Capital gains, wealth & progressive income taxes: How to make New Zealand's tax settings fairer, reduce inequalities and provide a broader base for funding public services

Capital gains, wealth & progressive income taxes: How to make New Zealand's tax settings fairer, reduce inequalities and provide a broader base for funding public services

By Alex Tarrant

“Some consistent themes do emerge…New Zealand’s lack of a comprehensive Capital Gains Tax, for example…”

We need to talk about tax.

That’s the message from the Public Service Association (PSA). This week it released a booklet on New Zealand’s tax system, with chapters by tax specialists, academics, unionists and economists.

Tax treatment of capital gains, wealth and assets were high on the agenda as panellists at the booklet’s Wellington launch discussed the fairness of New Zealand’s tax system and how tax settings had contributed to growing income, wealth and social inequalities.

New Zealand made a good start in moving towards a low-rate broad based tax system in the 1980s, but we stalled when we reached the part where we were supposed to include capital gains under the income umbrella.

If that sounds familiar, then yes, Andrew Coleman’s research on changes made in 1989 to how income was taxed across different asset classes was cited. And interest.co.nz columnist Terry Baucher, who has also recently raised the subject, was one of the booklet’s authors.

Since the ball was dropped in the 1980s, the subject of capital gains tax has become a political hot potato. Labour contested a couple of elections on a (watered down) CGT platform, but under Andrew Little the policy was gone by lunchtime.

In its place, we have a promise for another tax working group to be set up if Labour leads government after September 23, with the focus to be fairness across income, assets and wealth. But other than looking to what the Green Party might demand next term if in government, we’re not going to see anything until after the 2020 election addressing underlying imbalances in our tax settings.

So who do we look towards to lead the conversation on tax fairness until then? Perhaps the authors of this booklet. (These are my comments - not the PSA's.)

The PSA says the booklet is not a manifesto. The services its members provide can only be done so effectively if New Zealand has a strong tax base. These services are not nice-to-have add-ons for a prosperous society, the PSA says. “They are the necessary foundations for any well-functioning nation.”

That is why they want to have a conversation.

Further below I cover some the discussion between several of the booklet’s authors at its launch in Wellington this week, for readers who are interested.

First though, for those just wanting to get a feel for things, here’s a selection of extracts:

“The most glaring hole in New Zealand’s tax system, from a fairness point of view, is the failure to tax wealth in any form, except for the government’s very minimal tax on houses sold within two years of purchase.”

- Institute for Governance and Policy Studies research associate Max Rashbrooke.

“A large part of wealth is in housing. Home ownership can boost local communities and social stability. But fewer people live in their own homes, which are becoming increasingly unaffordable. Fixing that is a complex issue…but taxes on wealth are among the policies that need to change.”

- CTU economist Bill Rosenberg.

“Are there lessons from overseas tax systems for New Zealand? Yes, in the form of a comprehensive capital gains tax (CGT). This would apply without the need to determine a person’s intent. Its introduction should broaden the tax base to meet future health and superannuation demands and help address growing wealth inequality.”

- Tax consultant Terry Baucher.

“Tax policy isn’t sexy and often too complex to lend to pithy straplines. In poll-driven politics, this makes tax policy a low priority. Tax policy is difficult and a measured approach makes sense. It also makes sense to act early, rather than wait for some consensus – which inevitably takes too long and gets too diluted by the time all the special interest groups are appeased.”

- Sense Partners economist Shamubeel Eaqub.

“Enter Rogernomics and the low flat-tax broad base solution of the late 1980s. However, a comprehensive view of income was not achieved because the capital gains part of the package did not eventuate.”

- Auckland University Retirement Policy and Research Centre’s Susan St John.

“New Zealand has few taxes that would typically be considered as wealth taxes. However, this has not always been the case. Death duties and gift duties were introduced in 1866 and 1885, respectively. The initial objective of these taxes was revenue generation and redistribution…There appeared to be little political appetite to strengthen these forms of taxes, which contributed to their eventual demise…Historically New Zealand had a land tax that operated from 1878 to 1992…However there has never been a comprehensive capital gains tax.”

- Associate Professor, taxation, at Victoria University, Lisa Marriott.

“This is a plea to understand taxation in context. Tax isn’t a weapon politicians use against the economy. Tax is what we use to pool our resources and secure the things we need: schools, hospitals, homes and more.”

- Trade unionist and writer, Morgan Godfrey.

All are extracts from Progressive Thinking: ten perspectives on tax, a booklet released this week by the Public Service Association.

The discussion – Assets, wealth & income

Perhaps the most interesting part of the panel discussion came right at the end, during the Q&A session. Each of the authors present was asked for a single sentence describing which aspect of New Zealand’s tax system they would most want to see changed.

One advocated for increasing tax exemptions to low-income households to help overcome income inequalities. A more progressive income tax system was next – higher rates at the top. Third: “Some kind of tax on wealth; any kind of tax on wealth”. Higher taxation of greenhouse gas emissions, with that revenue recycled into spending on work to reduce emissions further was fourth, while the final three suggestions included two advocating capital gains tax, and the other a form of wealth tax.

New Zealand’s lack of a comprehensive capital gains tax had been a key topic. The two-year bright line test was a start; the next move should be extending that to five years, Terry Baucher had said. “Capital gains is almost there.”

But, as always, the political roadblocks were raised. One panellist suggested the political opposition to a CGT was weakening, with Labour and the Greens having promoted the policy.

I pointed out though that these policies had only been palatable to the two parties with the ‘family home’ exempted, indicating a comprehensive CGT was not politically possible.

Max Rashbrooke gave an interesting response: Yes, in terms of pure economics the family home should not be exempt. But, the question should shift to the ethics of such a policy and “what people think is right.” Regular people don’t tend to buy a house with the intention of making capital gains from it, Rashbrooke argued.

