Tuesday, 2 November 2010

Good Riddance

A Long Time Coming

Estate duty (or the death tax) was abolished in New Zealand in 1992. Estate duty was and remains an horrendous extension of raw state power against citizens. The very idea that upon death, the government would arrogate to itself the power and right to confiscate the capital and private property of a citizen ought to make every person's blood boil with hot indignation. The idea is both implicitly and explicitly socialist. Its egalitarian arrogance is breathtaking.

Estate tax undermines the institution of the family, and subjugates families, as families, under Leviathan. The Bible commands that parents leave an inheritance unto their children's children. Estate taxes interdict this. The result is a general weakening of the family institution and consequently results in a greater reliance by families upon the State. Socialists, of course, are approving of this trend.

Populism, however, demanded that estate taxes be restricted to those whom an ignominious former Finance Minister artlessly called "rich pricks"--by which he presumably meant anyone who was more wealthy than himself. But as average standards of living increased, the death tax had to be constantly modified and adjusted, lest it catch "ordinary blokes". In the end, too may loopholes, adjustments, and consequent compliance costs made the tax counter-productive. It was abolished in 1992, and not before time.

But vestiges lingered on. Gift duty has been one. In New Zealand, any aggregate giving of more than $27,000 per annum (to anyone) is taxed. Gift duty was instituted to prevent people giving away their assets before death to avoid, you guessed it, estate duty. Now, nearly twenty years after the abolishment of death duties, the government has announced that gift duty will be abolished as well. Twenty years! How the machinations and imposts of government can haunt us for a long, long time even when they are well passed their use-by date. But, credit where it is due. Full marks to the Revenue Minister, Peter Dunne for abolishing this ante-diluvian relic.

But it seems that it takes an awful lot of compelling idiocy and irrational consequences to roll back oppressive taxation laws. Dunne confirmed that in the past seven years an average of only $2.2 million per year has been paid in gift taxes. But to avoid the tax legally has cost $70 million per year (one could avoid the tax if gifting was kept beneath $27,000 per year, and there were a number of legal and accounting artifices to achieve this).
"We began a review early this year, initially of the threshold which had not changed since 1984. It became clear the rationale for retaining gift duty no longer applied," Revenue Minister Peter Dunne said. NZ Herald

You don't say, Minister Dunne who is a master of ironic understatement. Well, we are thankful even for small mercies.

But it raises a wider issue. There are legions of dead weight government interventions that are relics of a long gone past for which "the rationale" no longer applies. It would be wonderful if the government would become first order abolitionists. The good it would do to our overall economy would be startling.

3 comments:

ZenTiger said...

In general, good news.

Now it will also be important to align tax rates between trusts and other tax structures, and to ensure assets cannot quickly be moved into structures to avoid repayment of honest debt or claims against personal wealth.

John Tertullian and Contra Celsum said...

With you on that one, Zen. I note that Minister Dunne says that most rorts are already prevented or discoverable and punishable by existing rules and law, although there is some doubt about WFF.

ZenTiger said...

I just found a very good explanatory link by Nookin at Kiwiblog that indicates that abolishing gift duty will not create this problem, in the sense there are already other loopholes.

So now I can focus on the great example this provides: Cancelling a tax that costs tax payers and the government over 70 million a year to administer, to generate around 2 million a year.

That is madness.

Goff's comments about it being about stopping further rorts appear to be unfounded, but at best simply mean loopholes could be closed in other ways.