Thoughtful piece, Neville. Thing is, though, that with the large % of population being net zero taxpayers, how is the requiste change gonna happen. The awful political combination is:

- half the population will vote agin anything which increases their tax liability - the Endowment effect
- some of the rest of the population are already going John Galt - adjusting their personal production/consumption mix to minimise net tax payments. Contractors, private practitioners, SME's, tradies etc are classic examples.
- some of the rest of the tax producers are large corporates who have internal directions which do not necessarily align with national ones, however desirable or rational.
- all tax producers are mobile, as you have mentioned. And opportunities to moonwalk away from liabilities of any sort come around much more frequently than do elections.

In short, I don't see a nice rational workout of the matters you raise. I see more of a tax base erosion, receipts continuing to cliff-dive, entitlements remorselessly increasing, a sovereign debt rating downgrade, and finally an implosion. Then, and only then, in the midst of crisis, will the phoenix of the way forward be seen.

Still, t'will be character-building, what?

Neville

We don't encourage an alcoholic to drink a different type of alcohol.

We should never encourage a Government to look at different types of taxes.

Neville - How can you conclude that the "lack (of Capital Gains Tax) drove the recent housing bubble" when the bubbles were biggest in countries that have CGT?

Also for those of you who seem to be unaware: we do have a tax on capital gains of 45.8% if the intention was to buy for resale. (That's 12.5% GST plus a 39% marginal tax rate).

Most people that deal in property pay this tax on properties if they sell over short time frames, and only get tax free capital gains on property investments that they keep for over 10 years. There are undoubtedly a few rogues who don't pay tax on transactions but the IRD usually catches up with them. Personally I know of more people who have had to make settlements with the IRD than have got away with trading and not paying tax.

The threshold set by the IRD is not particularly high either, 5 houses in 5 years (even if they are all just the family home) will probably arouse suspicion. A single 2-site subdivision or on-selling a single property bought off-the-plans is likely to do so too.

A CGT will only impact on pure investors only. And many of these landlords keep properties for long periods where the property may have risen five or ten fold in value. This type of landlord then would never be inclined to sell if a huge tax bill was due, when he could continue to receive rental income indefinitely into the future at a far greater level than if he invested the after-tax proceeds of a sale.

This would just tie up inner suburban property as rentals, stifling owner occupiers and developers out of the market and cutting supply. Fewer people would probably buy rentals too, cutting rental supply too - so rents would rise but the quality of rental stock would diminish as the landlords who never sell tend to be more than a little frugal when it comes to maintenance.

Now really wouldn't be a good time to suggest a CGT anyway. Many first-time investors who were thinking more of short gains in 2007 will be already thinking about coming clean to the IRD and declaring themselves to be 'traders' in order to pick up some healthy tax credits for their capital losses. A CGT introduced today, would probably mean the IRD would give out more money than it received.

The reality is that owners of second homes probably have spent more on mortgage expenses, operating costs and various household improvements than they get back on a capital gain on sale, making them keep all of their receipts for 30 years so that the IRD can check if they actually made a profit from owning the property seems a little pointless really.

A capital gains tax is just too much bureaucracy, too much accounting, too many tax credits and too little revenue. Let alone, to keep things fair, it would mean the end of any special tax treatment for passively managed equity funds.

And in regards land tax, maybe you should look at the average farmers rates bill!

Clarifying the grey area of when a property sale becomes taxable is the cheap and easy way to catch any tax evaders. (Maybe selling a second property within 3 years should be taxable, or selling your primary residence within 1 year - this wouldn't penalise those who needed to sell for other reasons as they would be unlikely to make a profit in this timeframe unless they purchased with the intention to sell)

Capital gains tax, land tax and stamp duties are all taxes that cause more problems than they solve. After a brief appearance in 1970s NZ, CGT should be left out in the cold along with those other untouchable taxes like window tax and poll tax.

There have been some interesting thoughts about taxation, flatter & broader, inc. CGT, etc here:

http://www.interest.co.nz/ratesblog/index.php/2009/05/08/have-your-say-w...

Re. CGT not damping bubbles in other countries like Auz and UK, what is the difference in the investment landscapes between those countries and NZ?

If damping such bubbles did not work in NZ with the introduction of an 'unambiguous' CGT, what other benefits might eventuate?

I agree - capital gains tax on property needs to be implemented soon. Why should there be an exemption to tax for an income group?

I don't have much knowledge on CGT at all, however some people refer to other countries that have CGT and still witnessed property booms (like Aussie and UK)
but maybe the booms would have been even greater without the CGT?
After all the house price to income ratio in the UK is quite a lot lower than NZ

Neville,
have a look at Australia. They have a Capital Gains Tax.

It did diddly squat to prevent the housing boom in Australia.

Have a look at the land tax in NSW. Didn't do much to stop the housing boom in NSW.

I would encourage you to go to the Australian GHPC forum and post a link to your article here and ask for comments.

http://forum.globalhousepricecrash.com/index.php?showforum=9

The common features of the systems in NZ and AU were the relaxation of lending regulation to where anybody who could fog a mirror could pretty much borrow to 100% LVR .