This led to Baucher raising the US capital gains tax system, which at its most simple level, homeowners can exempt the first $500,000 (for a couple) of capital gains from the sale of the family home.

Which raises the question – does this present a roadmap? Extend the bright line test to five years (as Labour is currently advocating), then introduce an ‘ethical’ CGT that captures investment properties but exempts capital gains on the ‘family home’ up to a certain threshold?

‘It’s all or nothing’

Terry Baucher earlier kicked off the panel discussion by describing how New Zealand in the 1980s had strived for a broad-based, low rate-style (BBLR) tax system.

To some extents New Zealand became world-leading. For example, our GST is the most comprehensive consumption tax in the world, bringing in 26% of the tax take against a 20% average across the OECD, Baucher said.

But building of the foundations of the BBLR system stalled when then then-Palmer Labour government got to capital gains. Jim Bolger’s subsequent National government dropped the idea altogether. As a result, New Zealand's tax system became weighted in favour of property – now valued at nine times the stock market – for nearly 30 years.

Inequalities inevitably develop if BBLR isn’t done whole-hog, Baucher said. “It’s all in or nothing,”

‘Tax system needs to be fair’

IGPS researcher and former journalist Max Rashbrooke raised the notion of fairness. The function of the tax system is “to push back against inequality,” he said. The ultimate disparity between rich and poor in an economy came down to how much the tax system reduced that imbalance.

The discussion needs to focus on fairness, he said, posing the question, how much of people’s income should they hand back to go towards the common pool of a society’s assets?

‘Myths have been created’

Data journalist Keith Ng said myths had been propagated about the tax system which served to reinforce prejudices about who had the greatest tax burden.

Ng raised the notion of ‘net tax’ payments used by the current National-led government since about 2011. This ‘income tax paid less benefits received’ term had led to headlines about which parts of society ‘pay no tax,’ Ng said. “Which is patently not true.”

The term had reinforced prejudices among people not receiving those benefits that “I pay too much tax,” Ng said. He urged the dropping of the net tax debate in favour of a focus on average tax rates. He also poured scorn on people using figures such as ‘the top 10% pay a large proportion of overall taxes’ – that invariably led to suggestions that top tax rates should fall.

Social contract

Former Vic Uni Associate Professor Bob Stephens discussed the notion of a ‘social contract’, signed at the political rather than individual level. This referred to paying tax and receiving the benefits from government expenditures.

Stephens picked up on Baucher’s BBLR notion. The idea behind the move in the 1980s was to overcome an inequitable tax system and create a fair tax playing field horizontally across income levels, he said.

While the focus of the system should be vertical redistribution (ie from rich to poor), Stephens said that could only work if all people on the same income level (horizontal) were paying the same rate of tax. If not, “vertical redistribution is just a lottery.”

He also touched on the intergenerational social contract - the idea that a person pays tax at one point in their life to receive a benefit at another. Child education was one example of this, he said.

About 70% of people receive the same in benefits as they pay into the tax system over their lifetime, Stephens said. But he raised the notion of rising costs of superannuation, and that ‘millennials’ now are likely to receive less in benefits than they pay into the tax system over their life time.

The real absence is wealth taxes

Victoria University Associate Professor of Taxation, Lisa Marriott ran through the history of New Zealand’s tax system.

Over time, the top marginal rate had fallen while GST had risen, she noted. Like Baucher, Marriott said New Zealand’s GST was very good in terms of international comparisons. But one problem is that it does not have the ability to target peoples’ ability to pay tax.

New Zealand’s company tax rate had fallen over time as well – although was still relatively high by international standards, she said.

The real absence from the system, though, was wealth taxes. In the past, New Zealand had a land tax, estate and gift duties. So while New Zealand hadn’t gone near a proper capital gains tax, the notion of wealth taxes is not foreign. “But that’s very much in the past.” Nothing now resembles a deliberate wealth tax, she said.

‘High wealth inequality’

CTU economist Bill Rosenberg raised the “fundamentally political” opposition to a capital gains tax or a tax on property holdings. He went as far as link the National Party’s support base as being tied up in property – whether farm land or property dealing – saying that this had affected policy making.

“We have very high wealth inequality,” he said, adding that wealth was different to income – it also includes holdings of property and financial assets. “New Zealand has high wealth inequality – higher than income inequality.”

The wealthiest 1% in New Zealand held 18% of the nation’s wealth, he said. This was equivalent to the 60% least wealthiest.

“Wealth gives rise to income; it gives rise to power.” The more you allow wealth inequality to grow, the greater the risk to our democracy and electoral system, Rosenberg said. He talked about how a lack of estate tax and gift duty allowed wealth to be passed on over generations. There was an “obvious way to address that.”

The lack of a comprehensive CGT was “destructive but incredibly attractive” to people, Rosenberg said. And he made the point that while a CGT in itself would not prevent housing bubbles, it could play a part by helping rebalance the economy away from housing to more productive industries.

Tax settings & impact on climate change

Morgan Foundation researcher Paul Young made an interesting link between how housing is taxed (or not) in New Zealand, and climate change.

Referencing Andrew Coleman’s research that our tax settings since 1989 had effectively encouraged the building of larger houses, he argued this inevitably led to greater energy consumption.

On another angle, Young also argued for a broadening of ways in New Zealand to tax carbon. He discussed how a carbon price – effectively a tax on carbon - was one of the central response mechanisms to tackling climate change. There was increasing recognition that a big package to deal with climate change was needed, he said.

But New Zealand is out of step with other developed nations, he said. Soon, New Zealand and Russia will be the only OECD countries without fuel emission standards for cars. While we have an Emissions Trading Scheme, there is a range of other taxes on fuel and energy that could be used to place a price on carbon, he said.

Our use of road-user charges rather than an excise tax does not create incentives to purchase more fuel efficient diesel vehicles, Young argued.

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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Yup. The last tax working group (2011?) also suggested a land tax.

