Are you scared of talking about your desire to implement a Capital Gains Tax? This simple trick devised by one of our top economists will do wonders for your campaign. Start our free 37-day trial today

Have you got a tax policy you’d like to talk about but are scared because it sounds so scary to the voting public?

Does your current stance on this tax leave you open to attacks from opponents who are using your ‘next term we might do something’ stance to scaremonger the electorate?

Is that policy a Capital Gains Tax? And you want one to even the playing field?

Well there is no need to worry any more. A new revolutionary trick based on evidence revealed only months ago, will mean that by the end of our 37-day free trial, the electorate will be eating out of your hand.

You just need to follow three simple steps, designed by our experts specifically for you.

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Step 2: Ring Otago University and Motu economist Andrew Coleman.

Step 3: Ask him about his idea for levelling the playing field between property and other forms of savings without having to impose a Capital Gains Tax.

Coleman’s idea is revolutionary.

It’s simple. In 1989 New Zealand changed its tax settings so that ‘other’ forms of savings – like KiwiSaver when it was invented – were taxed differently from property.

Before the change, income was exempt from tax when earned but saved, exempt when it accumulated and earned interest and dividends, then only taxed when it was withdrawn.

That was changed to income being taxed before it was saved, those savings being taxed when they earned interest and dividends, but not taxed when withdrawn.

Can you see the difference? It was a tax experiment that went HORRIBLY WRONG. It encouraged investment in housing because property was taxed less. This meant we built bigger houses than we needed, and didn’t put nearly enough money away in other forms of savings to properly fund our productive economy.

Until now, people have argued that we need to level the playing field by taxing property more. But Dr Coleman has come up with a revolutionary suggestion for getting around all that nasty Capital Gains Tax talk you’ve been fearing for so long.

Tax sanctioned savings schemes LESS.

I know. It sounds so simple. So why not try it yourself with our free, 37-day trial?

You just need to pick up the phone.

Ring Otago University and Motu economist Andrew Coleman.

And ask him about his idea for levelling the playing field between property and other forms of savings without having to impose a Capital Gains Tax.

You won’t believe the results.

But you better get in fast. It’s first-come-first-served and you need to get in ahead of that Steven Joyce, who could box you into a corner if he decides to take the idea on himself.

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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67 Comments

Something both left and right can be happy with!

Really? Ask The Left, Right and Centre if they have Investment properties before you think they'll be happy with any changes!

haha fair point

Oh come on, stop trotting out that old drivel.They also have savings, super funds (yeah I know very generous ones at that) etc

So only tax income earnt through hard work, not income naturally accrued by being rich? Sounds like a great idea!
I'd prefer to see income earned without working having a higher tax rate, not lower.

Or a variation as used in UK pension schemes:

1. Income untaxed if invested in recognised scheme.
2. Dividends and interest taxed within the scheme.
3. Up to 1M Pounds tax free when withdrawn.

Also in UK there are ISAs where there is an annual allowance to invest and earn interest or dividends and capital gain tax free.

There are many ways a Government could make property a less attractive investment but there seems to be too many vested interests here. Remember, on top of the alternative investments\ incentives above the UK also has a stamp duty on property purchases.

BUT UK still has far too much buy-to-let.
Just tax property on the basis of notional income (say based on 6% gross return )
If you leave empty or infrequent occupation, tough.
If you are invested in a high return location, you keep the surplus tax free.

Agreed, but these sort of schemes are harder to administer if you want to exempt the "family home".

My point was that as far as making property an attractive investment, vis a vis other options, NZ is very much an outlier internationally. Is it any wonder that we have an affordability crisis?

Perhaps, but in a descending intererst rate/yield environment the notional income needs to move also.

Tom Joad,

I know the pensions regime has changed greatly since I left in 2003,but are you sure that dividends are now taxed within a scheme. That wasn't the case when I was there. Payments to a scheme were tax deductible,schemes were untaxed,while income in retirement was taxed. A certain amount could be taken as tax-free capital,dependent on the type of scheme;final salary or personal pension.

Tom Joad,

I know the pensions regime has changed greatly since I left in 2003,but are you sure that dividends are now taxed within a scheme. That wasn't the case when I was there. Payments to a scheme were tax deductible,schemes were untaxed,while income in retirement was taxed. A certain amount could be taken as tax-free capital,dependent on the type of scheme;final salary or personal pension.

The current system will put evermore properties into the hands of ever fewer persons. Eventually it will be such a political hot potato that laws must be enacted to re balance home ownerships. The alternative will be immense social instability.

