Terry Baucher argues any political party wanting a fairer, more productive New Zealand needs to address the issue of the taxation of capital

Is a capital gains tax ever possible?

Earlier this week Gareth Vaughan asked me whether a New Zealand political party could ever sell the idea of a capital gains tax (CGT) to the public and if so, how?  Always up for a challenge, I believe the answer is yes.

Firstly, a quick definition: we’re discussing a realisation-based CGT, i.e. the gains are determined when an asset is sold or otherwise disposed of. This is the “standard” CGT in use around the world. All assets would be revalued prior to implementation so any gains which have arisen prior to the start of a CGT would never be taxed.

To begin with, it’s vitally important to recognise the scale of the challenge. As Bernard Hickey pointed out, Jacinda Arden’s “Captain’s Call” was effectively a $520 billion gamble.

Viewed like this, Labour’s initial approach was a bit like Custer’s charge into the Little Big Horn, a bold cavalry raid relying on shock and awe to overwhelm the enemy before it can organise. Like Custer, Labour underestimated the scale of the opposition but unlike the hapless 7th Cavalry, managed to extract itself and is still in with a chance even if a bit battered by the experience. Jacinda Ardern and Grant Robertson will now appreciate that introducing a CGT will not be a swiftly won skirmish but full on trench warfare.

Into the breach

The arguments in favour of a CGT can be summarised as follows:

  • Raising taxes is not politically impossible;
  • We already tax a large number of capital gains;
  • Broadening the base of taxation to include capital gains is consistent with current policy settings;
  • Broadening the base would produce a fairer tax system and should enable tax rates to be lowered;
  • CGT would simplify the tax system; and
  • It could help address New Zealand’s poor productivity record.

Let the difficulties argue for themselves

In 1943, facing opposition to his proposal for floating harbours to be used in the D-Day landings, Winston Churchill growled “Don’t argue the matter. The difficulties will argue for themselves.” 

What’s remarkable about the CGT debate is that proponents of a CGT regularly fall into the trap of arguing the difficulties. Even when the Labour Party ran on introducing a CGT in 2011 and 2014 it started from a circumscribed position of exempting the family home. 

Opponents therefore didn’t even have to address the question of whether it was fair that someone owning a multimillion-dollar property and receiving non means-tested New Zealand Superannuation (hello Winston!), shouldn’t be taxed on any capital gains from the sale of their property.

Taking so much off the table without question just puts those advocating change on the defensive. Better to follow Nelson’s last signal at Trafalgar and “engage the enemy more closely”. It’s going to be trench warfare so don’t surrender ground willingly. 

The base line for a CGT should be to put everything, including the family home, up for debate. If a CGT was introduced my preference would be to give a generous exemption for the family home, maybe $250,000 per person as is the case in the United States. Remember gains arising prior to commencement will NOT be taxed.

“But the politics”

Recent history shows that parties can raise taxes and still win elections. In the last thirty years three New Zealand governments have either introduced or raised taxes and all were subsequently re-elected. David Lange’s Labour Government introduced GST, a completely new tax, in 1986. Helen Clark campaigned and won in 1999 with a promise to increase the top rate of income tax to 39%. Finally, in 2010, John Key’s National Government raised the rate of GST to 15%. All three governments were comfortably re-elected after their tax increases. Raising taxes or introducing a new tax is therefore not politically impossible.

There is no CGT in New Zealand, there are no sheep on our farms

New Zealand remains virtually unique among the OECD’s 35 nations in not having a CGT that is generally applicable regardless of intent. The principle behind taxing capital gains is not revolutionary.  As Inland Revenue advised then Minister of Revenue Todd McClay in February 2014:

“Increases in asset values, just like regular income, increase a person’s net wealth and ability to consume. A capital gain is income…

“There is no obvious reason why a person who derives $100,000 in interest income should be taxed differently to a person who derives $100,000 in capital gains.”