A land tax would also hit offshore buyers gobbling up the best parts of the country. Want that lakefront property in Queenstown? Fine. But you have to contribute to NZ.

Forget about Land Tax , simply restrict foreign buyers , dont punish Kiwis for doing something like saving and investing for their old age .

Land tax isn't punishing Kiwis. It's in our best interests to not end up with a Monopoly economy, as it actually ends in economic collapse.

Is income tax punishing Kiwi's? How about GST? I would argue far more than a land tax.

Also, the incidence of the tax is only on landholders, most NZ'ers own no land now.

I suggest reading the essay that I linked in my original comment.

You are being disenginous suggesting we have a monopoly economy .

Do you honestly believe that house prices will miraculously come down with a new tax ?

Can you explain why houses in Sydney ( there there is CGT ) have risen higher and quicker than Auckland ?

Do you thin there are no property investors in Australia because of CGT ?

Never in the history of mankind has a new tax made anything more affordable .

Quite simply a new tax will simply make things more expensive as the seller either puts up the price or does nothing at all and therefore does not have to pay the tax .

There is no God given right or any other right to own your own home, and our home ownership levels are already very high by Western standards .

"There is no God given right or any other right to own your own home, and our home ownership levels are already very high by Western standards."

Spoken like a true Boomer who benefited from the numerous house-related incentives of the 60s to 90s. Our high home ownership levels are for the 50+ crowd, Boatman. Home ownership rates for under 35s is less than 50%. Lower home ownership rates in other western countries is compensated for by increased tenant rights, reasonable rent prices and higher quality housing stock.

I'm surprised, I didn't realize ownership levels were so bleak for those <35 years. Most people of this age would be wanting to start families too and yet the vast majority won't even have the security of their own home to do this in. I really hope something changes, this is getting well out of hand.

They wonder why we have a collapsing fertility rate. This is why we now need immigration.

'Need' is a strong word. While some targeted (high skilled) immigration is beneficial, I'm not of the opinion we need more immigrants to pump petrol, work in cafes or stock supermarket shelves (which is what I suspect most of the current influx have wound up doing).

The home ownership rate can be hard to find for age cohorts, as it''s usually lumped into a single percentage. The current NZ rate is at its lowest in 65 years, at 64% ish, but that is heavily skewed by the large number of people aged 50+ with rates of greater than 75%.

From the 2006 census only about 7% of 20 to 24 year olds, 22% of 25 to 29 year olds and 50% of 30 to 34 year olds owned their own home. This would only have gotten worse in the last ten years though, so the 20 to 35 year old rate would likely be less than 40% now.

You compare than to 45 to 65+ year olds during the same time where it was about 85% across the board.

"Reasoning will never make a man correct an ill opinion, which by reasoning he never acquired." - Jonathan Swift
https://en.wikiquote.org/wiki/Jonathan_Swift

If you were genuinely interested in the answers to your questions you would have found them already. They were in the essay that I linked.

Maybe an NZHerald article might make it more absorbable.
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1154...

It's a monopoly economy alright Boatman.....It is monopolised by the government and bureaucracy......when 1 finger points forward there are 3 fingers pointing back!!

>Can you explain why houses in Sydney ( there there is CGT ) have risen higher and quicker than Auckland ?

One obvious reason is that the tax is small enough to be ineffective in the face of likely future gains. That's clear to basically everyone. If you're going to make 20% in a year on a leveraged investment, it's still a great investment to get 75% of that.

It's clearly a sliding scale. If you had 100% capital gains tax, no one would invest in property to achieve capital gains.

Land tax is punishing Kiwis......it will severly punish all "run" and station owners across the rural sector of NZ. But that is your intention isn't it? Maybe start thinking about people renting houses and how a land tax will affect their bottom line? The people of NZ who can least afford a land tax will be paying the cost of one. It is not in NZ's best interest but rather "deep state" is manipulating the growth of their chosen direction.

No taxes are ever fair and never have been.....why should people work 15 to 20 to 30 years of their lives paying for the government and bureaucracy of this country? or any other country for that matter? Who gets the greatest benefit from such a system.....those who work for the government!

If citizens must have a referendum to vote on a flag then surely a referendum should be help on every issue the people face!!

.. a land tax brings the absolute ownership of a nation's natural resources back into control of the state ... land , air , water ...

It can provide a regular stream of income into the government's coffers ... and is very egalitarian ... whether you're a large land owner ... a land banker ... or have a multi-million dollar section in Herne Bay ... you will pay ... no exceptions , no exemptions ...

... and to off-set the gains the government makes ( mostly from the capital rich end of town ) from these rent resource taxes , they can significantly slash taxes on the productive sectors of our economy , the businesses and the wage earners ...

What is not to like about that !

If egalitarian was what people are after then wouldn't one introduce something like an APT tax?
What I cannot support is any type of system that poses as an egalitarian one but when under closer scrutiny one discovers a plethora of benefactors who are nothing more than high paid beneficiaries as part of a redistrution system.

When the lowest average income earners in NZ will work for 15 years of their lives just to pay their taxes so that people above them on the income scale can join some gentlemans club status in the public services we know the whole system is wrong......and I would rather deal with that........otherwise we are just moving deckchairs.......As far as I can see the government rode property up the slope and they have done that for a purpose.......I imagine that much of the tax take increases currently being experienced by the government are coming from the property investors who have had to fork out to cover the new LVR's and then found that they have a tax liability.......what many people are not reaising that this takes time to move through the system.......

http://www.taxpayers.org.nz/lifetime_tax

There would be equivalent reductions in income tax to go along with a land tax, so that the average person would not be affected.

This would easily catch all foreign buyers who earned no income in NZ, as well as low income earners in NZ.

Plus it'd have the added benefit of discouraging investment into real-estate in general. Saving for retirement doesn't necessarily have to be in real estate, and ideally if it were a more balanced market the choice wouldn't be as obvious.