I agree, eventually a party will be elected with a mandate to tax property investors out of existence. Or there will be a revolution and they will be shot, not sure which will happen first...

Preach my man preach! So this, with bells on, I give it 5-10 years before a govt wins an election with a strategy to tax the leeches.

Even the Conservative Government in the UK has their eye on them https://www.spectator.co.uk/2016/02/buy-to-let-investing-just-became-a-v... - they're the party for buy-to-letters, much like National here. When even they recognize there's a problem and have made minor changes to the law, you know the winds are a changing.

And a bit more on the surprise UK election result - Generation Rent out and voting http://www.citymetric.com/politics/power-generation-rent-was-felt-first-...

I recall the change as had started investing in Mutual Funds in the years earlier due to the income tax free status of contributions. Incentives matter!

Typo in headline

Thanks.

Hindsight - always 20/20. The 1989 change came in the midst of the fallout from 1987 - so the Rahm Emanuel quip applied " 'you never want a serious crisis to go to waste"...https://www.youtube.com/watch?v=1yeA_kHHLow

The issue now is getting there from here, amidst an election characterised by bird-bath-deep analysis, fraud and cross-Tasman shtick, and personality politics.

Labour are being blinded by its tax and spend left-wing ideology forgetting about the mechanics and complexity of how introduction of a major shift in tax policy works .

The dont seem to realize that a major shift in Tax Policy such as introducing CGT has a big lead - in time , it could take anything up to 2 years or more , by which time they could be out of office again .

Firstly it needs to get through Parliament , and you can be sure Winston Peters who represents my generation of baby boomers will not have a bar of it . We need our nest eggs to pay for increased medical expenses , cost of living increases , replace the 20 year old car when it falls apart , buy new Spectacles and visits to the dentist , and have dinner out once in a while, which the NZ Super is insufficient to cover .

Secondly , you need to allow people to get their affairs in order because such penalty taxation and a new tax framework cannot just be thrown at the population .

Then , you need to allow people sufficient time to have their assets fairly valued at current market rates , the original purchase price or the median market value .

It all takes time and luckily we have elections every so often to ensure we dont get screwed over by stupid ideological nonsense coming from communistic - leaning former academics - cum - dictators masquerading as politicians.

"We need our nest eggs to pay for increased medical expenses , cost of living increases , replace the 20 year old car when it falls apart , buy new Spectacles and visits to the dentist , and have dinner out once in a while, which the NZ Super is insufficient to cover ."

Yip - the entitlement generation. Used to the system working to prop up their lifestyle / communist-style hand outs.

Not just that but they want all of these necessities while denying the youth access to them. Pensioners should always have the same standard of living as the youth of the nation. As it stands there need to be cut backs for those 65 and older for parity.

I'd rather we improve the standard of living for the youth of the nation to the same level as the pensioners to be honest.

@ham n eggs , if you destroy , frighten or water -down the capital the Boomers have saved , you will have a real crisis , because you will have to pay for everything for the ageing population .

Secondly , our capital provides 2 important things ............ capital for productive entities on the NZX and housing rental stock .

Destroy these, and you will have to house everyone, and our Companies on the NZX will have to pack up and relocate to the ASX where the Capital markets and sources of capital for expansion are way stronger

Actually if we don't apply the principles of "communism" as you said we don't have to provide anything for the elderly. Instead they can experience the free market.

Your comments don't match the sentiment at the NZX AGM. The NZX looks weak right now. People are investing too much money in housing and not enough in the markets. People could buy bonds or shares in actual productive companies, rather than pay too much for rotting boxes.

How does me buying shares off someone else help? It is no different to me buying a house. If I invest in IPO's or if I lend to businesses, I can see how it helps. Just trading shares doesn't do anything

And does your house employ people and pay salaries?

LOL - don't frighten the boomers - things might go boom.

We don't want your capital in rentals, we want to buy a house to live in, the house that you've outbid us for as you have equity in another house. The houses that you've helped drive the prices up so they are unaffordable to people who do productive work - like the nurses that you'll need, the teachers that you, your children and your grandchildren rely on. The doctors, the cleaners, the bin collectors

We want the same housing opportunities as you had, a place to buy and call home that is within our reach, that we're not competing with property speculators and overseas buyers for. I don't want 10 houses, I want 1 home.

@Solidname ........Unfortunately , you DO need capital for housing , it was Helen Clarke who encouraged the market to supply housing rental stock , she even got people to build and lease on 10 year leases to HNZ .