Matt in Auck,
the problem was the mania and complete lack of barriers to over-borrowing.

If you have 60K as a deposit

At 80% LVR you can only borrow to buy a 300K house (20% deposit = 60K)
At 90% LVR you can only borrow to buy a 600K house (10% deposit = 60K)
at 95% LVR you can borrow to buy a 1.2 Million house (5% deposit = 60K)
at 100% LVR - well its up to the bank.

No tax laws that examined rent received in the first year of an investment property Vs purchase price. If you are getting 2 or 3% rent return in the first year, then the implication, to me, is that you have purchased for capital gain. How many "investment" properties during the boom had 5 or 6% rent returns in the first year?

Have a look at http://www.abc.net.au/catalyst/stories/2525497.htm

Have a read of some of the behavioural economics stuff out there like Jason Zweig's "Your Money & Your Brain".

You might then realize that a CGT wouldn't necessarily impede a housing boom in any way shape or form. When you are behaving as a herd animal, and investing with the relexive part of your brain, a CGT won't figure in the equation.

It may put money into the Government coffers. But if your prime aim is to prevent a housing boom you are going to be sadly mistaken.

Let me put it another way. If I think I can make a capital gain of $100K and have to pay tax on it of $39K, will that stop me? The pain of paying $39K out of $100K gain sure would do a lot to stop me investing.....Not.

I don't object to a CGT on investment properties. But be very clear. It would not stop another bubble from getting going. If that is your aim for a CGT, then the aim will not be met.

Australian CGT certainly appears to have stopped the bubble in Rural land values we have experienced here. I believe that a CGT is inevitable. Get used to the idea.

Matt
Lets see how much damage/ destruction of wealth this bubble has done and review the situation later.
Andrew

Hey 'Property Bugs' - from my post above:

"If damping such bubbles did not work in NZ with the introduction of an "˜unambiguous' CGT, what other benefits might eventuate?"

Japan is not the only example of successful land taxation. New Zealand had a national land tax of one form or other from 1891 to 1988. In its early days it was a significant part of national revenue, more important than income tax. That doesn't by itself explain why NZ had the world's highest per capita GDP at the time, but it didn't hurt.

Some years ago I proposed a tax on 'Assets' with some provisos.
1. Based on gross values less an allowance for a family home.
2. No allowance for borrowings.
3. Offset against income generated so that only one tax is paid on the asset.
It may have barbs but would be a start to make all assets "work"

Denmark has a residential property tax which appeared to help keep housing affordable, spread the tax base and acted as a stabiliser in downturns. Then a new government got voted in promising to freeze the taxable value in 2001 - the biggest bubble in the countrys history followed. The bust now has seen prices down about 20% and still counting.
Of course there were other reasons for the bubble (easy credit, low rates, higher pay) but there is no question that increased property values being marginally taxed at 3% would have taken the edge of a good chunk of the bubble.

"Land- owners, including life-stylers, can merely lightly stock their land and wait for capital gains." Your statement is so flawed. What do you mean by lightly stocked?

Very few land owners can afford to be lightly stocked. Land owners are at the end of the chain.

The greenies make capital out of farmers destroying the environment with over stocking.

????

We don't need any more taxes. We need smaller Government. We have to stop spending and start saving, and cut back on the social programs as we can not afford them.

Lets not forget that NZ has LAQC - Most of recent property investors depend on tax rebates to pay for their investment properties thereby fueling the bubble. Lose your job and you have no tax deduction to offset your costs. Look for forced sales to increase as things get tougher and job losses continue to mount.

Take a look at world out there people. As bad as things are, they are about to get a whole lot worse. Round two of the housing debacle in USA and UK is about to unfold with commercial realestate and adjustable ARMS exploding. Government treasuries are a timebomb that is about to blow up. Now before you say so what - where do you think NZ has invested its superanuation money in? US Treasuries and global Real Estate.

My prediction:
We have lived through a 25 year credit expansion - We are about to live through a 10 year credit contraction. Come October we will witness another leg down in the global markets at least as severe as what we have seen to date. What ever money our Government has invested for the baby boomer retirement may take a 30-40% haircut - just as we need it to be yeilding 5%-7% gains.

We will see a surge in interest rates as investors will stop loaning money at these low yeilds because of default risks. Global Tax bases, already under pressure, will continue to shrink, resulting in inability to pay for social services.

This from the latest Privateer (www.the-privateer.com):

This worsening trend is not confined to the US, it is global. Governments everywhere have seen an unbridgeable canyon open up between the amount their tax gatherers are bringing in and the amount of their outlays. In the major economies, this chasm is being literally papered over - so far - with new borrowing. In the smaller economies, the paper option is no longer available so governments are left with no choice but to slash spending. A stark example is Latvia where thebudget to be passed next month includes a cut in government spending of FORTY PERCENT!