@ j3y ............Foreign land and property investors must by law be registered with the IRD for Tax in NZ

Only since 2015 ... Prior to that - there is a lot of sub-marine bottom-of-the-harbour stuff in anonymous hands that nobody knows about and has been forgotten about and out of the eyes of the IRD

Land banking is neither saving nor investing. The term you are looking for is "speculating."

Excellent paper - yes I read it - an easy read

comments that resonate

Land cannot moved from a high-tax jurisdiction to low-tax jurisdiction - and it is impossible to hide land

Further
Introduction of a simple land value tax would not be an entirely new solution, but rather a return to the fiscal policy launched in the late 19th century when a land value tax was a major source of the government’s revenue. The national land tax was gradually weakened until it eventually disappeared primarily because of the pressure of the owners of the most valuable residential and agricultural lands who formed the most influential core of the ruling parties’ supporters

Nice work on reading it. Seriously. Concentration spans including my own are getting shorter.

I think you'll also find that it suits the banks moreso than the property owners to have a society built on land ownership and debt against that land. I would hazard a guess that they are a significant pressure behind removal of land tax. When I learned "follow the money" it became very easy to understand the motivations and actions of all players.

Interesting essay.
I certainly like the idea of a land tax to finance new infrastructure to house more people.
I also think Supply & Demand are still the main drivers of value as the opening statement unwittingly demonstrates by stating; "House Prices are rising steeply in urban centres like Auckland and Christchurch", Values in Auckland have indeed risen sharply because of population growth but values in Christchurch have dropped because of the large number of post-earthquake new houses and a stagnant population.
Finally, it would be interesting to read a paper arguing against a LVT as a counterpoint

We where talking about this 5 years ago, the time for our national chat on the topic seems long gone. Either we're going to modernise our tax system or we're not but we've talked about all angles of all arguments at this point.

I am fundamentally opposed to taxing Capital Gain for many reasons .

We need to realize that NZ needs Capital and we all know if you want less of something , then TAX it , do we really want less capital in NZ?

Do we really want to rely on foreigners to provide us with all or much of our capital requirements ?

CGT is a resentment tax , nothing more and nothing less , it generates little revenue , its easily avoided , and is expensive to implement .

Why should this generation suffer from this tax , when Baby boomers have been exempt?

Why do you want to tax and discourage people who have risked their capital to start businesses , invest in our economy , create jobs and enable us to achieve the GDP growth we are seeing ?

Why would anyone want to discourage Capital formation , when we know that New Zealand has traditionally not had strong Capital Markets and have had to rely on Australians to bail our banks and the Japanese to provide us with Capital?

Why discincentivise saving when we know that the savings of today are the capital of tomorrow ?

What statistics actually show that we are so wealthy that we need to punish those who are prudent and have saved hard and long and invested their savings in businesses and the stock market ?

And finally , if you take away the incentves for investors to provide housing stock , then can someone please explain who is going to provide housing for rent ?

HNZ ?

I dont think so .

With a wait list of 4000 families and then just add 70,000 new immigrants every year , there is no way in hell the State or HNZ can house all these people .

We need to get real about this emotive issue of CGT

It is an envy tax mate, No other sane explanation is there to justify it at this day in age ...
this is the way to somehow take from the ones who did well in their lives and give to the ones who didn't and/or won't ... we have changed the system from blind socialism into free market capitalism long time ago to reward the people who work and achieve ... not to encourage to stay where they are and expect handouts ...

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Bollarks.

We've changed from a balance of land tax and income tax to put all the burden on those who work hard and earn an income, and given a free windfall to those born at the right time to benefit from both the presence of and subsequent absence of land tax (and the other evil "socialist" measures such as cheap housing corp finance, government builds etc.).

I'm not sure why many born at that right time feel so entitled to their free windfall, thinking they've earned it?

Not to mention their land value increasing because of the infrastructure funded in great part from income taxes (and in small part, locally, from rates). Why should people receive this value on the backs of workers' income taxes? That someone would think they actually earned this lottery-ticket windfall that's been delivered in the last decade or two...well, that's amazing.

Seems like such a socialist entitlement mentality, demanding workers pay higher income taxes to fund one's unearned land windfall :-P

And then they want the workers' income tax to pay a pension to entitled millionaires, to boot! At a certain age for some the concept of standing on one's own two feet seems to fall prey to "the taxpayer needs to keep me in the lifestyle I'm accustomed to - that's fair!"

Boomers benefit from 30 years of house price inflation decoupled from income inflation and high immigration levels increasing the values of their property portfolios and it's all because of hard work. Yeah, nah.

God, Boomers seem to have no idea of the benefits they received compared to us younger Kiwis and think all their wealth is because of hard work. And they call us Millennials selfish.

Well make sure you and your peers get down to the voting booth and do something about it - no use blathering on forums like this if you don't vote.
Get out the vote with your group and encourage everyone to work out which party has your and NZ's future foremost in their mind. Point out to your elders how they have (m)ucked up your future and hopefully enough of them will stop being blinded by the high value of their McMansions long enough to actually think about the next generation.

The answer to your problems is to be found in Sept but only if enough of you can bother to vote.

>We need to realize that NZ needs Capital and we all know if you want less of something , then TAX it , do we really want less capital in NZ?

Explain this argument through some examples?

Through absence of CGT we're getting too much capital pushed into housing and too little into business. Too much capital is pretending to be invested at a loss in order to chase capital gains.

By putting a CGT on property, that will have the desired effect of pushing capital into more productive investments. Which would be good for NZ's areas that need real investment.

@rickstrauss any tax that you care to mention has had the effect of making things more expensive, there is no example of a tax that has made something cheaper ............... ever .

From cigarettes to beer , to petrol , to import duties or GST , as these taxes were implemented they simply made things cost more

NO TAX HAS EVER HAD THE EFFECT OF MAKING SOMETHING MORE AFFORDABLE and its an oxymoron to suggest a new tax will make something cheaper.

