In the mean time let's hope a capital gains tax (at least on second homes) is being seriously considered in the Beehive. This would dampen our housing obsession and focus the ingenuity of people like Pete on more sustainable ways of growing our economy.

Yeah, perhaps Pete could buy a dairy farm and produce one of our biggest exports. Oh no, hold the damned bus, the three biggest economic sectors of the world, US, China, Europe, are now all either Communist or Socialist, and believe in protectionism, and, indeed, the United Police States has just given a rather cruel blow to our dairy industry in this regard, so Pete's dairy farm is going to go broke.

Bernard, I'm almost thinking it is the mission of this site to ensure we have a capital gains tax, because from contributor to contributor it sure is giving the politicians the bullets they need.

Is there not one economist in NZ prepared to say that you do not fix the problems of an over-sized State, huge government spending, and too high income taxes by simply transferring the tax to wealth in other areas. That all taxes are a brake on productivity and entrepreneurship, and that NZ's answer to its economic (and philosophic) woes is to:

a) Slash, viciously, the size of the State.

b) Thus, slash, viciously, government spending.

As (a) and (b) will also remove much of the bureaucratic impediments, in the form of red tape, to the productive sector - because the paper pushers and big nosers are on the dole where we're only having to pay them a tenth of what they're extorting now through their huge government salaries - you get a lot more for your money than just the savings in government spending. For a start there's a whole set of building regulations that are not stopping a single leaky home from being built, gone, thus reducing the cost of building so Pete can remain a builder using the high skill set that he has.

c) Via the above, reduce income and indirect taxation dramatically, thus, this factor distorting productivity is removed.

d) Dump the central bank and return the market to laissez-faire where the politicians do not have control of that most important resource: the supply of money.

Note , at this stage we would now also not be paying people to have children - the DBP and the immoral Working For Families all gone - thus would have gone a long way to solving our growing youth violence and drug problems. We would also not have economies that existed by creating and collapsing asset bubbles, and with them, the savings of its citizens (which would then be used for what savings should be used for: production).

For goodness sake, can't we find a damned Austrian and have him/her post to this site? (Although it strikes me the other advantage of the above policies, and once we have moved to laissez-faire, is that we can now stop paying all these flaming economists ; ).

Geoff - interesting article. But it's all a bit 'Ground Hog Day' as the blogs go, given the recent articles in similar vein:

Opinion: The case for a capital gains tax and a land tax (107)

Opinion: The merits of Land Value Tax; lessons from Hong Kong (81)

Have your say: What should the new Tax Working Group recommend? (65)

So you need 66 comments to come in the top three and I doubt the the logic of the arguements of the various contributors will have changed that much in the last week or so, therefore I reckon you'll be struggling for ratings!

On the Mon.Pol side, some questions and thoughts through from here and would be grateful of your comment:

http://www.interest.co.nz/ratesblog/index.php/2009/05/05/opinion-rbnzs-d...

Cheers, Les.

Mark, I agree that CGT is no silver bullet. However, it should be part of the mix. It needs to be implemented in a sensible way, but there is plenty of global experience to draw on.

I'm sure you'd argue that this experience shows that CGT and Stamp Duties don't work - we've seen property bubbles in other parts of the world too, right? However, they DO have a dampening effect - there's no way our property boom should have soared as high and as fast as it did. A CGT/Stamp Duty model would have eased it somewhat - no question in my mind.

Lots of people will complain about it, because lots of people own 2nd, 3rd, 4th, 5th and 6th investment properties in NZ. That doesn't mean that CGT is political suicide however - there are a huge number of people in NZ who are stuck in rentals because they cannot afford to get into the market. They don't care about some tax on people's extra property's - they can't even afford a family home and so are stuck paying off somebody else's mortgage or paying for somebody else retirement.

If this demographic saw a tax being put in place to put a cap on house prices, they'd be all for it. I'm sure it'll happen sooner or later - it has everywhere else. If you're in a position where you'll be impacted by a CGT, it would be wise to plan to accomodate it.

Mark, I like your other suggestions - they're all valid. Can I see them happening? Not in this lifetime. Slash the size of the state? Get rid of the Central Banking system? Significantly reduce income taxation? You're talking about a complete reinvention of the government and our economic model. I'm not saying they're bad ideas, but they're huge steps.

CGT on the other hand? It's a comparitively small political step to take...

Some farmers might like the idea of a CGT:

Capital gains tax to aid young farmers

http://www.ruralnews.co.nz/Default.asp?task=article&subtask=show&item=14...

[HT jh]

59 to go Geoff...

"My mate Pete is building a house. He is a talented builder and property developer,"

Since those are his occupations he gets taxed on his profit and his income anyway. Sheesh
How would a CGT change "Petes" behaviour? Answer it wont. All it will do is maybe change his pricing.

