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A third of National voters favour Labour's CGT over National's asset sales, half support the SOE sell-down; RBNZ CGT view is for comprehensive tax

Posted in News

A third of National Party voters would favour a capital gains tax over partial asset sales, while just over half supported their party’s policy to sell down government stakes in five state owned enterprises, according to a TV3 Reid Research poll.

Over 80% of Labour voters were in favour of their party’s capital gains tax policy over asset sales, slightly below support shown by Green Party voters for an introduction of the tax, which has been their party's policy since 2003.

Meanwhile, in completely separate comments, the Reserve Bank of New Zealand has indicated that if a capital gains tax were to be introduced, it should include owner-occupied housing - something missing from the Labour party's tax policy.

Capital gains tax vs asset sales

An integral part of this year's general election is expected to involve the 'capital-gains-tax-versus-asset-sales' debate, with Labour, National, and the media, positioning the policies as alternatives to one-another in efforts to reduce government debt and get the governments books back to surplus within the next three to four years. 

The cornerstone of Labour’s recently announced economic policy was a 15% capital gains tax on most assets other than the family home, which would be in place by April 1, 2013, if Labour was in a position to form a government after the November 26 election.

Labour’s policy, together with making the first NZ$5,000 of income tax-free, a new 39% top personal tax rate on incomes over NZ$150,000 and removal of GST on fresh fruit and vegetables, would mean government would have to borrow more debt than the current track in the short-term, but, according to Labour, net government debt would hit zero before the current budget plan.

The National Party is proposing to sell up to 49% stakes in Solid Energy, Mighty River Power, Genesis Energy and Meridian Energy, as well as a further sell-down of the government’s holdings in Air New Zealand.

The government booked the NZ$5-7 billion expected proceeds from the sales, which would occur within a 3-5 year timeframe following the election, in its 2011 Budget debt and surplus tracks.

'Dissent within the ranks?'

Released tonight, the TV3 poll of 1,000 voters asked if they preferred Labour’s capital gains tax policy, National’s mixed-ownership model, or neither, as ways for the government to increase its income or reduce its debt.

Results showed 31.9% of the 476 National-aligned voters polled favoured the capital gains tax option, versus 51.5% who said they preferred National’s ‘mixed-ownership’ asset sales model.

A further 11.8% of National voters polled chose neither, while 4.8% said they did not know.

The poll comes on the heels of the National Party's annual conference in Wellington a week and a half ago, at which Finance Minister Bill English fielded questions from members who questioned the policy, saying they were concerned shares would end up in the hands of foreign investors. Watch English's response to those questions here.

Of the 254 Labour supporters polled, 83.5% said they would favour the capital gains tax option, while 6.7% favoured the mixed-ownership model. A further 8.3% said neither, while 1.6% said they did not know.

Green Party voters were out in front in terms of support for a more comprehensive capital gains tax than the status quo, with 84.1% of the 82 Green-aligned voters saying they favoured that option. Eleven per cent favoured the mixed-ownership policy, 3.7% said neither and 1.2% said they did not know.

That left 105 undecided voters, 54.3% of which indicated support for the capital gains tax, 13.3% for mixed-ownership, 21% said neither, and 11.4% said they did not know.

'Should be comprehensive'

Meanwhile the Reserve Bank of New Zealand, in a submission released this week to the Productivity Commision's investigation into housing affordability, indicated its position on a capital gains tax would be that it include owner-occupied housing - something not within the scope of Labour's policy.

"One tax issue that periodically receives considerable attention is capital gains taxation. Houses bought by investors with the intention to resell are already, in principle, caught by the income tax net, but New Zealand does not have a general capital gains tax," the Reserve Bank says in its submission.

"The Reserve Bank has never taken a stance on the general merits or otherwise of capital gains taxes. We have fairly consistently noted (including in the Supplementary Stabilisation Instruments report (Blackmore et al 2006) and the 2007 submission to the Commerce Committee) that there is little evidence internationally that countries with capital gains taxes have experienced less marked cycles in house prices," it says.

"In the 2007 document, we noted that, in practice, capital gains taxes are only levied on realised gains (rather than accruals), which creates additional distortions and that capital gains taxes usually largely exclude owner‐occupied houses, even though unleveraged owner‐occupied housing is the most lightly taxed component of the housing stock.

"We summed up that “capital gains taxes are common internationally but are hard to design and implement in a way that works well”. To avoid establishing new distortions, any capital gains tax should only tax real capital gains and needs to treat gains and losses relatively symmetrically," the Reserve Bank says.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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25 Comments

If a third of NACT voters

If a third of NACT voters favour CGT over SOE sales there is a simple answer - they need to vote Labour.