There is no way in hell that the introduction of a new tax could ever make things cheaper for anyone , and remember that its the man at the end of the rope that carries the cost ultimately.

With regards to your assertion that too much capital is going into housing , if you remove investors from the rental market , just who is going to provide houses for the 1,000 new faces we are accepting into New Zealand every 5 days ?

The Government ?

Housing New Zealand ?

Get real

You do realise NZ has used land tax before to break up land banks and get land into the hands of mum and dad investors, right?

At the moment, house and land prices in Auckland are inflated because of - from all appearances - expectations of tax free capital gains. That's why rents are much lower than prices than is typical in a market where demand is driven by actual need for dwellings.

This creates a prime condition for lowering house prices by removing some of that distorting demand, by reducing the appeal of houses to those chasing tax-free capital gains.

What makes you think it's investors building houses for those people? Seems like most investors buy existing stock, much more.

Worth remembering at this point that houses were affordable for your generation, yes, in great part because of government builds, cheap housing corp loans, cheap government leasehold land to encourage house building etc. "Own two feet" thinking is simply blind to the benefits that were provided by the earlier generations, which have been abandoned by recent ones - with obvious results of properties that were affordable from those efforts now being unaffordable for the next generations.

House prices are inflated due to the cost of bureaucracy! Capital gains could not have happened if the land supply was not restricted and in NZ's case it has been severely restricted. So you have land supply restrictions, then you have material monopoly restrictions from BRANZ appraisal, then you have the Building Act and Building Codes which place further limitation in the market in meeting supply demands, then you have RBNZ money supply restrictions from LVR's and the already back door introduction of Debt to Income Ratios......all these things restrict supply and guess what happens prices go up and up and up.......

Supply and demand both have a role. But low rents suggest we have much more demand for the gains that can be made than simply for places to live.

No reason not to remove bureaucracy and at the same time remove some of that demand for delicious tax-free capital gains.

RS if you remove the bureaucracy the prices correct accordingly as new houses are built at lower prices which lowers all existing house values in that area......Adding a CGT is just a further distortion and it is the distortions that need removing......there is already income taxes on developers and builders etc and that should be more than tasty enough for you.....in fact given how slothfuly the public services waste it, it's all a rather bitter and rancid flavour!

I hate to break it to you but the intention of taxing cigarettes, beer and petrol is to limit consumption, not lower their prices.

We tax income - so by your logic it must mean we want less income.

People make money from capital gains - it is illogical why this wouldn't be part of the tax system.

Most countries have some from of CGT like Australia. It doesn't seem to stop their capital requirements or their ability to house people. We on the other hand have put a trillion dollars into housing and we wonder why our business cannot raise equity. Rising house prices, due in part to tax-free gains, has went kids live in cars.

A land tax, which has been proposed many many times, would be almost impossible to avoid and very simple to administer.

Boatman, very reasoned!

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God help us.

Everyone know and understand but does politicians wants to do as have vested interest as most will be affected.

Conflict of interest.

Perhaps the concept of taxing wealth could be introduced to students starting at NCEA level 1 onward.

The students that excel and earn more NCEA credits could be taxed during the year and the taxed credits redistributed to the students with less credits.

This would teach students wealth equality and fairness.

hahaha, well said !

Then you could have a class with no tax at all. Of course the class would be taught by Coca-Cola corporation, and the subject would be the extensive health benefits of carbonated beverages for everyone. But people would be too busy protecting their families and properties from roaming gangs of marauders, to make the journey to class across the muddy tracks with toll booths every 100m.

Government is a necessity. Therefore tax is a necessity. The argument is - do we get it all from PAYE, company taxes and taxing the interest on peoples bank account savings, or should we look at taxing property value gains and/or land use to remove some burden from PAYE, and help balance the economy to make it more productive and stable.

Frankly your comment adds nothing at all to the discussion.

Taxing property gains is Ok however if the owner sells for less than what the property was purchased for then the Govt should pay the owner the amount lost. That's fairness.

Rather than worrying about taxing everything and sundry how about making the country more productive.
Example being stop paying out money to people who have no intention of doing anything apart from collecting benefits.
Let's stop paying out money for people to have children when they can't afford them and want the country to provide for them!
No we couldn't do that because it makes too much sense and we can't stop people from having a choice can we?
No, we would rather tax people who own property because they have worked harder than what the people who haven't done anything constructive since they left school.
There are just so many jealous spiteful people on here that complain just because they can about things they have little knowledge about!

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Seriously, I love how easy you make it for us to rebut your crazy comments.

"Rather than worrying about taxing everything and sundry how about making the country more productive."
- Isn't that the very point of redesigning the tax system? To move capital allocation away from non productive property assets?

"Example being stop paying out money to people who have no intention of doing anything apart from collecting benefits."
- Landlords would hate this, as your rents would decline.

"Let's stop paying out money for people to have children when they can't afford them and want the country to provide for them!"
- I actually wholeheartedly agree. Again, you landlords wouldn't like that, though.

"No, we would rather tax people who own property because they have worked harder than what the people who haven't done anything constructive since they left school."
- Nope, we'd rather tax people equitably. Landlords have had preferential tax treatment for long enough.

"There are just so many jealous spiteful people on here that complain just because they can about things they have little knowledge about!"
- Equitable taxation is the method by which to eliminate the jealousy you speak of.

@nymad I am not a residential property investor , but if you stopped or discouraged all residential property investment , who is going to house the 73.000 new migrants arriving here every 365 days?

Thats 1,000 new people EVERY FIVE DAYS !

The Government is unable to house even the poorest handful of people sleeping in cars , and has a 4,000 waiting list for HNZ , how on earth will they provide houses for 73,000 more people every year?

Its just plain sums and it does not even begin to add up .

Discouraging property investment and cutting immigration levels are not mutually exclusive. We just have a government who refuses to do either. A rational government would have immigration levels below that of the build rate of new housing and would promote intensification. No one said anything about stopping it either, just making it less lucrative and morally bankrupt.

