A capital gains tax does not address the issue of why people invest in houses - there is simply no decent investment vehicle for the man in the street. The big name institutions simply fleece you with exorbitant management fees, hidden fees, and legalised theft by creating reserves from your money which you then lose.

So all of you out there pushing for a CGT - tell us where you are investing your money to get a decent after tax, after inflation, rate of return?

JK, the central bankers favourite son, knows that it is the volume of money in circulation that causes inflation, deflation - Boom, Bust.
I am a little surprised that hes not keen on GGT, thinking maybe most of his rich mates who are in tune with bank/business cycles have already exited their property investments with their usual "miraculous" timing and GGT would now assist the middle class to much as they would be claiming losses in the crash.
Great solution he presents, lets convert productive land into more urban sprawl. The reason for this, as by now a few more a beginning comprehend, mortgages are a major part of credit creation mechanism, along with bonds and fractional reserve banking, every new mortgage that a new lender signs on the dotted line for is simply written into existance as a debt book entry and goes on to become a tradable commodity. When the lender pays those that build his house, that money generally ends up deposited back in the banking system where it is then expanded as further created credit by fractional reserve process.
And of course, if an increase in money/supply sees another speculative bubble in any market, not just housing, the owners of money in this nation wont want to be paying any tax on their money making money returns.

The purpose of an effective CGT isn't to stop asset bubbles but reduce the unbalanced amount of property investment compared to business investment in a normal enviroment, as Iain has pointed out asset bubbles are a money/debt supply issue.
Having a CGT tax on property investment (without the loopholes) would reduce the major incentive that influences investors decision to invest in property rather than shares/business and would change the "mindset' leading to a more balanced investment decision and a stronger economy.

André Says:

"So all of you out there pushing for a CGT - tell us where you are investing your money to get a decent after tax, after inflation, rate of return?"

Right on Andre. It is naive to assume that if money is not borrowed to buy houses it will be borrowed to buy factories (or will that have CGT as well), business or invested in shares etc. Either it will not be borrowed, or if you you have money to invest, it will end up overseas. Who is going to trust finance companies or NZ shares.

All a CGT tax will do is push up the cost of housing (purchasing and renting). Extra supply will lower the cost (and it does not have to be urban sprawl, NZ should go higher density for many reasons) and raise the quality (which is desperately needed)!

What a load of cwap....

We have a fundimental problem and Key isnt going to address it....is that because too many of his core supporters are landlords I wonder? So we are going to build more houses we probably dont need, wasting resources and labour that could be productively used elsewhere....it seems democracy's achillies heel is pork barrel politics....too much self interest....

regards

JK says:

"but one of the reasons why housing has been such an effective form of investment for New Zealanders is the system hasn't been working well, and the Minister of Local Government can talk about that, but the RMA has held back the lease of land, the Building Act's been highly inefficient, we haven't had the supply for what's been an increasing population."

EXACTLY.

Much of the boom was caused by private investors, after gong to seminars, refinance the home, then build/buy a new home either to mover up to or rent...then right off tax loss, often illegally, then pick up the capital gains...
If under the current system, everyone was honest, they then pay tax on profits..No problems
But the whole situation got way out of control, banks handing out 100+% finance, and the IRD, just not having the manpower to police the scams...and have had to create special 'task force'..at the expense of the honest tax payer.
The issue is about tax evasion and some rather dickey tax avoidance, all based on the of the IRD being swamped.

A capital gains would have simplified everything... which would have reduced the degree that the boom got way out of hand....

"any changes would not happen in the current term and any suggestion of major reform would be put before voters" but not before we have guided the debate down the right pathway which we have decided will lead nowhere. You see the real issue is keeping the public preoccupied, keeping them from forcing us to do something that might be a threat to the profits of the banks. The problem is too much debt and a most dangerous residential property bubble and we have decided the solution is to make sure the credit continues to flow strongly and the bubble is allowed to grow yet larger. You have to realise the public is like a lump of clay, you soften it up and then mold it into the shape you want.

Anyone advocating tax as a market solution needs their head examined.

I suspect that you have not ever been subjected to a 'capital gains' tax?? As a US and NZ taxpayer, I can tell you that the capital gains tax I have experienced for most of my life is onerous.

1. it is expensive in terms of time and money with respect to the record keeping and professional services required. Example, you have held a property for 30 years. When you sell this you must have kept track of every capital improvement over this time. You must be prepared to defend against the IRD where they will say that your 'capital improvement' is actually a repair or maintanence expense.

2. Where you have shares, and you have added to the position over time - and you have held the position for a very long time, you must have all records. Any lost record leads to being unable to demonstrate the 'basis' of your investment - you are faced with a capital gains tax that is well above the actual gain. Also, you must account on the basis of first in, first out - if you sell out portions.

3. No nation that has got capital gains taxes discounts these for inflation, inflation created by the government itself. So, for example, you sell a house you purchased for $50K 20 years back - for $300K. The inflation may have averaged 4% over that time (which raises the issue of whose inflation number is correct) - over $60K of the 'capital gain' they will assess is NOT A GAIN. So, capital gains taxes confiscate capital!!!

The practice of flipping houses that you wish to discourage can be addressed by tightening current tax law in simple ways.
1. Reduce the amount of rental property 'losses' that can be deduced from other forms of income (tax shelter)

2. Reduce the depreciation rate allowed on rental properties (tax shelter)

3. Strengthen regulation that would consign 'flipping' houses to trading. Persons who are deemed traders do NOT fall into the capital gain category of taxation - thier 'flipping' income is regular income under current IRD regs - but enforcement should be tightened if flipping is to be stopped!

Capital gains tax slows investmet in productive enterprise, and may well cause a flight of capital to Singapore ect... (including mine)

More problems with capital gains taxes.

1. they distort the economy by causing decision makers to delay transactions beyond the ideal economc timing - in order to defer taxes into the next tax year.

2. once the capital gains tax is in place, tax hungry politicians start complicating the tax structure further - causing more economc distortions! In the US there are: short term capital gains tax (higher rates), long term capital gains taxes, various extreme distortionary rules - such as taxing gains into infinity, but only allowing $3,000 in capital losses against regular income etc etc ad nauseum. These are time consuming and require professional accountancy, often.

3. New Zealanders have not had these time and money wasting complications in their lives, therefore - and this is a huge isssue - they have not retained the necessary records of their lifetimes of investments. They will therefore have no means of proving the capital basis of their real property to the IRD - a catch 22 .

Interesting word use, CGT is "˜punitive' and elsewhere "˜complex' does that mean that existing taxes are not?

It seems self interest beats logic every time.

Empty buzz words Wellington that masquerade as policy "“ must have more productivity "“ and at the same time remain staunch defenders of the status quo that has delivered a crazy, underperforming and unbalanced economy demonstrate a similar warped logic.

How hard is it "“ more productivity requires more investment in productive activity, more investment requires an anticipation of a better return, without change the real economy can expect more of the kicking it has suffered for years.

If nothing changes nothing changes - the problem is systemic.

http://www.stuff.co.nz/sunday-star-times/business/2672535/Can-do-Kiwis-h...

"Trickle-uppers identified business tax cuts and greater tax deductibility for business expenses as the way to keep the economy going. Some even called for a flat tax rate across all income brackets.

They also wanted an end to what they saw as exploitative tax structures, such as the tax breaks for people buying investment properties. A significant number also wanted to see the introduction of a capital gains tax on investment properties and second homes."

"A significant number also wanted to see" - maybe it'd not be the political suicide some believe?