You see , the Government simply does not have the resources to house everyone at close to zero rental return , so they actually want private capital to do this .

The other issue you overlook is , with all the will in the world a person who is currently homeless and unemployed with no skills on welfare simply does not stand a chance of owning a home in their lifetime , unless they are prepared to make some life-changing decisions

Actually, NZ has a long history of successful government participation in fostering the supply of affordable housing. That's one factor in why you own a home today.

The way it is setup now, youth will be paying for this anyway, no difference.

Also the capital isnt productive, in fact its looking like a substantial % if not most of it is parasitic and rentier in nature ie detrimental to the economy.

Also as some ppl have said there is no value in the NZX its either been gutted of value or is over-priced (or even worse, both).

In terms of rental stock, if houses were down around where they should be ie 3 to 1 ratio there would be far more house owners than renters so it all balances out (for the better).

You aren't going to get close to the 3 to one ratio. To build a house even if you got the land for free will cost more. If you got the house for free then the land price would be more. A drastic reduction in the cost of building a new house is what is needed to make them affordable. Many houses including the land were selling below replacement cost for just the house. This means that housing will be expensive until the cost of building is addressed.

Once the Labour Party have screwed down the baby-boomers the government will be left with the bill to pay for nursing home care. I know how they can do that - increase taxes.

I think that Colemans assertion that Labours Tax changes in 1989 is the cause of our preference for property is wrong.
AND.. the way he used the extreme example of the 2 cars to manipulate and validate his point of view... feels a little sickening to me... ( I feel like hes' playing me, like I'm an idiot )
The vast majority of people probably did not not even know about those tax changes.. I didn't,

What have been big influences for me, in regards to having a preference for property :
( I'm 55 , so my preferences have been shaped by the events of the mid 1970s' onwards )

1/ High inflation resulting in a generation of NZers learning that investing savings in term deposits is a quick
way to poverty. ( I witnessed farmers selling their farms to retire, thinking they could live off the interest earned by investing their money in Bank deposits... After 5 yrs , most of them were working again, to make ends meet )

2/ Muldoon doing away with compulsory superannuation , incentivised a generation of NZers' to actively
invest their savings , for retirement years. ( 8% of income... I was in it and had figured, as a teenager, that this would cover me in my retirement yrs... )

3/ The 1987 sharemarket crash traumatised a whole generation NZers' into staying away from the
sharemarket.. ( up till the 1987 crash there was a very high level of participation by the public ).. I played the game... and lost all my super money that I withdrew to play the mkt.. I've never owned a share since ( thou I still have my Robt Jones share certificates, in case I run out of toilet paper).

4/ There is a tax disincentive to invest in interest earning financial assets. ( This is because nominal income is taxed and not "real" income ie. Money depreciates )

I think Colemans argument is weak, ...which is not to say I'm against a Capital gains tax, just Colemans point of view.

I do not agree the changes then certainly boosted NZ's inequality and its never recovered/improved.

The thing that makes me stop and go WTF on this idea is in effect you make it even better for those with capital which are really the older generation(s) to pay less tax while earners (PAYE) still pay the rump of tax? The idea is actually to tax those not paying ANY or little tax not give yet more options for those with capital.

Get real ......... Capital is something you have to save and accumulate , it involves forgoing consumption and a whole lot of sacrifice .

Least we forget , the savings of today are the capital of tomorrow , and a modern economy cannot function without access to Capital for production and expansion

That's an interesting thought Boatman as there are a number of businesses that need capital. However for most of the modern economy people are starting businesses with very little money. One person on a forum asked advice for a business start up, he only needed about $5k to get started. I started my business with only $15k, and the capital value of assets is very low with respect to book value.

Most businesses that are technical or service based don't necessarily need much capital at all.

Fair enough , but look at how much Capital is raised by the likes of Fonterra , Spark , Air New Zealand or Fletcher Group . Much of it is raised domestically from us oldies who invest in these companies

It's true they are capital intensive and the capital is needed. You shouldn't underestimate how much the working age population invests. It's still small relative to housing. Also Kiwisaver is also being put into the market (although apparently only about 8% of Kiwisaver balances).

Don't forget that today's young workers save at a higher rate than the oldies ever did. Although part of that is because they are in debt due to student loans and not just Kiwisaver. It's a different world.

Nowdays most Capital Formation comes from credit growth, and not from real saving..( ie. deferred consumption )
M3 money was $85 billion in 1985 ...In 2017 it is over $300 billion..
We live in the world of ..... "monopoly Money "..

