Thursday, 18 April 2013

what happened to keeping it simple?

well, i had planned to write something tonight on the power reforms announced by the labour & green parties.  i'd still prefer the renationalisation option, as i mentioned a few days ago.  mr shearer said on radio nz tonight that this wasn't feasible in the short term because of the costs of buying back shares - not just in the companies about to be sold, but also others like contact energy.

but it's too late to be thinking with any clarity, and i've spend some of the evening putting together various policy proposals.  one proposal i would like to make is the abolition of the look-through company regime that was put through a couple of years ago.  it was an attempt by this government to restrict the losses that can be claimed by people who run loss-making businesses - particularly residential rental companies.

the regime was put in place to replace the loss attributing qualifying company regime, which was complicated enough but manageable.  the new regime is so much worse, and while it effectively tries to ensure that people can only claim losses on assets that they have an economic interest in, there are so many definitions and calculations that it's a total nightmare.

the joys of being an accountant are that a lot of this kind of work is unseen by our clients and very difficult to explain.  but it takes a lot of time, so the client gets a big bill for work that they don't see and can't appreciate, because it doesn't provide any tangible or concrete product.  all we've done is applied the law and made sure they've claimed only what they are allowed, but you can't wrap that up & put a ribbon around it.

but it's another way that the government is increasing costs to small businesses, while increasing the tax take (by limiting the claiming of losses).  they could have obtained a much similar result by ring-fencing losses ie not allowing losses from residential rentals to be claimed against other income. it would discourage investment in houses (because there would be much less tax advantage in borrowing to the full value of the house), especially in conjunction with a capital gains tax.  that would help reduce house prices, and divert investment to other areas of the economy.

unfortunately the sadist that is drafting tax laws at the moment doesn't like simplicity.  i'm thinking the person that thought up look-through companies must be the same person who invented the foreign investment fund regime - yet another complicated nightmare that takes hours to work through with no very tangible result at the end.  again, i applaud the intent - an attempt to encourage investment in the local economy, but the application is  unnecessarily complicated.  i'm sure they could achieve the same result by simply taxing foreign dividends 10% more than local dividends, and save people a lot of money on their accounting costs.

for a government whose political rhetoric is all about cutting the red tape, reducing bureaucracy and simplifying the system, they seem to be doing the exact opposite.  the problem is, of course, that the simple solutions are never politically palatable, so the government hides what it's doing via schemes and calculations that are so convoluted that most people don't realise what's happening.

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