The case against tax changes

Press, 7 February 1986, Page 13

The case against tax changes

A substantial devaluation of livestock, particularly deer and goats, was an inevitable consequence of the livestock taxation changes announced in December in the Government’s economic statement, says Miss Ruth Richardson, M.P. for Selwyn. The newly created tax liability based on retrospective livestock values would force the sale of large numbers of animals held by farmers who had taken risks by diversifying into new forms of farming.

The moves to diversify (encouraged by both past and, apparently, present Government) had been led by those farmers prepared to take risks, says Miss Richardson.

But the retrospective transitional arrangements severely disadvantaged those risk takers in favour of farmers who followed them.

The proposed reforms might help some traditional pastoral fanners off the rocks and exit from the farm, but for each one helped off another would be forced on to the rocks by the impact of the increased tax burden.

It was unjust that the

liability to pay tax would be fixed on one market and the responsibility to meet that tax would occur on another market which could well be lower — in the case of prime lambs, their value could be halved from one season to the next

The system would do an injustice to the New Zealand economy as well, says Miss Richardson. The development of new food, fibre, and by-product industries was vital to sustaining the export effort, yet the economic statement would freeze that innovation in its tracks and penalise those who elected to expand their stock numbers at the expense of income. “A tax regime based on static numbers will deny New Zealand the prospect of dynamic export growth.”

Most livestock owners were ignorant of the implications of the Government’s reforms. That was scarcely surprising as the Government itself was ignorant of the detail of its schemes and yet again had invited Dr Don Brash to the rescue to flesh out the details. Miss Richardson said the taxation reforms were

announced at a time when the offices of professional farm advisers (like the rest of New Zealand) tended to be shut and accordingly farmers had been denied even "inspired guesses” by their accountants of the implication of the announcements.

As well, the economic statement sent confused signals through the market at the very time when the main livestock selling season was under way. In a market economy, people needed to be well informed and in the absence of settled details it was understandable that the market should react with cautious pessimism to the impact of a retrospective assets tax, the principles of which were declared to be non-negoti-able.

Miss Richardson said the idea of a bureaucrat accurately determining the market value of a class of animal or, in the case of highly priced stock, of each animal was nonsense. The Government proposed that market values be based on auction prices at representative saleyards, yet some stock in scarce supply was only rarely for

sale — such as stud Lincoln ewes.

Some stock was typically sold by private treaty, such as /weaner stags and the price of other types would literally depend on the quality of each individual animal, such as Angora goats. “What happens when market prices tumble (e.g. old ewes) or where stock end their days not in an auction pen but in a farm pit?” asked Miss Richardson.

“What happens to a farmer who sells out before the end of each season and arranges to

recommence a livestock business in the next financial year under a different style?” It was a fallacy to believe that the ownership of livestock created an instant capacity 'to pay. In fact, the capacity to pay tax was not created until the livestock was traded and income actually generated.

The livestock market had not been built on a tax dodge. The standard value system was no more or no less than a deferral of income — the moment trading occurred income was realised and the taxman lined up for his share.

Looking at the prospects of the Brash Committee coming "to the rescue,” Miss Richardson said the terms of reference for the committee were very narrow and specific. The decision to impose a retrospective tax and an assets tax on unrealised income were policy matters and as such were declared to be not-negotiable.

The Brash Committee had no power to enquire into those two central and contentious features of the Government’s reform proposals.