And another quote on the disaster that is global trade:

Right now, in the waters off what was up until recently one of the busiest ports in the world, Singapore, a fleet of ships rides at anchor. This fleet totals well over 700 cargo ships with a combined tonnage equal to that of the merchant fleet of the entire world at the end of WW I. All are empty. All are congregated in the waning hope that they can find a cargo somewhere in Asia.

A sad situation and a sure sign that the global bubble is popping.

Where is almost all of the money in New Zealand invested? In property. How heavily geared is all of this investment 15:1 to 25:1. Lets go with 20:1. In the event of a crisis, a 5% decline wipes you out - you are now underwater. No, lets redefine that - you are broke - insolvent.

When a bubble bursts, prices will decline back to a point below where the bubble began. In the rest of the world, property prices are heading back towards 1997 prices. What makes us any different?

We have escaped the first wave on this Tsunami - I can't see us dodging the 2nd.

With regard to the US and capital gains tax - remember that they have another tax incentive to property ownership, tax deductibility of mortgage interest on their own family home.

In the US where the housing crash is worst, home ownership rates increased, whereas in NZ they have decreased. A CGT that exempts the family home would be distorting investment in favour of home ownership. In which case people who dont have the financial stability/backing to own their own home will try get into the market. If they are successful (temporarily) we could end up in the mess the US now finds itself in. If they are unsuccessful (ie the banks wont lend them the money), then they will miss out on the tax breaks that only the wealthier majority can get. That doesn't seem fair to me.

We should have a CGT on grounds of fairness - my salary shouldn't be taxed any harder than your capital gain - but as many have pointed out it will have at most a small impact the size of property bubbles.

Gibber is right - we need to stop people borrowing too much, whether it is because they want to speculate on property of because they have an irrational desire to own as opposed to rent (not that it is always irrational to own - but given prices it often is).

The logical tax would then be on mortgage interest. The government could then raise or lower this tax like the OCR to stimulate or retard as needed. However, there is no reason that this need be a tax at all. The governement could merely require a certain percentage of mortgage interest be contributed to Kiwisaver .

This would also have the benefit that when property boomed, the government (probably the Reserve Bank) would have the option of raising the contribution rate and leaving the OCR unchanged. This would mean business borrowing wouldn't be clobbered, the exchange rate wouldn't shoot up hurting exporters, and tightening monetary policy wouldn't have the side effect of creating a huge windfall to the Japanesse housewives and Belgain Dentists, further worsening our balance of payments. Still, we are a long way from a tightening senario at the moment.

Even so, such a scheme would reduce borrowing and increase saving. NZ might begin to be able to buy its companies back from the foreigners that own nearly everything.

To stop people borrowing too much: What about Reserve bank controlling deposit % for home and investment properties?
Would give RB more muscle and hopefully control the home vs. investment tax problem.

CGT is just a means of creating affordable housing, whether anyone actually pays tax is not as relevant as the effect it would have on Housing as an investment. We need affordable housing, to get this we need to stamp out housing being seen as a tax free investment. High house prices are a bad thing for the economy, young couples spend their life paying of a mortgage to some foreign bank, instead of investing that money back into the economy and themselves. This money should be going into new industry,retirement funding, and a higher standard of living.

Mike, Janet - you might like Number 6 here:

http://www.interest.co.nz/ratesblog/index.php/2009/04/15/opinion-how-tou...

Similar thinking.

We don't need more taxes. We need a more transparent simplified tax system. Not everyone is paying their fair share. You just have to look at the banks with their "Structured finance" deals. Creative accounting is why tax revenues are down.

"New Zealand is the third most indebted country after Iceland and Hungary."
Why?

Steptoe (Steps) -

Property isn't treated any differently than cars or art. A property trader has to pay income tax on the profit from their trading. If they don't they are breaking the law. There is no rule about 8 a year, it is all about the intentions at the time of purchase - i.e. are you buying the property with the intention of selling it for a profit.

If the problem is volatility in prices, then why attempt to shut the gate after the horse has bolted with CGT?

- Obviously, lack of CGT didn't create the expansion in property values as it happened in countries with CGT.
- CGT didn't limit the expansion in property values and it didn't stop them busting.

This bubble was created by easy credit. I don't think anyone argues with that. So why not address that instead?

Regarding the belief that property investors just sit there waiting for capital gain... perhaps some do but after a few years they realise that it's not that simple. Most PI's would be buying cheaper property in need of repair and improvement. Across several properties, I've done total renovations, re-wiring, re-plumbing, re-carpeting, insulation, decoration... you name it. Property Investors have spent huge sums of money with property-related trades over the last few years improving properties that would probably have been left to decline without them.

I've heard the argument that CGT can be counter productive. It can dampen the construction of new investment housing because property investment becomes somewhat less profitable, less apartments etc get built, this means demand relative to supply of rental housing increases, this forces rents up, and that pushes prices up.
I'm not convinced by it.
I still think the best measure to help housing affordability is freeing up planning controls. Not the magic bullet but it would help.

The effect of CGT on property prices is a 're-herring'.