In fact, we already tax a LOT of capital transactions. There are presently over thirty provisions within the Income Tax Act which tax capital gains. These rules were described as “an incoherent mix of taxation based on accruals, realisation, and imputed return” in a paper prepared by Leonard Burman and David White for the 2010 Tax Working Group (“the TWG”).

Capital gains already taxable include the financial arrangements and foreign investment regimes, foreign superannuation scheme transfers and certain property transactions including the “bright-line” test introduced in 2015. 

Against this backdrop the CGT argument really should be framed as “why aren’t we taxing X or Y?” 

What’s in it for me? Broadening the base

Following the example of the introduction of GST in 1986 and its 20% rate increase in 2010, any CGT introduced should be promoted as a revenue-neutral measure and accompanied by compensatory income tax and/or GST reductions. Such a step would be entirely consistent with the “broad base, low rate” approach to tax policy both Labour and National have supported for the past 30 years. 

This is also the view of Treasury which in a September 2012 report stated;

“Treasury continues to see merit in a general capital gains tax or a land tax as possible revenue-raising reforms, and considers that a capital gains tax offers the best way of improving allocative efficiency by reducing economic distortions caused by gaps in the tax base.”

The debate on CGT has tended to paint its application as a loss for those affected. The better question is what is the opportunity cost of NOT taxing capital gains?

Inland Revenue advised the TWG in 2010 that a comprehensive CGT including the family home could raise $9 billion annually. That was more than the projected $8.3 billion corporate income tax take for the June 2010 year, or just under 25% of the combined GST and individual income tax take of $36.1 billion. If the family home was excluded, the projected CGT revenue was $4.5 billion, still a substantial sum. Excluding the family home would come at a cost which should be made clear.

Based on the available evidence (and unlike Australia, Canada, the UK and the US, Inland Revenue doesn’t release very detailed tax statistics), the evidence is that capital is under taxed especially relative to salary and wages. Furthermore, non-taxation of capital tends to favour the wealthy.

A joint Treasury/Inland Revenue report prepared for the TWG in 2009 examined the composition of taxpayers paying tax on capital gains in Australia and the United States.

In Australia, 1,148,440 taxpayers reported taxable gains for the year ended 30th June 2007. And 48.4% of all gains for the year was returned by the 90,202 taxpayers (7.8%) with taxable income in excess of $150,000. There were similar findings for US taxpayers.

The report concluded “If New Zealand is similar, this would suggest that omitting to tax capital gains is likely to favour the rich.”

A subsidy from the general taxpayer to property owners

A further issue arises not just in the potentially higher income tax rates for taxpayers in general but also through the ability for negatively geared investors to offset their losses against other income.  This offset often results in substantial tax refunds. For example, according to information supplied to me by Inland Revenue, the rental losses reported by the top three income deciles for the year ended 31st March 2016 totalled $339 million (about 60% of the total losses for the year). At 33% that represents about $112 million in tax. This is effectively a subsidy from the general taxpayer to property owners.

This leads on to the question whether it is fair that someone who may have enjoyed perhaps hundreds of thousands of dollars of tax refunds through negative gearing, also gets the capital gains on their investments tax free?  This is perhaps one of the biggest anomalies of the present system.  

According to Statistics New Zealand, the number of New Zealanders living in their own home has fallen from a peak of 73.8% in the March 1991 quarter to 63.2% in the December 2016 quarter.

Statistics New Zealand now estimates 33% of New Zealanders, over 1.5 million people, live in rental property. Increasingly, it seems the benefits of residential property are going to fewer people.  Does the present tax treatment of property effectively result in an unseen subsidy in the form of higher taxes paid by non-property owners? The trade-off proposed is that the revenue from a more comprehensive CGT could be used to lower income and/or GST rates for everyone. This is not being debated at the moment.

Complicated compared with what?