Unfortunately the opportunity to access that level of capital is lesser for folk today due to the distortions created through bad policy and an ideological pulling-back from participation in the fostering of affordable housing. In the process, much capital has been accumulated essentially unearned and untaxed.

Capital is something you have to save and accumulate , it involves forgoing consumption and a whole lot of sacrifice

Capital is not always that product of saving and forgoing consumption. At other times - such as the last few years - it's completely unearned, so taxing the gain on houses wouldn't be taxing your savings.

The problem we have is that capital is NOT providing for production and expansion because it's all currently being diverted into houses because of distorting tax treatment.

I doubt taxing capital will stop people saving, just like taxing income doesn't stop people working.

Um no....

If you put 1million into houses in 1997 today it would be worth 2.6million or more with no effort, no real saving or forgoing consumption involved. On top of that cashing out means you dodge 1.6million plus of tax investing in a business would have seen you liable for.

Of course I was not talking leverage here either. If you used that 1 million as a 20% deposit you could have borrowed 4million on that which on the same 2.6x would be worth 13.6million today. As a landlord your tenants would have paid most of that off for you plus you would have got an income.

Sorry but I do not accept that you should not have been/be taxed on that 1.26million windfall.

most of that gain is not a windfall... Monetary inflation in that same period would have been compounding at a similar rate.
Houses are a better store of value than most things... Having said that art and collectibles have been increasing at a faster rate.
Maybe part the problem is that wages have not kept up with the rate of Monetary inflation..??
trinkets and gadgets might be cheaper, as well as "factory food'... hard assets are much more expensive relative to av. incomes.
Taxing wont solve this... ( thou it will transfer wealth )
thats my view..

The irony is that allowing recessions and deflationary periods to run their course would help keep things in balance...BUT... the "system" won't allow that , so we have a never ending growth in money supply.... and asset prices... with a relentless movement to zero interest rates.. as each cycle unfolds.. ( this will be the pattern for as long as there is no CPI inflation )

Actually you are incorrect, the biggest % of the gain (in the right location) is actually windfall over the life of the mortgage AND you have to look at the NET gain. ie If you had put it in a deposit account I think you would have seen a huge difference in capital gain and have to pay tax at 30% (ish).

Example at 3% inflation per year and with $173K in 1997 would be 303k today a gain of $130k when my house is actually worth in GV $460k (so more than that probably at sale). So a 156k gain tax free no effort involved. That 130k in the deposit account would have been net after tax loss of 30% off the top of that.

I think if you looked at Auckland the gains would have been even more substantial. ie a 4 bedroom house today in a good suburb would fetch way above $500k and all tax free.

Taxing un-taxed asset gains will solve this. Just look at the incentive Ive shown not to invest in a productive asset like a manufacturing business. On top of that if you are borrowing on a house you get a low interest rate try getting that rate to invest in a business, more like twice the interest cost if you can get one.

"Transfer wealth", yes that is the idea, to reduce in-equality and increase fairness. As a PAYE I pay top tax rate, if I'd become a landlord I'd probably be paying almost none.

No I dont agree on the irony of allowing recessions because the negative effects is are disproportionately dumped on the poor and not the rich. This is because the wealthy can move their wealth in and out of asset classes. the poor only have one asset, their capability to work and if no one wants a worker they are screwed.

In fact economically its advantageous to the wealthy to over-heat the economy and then collapse it rather than set it to a small but constant growth rate of say 2~3%.

We have an ever increasing money supply because if we dont the result would be a second Great Depression and the effects of that dont bear contemplating.

bear in mind Peak oil has not bitten us yet mind you....

Clueless article. The property game turned in 1992 due to the Resource Management Act making it tough to increase supply. From that point on Property has been a no brainer and gone up and up.

Also... the deregulation of the Finance/banking sector has played a HUGE role since the 1980s'.
Allowing Capital flows from offshore ( floating the $NZ and removing Reserve Bank controls ) has played a big part.
since the early 1990s' Globalization and Global Capital flows has had an increasing influence.

Throw in the RMA ... and that tax change in 1989 seems kinda insignificant in comparison.

but isn't the problem between capital / investment been taxed and paye tax?. This would be great for people who can afford to save alot , but there is the whole sector of society who own no property and have no savings. And we are not talking 5 -10 % of the population, i think it would be closer to 30-40 %.
The whole idea of a capital gains tax is to reduce the burden on income tax , is it not?

yes, hence consider voting TOP.