"Who is going to house the 73.000 new migrants arriving here every 365 days?"
Certainly not developers - a lack of capital gains tax doesn't incentivise development. It incentivises trading of existing property.

So, who will house these people? Ahh, the same people who do it now...If you are a true landlord, the tax changes mean nothing. Effective yields won't change for you. They will increase for renters, however.

If you fail to see that the tax revisions aren't designed to disincentivise residential property investment on the basis of financial fundamentals, you have no case in commenting.
It's a zero sum game - sure, the tax regulations may change, but what it will do is move property investment away from capital gains (speculative) investment to investment based on period yield.

More renters will become home owners if prices are brought down. That's one thing.

There's also the factor of empty houses, and the point that rents have not increased anywhere near in line with house prices (in Auckland). Clearly there's much more demand for investment property than there is for a place to simply live.

But obviously, the government is running immigration terribly and most people see to realise a slowdown is required. The government's blatantly failing to keep up with health and education, for one...another massive shortfall just being highlighted right now.

In the realm of "competent management of immigration" the government could also heavily change the residency points balance to invite more migrants who are happy to live in the regions, rather than Auckland.

What evidence do you have that it's investors building lots of houses to meet this demand, rather than buying existing houses?

It's beautifully simple really. Don't apply Capital Gains Tax to new developments and new housing stock (because in real terms they aren't a Capital Gain anyway) and only apply Capital Gains to the sale of existing houses beyond that of the home you live in.

Simply put;
No CGT on building and selling of new houses
No CGT on selling the home you live in
Only CGT on those who have actually accrued Capital. Just like the tax that is paid on every other form of income, interest income, dividend income, share trading etc etc

Either you have no taxes at all and abandon the idea of civic collaboration for the good of society, or you tax everything equally and fairly. Having numerous properties or land, because you intend to harvest their increased value, is trading. Trading is taxed.

Please someone, anyone give me a reason why housing should be exempt from the same tax treatment as everything else. NOTE my question is not is tax evil or not evil, are people jealous or not jealous, my question is simply, there are taxes, should not all incomes be taxed fairly?

You really dont have a clue what a Capital Gains tax is or how its levied , do you ?

If you are a developer you already pay Tax on profits , its called income tax , and you render the GST you have collected on sales .

gingerninja, CGT is not the answer... too many loopholes, too many 'outs' (Just put each of your 5 kids/mates in 5 spec homes and bingo..exempt...a simplification but get the picture?).

The TOP imputed income charge is the solution.

Rather than worrying about taxing everything and sundry how about making the country more productive.

Disincentivising people from investing in property would be a good start. Hence the ideas of land tax and CGTs.

Example being stop paying out money to people who have no intention of doing anything apart from collecting benefits.

Good call. The accommodation supplement should be phased out so private landlords stop getting nearly $2 billion a year in taxpayer funded handouts.

No, we would rather tax people who own property because they have worked harder than what the people who haven't done anything constructive since they left school. There are just so many jealous spiteful people on here that complain just because they can about things they have little knowledge about!

Unemployed parasite who gets wealthy off the hard work of his tenants says he works hard. The irony is astounding. Also, landlord complains about people complaining with apparent little knowledge, yet doesn't put forth any knowledge himself. Hypocritical.

Nothing can be done until the taxation system is overhauled. I believe that income tax is a relic of the past and with its myriad of deductions and exceptions has created a monster unproductive industry designed to exploit those deductions and exceptions. If we look at the premise that everybody should contribute to the running of their country then it is failing dramatically. The extreme is the large international companies exploiting those loopholes but it happens at every level of society. Unfortunately the tax burden falls mainly on the wage and salary earners. With fewer and fewer people being wage and salary earners, with many now being required to be independent contractors, a new system of tax collection must be looked at. In a world where we are now told that cash is to be replaced with electronic transactions then the system I would like to see, based on Prof Tobin's FTT of 1% of the 1970s, would be a gradual replacement of the whole existing taxation based system in its entirety with an FTT one. It would attach to all Bank electronic and cash deposits, with the word ‘Bank’ being widely defined. It would be collected by the Banks and paid directly to Government. So, imagine, each time you paid someone then that amount would recorded in their bank statement as such and then the statement would show an amount of tax deducted and paid to Government. Now look at that from the very real picture of your and every persons grocery shopping at say Pak & Save. The amount collected by P & S each and every day is huge and would attract, even at a tax rate of 1%, a large revenue for Government. Then look at that nationwide. Businesses would not be affected because remember they are now not paying any form of taxation and even if they tried to recover that revenue and increased prices it would be futile and not matter anyway because people would have more money in their pockets and any increase in prices would attract more tax revenue. An FTT is not difficult and is a simple and elegant system of taxation. The aim is to clean up the existing structure. There would be no income tax, no deductions and no GST, (which hurts the lower income people) only an FTT.
The politics of how to spend the money comes later. I believe we have to clean up the system first so that everybody contributes to the running of the country.
My politics then come into play because I believe that we could then consider the actual percentage rate for the FTT in order to seriously consider a UBI which would not only help our grandchildren but everybody who is being affected by the technological changes that are being foisted on us. I believe it should be on the same lines of the existing super payments. We could also have a world class hospital system, a world class education system etcetera. I would also impose a progressive tax on all income over $250,000.00 and reintroduce the inheritance tax but that would be for the purpose of reducing inequality not revenue. This country could, to paraphrase America, be great again!

So that is my suggestion. While no doubt there would be ways to avoid it, eg transfer within organisations I think that could be easily countered with either legislation or different methods of accounting.

Hello you only need three taxes.

Land tax, export tax and inflation. Depending on your view of money creation you have a land tax the purpose of which is to drive the value of the land towards zero. You have an export tax on goods that physically leave New Zealand as these are only extractive and you use debt free money created by the government to make up the shortfall between tax spent and tax taken.