The Burman and White paper for the TWG acknowledged that a CGT would be "relatively challenging to administer" but then asked the question "compared to what?” Anyone arguing a CGT would be more complex than the financial arrangements and foreign investment fund regimes clearly hasn’t spent much time navigating these minefields of complexity. CGT should enable both regimes to be consigned to somewhere near the bottom of the Kermadec Trench.

For many transactions, a realisation-based CGT would be conceptually clearer than the current law and therefore more comprehensible to the layperson. This is particularly true of land transactions, where tax advice is often little more than a variation of ‘It depends’. The introduction of the ‘bright-line test’ in 2015 highlighted how unsustainable the existing approach to taxing land transactions based on intent at the time of purchase had become.

Critically, a CGT would also be more enforceable, as intent would no longer need to be determined. It would also be fairer: given the subjectivity of measuring ‘intent’, taxpayers in identical circumstances could currently finish up with differing tax bills. (What may be acceptable proof of intent to one Inland Revenue auditor may be insufficient for another.)

What productivity growth?

In any case how are the present rules really working out for us?  Ex-Reserve Bank economist Michael Reddell pointed out this week that New Zealand’s productivity has gone nowhere in the past five years, part of a near 70-year relative decline.

What part has the present tax rules played in that decline? The Burman and White paper for the TWG raised this issue, arguing:

“That is why geniuses who might otherwise do productive work have been drawn to financial engineering or into fields that can earn income in the form of capital gains rather than income. With such huge tax incentives, the investments that produce capital gains do not even have to be particularly productive. Thus, many resources invested in such underperforming assets may be wasted.

Eliminating that waste would be good for productivity. It would also bolster support for the income tax. A tax system riddled with loopholes, where billionaires can pay lower average tax rates than their secretaries, invites disrespect and undermines voluntary compliance.”

Apart from having a CGT, something else Australia, Canada, the UK and the US all have in common is superior productivity to New Zealand. This lends weight to Burman and White’s argument that the lack of a CGT may have resulted in lower productivity here. Maybe those opposed to CGT should answer that question when defending the present treatment.  (And Bill English, simply saying it’s not true about no productivity growth in the past five years doesn’t count).

If not a capital gains tax, what?

What might also emerge from a debate could be that CGT isn’t the answer, but maybe the alternative suggested by The Opportunities Party of a deemed rate of return on all productive assets would be worth pursuing. 

Ponder this: a one percent levy on the $1.38 trillion net financial wealth currently held by households would yield $13.8 billion a year. To put that in context the Government expects to collect an estimated $20.6 billion in GST, and $34.3 billion in income tax from individuals in the year to 30 June 2018.  A levy should provide a substantial amount for redistribution to cushion the cashflow impact of an asset tax.

A fairer, more comprehensible and productive tax system

Whether it’s through a CGT or an asset tax, taxing capital more comprehensively would achieve the goal of a broad-base, low rate tax system. It should be sold on this basis and introduced alongside a potentially quite substantial reduction/re-alignment of income tax and GST.

CGT is not without complexities but it would be far more comprehensible than the present “incoherent mix”. Eliminating the bias towards tax-free gains would mean a fairer tax system as Burman and White pointed out. It should also free up capital to be deployed more productively raising productivity and wages. That’s a lot of positives for those proposing change to deploy.

Any party wanting a fairer, more productive New Zealand, and as far as I can tell, that’s all of them, needs to address the issue of the taxation of capital. Because whatever we’re doing now isn’t working.


*Terry Baucher is an Auckland-based tax specialist and head of Baucher Consulting. You can contact him here »

(Parts of this article are reproduced with permission from Chapter Five of Tax and Fairness, a book by Terry Baucher and Deborah Russell).

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98 Comments

No. Electorate too thick (no assets but wants to get them; aka dreamers) or smart (has assets and doesn't want to pay tax; aka greedy).

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I have assets and pay tax on most gains, property isn't taxed, but if it was, it wouldn't bother me, I pay a lot of tax when I am making money. Either way I would still vote for NZF.

gonnya

CGT - For those that want to Buy and Sell in the same market, but lose 10% while doing so.