I seem to recall the govt trying many of the items Mark talks about in the "Mother of all Budgets", following on from the deregulation of the previous budget (so that became a combination of deregulation and slashed govt spending in response to a recession).

The aftermath was, quite frankly, crap. We had a number of years of very poor economic growth and a disproportionate level of impact on lower-socioeconomic families.

I'm not saying we have it right now, but I do think you need to be careful of what you wish for.

And Captain Crab made a very good point, which I'll expand on. NZ's land taxing provisions actually capture a huge number of property transactions, I would argue we have a CGT in everything other than name (other than perhaps in the rural sector). Indeed, if the new associated persons rules are enacted in a years time, and it still looks to be the case, then we'll effectively have a CGT in name as well.

As a result of the problems caused by inflation in the 1970's, nowadays Reserve Banks tend to be independent from Government and focused on controlling inflation.

No. Wrong. Your view is based on the idea that central banks are benign institutions. Central banks are focused on continuing inflation. Growth, it's always growth.

Please answer one simple question. Why do we need continual growth?

Lower interest rates mean fewer overseas investors are interested in putting their money here, and our exchange rate falls.

Have you ever asked yourself why we need money from outside the country?

But the problem isn't simply the level of debt, it's what we've used the money for. We used cheap debt to bid up the prices of our own houses

It's called mal-investment. On that I agree.

Now tell me, what other types of money system are there other than a debt-based money system? What affect do they have on behaviour?
Answer those questions and you might get closer to the real issues ;)

Printing money is not what everyone appears to think it is, the concept of debt as money is over three centuries old and is recognised in economics textbooks as being virtually unchanged over that period of time. What has happened is that debt free money (notes and coins) has been progressively replaced by debt as money to the point where all but around 2 percent of the money supply is interest bearing debt. The current cry about governments 'printing money' is hype - what they are doing is rapidly expanding the debt base of their economies by printing more debt in the form of interest bearing securities.

We should be asking ourselves the same question that Michael Hudson is attempting to get Iceland to ask;

"Creditors know that these debts can't be paid. (I say this as former balance-of-payments analyst of Third World debt for nearly fifty years, from Chase Manhattan in the 1960s through the United Nations Institute for Training and Research [UNITAR] in the 1970s, to Scudder Stevens & Clark in 1990, where I started the first Third World sovereign debt fund.) From the creditor's vantage point, knowing that the Great Neoliberal Bubble is over, the trick is to deter debtor countries from acting to resolve its collapse in a way that benefits themselves. The aim is to take as much as possible "“ and to get the IMF and central banks to bail out the poisonous banks that have loaded these countries down with toxic debt. Grab what you can while the grabbing is good. And demand that debtors do what Latin American and other third World countries have been doing since the 1980s: sell off their public domain and public enterprises at distress prices. That way, the international banks not only will get paid, they will get new business lending to the buyers of the assets being privatized "“ on the usual highly debt-leveraged terms!..............Let's look more closely at the moral argument. Living in New York, I find an excellent model in that state's Law of Fraudulent Conveyance. Enacted when the state was still a colony, it was enacted in response British speculators making loans to upstate farmers, and demanding payment just before the harvest was in, when the debtors could not pay. The sharpies then foreclosed, getting the land on the cheap. So New York's Fraudulent Conveyance law responded by establishing the legal principle that if a creditor makes a loan without having a clear and reasonable understanding of how the debtor can repay the money in the normal course of doing business, the loan is deemed to be predatory and therefore null and void........... Just like the post-Soviet economies, Iceland was sold a neoliberal bill of goods: a self-destructive Junk Economics. Just how moral a responsibility "“ and perhaps even more important, how large a legal liability "“should fall on the IMF and World Bank, the U.S. Treasury and Bank of England whose economies and banks benefited from this toxic Washington Consensus junk economics?...........For me, the moral principle is that no country should be subjected to debt peonage. That is the opposite of democratic self-determination, after all "“ and of Enlightenment moral philosophy that economic policies should encourage economic growth, not shrinkage. They should promote greater economic equality, not polarization between wealthy creditors and impoverished debtors...............The question is whether Iceland will let bankruptcy tear apart its economy slowly, transferring property from debtors to creditors, from Icelandic citizens to foreigners, and from the public domain and national taxing power to the international financial class. Or, will Iceland see where the inherent mathematics of debt are leading, and draw the line? At what point will it say "We won't pay. These debts are immoral, uneconomic and anti-democratic." Do they want to continue the fight by Enlightenment and Progressive Era social democracy, or the alternative "“ a lapse back into neofeudal debt peonage?
Full article http://www.globalresearch.ca/index.php?context=va&aid=13054
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Sound familiar to anyone?