Like I said, don’t get your hopes up. DPF rates Key’s Opening Statement to Parliament with a “B”. I’d give it a “C”, although I’m tempted to give it a D (i.e. fail), because Key has simply disregarded the Tax Working Group and 2025 Taskforce’s recommendations (his reactions to Capital Markets will be out next week).

Key ought to have done something about the tax status of property. That would’ve given the government better leverage to to get income, trust and corporate tax rates down (NB: I’m not totally convinced of the need for a land tax, but think LAQCs should go). Increasing GST to cut income tax was a good move, but there is little mention of cutting spending save for better enforcement of welfare rules. To do it, Key will break a promise on not increasing GST. He should’ve broken his promises on superannuation thresholds and the age of eligibility.

Bernard Hickey is saying I should get a one-way ticket to Australia because of Key’s failure to introduce a land tax. Personally I’d rather do what my parents did in the 70s and go earn the big money in Europe to save. Or join my mates in Hong Kong or Singapore. But I digress…

The Prime Minister will make a big speech tomorrow at the opening of Parliament. Apparently it’s going to set out the government’s tax policies. Be prepared to be disappointed. That way if the package is good, you’ll be elated.But seriously, tomorrow’s speech needs to articulate a way forward – a wishy-washy yes maybe speech won’t cut it. Luckily, I suspect the way it’s been talked up in the media implies JK’s office knows it.

It won’t be Labour that ends John Key’s dream run. No, 2010 will be the year that makes or breaks John Key’s premiership. Showing some testicular fortitude now by moving the country towards significant changes in how much tax we pay, and what we pay it on, will significantly alter our future course as a country. Allan Bollard is right – we won’t catch Australia if we don’t make some bold changes.

Fixing the tax system is not a silver bullet though. The government must also address our long-term spending problem; the fact we are living beyond our means. Because today’s spending problem is tomorrow’s debt problem – and that debt will unnecessarily burden future generations. That’s why I care about these issues – because of our future generations. I don’t want them burdened by some previous government’s inability to control its own spending, as my generation was during the 90s thanks to Muldoon’s spending binge of the late 70s and early 80s. So come on John, show us you’ve got a pair and give us the step change we need.

Key says personal tax cuts still on Govt agenda

Excellent news. Harmonise the personal tax rates with corporate tax rates by cutting wasteful government spending and increasing GST.

I’d normally save this for Friday’s Link-O-Rama, but since this is so awesome I decided to post it now: Car Jam

Thanks to Car Jam I now know my car’s rego is all correct. Excellent. More importantly, I’ve checked if the numberplate “FAIL” and “WIN” are available. They are. Also, it seems the person with the plate “007″ drives a Honda. That car should really have the “FAIL” plates…

But the most interesting information is the “CR” or Crown Limo service cars that whisk our statesmen and women about the country in comfort and, if you’re Helen Clark, speed. CR1 is the Prime Minister’s car you see – and the PM’s beemer is listed under Car Jam:

BMW 730LD 2008 (in Silver) Plate: CR1

Thanks to Car Jam we now know the PM’s car costs us $1,400 to run a year.

Marcia Russell’s excellent documentary series Revolution got me thinking about this Government and our future as a country. Revolution’s basic premise is that by 1984 New Zealand had become a “fortress” desperately fighting to hold on to a post-war New Zealand that could no longer be sustained. I sometimes wonder if we’ve learned that the only course of action in the face of economic challenges worse than taking no action is taking retroactive action to try and preserve the status quo…

Interest.co.nz has the details of papers put up by Motu economist Arthur Grimes and Deloitte partner Mike Shaw to the Tax Working Group’s final conference in Wellington on Tuesday, detailing the pros and cons of a land tax. Here’s my responses to the pros and cons:

Pros:

* Brings in property to tax base. NZ has relatively low property taxes compared to other countries.

This is certainly true – the large burden of our tax base is on low-middle income wage earners. Spreading that tax burden will help the economy no end.

* Progressive tax hits richest hardest and hits those with most children least, as they have less land

Goodo, if you’re into that sort of thing. Not really much of a pro.

* Hits Maori and Pacific Island communities least

Again, good if you’re into that sort of thing – wonder how a land tax would affect Maori land though? Would National do a deal with Tainui or Ngai Tahu.

* Likely to cause rental property investors to rethink

Which is of course one of the problems we have – the $213 billion invested in rental property is 5 times what we’ve got invested in stock market. Because of LAQCs, this investment stock represents a tax “loss” of $500m (in credits). Why not just abolish LAQCs then? Probably not an election-winning strategy, although $500m could easily go towards lowering the top tax rate in compensation.

* Very cheap to administer

Excellent – all those tax law students hoping to work on land tax law should therefore re-think their careers at the IRD…

* No avoidance or evasion

No wine boxes then. Again, tax law students – start studying something useful.

* Land is immobile so no danger of assets ‘fleeing’ tax

Also good – one thing we struggle with in New Zealand is keeping our businesses onshore. Lowering company tax will help that.

* Per hectare threshold reduces hit on farmers and foresters

This would also be good – it would make little sense to cut company tax, then load more tax on productive sectors of the New Zealand economy – agriculture and forestry.

* Threshold cleaner and easier to administer than exceptions

Again, this is a pro – a “clean” tax cuts bureaucracy, and makes the IRD a little less bastard like.

* Discourages land-banking property developers from sitting on land

Good – that should mean lower house prices for first time home owners, if you’re into that.

* Less borrowing for property investment and lower overseas debt

Whoah there… less borrowing for property investment doesn’t mean less borrowing everywhere. It does mean that what is borrowed could be put into productive assets though, but this isn’t really a pro.

Cons

* 0.5% land tax could reduce land values by as much as 15%

Ouch. Pretty much a big election loser there… so that pretty much rules out the Government.

* House prices (land and buildings) could fall by 4-8%

Double ouch. Perhaps we could make the Grammar zone cover all of New Zealand to compensate?

* House price falls depends whether tax is deductible, level of real interest rates, other local body rates

Owww… lower house prices mean lower rates Bills. That’s actually a pro in my book.

* Retired households hit hardest

An incentive to move into rest homes perhaps? Here’s a sharemarket tip: if land tax is introduced, by shares in Metlifecare, Ryman, BUPA and Oceania Group. Not really a con in my books.

* Young homeowners with little equity, low discretionary income hit relatively harder

Now this is a big con, particularly at a time when housing affordability is down. However, is it really that important that everyone own their own home?

Overall, I would say conditionally that the pros of land tax outweigh the cons. I say conditionally because:

• The Government ought to reduce income and business tax and the same time as introducing any land tax – not using land tax just to generate more tax revenue. That means we’re still going to have to cut spending to sustainable levels.
• It’ll hurt house and land prices, something many small businesses depend on for equity, and “mum and dad” investors for their retirement. Although that is a long-term pro, as it will encourage New Zealanders to stop depending on housing to become wealthy, and put their capital to much better use.

Update: Big fail on rates there. Mea culpa. The issue is whether land tax increases average house prices and push up rates. So again, likely to make the government unelectable.

The MSM have already done their “One Year On” pieces on John Key, but today is the actual anniversary – while the election was on November 8th, Key’s Government wasn’t sworn in until 19th November. So today is one year on.

So endeth a pedant’s rant.