Recovery Tax Act in 1981 which cut taxes by 2.89% of GDP (and the top rate of income tax from 70% to 50%). These are still the largest tax cuts in American history. (It appears however they were too big, as tax increases were required almost immediately to bring the budget deficit under control).
Regan later laid the groundwork for the Tax Reform Act of 1986 which further reduced the top income tax rate to 33%, but also broadened the tax base by eliminating deductions and tax shelters (sound familiar?). The enduring legacy of Regan’s support of Laffer’s then revolutionary supply-side theory is that it is now a key plank of current Republican Party thinking on tax.
Sir Roger Douglas. In the New Zealand context, it is impossible to look past Douglas as the finance minister with the biggest tax legacy. In fact, he is probably the most important tax reformer anywhere over the past forty years. That’s because unlike Howe and Regan (and for that matter Paul Keating in Australia), he, together with his Revenue Minister Trevor de Cleene, achieved far more comprehensive reforms in a staggeringly short period of time. Within four years the New Zealand tax system was overhauled, the top income tax rate halved from 66% to 33% and introduced the world’s most comprehensive GST. Douglas’ overall legacy remains controversial but the fact the basic structure of New Zealand’s tax system has remained largely unchanged since his reforms is a clear measure of his standing.
This article first appeared on Interest.co.nz
18 Jul, 2019 | Tax News
I have just uploaded my slides presented to the Trusts Special Interest Group about the court case between Blackburn Trustees and Crowe Horwath International in the High Court and the lessons we can draw from this judgement about Capital Gains Tax and the Brightline Test.
