Book Review: Tax and Fairness, by Deborah Russell & Terry Baucher

Available in bookshops nationwide.

cv_tax_and_fairnessTwo well-known tax experts try to write a concise and intelligible book about tax. For the most part they succeed. This book is also intended to be part of a moral conversation about why we pay tax. In fact, its main contribution is to highlight some of the more technical aspects of tax in New Zealand, and make some useful comparisons to overseas practice.

The central part of the book involves explaining why the taxation of savings has gotten so complex and arbitrary. This affects both Kiwisaver and the Government’s Superannuation Fund, which appears to pay an inordinate amount of tax. Meanwhile, the country’s ‘love affair with property’ sees that go effectively untaxed, while the regular reviews of tax put a comprehensive capital gains tax (CGT) in the ‘too hard basket’, and the Treasury and IRD can’t agree on how to formulate a CGT in any case.

These chapters on the taxing of investment, and absence of tax on land and housing, are essential and could have been expanded. As it is there are many unfamiliar concepts to explain, and there is a risk of getting confused in all the acronyms. After learning about the ‘financial arrangements regime’, there is Tax, Tax, Exempt (TTE) policy; the Foreign Investment Fund (FIF) regime; the fair dividend rate (FDR) method; and the Portfolio Investment Entity (PIE) regime, before we get into Kiwisaver.

In particular, the FIF regime appears to have been rather baffling from the start in the 1980s, and has had to be re-booted a number of times. This points to the underlying theme within the narrative of the book. A lot of the key changes stem from the mid 1980s when there was supposed to be a simplification process, and the basic principle was to have a ‘broad base and low rate’ across all forms of income. However, examples like the FIF regime appear to be based on a theory of their own specific to the idiosyncrasies of New Zealand policymakers, especially in Treasury, as does the trust law change from the same period.

The trust law is mentioned a few times in the text, and both authors discussed the foreign trust regime in public debates during 2016, after the release of the Panama Papers. They seemed to agree that this had created a tax haven operation, but, rather curiously, they do not use the term at all in this book, even when discussing the tax-dodging multinational corporations. There is instead a nuance, when referring to the forms of income in ‘foreign trusts’ that goes untaxed; and this is apparently due to a loophole in the law. In truth, it was not a loophole at all, as the creation of the ‘foreign trust’ category was quite deliberate, and went against the advice of overseas experts in the crucial 1987-8 period. The only real question is why it remained unnoticed for so long, and why it was not reformed as well.

Although the book is apparently about fairness, the familiar terms for this – tax being more or less ‘progressive’ or ‘regressive’ – are never actually used in the text. Instead the concepts of ‘horizontal’ and ‘vertical’ equity are introduced, and are mentioned a few times in the detailed chapters. However, it is a pity that the concepts in the opening chapters, and the ‘moral conversation’ idea in the final chapter, are not necessarily integrated with all the technical detail.

Nonetheless, this short book is a credible effort in a very tricky conceptual minefield, and makes a good case for reforms.

Reviewed by Simon Boyce

Tax and Fairness (A BWB Text)
by Deborah Russell & Terry Baucher
Published by BWB
ISBN 9780947518608

Book Review: Three Cities: Seeking Hope in the Anthropocene, by Rod Oram

Available in bookshops nationwide.

cv_three_citiesRod Oram is an interesting example of a business journalist who has escaped the somewhat narrow confines of the daily press to become a columnist, and is able to discuss some of the big issues confronting the world. On his most recent Tuesday morning slot on RNZ National he talked about civilisation being at risk from global climate change and ecological destruction. The man-made environmental change to planet is what Oram means when referring to the ‘anthropocene’ in the title. But he remains in a minority of financial journalists who delve into environmental issues.

So Oram goes to three of the largest metropolitan areas in the world to look for others who are interested in ecological questions. This looks promising at first, even though the opening chapter about Beijing includes a lot of rather dry statistical information. And there he finds about the idea of ‘ecological civilisation’ which China confronts as it continues to industrialise, but faces certain financial and institutional challenges. In the conclusion Oram refers to other ideas he discovers in the Western metropoles, like the ‘doughnut economy’ and the ‘circular economy’. The sub-title of the book claims that “conventional economic policies are failing worldwide”, and he refers in the text to the ‘lifeless’ economic theory that plagues elite policymaking in the West. Oram also mentions something called Californian Ideology based on Silicon Valley values.

But, unfortunately, the book doesn’t really delve into the new ideas in any sustained way. Oram’s visit to three cities is based on his own familiarity with them, rather than really seeking new experience and opinion. There is a lot of personal narrative here for such a short book. And there are quite a few digressions as well, though some involve finding a Kiwi connection, like the Chinese store owned by Japanese interests which sells a Comvita gift box of 5 honey related items for 3031 yuan ($NZ750). He also refers to some interesting facts about a New Zealand firm LanzaTech, which has relocated to Chicago. However, I found the chapter about London rather disjointed, with an odd beginning about Jeremy Corbyn and Yanis Varoufakis. Oram writes quite a bit about the Financial Times where he worked in London, and the Northwestern University where he studied in the USA, but this does not add much to the big themes.

There is another version of this story which Oram presented for the 2015 Bruce Jesson Foundation lecture. There he talked about three crises which are linked: a fiscal or financial crisis for global economy beginning in 1971; the ‘Eco shock’ which has also been developing over the same time; and what he calls the ‘Corporate shock’, as exemplified in the Volkswagen company’s systematic deception over carbon emissions from its vehicles, being emblematic of the environmental costs of big business. If only the book were more focussed on the analysis of these issues, though the suggestions for local change in New Zealand at the end of the book are useful.

Reviewed by Simon Boyce

Three Cities: Seeking Hope in the Anthropocene
by Rod Oram
Published by BWB Books (Text series)
ISBN 9780994135407