House price inflation/affordability could be improved by a variety of measures suggested in this blog and others on Interest .co.nz. Introducing CGT would help, but the main reason for its introduction is because of other benefits.

That said, 'Waymad' - "˜How ter Git There from Here' is the real issue, as the whats and whys aren't that challenging, even:

"...the IRD has estimated a flat tax rate at 23% would be revenue neutral."

does not seem as saleable once you appreciate the political challenge pointed out by Waymad. A challenge that is much more difficult given the lack of appropriate leadership or 'significant events/circumstances' to promote the necessary change.

Indeed - "˜How ter Git There from Here'

Oh great, just more fiddling and introducing factors which will distort the market further.
The system is fine now. Speculators get Taxed on profits. Investors in LAQCs get expense and depn claims clawed back when they sell. Its the Credit Bubble which has caused all these increases.
In case you havent noticed. The Banks have NO money. The market is correcting as it should.
National will not introduce more Tax. Especially a CGT. It just too effing socialist.
IanC has a point when he says ensuring compliance of existing tax law is the key.
And MattinAk is correct when he mentions freeing up land use restrictions will cause land prices to drop. Which is where we have really seen (false) inflated growth.

Why is it that someone always has to try and repress those who try desperately to get ahead. I have in the last few years borrowed myself into near oblivion with the goal that down the track I will hopefully be able to retire with a respectable income as I do not hold much hope for our current pension scheme.
Not only do I pay copius amounts in mortgage payments and rates but I have just suffered massive losses on my property values which will take some time to recover from. Any tax advantage I have at present is just managing to help me keep my head above water.
I am one of those who is not happy just being one of the worker sheep of this nation working away until age 65 in the blind faith that all will be good.
I have taken bold steps to secure mine and my families future.
I resent your suggestion that the government should look at fleecing me more.
If that happens I may as well sell everything, quit work and become a dole bludger as the incentives will be greater. I can sit on my chuff all day and will end up with more money. Damn, It'll be almost like early retirement!

In 2006 I Gareth Morgan noted that in 5 years time the Baby Boomers were going to start unloading their investment properties onto the market to cash up their retirement savings. Was it 50,000 houses total or per year? I can't recall. But 2011 is now only 2 years away! Will the money be there by then for whoever-it-is that's going to buy these properties ?

"Captain Crab - what is so, "effing socialist" about replacing WFF with appropriate personal allowances and a flat tax of around 23% - for corp, trust, income and cap. gain?"

Nothing.Except where it includes taxing Capital Gains, which is a penalty tax for becoming richer.

People leaving is more to do with work and adventure than home ownership.

"What you guys have to realise is that the tax burden supports the payments load"

Look at the load then. We've had enough cost plus mentality. Just look at the growth of Govt spending for NO increase in productivity

"So in the end any new tax reduces the tax from existing sources"

Labour increased the number/types of taxes steadily and didnt reduce one....So I really dont believe this.

"In the end the electorate determines whether decisions are acceptable.
I would ask whether the anti-CGT total votes would have any effect on who is in power"

Absolutely and theyd be out of power in a New York minute if they brought one in.

Bernard would you be able to do a history of NZ taxation I think it would be helpful in this discussion we have been duped by this common line of thinking that we would be worse off ie poor health,education etc just to name a few. We have chosen to send our kids to a private high school but We dont get a tax break '''
Baz

Good stuff Sally but alas most people want more Goverment more taxes we have just seen 9 years of crap like that but I fear this lot wont be much better
Baz

Sally, Baz - how is a revenue neutral 23% flat tax more overbearing/busy-bodying tax/taxing?

Make gov. smaller as you say and who knows, sub-20% perhaps - what should we vote for?

Matt in Auck,
I'm not convinced that Large and Easy Availability of Credit has been dealt to.

For example, from interest.co.nz you can go off to John Bolton at squirrel where he is spruiking 95% LVR loans

http://www.squirrel.co.nz/?p=804

If Government debts go up, it will have a greater negative effect when compared to private debt going up. The tax base has to be widened by the introduction of CGT. Housing investment provided good capital gains at the cost of local savers and poor who cant save. There is no point in increasing the GST further because it is going to hurt the section of the society who is already disadvantaged. If Government opts to increase it debts instead of introducing CGT, savers just have to stop keeping the saving in NZD terms, and instead convert to AUD or just buy houses to hedge against inflation and capital erosion. There is NO point in asking people to save when they are at a huge tax disadvantage and the Government supports the unproductive housing investment.

we are stuffed - don't be, as short and dimensionless as it might be, the pigs have a vision and a future.

sam.p - I took 'we are stuffed's reference to 'pigs' as referring to all this stuff:

http://blogs.nzherald.co.nz/blog/your-views/2009/5/18/will-allegations-a...

I think they call it dry (cure) humour. I like it - and also advocate CGT as "a matter of fairness", among other more important reasons.