Sure John Key is charming and it's difficult to believe he will lose the election, but as for policy to transform and rebalance the economy, NACT have been dismal, whereas it seems Labour have learned some lessons.

 ".. it seems Labour have

 ".. it seems Labour have learned some lessons", oh Les you old socialist is that the best spin you can come up with?

Time for Les to start wearing the green socks and jocks I think.

I decided to go left when

I decided to go left when they said they were to abandon the concensus on monetary policy. I don't like the CGT, as it is, but it's a step in the right direction (literally, if being Right means broader taxation) and selling assets when there is no need and they return more than cost of capital is stupid. I don't doubt I will be uncomfortable with many of their other policies, you know, all the ones NACT have not had the balls to modify, scrap while in government. However, credit where credit is due, NACT did at least meet my desire to scrap the curlly lightbulb bs and poured cold water on the PC shower-head crap. Just a shame Rodey Hide hasn't performed as I would have liked, ie. re. ETS.

It was monetary policy that swung me though. It's just a question of waiting, er, maybe about 3+ years if I'm gauging things right - which is ample time for NACT to get real as well.

So what's it like sitting up

So what's it like sitting up there on the fence les?.....mind the crack!

"If a third of NACT voters

"If a third of NACT voters favour CGT over SOE sales there is a simple answer - they need to vote Labour."

This is logic at its highest: if you like one policy of a party over another policy of another party, you should vote for that one policy and ignore the hunderds of other policies no matter the cost... problem is a lot of people do this :)

 

and I like the general idea of Chris_J's response below. At least thought out to some extent.

"no matter the cost" - cost

"no matter the cost" - cost was the prime consideration when it came to Labour's new stance on monetary policy - the costs of NACT's continued TINA response to prudential and monetary policy is too great to ignore and far outweighs differences elsewhere. It's about values as much as logic.  

Selling assets which we are

Selling assets which we are going to be dependent on buying services from makes no sense.

By all means sell Air NZ, don't sell energy or resource companies.

All strategic assets should be sold to the "Cullen" Fund (with the condition that they can't dispose of the assets) so that the funds can be used to repay debt.

Simple.

A CGT also makes no sense.  It's far too much paperwork to make all capital gains taxable.

Make capital gains on assets sold within 1 year taxable at 30%, that stops the traders.  Reduce the rate by 5% a year till after 7 years you pay no CGT, that way you don't disadvantage genuine long term investors, but still create good revenue and discourage the speculators.

There also would need to be a tax on people who build up equity in businesses.  At present if you develop property you pay tax at your marginal rate (30 or 33% in most cases) not matter when you sell it, if you build a business from nothing and sell it for $700m you don't pay any tax!  A nice simple tax regime for capital gains on businesses would be to allocate $100,000 capital gain per year for any business owner to be taxed as above, the remainder could then be taxed at 30%.  So a business owner who built a business over 30 years could make $3m tax free capital gain, that's enough to not discourage entrepreneurship, but someone who sells an internet business for a $700m capital gain in 7 years pays $210m in tax - that seems fair.

Revenue plus fairness that sounds like the perfect tax regime!

long term investors should

long term investors should not get a get of jail card although I like ChrisJ comments. Most clients that have been sucessful currently do not care for capital gains because they have already made theirs.

Any tax platform currently has the risk to make it even more difficult for younger generations to accumulate wealth while the baby boomers site with their property portfolios already realised. The smart money is already out.

Don't know what the big fuzz

Don't know what the big fuzz is about, possibly big media beat up.  

Govt proposed to sell only 49% of those assets.  If you care about those assets then save now and buy some shares.  I don't mind having CGT but from the look of it - it's full of loop-holes and won't capture enough revenue in the long term.

"I don't mind having CGT but

"I don't mind having CGT but from the look of it - it's full of loop-holes and won't capture enough revenue in the long term."

Agree. Also troubles me that Labour is planning to borrow more in the short-term, and hope for good returns on CGT.. With the track record of the last Labour reign, i imagine any move towards a break-even budget would immediately begin a spend-fest. Imagine a party with the guts to cut enough spending, even cap all government/public salaries  including their own, to try and put a country into surplus... while we're at it, imagine any politician trying to do something for the country instead of for themselves... what a place NZ could be

Im fairly sure CGT isnt meant

Im fairly sure CGT isnt meant to capture tax revenue as such but push ppl to pay tax elsewhere....so its an indirect effect.

As an example, a farmer can load his farm up with so much debt that he pays no tax year by year but cashes out when he retires tax free.  With a CGT he now cant do that....he could but its of no advantage to him....so if he only gets the debt he really needs his businessis more robust and he pays tax per year.....

