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Gareth Morgan says we should have a Comprehensive Capital Income Tax for everyone and that would mean the global elite using NZ would pay their share

Gareth Morgan says we should have a Comprehensive Capital Income Tax for everyone and that would mean the global elite using NZ would pay their share

By Gareth Morgan

The UK media have been reporting on the global elite buying up secluded New Zealand bolt-holes with airstrips.

The story goes that these properties are being snapped up in case of a ‘global uprising’ where the poor rise up against the super rich.

While this is in some ways a compliment about New Zealand’s perceived level of stability and resilience to a crisis, it also raises questions about what we get out of the deal.

At the moment, the answer is not much apart from higher property prices and absentee land-owners.

A Comprehensive Capital Income Tax would change all that.

‘Bolt-Holes with airstrips’

Our country has some stunning scenery, and is blessed with plenty of land. What better place to build your post-apocalyptic hideaway? The UK media have suggested that the reason the mega rich are snapping up remote Kiwi properties is not just their stunning views of lakes and mountains.

It is also because we would likely be sheltered from any global uprising against the super rich.

As evidence they point to fact that these properties often have airstrips, allowing for direct access by your average billionaire and their private airplane.

Stability

New Zealand certainly offers stability in the global sense, which is something to be proud of. We were ranked fourth on the 2014 Global Peace Index, and of course we are blessed with a low population, plenty of land to feed ourselves if the rest of the world goes belly up.

But most importantly we are also blessed with isolation – that’s right, the issue that once held us back from participating fully in the global economy for so long, is now becoming an advantage. Tucked away in our sleepy corner of the world we are less likely to get caught up in any impending terrorism or revolution, the tyranny of distance no longer seems all bad.

What do we get out of it?

The question for Kiwis is how we leverage this advantage?

If we are valued as a stable place for people to escape to, what do we get out of it?

We should look at capitalising on this opportunity we’re offering others, ensure it produces some benefit to the country as a whole.

‘Favourable tax regime’

Currently we have no strategy for ensuring we benefit.

In fact, another reason for the super rich to buy here is listed as a ‘favourable tax regime’ for property owners.

What that means is that you can buy a massive property in our country and not pay tax on the effective (or non-cash) income you generate from it. As we have often argued, given you have to pay tax on the return from almost every other investment you make, why wouldn’t you keep buying property?

Of course this is precisely what we all do.

This massive distortion in our tax system makes buying property a no brainer – especially for those with plenty of spare cash to store away. Those folk need not just be New Zealanders as we will increasingly find out.

Taxing absentee landowners?

The simple but inadequate response would be a tax on absentee landowners. While that appeals to all of us who like taxes that others pay the odds are that if you don’t pay a tax, there is nothing to stop a rich person (who can afford an accountant) finding a way not to pay it as well.

For example, if you tax foreign landowners – the property will end up registered under a New Zealand business. You could tax absentee landowners, or unoccupied properties, and they will let the gardener live in the house.

Selective taxes always fail because of problems policing the eligibility boundary – just like the capital gains tax that Labour and the Greens put up, if you exempt Mum and Dad then odds are the rich will find a way around it too.

Swallow the pill

If we want to benefit from the influx of foreign landowners then the best way is to close the loophole in our income tax regime that exempts the effective income property owners get.

Comprehensive Capital Income Tax would tax the owner’s equity in the property in the same way as if that equity had been put in a bank instead.

Simple, straightforward, impossible to avoid.

Yes, we would all have to pay, but that is exactly why the international jetsetters would have to pay too. Those hoarding lots of property as a tax dodge would no longer have reason to do so.

If the tax revenue was too much, the answer is simple – cut tax rates for everybody. This is what closing tax loopholes allows.

And share the bounty

Alternatively we could spend the money in a way that benefits most New Zealanders – especially people and families on lower incomes – including the working poor who find market wages or hours available of paid work these days simply aren’t adequate.

We have suggested a Unconditional Basic Income as one way to share the bounty. It would replace our welfare system, improve the incentives to work and make most people better off.

Our tax and welfare regime is obsolete, held together by band aids such as Working for Families and leaking like a sieve via tax loopholes.

It needs proper reform, and alignment with the modern day reality of permanent underemployment for more and more people.

It’s unacceptable that year after year the GDP per capita rises, but that benefit accrues to fewer and fewer people.

Do New Zealanders really want to aid and abet that trend by offering tax-free boltholes for the world’s megarich without ensuring they pay their share for being here?

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This article was first published on his blog, Gareth's World. It is here with permission.

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