Wouldn't CGT simply be a rebranding exercise? taxes on gains with developing property are already in place, there is nothing wrong with taxing property where it is purchased to make a profit it is a business after all, if the amount of tax increased wont stop people trading all it will do is make people hunt out better deals to maintain the same end margin.
The current rules around the average homeowner buying and selling x amount in 5 years should stay as they are, if doing a few small scale deals helps the average kiwi put some money aside for their future placing less reliance on the future govt who really loses?

As far as a land tax I fail to see how someone who has bought a farm in the last few years would not be doing all they can to maximise the return from their land to help pay their mortgage. It would only be old money farms that would be able to wear such a tax do we really want to introduce a tax that could really hurt such a big part of our economy?

"....if doing a few small scale deals helps the average kiwi put some money aside for their future placing less reliance on the future govt who really loses?"
Nickk....Our children do, and you will; when the flow-on price escalation effects the price of everything else you, and your children, have to pay for.

Sally - You haven't got Marx right - you say:

"According to "Marxist doctrine," a human being is primarily an economic creature. In other words, his material well being is all-important; his privacy and his freedom are strictly secondary. The basic Marxist concept is that government has full responsibility for the welfare of the people and, in order to discharge that responsibility, government must assume control of all our activities. "

According to Marx, a person is not primarily an economic creature - it's much more subtle and interesting than that. Marx says that the economy underlies all the conventional institutions in society - the church, politics, conventional morality, gender roles and so on. People are rich interesting complex creatures that get shoe-horned into social roles by economic forces - social roles that radically restrict their flourishing. Looking at the social institutions under Victorian Capitalism this seems quite reasonable, whether it is still so is debatable. That is why Marxists talk so much able people being alienated.

Marx thinks that the link between social institutions and economics is unbreakable - so to allow people to be free and flourish we need to change the economics. As the FIRST PHASE of this, the workers need to take control on the "means of production", the capital assets, so that they can redirect the productive capacity of the economy to benefit the many instead of the few. The first phase will require a "dictatorship of the proletariat," a phase where the workers will have all the power and the capitalists none - something conservatives thought would follow from universal suffrage.

Eventually though, in a socialist state where the economy is more aligned to human flourishing there would be much less need for the state and it would gradually shrink. In some utopian versions of Marxism it disappears altogether. With 120 years more history to call on than Marx had, this seems deeply implausible.

I don't agree with Marx, but he can't be dismissed lightly. His critique of capitalism is devastating, and large parts of it are still unanswered.

Come on Logical Dave,

"any new tax reduces the tax from existing sources"?

Do you also believe in the Tooth Fairy, Pixies down the end of the garden and Santa Claus?

I think you seriously need to extract your head from your arse and open your eyes.

They won't give nothing back!
The introduction of GST did not eliminate excise taxes etc. It just meant that they could now double dip!

Good post SimonD. I agree with you

"# Dave S Says:
May 21st, 2009 at 8:16 am

"”"”"”"”"” nickk said "”"”"”"”"”"”
The current rules around the average homeowner buying and selling x amount in 5 years should stay as they are, if doing a few small scale deals helps the average kiwi put some money aside for their future placing less reliance on the future govt who really loses?
"”"”"”"”"”"”"”"”"”"”"”"”"”"”"”"”
There are no rules regarding buying a certain number of properties in 5 years. A property is required to be held for 10 years before there is definitely no tax liability on profits."

THE ABOVE IS RUBBISH AND MISLEADING. THERE ARE NO RULES REGARDING TIME SCALE. IRD CAN GO BACK AS FAR AS THEY LIKE. THE ONLY RULE IS "INTENTION AT TIME OF PURCHASE" IF YOU BUY WITH INTENTION OF SELLING FOR A PROFIT YOU CAN BE TAXED ON THAT PROFIT. AT ANY TIME......STOP MISLEADING PEOPLE.

I FEEL SORRY FOR THE PIGS BY THE WAY:)

SimonD,

I do not believe the tax advantage with investment property is affecting young people who are looking to buy an affordable property.
The lack of a CGT has not been the driving force behind inflation and property prices.
I think more effect is from the large number of immigrants flocking to NZ and purchasing property. Demand always has an effect on values and property values have historically been cyclic anyway.
It is interesting at the moment with the massive decline in property values that there are not more keen buyers.
Here we have a situation where property values have dropped significantly, interest rates are at the lowest they have been in many years and people still are not grabbing some of the bargains around. In fact, the only people I know who are buying are - you guessed it - investors looking for another bargain to add to their portfolio.
So where are these young keen property buyers? I don't see them.
Those with good job security should be flocking to buy houses while prices and interest rates are favourable.

You could argue about job losses but for all those who have recently been made unemployed there is a far greater percentage of the population that have not been affected job wise.
The world economy is thrown at us every day with doom and gloom but unless you have suffered a job loss where is the down side?
For me, on paper I have had a large equity decrease but unless I sell something it is not relevant to my day to day living. On the upside, my interest rates have dropped by over 4% and if I wanted to invest in more property it's ripe for the picking.