Taxes do not lower prices.

Taxes aren't supposed to lower prices, they are supposed to raise revenue to be applied for the common good. And as for the 10% loss? That only applies to any gain made. No gain? No tax.... Gain made? 90% goes to the vendor. (NB: That's better than the current tax on savings, which sees ~ 70% go back to the lucky saver!)

Actually no I dont think you are correct. Taxes are there or can legitimately be used to push a policy and can and do work as well as generate revenue.

Like tobacco taxes, we could make a property tax ten (that is 10 for the monkey brains) times the price of an asset and nobody would ever sell, effectively shutting all FHB's out of the market.

I agree skudiv.when I'm in Sydney in amazed at how little you see for sale signs on houses.only the people who are desperate to sell there investment homes put them on market.it leaves bugger all on market there for prices push upwards

"Taxes aren't supposed to lower prices, they are supposed to raise revenue to be applied for the common good."

I agree, but many of the opinions voiced here (and elsewhere), see it as a means to increase housing affordability - i.e. lower prices. It is clearly not.

And as for the 10% loss? That only applies to any gain made. No gain? No tax.... Gain made? 90% goes to the vendor.

Again, I agree. But having lived in Australia, I noted the following.

- Investors, buy then rent. They don't sell. So no CGT for them.

- First Home buyers have no CGT (But they get monstered by Stamp duty - something CGT people seem to like as it is another excellent revenue spinner)

- Foreign buyers are effectively the same as FHB but with more cash.

- End result is that people buying/selling in the same market (i.e. Mr and Mrs Average) get hit the hardest. They lose money between transactions - Granted it may only be 10% of the Gain, but that is still $10k, $20k.... less they have to buy the next one, and that can make all the difference (to their bid and/or their new mortgage)

So in terms of taxing equality (another big reason people seem to promote CGT), all you are really doing is again pinging the average working person.

Finally
If you want to target investors then tax second, third etc... houses. Alternatively, tax properties where the owner is not resident.
If you want to target Foreign buyers, then simply state that only citizens can buy residential property.
If you want to tax "free" money, then look at Gambling and lotto wins as well.
If you want to increase the tax take, then look at corporations, trusts, and other masters of "minimisation"
If you "need" to increase the tax take, then look at how effective/efficient your spending is first.

"If you "need" to increase the tax take, then look at how effective/efficient your spending is first."

Hallelujah! And isn't this the REAL problem with our amateursh governors? I for one am happy to pay tax (when evenly applied to all) but to see it frittered away on useless garbage and social engineering like it has been for my entire working life, motivates me to minimise, minimise, minimise my exposure at all cost.

To say "CGT is only 10% of the price" may well be true.
Bust most sellers sell still owing on the mortgage.
Thus if you sell, pay a 10% CGT, and still owe 50% of the value on mortgage, that tax is actually 20% of your money.

I think the key word is capital "gain" tax I think a CGT is only on the profit if you make one ( at 15% was the alst suggestion). If you dont make a profit, you pay no CGT.

yes they can as they remove the speculative component.

How?

We already tax share gains, and that doesn't seem to stop speculation.

In my experience it encourages speculators to adjust expectations and price accordingly.
- sell for more to factor in the tax and make the same profit, or
- Accept that you lose 10% of the profit. Heck $90k may be worse than $100k, but it is still miles better than Zero.

exactly, only profits are taxed, taxing profits doesn't stop people trying to make a profit, it is all a part of it.

No this isnt the point. If however you have a choice to invest in "a" and pay tax or "b" and pay no tax then assuming the return in both is the same it makes more sense to invest in "b".

No it introduces a level playing field so all gains should be taxed equally.

Zero chance now, after the Labour-Greens block failed to govern by themselves.

going into an at best stagnant housing market, why worry about a CGT, the time for that was 15 years ago. Now it's more likely a CT we will be looking at, hopefully it will be tax neutral.

