Why a capital gains tax is inevitable

Opinion: Why National's failure to attack Labour's capital gains tax policy in Parliament means we'll have one eventually

3rd Aug 11, 11:34am by John Pagani

By John Pagani*

John Armstrong notes National is struggling to find flaws in Labour's capital gains tax:

Yesterday was thus the first opportunity in Parliament for National to pick holes in Labour's tax package. It didn't happen - despite National having had plenty of time to analyse it and find fresh fault.

Here's why National's failure to attack yesterday matters: It is proof the policy is a net winner for Labour.

National has heavily polled and focus-grouped it by now - if the idea were a loser they would have been all over it. Instead they're trying hard to ignore it.

The National line is to call it 'big spending'. But it's a tax switch. If they want to call it a big bad new tax and grab, then they have to distinguish it from their own GST increase. They can't - that was about paying down debt and switching from income tax (even if income tax cuts were weighted to the top).

Bill English claims the problem with Labour's capital gains tax is that there are 'holes' in it that undermine its comprehensiveness. The trouble with his line is that the biggest hole in the tax system is the absence of a capital gains tax. It's like putting a large mesh net in the water and complaining that small fish can still swim through.

National's refusal to attack yesterday is a watershed moment in New Zealand politics that means we will one day have a capital gains tax.

Now we know that the tax is no longer toxic. Expert reception emphasised that some form of capital gains tax is part of a coherent and efficient tax system.

How long do you think a Finance Minister can keep at bay pressure for a tax change that is not unpopular and is needed to make the tax system work properly? Not long.

Sooner or later, a capital gains tax is coming. As of yesterday, we can be sure of that.

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*John Pagani is an independent political consultant and writer who has worked as an adviser to Labour Leader Phil Goff. He writes his own blog at Posterous.

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19 Comments

by steven | 3rd Aug 11, 11:49am 1312328990

Yep....plus of course at some stage taxes have to rise, simple.

Gareth's big tax plan lays it out well. We are mis-allocating capital and its costing us badly. Most other countries have a CGT so all we are doing is becoming the norm and ensuring all income is taxed...oh shock horror the PIs may actually have to think and invest wisely instead of letting others do the work....end of parasites.....yep gets my thumbs up.

regards

by Elley | 3rd Aug 11, 12:17pm 1312330671

"plus of course at some stage taxes have to rise, simple." Why? If the govt needs more cash, why not simply cut expenses? Not essential services like health, infrastructure etc but "nice-to-have" schemes that it can't afford and encourage people to rely on welfare.

by stp | 3rd Aug 11, 12:39pm 1312331996

Elley, Nature does not like efficiency.....Only humans (some) love it.

by Chris-M | 3rd Aug 11, 2:22pm 1312338127

There was a time before the Roger Douglas thing when the company tax was 45%, you salary was limited by the Tax Dept and you had to pay out about 50% of your profit. The top personal tax rate was 65% and there was no imputation. It was a stupid situation, I agree. However we were a more egaliterian and plesant society free of many of the social problems that we now face. A small swing back from our low and loophole full tax system may be warranted.

Agree that a CGT is inevitable

by rc | 3rd Aug 11, 3:33pm 1312342386

No, we dont need a CGT. Its double dipping. It doesnt just apply to PI's, it also applies to SI's & BI's. Why do you think Warren Buffet's holding period is "forever".

Also, once we have it will be very hard to repeal. It is also open to manipulation to suit the Govt of the days election bribes. "Did we say fifteen percent, woops we meant fiftee".

by steven | 3rd Aug 11, 3:55pm 1312343742

Double dipping? how is a CGT on selling shares double dipping? or stopping taxing PIs selling houses for a tax free gain? or farmers?

Hard to repeal, yes but why the need to repeal? It measn a better balanced tax system.

regards

by rc | 3rd Aug 11, 4:10pm 1312344612

Shares are generally bought with tax paid income/savings. Tax is also paid on dividends of long term holdings. Why do they also have to tax the capital gains at the time of sale? (supposing there are capital gains)

Businesses are built up with tax paid retained earnings. Why should the Govt take a bit more on the sale of a company.

"Investors" are generally buying an asset for its income stream be it PI's, Si's or BO/I's, on which tax is paid.

CGT creates a better balanced system? I would argue the opposite.

by Chairman Moa | 3rd Aug 11, 12:30pm 1312331413

I am going for CGT simply because it will re-distribute the investment playing fields and more tax incomes. However, it will not lower the cost of home ownership as some politicians are trying to promote. Look at Australia, US and some countries in EU as example. Overtime, it will be built into the price as total cost.