The way I see it, it's easy to make excuses why not, like your example of abandoning the country for greener pastures.
I took the other option of toughing it out here and making it work.

It's fresh that you think it's great for MY government to put MY taxes up when it no longer concerns you. You commented that it should be people like you paying for my retirement. No thanks. You have already proven your loyalty to NZ. I will take care of my own future.

Hiya all

Enjoyed reading all your comments.
Think there may be a great flaw in a CGT. Just hold the land as a leasehold interest and sell the lease rights to another. No land transfer therefore no tax.
Further I dont think a CGT would reduce prices but rather increase them as people would in general not sell the land unless the gain was greater then the tax incurred. ie supply would shrink.

My previous comment served its purpose. The worms did come out of the woodwork in style.
Objections to taxes for personal reasons are unconvincing.
Objections for community or social reasons may be supportable but it is the voting public who have the final say.
We all want roads. We all want education. We all want health care.
Some who can pay more want as much of it as they can get using others taxes.
Some believe they are bullet proof against personal financial tragedy. Rubbish!

CGT may be good or bad - you each have an opinion.
What matters is whether that tax has any better social effect than a tax from another source. Just because some people are currently able to avoid tax on gains is no argument. Someone has to lose when a new tax comes in. It is better that ASSET tax which is paid evenly over the life of the asset and penalises non-use or under use of an asset.
Not only that but it is better able to be offset against the earning of income.

Are there any more worms to come out?

Peter those keen young buyers have been priced out for the forseeable future, that's why you don't see them.

we are stuffed - about the pigs.

You can't be on about them living in the crates.

I doubt you are on about Portugal, Iceland, Greece and Spain. (PIGS)

Or, the UK police, who are often labelled such.

Or, 'capitalist pigs' - you don't seem to be the offensive type.

But, are you thinking, like me, 'pigs might fly' (and crash and burn) before JK, Bill E and Peter D grasp the nettle on this issue?

If it's not that, c'mon tell me, I'm just a simple bloke and am struggling with this one.

Cactus Kate has the best analogy of all.

"We don't encourage an alcoholic to drink a different type of alcohol.

We should never encourage a Government to look at different types of taxes."

Les don't mock the pipes and possums "“ Tenby's original idea was to import a thousand millionaires to save the economy (where do they get these people from???)
http://www.radionz.co.nz/__data/assets/audio_item/0003/1953633/ntn-20090... (minutes 2-4)
Sooner or later we're going to have to face up to the fact that we need to make more stuff that other countries want to import "“ ANY taxation change that would move us in that direction has be seriously considered as far as I'm concerned.

neil c - Good on these folk for their passion, energy, vision and ideas, some of which, even in isolation could be useful. However, we should not need a summit every few months to motivate such across more of society and the economy. For us to get a sustained and meaningful economic impact we need change in the policy and associated systems that motivate/initiate/deconstrain/develop the right kind of 'winning behaviours', especially in the broader productive sector, as we've discussed elsewhere. Attitude is certainly part of it, but without more supportive policy it's just wishful thinking punctuated with the occaisional isolated success story or charismatic individual. Here's hoping. Cheers, Les.

*** We are stuffed ***
Please check page 10 of this IRD brochure where it says... "If sold within 10 years, a property may be taxable even though it wasn't bought with the intention of resale." ...ie; after 10 years, it's not taxable.
http://www.ird.govt.nz/resources/3/0/305950004bbe5936836ed3bc87554a30/ir...
This is of course assuming that the property was bought as a long term investment.

Personally, I think the rules around this sort of thing are far too vague and need to be clarified.

Hey Neville,
Any suggestions how we can put a stop to offshore tax havens. The figures are staggering;
Mind-boggling

A few figures help illuminate the rot. Since financial market deregulation in the 1970s, the number of tax havens has more than trebled. Over $600 billion "“ nearly three times today's external debt "“ has leaked from sub-Saharan Africa in capital flight since 1975, almost all disappearing into secret bank accounts and offshore companies in places like Jersey, Luxembourg, Switzerland and London.

The scale of this scandal is mind-boggling. Conservative estimates suggest that the world's wealthiest individuals have parked $11,500 billion offshore "“ allowing them to dodge over $250 billion dollars each year in tax. That alone far exceeds what the UN asked for in its Millennium project to tackle global poverty.

But that is just part of the picture: tax dodging by corporations is much bigger. The World Bank has reported that cross-border flows of the proceeds from criminal activities, corruption and tax evasion range from $1,000 billion to $1,600 billion per year, with half (or $500 to $800 billion) coming from Majority World economies.