By the same argument doing it now while it has no effect is the perfect timing.

Except that if you are unable to forecast any revenue from the introduction of such a tax because you are in a period of capital losses, then you can't implement the tax switch/tax neutral element of the initiative.

Which is why I think if you want to broaden the base and thereby provide relief to GST and/or PAYE taxpayers, the way to go is CCT or LVT.

And I'm with andrewj, it is more likely to come about as a result of necessity, as opposed to design.

Yes, CCT or LVT start delivering tax now rather than at some unknown future date. This allows the tax-neutral offsetting of income tax to be introduced immediately rather than phased in over time. A CGT would not be retrospective and if prices stagnated 20 years like Japan then it would raise no tax for 20 years.

I would prefer a CCT over LVT for two reasons:
- LVT unfairly taxes the young/FHBs e.g. in Auckland where more than 50% of the house value is in the land, you pay tax on the full value of the land whereas an equity tax would only tax 20% of the total value.
- CCT applies to all assets, not just property. The current tax rules still allow capital tax-free gains on NZ shares based on your intention (the same current rule as for property) so CCT would close this and any other loopholes too.

Agree. Certainly my preference is leaning towards a land value tax.

Think again steven. If you introduce it now while prices are falling you end up deferring tax losses for many years to come - possibly to such an extent a future government is left to deal with an unmanageable tax deficit problem - its called reaching out with the cold hand from the grave. As AJ says, the time was 15 years ago

No as with a CGT taxed at 15% and not 30% that is how losses are allowed for ie there is no defering of tax losses.

But, yes 15~20 years ago was the right time to do it I agree.

Yep , that is a political winner - just ask Gareth.

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Surely the essential question is what kind of society and infrastructure we want as a nation, and what part taxation has in funding this. The supportive foundations of our society as a whole and of our infrastructure are, without doubt, now under enormous strain. The general public good - a well functioning society - requires general public commitment to funding this.

Our current taxation system ensures a skewed or inequitable burden and is a tourniquet on essential public expenditure. This may suit some, but as we can see across numerous areas of government or public expenditure, the result is highly detrimental to the general national public good.

In another key issue, we import money rather than using our own, and so weaken our economy in consequent payments offshore, and also risk weakening our sovereignty in welcoming much of this foreign investment.

Exactly. How do we get the economy to serve us rather than being slaves to the economy?

Instead of the ideological goal of economic growth and "more money, more wealth", what if the goal was ensuring the well being of all citizens? If we were to ask what factors contribute to and nurture the well being of people and then design the economic policies to assist, would we be in a better place socially, environmentally and economically?

Meh, Auckland Council is borrowing and overspending building new infrastructure for its large scale sprawls. And it has cut off land supply to Auckland to induce ridiculously short term capital gains.

This planning means high capital gains, but few houses built. But implementing a CGT will see reduced capital gains and even fewer houses built. In the highly distorted Auckland market, a capital gains tax is anti-ethical to good social or environmental outcomes.

Basically:
- we have a housing shortage.
- a CGT will ensure less money is put into housing.
- CGT will worsen the housing shortage.

Over Fifty percent of the population are receiving more back than they pay in taxes, is this what you mean by inequitable burden?

No idea whether your stat is correct, but regardless, if the question had been asked of me, my answer would be yes.

PS and your comment relates to PAYE only I assume, not taking into account GST paid?

Then you've got to ask why? What are the underlying issues that have created this?

Of that alleged 50%, how many are "property investors" being subsidised for their investment?

How many of those are on the pension though. That's gotta be a big factor.

Agree.

Very much agree. I hear ppl saying they want [better] public services, but then time and time again vote for tax cuts and/or hammer Labour in the polls at any hint of a change in the tax system let alone an increase..

As a result a significant % of ppl in effect pay a very low rate of tax and the burden stays on the PAYE, I just do not fathom this.