Where do they say they plan to borow on CGT and spnd now?  I certianly hope that isnt the case....

 

regards

Pretty sure when labour

Pretty sure when labour released their policy paper - they admitted that short term borrowing will be higher than what it is right now.  Due to low CGT intake and $5000 tax free threshold. 

Labour is just arrogant to admit that they are too far back in the race and therefore done nothing to gain the trust of undecided voters (myself included).

I suspect you are right on

I suspect you are right on the short term costs....but the point is in some areas PAYE are over-taxed because some ppl pay no tax....so a correction in that is long overdue.

I dont see how they can admit that and why should they, it isnt over til the fat lady sings.

Trust is the biggest issue it seems....certainly Im very concerned that they wnt be able to contain costs.....hence despite hating National's sell teh SOE's policy a vore for Natioanl seems safer....but its a caught between a rock and a hard place choice IMHO.
 

regards

Oh steven...don't you recall

Oh steven...don't you recall your mummy saying..."a fool and their pocket money are soon parted"...of course Labour's cgt madness is a tax grab...wake up and smell the roses.

Wolly, Ive said this before,

Wolly, Ive said this before, all income/profit should be taxed equally so we have ppl investing for the best business outcome and not for tax reasons.

regards

Any tax policy is purely for

Any tax policy is purely for tax revenue.  The indirect effect is that hopefully it prevents the situation you describe above.

The theory is that a CGT broadens the tax base so that other taxes can be reduced.  The problem is that the politicians don't use it that way and use it to fund spending increases in other areas.

Any new tax policies must go hand in hand with reducing other taxes.  In addition there must be policies to cut government spending as well.  If we trusted the govt. to manage spending properly there wouldnt be so much griping about having a CGT.

The other issue is the mindset of the taxpayer.  Instead of bitching about about paying tax on the income (whether it be from capital gain or other) they should be happy that they made profit.  The only thing taxpayers should bitch about is whether the proportion of tax is fair.

Meh, thats an assumption and

Meh, thats an assumption and its seems wrong....Labour have said i believe they will use it to give a 5k no tax threshold....

Im sure the National Govn has done all it can to cut costs/spending.  When you say we dont want to cut Education, Healthcare, well thats 2 of 3 big three costs out of scope.  That leaves WINZ/benefits and from what I can see are pretty limited in slimming down. The amount left, is Govn and it is actually pretty small....

regards

 

Midgetkiwi -- what is wrong

Midgetkiwi -- what is wrong with Labour's track record with respect to paying down public debt?  t least it reduced (debt to gdp) unlike the doubling of public debt under John Key.

During the 9 years that

During the 9 years that Labour was in power they didn't have the event of GFC and hundredof earthquakes to deal with..  So they didn't really have a track record of managing our country's debt in crisis time.

I doubt if you can say that if they are in power now.  I am not favouring the Nat but we are managing OK as a country.  Yes we are borrowing quite a bit but not to the extend of PIGS (Portugal, Italy..)

 "....31.9% of the 476

 "....31.9% of the 476 National-aligned voters..."

What proof was there that they were National voters?

Nothing.

Bytheway, I hope David

Bytheway, I hope David Cunliffe will loose that seedy smirk oh his after the election... 

He once gave me the same smirk when I asked him not to double parked in Parnell Road outside the Pandoro bakery.  I can't stand that.. 

He may have been in a rush

He may have been in a rush for one of Rebecca's...cakes...Mr Chaiman...now if it was Parekura Horomia, I could understand your apprehension in a speedy return to the car....but they don't call David ...The Running Kun for nothing.......

By the way what was it you couldn't stand..?..the smirk or the double park...?

I understand he's working on his squint which often gives the impression of a smirk

....but if you need a definitve base for comparison..I don't think anybody does the "smirk at

the peasant" look better than ( who ate all the pies ya fat  B%$*ard) Gerry Brownlee.......nor

does anyone do smug better than our very own John Boy.....but is that a reason not to

examine their politic.

It was the smirk (and he was

It was the smirk (and he was blocking my car!).

As for GB, isn't there too many flaps to show a smirk?  Anyway I do like him though 'cos he said what he meant, the rest are just BS artists..

By steven   "I dont see how

By steven   "I dont see how they can admit that and why should they, it isnt over til the fat lady sings"

I think the fat lady is lining up outside food bank and it is running of food parcels.  I doubt that she'll singing loudly! 

Anybody think Labour can turn things around at this late stage is in lala land IMHO...

I tend to agree, however

I tend to agree, however writing Labour off as a no hope would be premature.  For instance have voters actually even engaged in deciding how to vote yet?  not so sure its that cut and dried.....

regards