The rich countries currently spend about $100 billion dollars on aid. So for every dollar of aid in, five to eight dollars flow out under the table. The tax evasion component of the global sum is by far the biggest, with commercial tax evasion making up $700 to $1,000 billion of the global figure. Historically there has not been such a large gap between rich and poor "“ ever.

http://www.newint.org/features/2008/10/01/can-pay-wont-pay/

Add this from Simon Johnson re the Real Sector becoming economically dominated by the Financial Services Sector;
Not surprisingly, Wall Street ran with these opportunities. From 1973 to 1985, the financial sector never earned more than 16 percent of domestic corporate profits. In 1986, that figure reached 19 percent. In the 1990s, it oscillated between 21 percent and 30 percent, higher than it had ever been in the postwar period. This decade, it reached 41 percent. Pay rose just as dramatically. From 1948 to 1982, average compensation in the financial sector ranged between 99 percent and 108 percent of the average for all domestic private industries. From 1983, it shot upward, reaching 181 percent in 2007.
http://www.theatlantic.com/doc/200905/imf-advice

This article is enlightening in so many ways;
http://www.oecdobserver.org/news/fullstory.php/aid/664/Tobin_tax:_could_...

Furthermore... no ten year rule eh???

Here's there relevant section of the Income Tax Act 2004: http://www.legislation.govt.nz/act/public/2004/0035/latest/DLM245342.html

Land
CB 5A Land partially sold or sold with other land
CB 5 Disposal: land acquired for purpose or with intention of disposal
CB 6 Disposal: land acquired for purposes of business relating to land
CB 6B Disposal: Land used for landfill, if notice of election
CB 7 Disposal within 10 years: land dealing business
CB 8 Disposal within 10 years: land development or subdivision business
CB 9 Disposal within 10 years of improvement: building business
CB 10 Disposal: schemes for development or division begun within 10 years
CB 11 Disposal: amount from major development or division and not already in income
CB 12 Disposal: amount from land affected by change and not already in income
CB 13 Transactions between associated persons

Exclusions for residential land
CB 14 Residential exclusion from sections CB 5 to CB 9
CB 15 Residential exclusion from sections CB 10 and CB 11
CB 16 Residential exclusion from section CB 12

No need. The advice comes from two chartered accountants who are both property investors.

@Dave S - the trouble is that the rules are, as usual, as clear as mud.

You read "If sold within 10 years, a property may be taxable even though it wasn't bought with the intention of resale." as 'after 10 years, it's not taxable'.

I read it as 'if you sell within 10 years and tell us you didn't intend to make capital gains, we'll probably tell you 'Yeah right! - hand over the tax!' . But if it's after 10 years and we can find evidence that you intended to make capital gains all along, we'll tax you anyway.'

Fits in better with my experience of the tax office and the legislation anyhoo.

I'm keeping VERY quiet about the fact legally the capital returned by failed finance companies could probably be treated as the income you should have received but didn't and taxed as such. Even though you don't get your capital back. Nearly fell off my chair when I read THAT part of the legislation. Fortunately the IRD don't seem to be trying to apply it.

""The deal of the decade comes along once a week!" says de Roos. "If you believe that, you will find deal after deal after deal." But you will only amass money, he says, when you come from an abundance consciousness instead of a poverty consciousness; when you tell yourself, "I am a magnet for money!"

Tonight, a pumped de Roos tells his audience that he wants people to invest in property and write to him 12 months down the track and tell him they've "made one million or three million, or you've got 16 properties, or we're taking six months off because our cash flow now exceeds our outflow!" He says, "I don't know any other activity where the rewards are so huge. If you want to invest a million dollars in the sharemarket, you need a million dollars. If you want to invest a million in real estate, you only need $100,000."

You can buy one property, get it revalued, use the equity to buy another property and then buy another and another. "And you do it all with OPM. Other people's money. OPM. It's like being high on drugs!" What's more, the wonder of depreciation claims on the building and contents means "the government subsidises your investment! It's delightful!"

Later, de Roos will say privately that he agrees that the property bubble might burst if interest rates go up. "It's all correct. All true. But with every cycle we go through, the peak tends to be higher than the previous peak." It's "bollocks", he says, that it's a bad thing if the market goes down. "It's good if it will go down. If interest rates go up, properties get cheaper to buy. Oh, just get in there, boots and all, and do it and in 10 years time you'll think it's great." He tells his seminar audience "doom and gloom, I secretly relish it. I love it. Bring it on! That's when people ditch things!"
http://www.listener.co.nz/issue/3314/features/1021/house_of_the_rising_s...

"OPM, Mr. de Roos!" Ask the people with OPM tied up in Hanover Finance, ING or any of the other struggling lender how much richer they feel today....

JH,

That article on Dolf de Roos is from a 2003 Listener article. I was buying then and the value of the properties I bought is around double what I paid even after the recent drop in values.

Yes, I borrowed money to do it and yes, depreciation does assist in making the investment work.

However, to the people who think that there is some sort of "tax-break" or that being able to borrow money to do it is "unfair", I think you not only do not understand property investment but you've entirely missed the point. These are persistant myths that seem to be catching on for the "angry mob" types.

Firstly, property investment isn't elitist. Anyone back in 2003 could have done it. I was cajoling, nagging and pleading with my friends to invest in property. They did nothing until 2007, when they saw how much my investments had gone up in value. Suddenly all my friends were buying property despite my warnings that the party was over. Without exception, they have all lost money on their investments.