Then yes, some seem to welcome foreign investment as it fattens their wallets upfront but leaves the losses or increased costs socialised. Them the same ppl seem to go on and on about self-responsibility, like huh?

then we can see TOP who wanted to change things get 2.2% in the election while in the previous election the fundie Conservatives got 4% FFS.

In a word its dis-functional.

I think TOP recognizes that one of the challenges of their platform is that it cannot be explained in a sound bite.

TOP overreached - and went all Steven Joyce with some of their arguments/evidence for a CCIT. The lack of knowledge underpinning much of the argument around tax is disturbing. We already have CGT in NZ - it is set up to fail. We already have property tax in NZ (including the family home) - it is egregiously regressive. We need a 'tax plus' review asap and nothing should be off the table.

I think the tide is turning, judging by the comments over 1100 comments on this article
http://www.stuff.co.nz/life-style/homed/community/97292379/the-reality-o...

When I read that article all I could think of was that the person will never get a return on those investments.

She admits to having bought unwisely in Auckland and then proceeded to over-capitalise on the rental property in the provincial town.

It's a poor article but the volume and sentiment of these comments is vastly different to a few months ago.

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Didn't read them but I can imagine. Point is however, that she is hardly representative of a 'good' speculator. 'Good' speculators buy dumps and leave them as dumps whilst collecting exorbitant rents (subsidised by you and me through the taxes we pay) and then selling them at a handsome tax free gain to someone like that person.

Exactly.

She is not a speculator.
She is an investor/landlord.

This person appears to have worked for it, so really its a bad example.

People work for jobs too but they have to pay tax

So if she sells it for say double what she paid for it, how would the free work she put in to the increase in value be used in the expense side of the ledger?

Her "free" work gets paid to her via the increased value that she added to the property. She will get that work paid to her tax free when she sells the property, unless a CGT is imposed. The CGT is very unlikely to apply too her unless she flips the property quickly, which does not accord with her comments about renting it out and finally reaching positive cash flow.

There would I assume be 2 components to the gain, the gain due to improvements and the gain from simply possession. Both would be taxed, so I cant quite see your point?

Neither introducing GST nor raising it were options put to the electorate: they were imposed without notice. I believe that is the only way to bring in CGT: introduce it without warning and let the electorate reject it 2 years later (if they still care or remember.) Worldwide, CGT usually excludes the family home and is set at the highest rate of income tax.

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introduce it without warning and let the electorate reject it 2 years later (if they still care or remember.)

Which is exactly what National did with their GST rise.

My policy is to only vote for a political Party that favours a CGT (or similar). This pushed me into the arms of the Greens at this election, since the only other option was Gareth Morgan, who is a bit foam-flecked-lipped for me.

It seems amazing that a CGT is such a minefield in NZ. In any other developed country it is taken for granted, even in the tax-loathing US.

Our economy will stay imbalanced until the perverse tax-friendly incentive to invest in property is resolved. I hope that Adern gets a bit of backbone on this before the next election. It's obvious that nothing can happen in this cycle, since Peters won't stand for it.

even in the tax-loathing US

Yes, and they also still have an inheritance tax too! And it not peanuts either;

https://en.wikipedia.org/wiki/Estate_tax_in_the_United_States

The exemption is seriously non trivial... a couple has approximately $10M USD estate tax exemption. Your link says that about one in 500 will pay any estate tax at all.

An interesting aspect to the arcane US tax laws is that unrealized capital gains become non taxable upon death (valuation gets stepped up to the value at the time of death).

CGT to make tax system fairer - yes 100% agree. CGT to lower house prices - no it doesn't and won't (if it did just double GST on building materials to make houses cheaper).

Negative gearing is just PAYE earners having the ability to do what common ownership companies do. Why should company owners (who will tend to be relatively richer) be advantaged over PAYE earners (who will tend to be relatively poorer)? What's to stop the PAYE earners, who can, changing their income from PAYE to company and doing the same thing? If ring fencing property investors income does that mean they will ringfence all companies also?