You have a UBI linked to the total money supply so as the money supply increases the UBI keeps it purchasing power.

You have no income tax no business tax and no GST on goods or services sold in New Zealand.

You provide an education system and health system and basic services such as roads.

All other services are user pays.

You drive land value towards zero so the true cost and true value is found the business based on the land can be seen and an old rotten house will be valued as an old rotten house.

An export tax so any extractive industry will pay so no water leaving with out paying the actual cost to the country and no milk powder either.

And inflation is a tax as old as debt if you have a UBI linked to money supply then only those with accumulated wealth would pay tax.

This is a very simple system to use so there would be a very small IRD and no WINZ or most other government departments.

Just think of the business or worker opportunities that would come with no need to keep track of income for tax purposes no paper no thought of the tax man.

What people can't get passed is the idea of creating money without cost but you can create money you can't create wealth out of nothing and inflation is an near immediate tax so if the people vote a government that wants to build a great monument like a massive road network they would just create the money and build it unfortunately it's cost would come straight from their wealth but that is better than today where we put the debt on our children's shoulders with out their permission.

We can solve almost any problem we just need to change our thinking.

Oldie but goodie:
Taxation is like plucking a goose.
One wants the Most Feathers with the Least Hissing.....

Nymad, Rick etc. you think you have all the ideas to improve NZ!
I am sure you are well read and know all the answers to right all the wrongs of the world.
You need to run for parliament and then we will all be far better off.
Personally believe you would be a damn sight better off if you stopped worrying about what others are doing and concentrate on your own life and efforts.
I can guarantee you that the way you are currently operating is not going to put you into a better financial position as the "chips on your shoulders" are not productive but clearly shows jealousy and vindictiveness.

We live in a democracy which unfortunately means that one mans ignorance is as valuable as another mans knowledge, and if you think of the most average person you know and realise that half are more silly than that, it explains why we're in this conundrum. Not to mention... "the stupid are cocksure while the intelligent are full of doubt." I've noticed the loudest people are usually the least aware. Talkback radio caseinpoint.

We are here discussing this because it is important that the average man understands how to fix these problems. Because we are in a democracy. If I were a politician I'd imagine you'd actually listen to me less.

No need to go after folks who present opposing arguments. Nothing to do with jealousy or vindictiveness.

I'm pretty well off, and paid likely quite a bit more than most Kiwis, in a job I enjoy that also provides me flexibility. We also own more than one piece of real estate. And our careers enable us to move internationally should we wish to.

But it's not all about me. It's also about younger Kiwis and giving them a fair chance, much like previous generations were by their forebears before them.

I simply don't see the justification in taking affordable housing that was created through the efforts of previous generations and their policies, government builds and the like, and changing it all to be about unearned lottery tickets for those who benefited from these - at the expense of young Kiwis. I don't see anything good about this at all.

And if the older generation wants to live at the expense of the younger generation, then I wholeheartedly advocate for the younger generation realising this and deciding to vote for policies that will rebalance things instead.

The younger generation are doing very well and many already have a far higher standard of living than what their parents had at the same age.....

How many who post on here have built a house recently? This is where you get to see where the costs really sit.....Go buy the section and see the hideous costs that have ben incurred due to the regulatory regime. Then employ an architect to design and get your plans past the building comptroller in the long pants at your local Council......then make sure that you have complied with all rules from Regional Councils etc and that you have any Resourse Consents that may be needed........then get your builder to start your project......and believe me they are not making massive fortunes......but have massive responsibiity and compliance issues to deal with across many areas.......there's a paper war that goes on behind the scenes that only those in the business actually know about..........

House prices would reduce on average by a minimum of 1/3 the total price if the regulatory regime was removed.......and that will have far more affect on lowering prices than any tax ever invented........so think about how that would affect all house prices especially in areas where there has been a huge controls over allowing land to be built on........

Well I am trying the costs are ridiculous and architects are now firmly struck off my Christmas card list. I totally agree with all of the above and halt immigration (which of course will not happen).

RickStrauss, I'd like to give younger Kiwis a fair chance but I haven't seen much potential in them lately. I'm pretty sure if Zachary Smith took his soap box down to Albert Park to address the throngs of students there he would be booed and heckled, called a Fascist and worse and driven off, lucky to not be beaten up. I'd try to make them see that the Establishment, the Universities and the churches are all 100% on their side and that's actually the problem. Young people today are not anti-establishment or rebellious in any way, they are rabidly pro-establishment!

If all the academics disagree with you, then chances are you're not one of the academics and you probably shouldn't be on the podium. You should be in the audience.

Your comment perfectly illustrates the point I am making which is the unquestioning acceptance of academics and the establishment. Yet we have examples of theories being rejected at first and then later being generally accepted. Wegener's theory of continental drift for example.

I've actually - believe it or not - seen a fellow soapboxing at Albert Park. Just got a few sideways looks and many of the Asian uni students chose a different path to walk through the park, for safety...from the looks of their expressions.

But that much aside...

Universities are now being run as businesses, to the concern of both academics and students. Companies training of out of school (back in the "In my day I never went to university! I went straight out of school into a job!" days) has now been outsourced onto universities and the costs onto students, while companies demand a minimum of a Bachelor's degree.

Young people are actually getting more concerned than perhaps many realise. Here are some examples of millenial reflections on their lot:

A generation who can't buy property due to the greed of their parents.

A generation who carry the long term burden of large debt just to get an entry level job for some of the lowest wages in the OECD.

A generation for whom the impending sadness and frustration of knowing no matter how hard they work, will not have the same quality of life as their selfish parents.

A generation that continues to commit suicide at one of the highest rates in the world.

A generation who has to live with the constant criticism of not only the older generation who have robbed their futures but also the fake online lives of their peers.

A generation living a bleak, depressing, wageslave existence to serve the most selfish, indulgent and manipulative generation there has ever been.