But I bet the Govt will set up a new department to manage this CGT and all the revenues will be sucked up to run this new organisation...

by Alex13 | 3rd Aug 11, 1:20pm 1312334437

National don't need to attack Labour's CGT proposal: the more tax increase proposals Labour come up with, the longer they'll stay away from power!

by Kermit The Frog | 3rd Aug 11, 1:46pm 1312336017

Bernard why do you keep referring to John Pagani as "independent" ?

by SimonNZ | 3rd Aug 11, 3:39pm 1312342799

The 'experts' vacuous tittle-tattle about the pros and cons and subtleties of the CGT idea demonstrates how well the spin doctors have duped 99.9% of the population. Makes me think of distracting folks from a planned massacre, by debating the nuances of how and when everyone is going to die. So . . .

Lets skip the wordy haranguing and look at just two tough questions.

1) If one was to sell a property today, on the basis that it is ‘worth’ 10 times what it originally cost, could one buy ten similar properties with that alleged gain?

2) Has a CGT in other countries prevented what a NZ CGT is touted as being able to achieve? I.e. prevented any sort of ‘bubble’ boom in property prices?

Get it into your heads, folks: the dollar numbers (purchasing power) have changed, but the gain is illusion: just like the ten properties to be bought by selling one.

Yes, land and buildings have increased in price, relative to other commodities. The cost of new buildings now includes huge regulatory and compliance costs, driven by laws passed by the very numbskulls who want to re-tax the nasty costs (plus GST) which THEY HAVE CAUSED.

Much the same goes for land, with Councils making it almost prohibitive to subdivide land to provide more building sites at affordable prices.

Wakey, wakey. You’re being softened up to be suckered.

by steven | 3rd Aug 11, 3:58pm 1312343928

Its a profit, simple, it should be taxed.

regards

by rc | 3rd Aug 11, 4:35pm 1312346107

An asset that increases in value with inflation is a capital gain?

Also, should capital losses be tax deductable?

by Alex13 | 3rd Aug 11, 5:06pm 1312347983

"It's a profit..."

No, not all of it is anyway...

"...it should be taxed"

Why? Only because Labour think that they should have the right to steal even more of someone else's money?

by Wolly | 3rd Aug 11, 4:05pm 1312344359

Pagani and Armstrong...jeez there's some brain power there...if you add them both together!

Labour's idiotic CGT died that first weekend and is now being ignored by the govt...which really upsets the socialists as they are desperate for the foolish policy to get more 'air time'...hence Armstrong's blather.

Not content with blasting off both his feet, Goofy came out with some madness about a tax based compulsory savings....what next!

by goNZ | 3rd Aug 11, 4:27pm 1312345652

CGT = Communism by Stealth

And wots LabourGreens in Parliament doing right now ? wasting millions of dollars of debating time stopping a bill that allows Students to not be forced to join a extreme leftist Union

by goNZ | 3rd Aug 11, 4:27pm 1312345674

CGT = Communism by Stealth

And wots LabourGreens in Parliament doing right now ? wasting millions of dollars of debating time stopping a bill that allows Students to not be forced to join a extreme leftist Union

by SimonNZ | 3rd Aug 11, 4:56pm 1312347413

"Its a profit, simple, it should be taxed." steven says

Arrant BS!

100 dollars in the bank for a year.

Deposit interest rate (average): 3.8%

Before-tax interest earned = $3-80 (profit?)

Take off resident witholding tax @ 20% (tax on profit)

After-tax interest actually received = $3-04 (net proft)

12 months to the June 2011, NZ CPI 5.3%

Thus $105-30 needed to buy what $100 bought, a year ago.

That $100 in the bank, plus interest, minus 'profit' tax = $103.04

Try buying $105-30 of products with $103.04.

Simple Simonz's 'profit' (interest) is actually a loss, in terms

of the purchasing power of the dollars earned and taxed.

A loss driven by government-induced inflation, reducing

the purchasing power of saved paper dollars.

Same goes for alleged capital gains.

"A lie told often enough becomes the truth."

- Lenin

by Rob | 3rd Aug 11, 7:12pm 1312355543

If NZ lifted it's productivity, and NZ becomes richer we would have more money coming in from overseas, and could reduce our taxes. All these tax chages are simply rearranging the deck chairs on an unsustainable economy.