There's some interesting policies there, some of which resonate with me, but I couldn't vote for Gareth Morgan, I find him a bit like Warren Buffet - "please tax me more, I own 6 houses, this is how I avoid x,y,z taxes". If he really means what he says he should sell up his property portfolio, stop avoiding his taxes and just pay the damn things. Actions speak louder and all that.

TOP needs to show some income tax vs asset tax examples. At the moment it feels like they wouldn't reduce income tax at the highest level

Especially because it is locked in, there is a good case to make Kiwisaver entirely taxfree. Yes it would decrease the tax base. As an employer I see I make a contribution to each individuals own contribution, and my contribution is taxed. Horror. As a Kiwisaver member I see my scheme taxed on a monthly basis. More horror. And any contribution I make myself is post income tax.
Why do that to a scheme which provides both capital to the nation, and will provide well for individuals and eventually give us the opportunity to deal with the beast of National Superannuation.

Love the cartoon. Funiest thing I have seen in days.

If tax was such a panacea then why are countries like Australia, Canada, Sweden, UK etc etc had such an uncontrollable boom? It is because there are so many rules and regulations that hinder building more. If you can build lots of houses prices will come down or steady.

Let's see some kiwi ingenuity - no more resource / building consent needed.

The median house price in Texas is US $169,000 + NZ$241, which is explained by Yankees working for peanuts and building materials free - yeah right, plus the local authorities keep their snouts out the trough with no value rules and zoning. I listened to a recent RNZ talk on NZ considering special trading areas where regulations are relaxed or abolished as a way to improve growth & productivity which is an admission that regulations and bureaucrats are the main impediment to growth and productivity so the answer is to create a special trading area called then whole of NZ slash & burn regulation and interference from bureaucrats and watch the economy fly. Won't happen of course, but vote for Jacinderella and watch NZ follow Venezuela to poverty.

Venezuela, stalinism, communists, reds under the bed!

Let's all yell buzzwords.

Must be fans of Trump.

And why not? Both sides have said the same thing over and over and over again. Doing this and expecting a different result is insanity. All we are left with now is buzzwords, pejorative attacks e.g. kill the Nimbys, and a few ad hominem efforts. It's devolved to the level of a collegial food fight.

Are they saying we should only tax income earnt through hard work, not income accrued by being rich?

It does seem every time Labour increases tax or introduces a new tax to, in their words, reduce inequality the people look for ways around it and seek out new investment opportunities which results in higher inequality.

The 39% income tax increase of 2002 resulted in many people investing in rental properties and what do you know they ended up doing very well.

I went without for 27 years paying into the Government Super scheme. (this was for government servants only). We had to pay in 6% of our earnings. It hurt to pay that out when I was starting out. The deal was the employer (the government) was supposed to pay in double your contributions. Trouble was they never did. Then eventually we were all made redundant and it was financially impossible to stay in the scheme. So we got our own money back with a low interest. No sign of the promised employers contribution. How can anyone trust a government to deliver on promises made 40 or even 60 years before. Property is the only investment that can be trusted to deliver to either yourself or your estate. It can be used along the way as well. Tax and such forth is just a smoke screen.

GSF - here's the history;

http://www.gsfa.govt.nz/about-us/

It explains, This shortfall was caused primarily by previous governments deciding not to make employer contributions to the Fund during the term of contributors’ government service.

Do you know which "previous governments" they are referring to?

Asset classes you can invest in: Cash (term deposits), bonds, property, shares.
All return income by way of interest, dividends or rent.
All of these income returns are taxed equally.
Capital gains made in any of the asset classes above are taxed if you are deemed to be trading. The only difference being that recently there has been a bright line test applied to property (of two years), meaning that you are deemed to be a trader if you sell an investment property within two years. This makes the tax laws on property more strict than the other asset classes.

Exactly how is property taxed less than the other asset classes?

Why do people invest in property as opposed to shares?
1. People with money (mostly baby boomers) still haven't got over the 1987 crash. Next there was the finance company crash, that people mistakenly equate to the sharemarket.
2. Leverage. You can amplify your returns by borrowing for a house. Banks don't typically lend money for you to buy shares unless you are borrowing against a house anyway.
3. Offsetting losses against personal income, thereby reducing your PERSONAL income tax. Ring-fencing would solve this.
4. Lack of education. This follows from point 1, but people actually think that property has outperformed the sharemarket, which is incorrect.
5. Lack of education. People think that property investment is safer than the sharemarket.
6. Lack of education. People think that all companies on the sharemarket are equally risky.