Even had a boomer on here recently saying "You know the tax rate my father's generation had to pay to give us those things, right? 66%! We don't want to pay that to pass on the same." But meanwhile, young people are expected to work hard and pay income taxes so that pensions can be given to old, landed gentry who have no need for them.

I do agree with you that there's an element of Aldous Huxley-like distraction with media and baubles etc. which needs to be counteracted at some point...perhaps when people get desperate enough.

I'm pretty sure holding no hope for the younger generation is something common to every generation...but never know, this time may be different. They were raised by boomers, after all.

I'm reminded sometimes that there was a span of five years between an ideolog taking power in Germany until things really hit the fan. If we keep pushing viability of life down for those at the bottom at the same time as importing more and more people to populate that servant class, what's our society going to look like in the future? What unrest might their be?

Lastly, a more humourous millenial reflection:

I'd never considered eating smashed avo until I heard it was what was keeping me from buying a home. If it tastes like the future I'm missing, it would have been pretty bland anyway.

"I can guarantee you that the way you are currently operating is not going to put you into a better financial position as the "chips on your shoulders" are not productive but clearly shows jealousy and vindictiveness."

Really?
It's not productive to advocate for increasing the productivity of New Zealand?
Interesting perspective.

Vindictive?
It's vindictive to propose that everyone must play by the same rules, now?
I'm not advocating revenge or undue punishment. I'm advocating that regardless of your income or assets, you are taxed equitably.

Are you sure you aren't the one with a chip on their shoulders?
"Nymad, Rick etc. you think you have all the ideas to improve NZ!
I am sure you are well read and know all the answers to right all the wrongs of the world."
That sounds like it is a facade for jealousy and resentfulness, to me.

Why on Earth do you come to the comment thread on a website like this and ask people to stop sharing their opinions?

MFD! If the above was aimed at me, I have not asked people to stop sharing their opinion.

You just get sick and tired of people on here wanting to tax property owners with more tax just because they can't afford to buy a house in Auckland.
Nothing at all to do with property investors as it is the speculators and overseas people that have inflated the price.

Every landlord deserves every cent of capital gain they get.
Why should they provide housing to people and lose money each and every week.

Landlords do much more work like maintenance themselves that needs compensation doesn't it?

Until the recent round of restrictions, investors accounted for about a third of all mortgage lending in NZ, and you think they had nothing to do with house prices increasing? Are you blind or deliberately ignoring the data?

http://www.rbnz.govt.nz/statistics/c31

The country doesn't owe you a living because of the investment path you have chosen, do you honestly think that house prices rising faster than incomes is either sustainable or beneficial to the country as a whole?

I am absolutely in favour of a land tax if it's balanced with a requisite reduction in income tax. Anyone who is a top bracket PAYE earner pays through the eyeballs in tax already, and sees very little benefit for it (especially in Auckland, where you'd argue we're going backwards..). These sorts of decisions should be far far easier to implement than they are - if a system is fairer and incentivizes development, which lobby is National appeasing by doing nothing?

Still seems like we focus too much on personal tax though, while millions (billions?) flows out through the dishonest business accounting practices of multinational corporates. Where is the outrage for that and how come we can't unify to address it? Australia's ATO is seriously pursuing these companies now, and the numbers are staggering..

If a CGT will be introduced then all other taxes should be reduced to compensate. That should keep everyone happy?
I think I'd be happy with ,say a 5% tax on everything across the board. Rather then the 33% tax on income and no CGT that we have now. Otherwise leave it as it is

Yes that is the general idea. Raise tax through CGT or Land Tax and reduce PAYE and company tax.

No, it will not keep everyone happy. Those heavily invested in the status quo, who stand to pay a lot more tax (on large gains, or land banking) will fight this tooth and nail.. And they have a lot of sway in society, which is why we do not have such taxes at the moment. No matter if it is fair or not.

One can have a long term and short term capital gain tax and is must to curb speculation but why will our politicians act as they themselves are involved. Conflict of interest and no leader to rise above self interest for NZ.

Why do we tax income at all? Isn't there something almost feudal about having to put aside a portion of each year's harvest for the lord of the manor? It also encourages people that go to great lengths to hide their earnings. Better in my mind to tax those things we want to be discouraging. So tax waste, pollution, anti competitive behaviour, landbanking, land degradation etc. No one will genuinely miss those things if they are reduced, and a financial incentive is introduced to minimise them.

A Capital Gains Tax is an insidious form of taxation that discourages Capital formation , saving, investment and risk taking .

Its advocated mostly by losers who have nothing , own little or nothing , have zero ambition and who are likely to be bumbling their way through life, going nowhere.

They are likely to be well balanced people with a chip on both shoulders and expect the nanny State to wipe their backsides for them.

Is this aimed directly at those quoted in the article as supporting a capital gains tax?

“Are there lessons from overseas tax systems for New Zealand? Yes, in the form of a comprehensive capital gains tax (CGT). This would apply without the need to determine a person’s intent. Its introduction should broaden the tax base to meet future health and superannuation demands and help address growing wealth inequality.”

- Tax consultant Terry Baucher

“Enter Rogernomics and the low flat-tax broad base solution of the late 1980s. However, a comprehensive view of income was not achieved because the capital gains part of the package did not eventuate.”

- Auckland University Retirement Policy and Research Centre’s Susan St John.

I'm actually quite ambivalent about capital gains tax myself due to the risk of taxing inflation and the ease of avoiding it, I'd much prefer to see wealth taxes and/or land taxes.

All of which you can say about income tax.

Difference is, income is usually quite clearly earned.

A land tax should only apply to non residents and make it a hefty one.. It is difficult enough to pay the rates let alone a land tax and most of the elderly and FHBs with large mortgages will find it impossible. A capital gains tax is not fair to everyone who has worked hard their whole lives and gone without so they can pass something on to their children, might as well consume vast amount of smashed avocado on toast.