Secondly, the "tax breaks" are something that any other business does. Depreciation isn't just for fun. It's because it represents a real cost to the landlord, either in a decrease in the value of their property or a reflection of actual costs incurred in maintaining it. Claiming the interest on the money borrowed to buy the property is reasonable considering the risk the investor was taking to do it.

Bernards article was right in many ways but it's being used as a waving flag for many who wish to quote it to support views that Bernard didn't actually put forth.

Yes, many abused the tax system, by relying on depreciation to make their investments work. Some may have done well but many are now losing out as prices drop. The record numbers of mortgagee sales are full of failed property investors.

Unlike Bernard, I don't think that stopping investors offsetting losses against their personal income is the answer. This is actually something that ALL small business owners do every year. Many property investors are struggling anyway and dumping rentals in their droves. The reckless ones who borrowed up to their eyeballs on properties that didn't pay their own way are already being weeded out by natural market influences. Property investors represented only a very small proportion of the people buying property over the last few years, so the view that investors are to blame for the bubble is ridiculous. Other countries had the same boom despite having capital gains tax and without LAQC's.

The real problem was easy credit and ignorant investors. The banks are suffering because of it and now it's much more difficult to borrow to buy rental properties. I suspect that the dinner table chat is more about what a bad investment property is than how much money there is to be made.

Hi TBM,

I'm not really concerned by CGT. It could only reduce housing supply, which would push up prices and rents. For true long term investors, it would only help. For people that trade property, it would make no difference as they pay tax anyway. It's no answer.

@Perry: Income Taxes are indirect taxes that are, generally, progressive. Capital Gains Taxes are a direct and, generally, flat tax that are inflation adjusted. ie: 1967 house @$20k would be inflation adjusted first.

I see your point Gail M. But still question the last comment by refering to Page 14 of:
http://www.ird.govt.nz/resources/3/0/305950004bbe5936836ed3bc87554a30/ir...
IRD quote:"It's commonly thought that if you hold a
property for long enough the profit made isn't
taxable. This isn't true"”there's no time limit
as your intention or reason for buying the
property is what counts

"....using tax havens to protect his wealth."

Poor Igor, he should have come down here:

"In broader policy terms we need to do away with the asset tax haven that encourages borrowing and increases the demand for credit. This incentive results in less productive investment and reduces the returns to exporters via the upward pressure on the exchange rate." From:

Monetary Policy problems sit with MP's not the banks

at, http://www.mea.org.nz/media/pressreleases.aspx

"asset tax haven", another illuminating term for "the subsidy that go away."

Is it doing any good still?

The Chairman - re. OCR, mon.pol, we have to face facts, we are at the ridiculous stage now.

"Embarrassment may be the best monetary policy tool he has left."

Is that as good as it gets?

See:

English defies the evidence on monetary policy

at http://www.mea.org.nz/media/pressreleases.aspx

We shouldn't be talking about "atomic opions", Muldoon'esque solutions, embarrassing the banks into moving - we should have and now should be grasping the nettle of changing policy.

No one will get fat on it - swallowed pride has zero calories!

A land tax "“ something to ponder:

Shifting taxation away from internationally mobile bases like skilled labour and corporate profit and moving more towards immobile bases such as land will hurt landlords as well as tenants.

How much so all depends on the rate of the tax introduced and what percentage the market will allow landlords to pass on.

Many feel their capital is far safer invested in property as opposed to the market.

As most would know, what prevents most from investing in the markets is the woeful level of investor protection.

Will new taxation incentives change this perception?

We currently have a capital gains tax for property speculation and like many other nations; it did little to stop the bubble.

Investing in property didn't cause the problem; it was the way the capital was funded and re-loaned that led to the economic imbalance.

We didn't become this indebted and imbalanced overnight. Governments are meant to govern and help guide a nations economic performance, where was the governance while the nation was heading off the cliff?

Many areas of the property sector are already feeling the pain, and with the economy and property market the way that it is, it doesn't give landlords nor tenants much headroom to move. If landlords are forced to carry the burden, then you will see a retreat from the sector, if the tax becomes too punitive, it would cause an exodus.

The repercussions will be far reaching, adding fuel to the current fire, and in the end, may lead to something like this: http://tinyurl.com/mpltpo

Furthermore, many skilled income earners are also landlords.

Geez its like being transported to some socialist utopia. What on earth is the point in introducing a CGT. I have a rental property and oddly I am compelled to depreciate it each year BUT I have to repay the depreciation when I sell it. I believe that LAQCs shouldnt be available for rental properties but the entity needs to be ring fenced.
This site needs to be renamed letssmackpropertyinvestorsintheheadbecausetheyareevilcapitalists.co.nz You aint going to get one, it makes no sense to have one. The bigger issue is you have very few alternatives for saving, the sharemarket is to illiquid and you cant short, private equity is near no existent, unit trusts are treated poorly for tax and tend to underperform.
If you could deepen your capital markets there would be more attractive investments than the hassle of being a landlord.