What's to stop the PAYE earners, who can, changing their income from PAYE to company and doing the same thing?

Jurisprudence.

http://www.radionz.co.nz/news/national/83369/supreme-court-upholds-ird-r...

That's a different issue.

From IRD "If a company's total expenses exceed its total income, it will generally have a loss for tax purposes. .. if certain requirements are met the company may be able to: transfer the loss to another company...". If one has a property investment company and say a contracting company why couldn't losses from one be transferred to another? On the IRD page example4 http://www.ird.govt.nz/how-to/taxrates-codes/losses-companies.html.

You said PAYE earners. Example 4 has nothing to do with PAYE - as Kate (in that example) might not even be employed in either of those two companies. I think I'm missing your point in terms of how it connects to PAYE earners.

Say I am currently a PAYE earner with a LTC owning a rental. LTC's are abolished so I can no longer claim property loss against PAYE income. So I stop being a PAYE earner and start a contracting company. I now have 2 companies one of which can claim losses against the other?

Yes, but if a company buys a property it has to count the gain made as income and pay tax on it. With a comprehensive CGT in place then an argument could be made for negative gearing.

If equality between individuals and companies is the goal then an argument could also be made for homeowners being able to deduct their interest from their tax bill (like the US) or the expenses of travelling to work (like Germany)

A CGT will never work unless the family home is included as well.
By applying a CGT to other investments you will immediately distort the system even further as people will pour money into their homes knowing that it's tax free.
This will deprive the market of investment capital, so how can this tax beneficial.
This Baucher fellow has been banging on about this for ages and just wants to get a name for himself - and has failed miserably to date.

As I read the article - he favoured inclusion of the family home - i.e., a comprehenisve CGT.

He does, and it should. Income is income is income. If I get a promotion at work and get a pay rise, guess what? I pay more tax ( and probably at a higher band!). Any improvement in life is a plus, and if it gets taxed, that how societies work - the better off subsidise the less well off. Like it or not, that's how it ( is supposed!) to work.

CGT on the family home would be suicide for any political party no matter whether Baucher wants it or not.

Why? We have always been big earners and big spenders as a family - so PAYE and GST are not our favoured taxes by any means, nor is paying tax on our savings. Would have been far happier with a reduction in PAYE and GST, alongside CGT on the family home at the time of sale, as it's a lump sum to be paid on a lump sum which has been earned for doing nothing anyway.

Why as in a logical why? it isnt there. It is a "f*** *** you are not taxing me any more I deserve every tax free cent I can get so I'l vote you into oblivion" reaction.

I mean GM put forward doing this with a 30%? reduction in PAYE to go with it and he got 2.2% of the vote. TOP's result should be enough to tell you why not. Why ppl are so stupid/self-centred is another Q.

You'll be interested in the statistical correlations that can be drawn regarding TOP voters;

http://vjmpublishing.nz/?p=4785

The correlation between voting TOP in 2017 and working as a professional was 0.64. The correlation between working as a professional and voting Greens in 2014 was 0.73, and this had collapsed to -0.10 by 2017, so it seems that the professional class almost wholesale shifted their loyalties from the Greens to TOP.

This is further underlined by the fact that there were moderately strong positive correlations between voting TOP in 2017 and having any university degree: 0.40 for having a Bachelor’s, 0.63 for having an Honours, 0.45 for having a Master’s and 0.58 for having a doctorate. These were all much more positive for TOP than for the Greens.

TOP appeals mainly to *NT* personality types, so is limiting its audience to about 10% of the population. These tend to be better educated academically.

Yes, until it isn't. All taxes are opposed at some stage of their implementation, and all political parties shun them for the reason you suggest. But societies and countries have to be run sympathetically. The alternative is for property owners to defend their own patches, individually, as there will be no police, no schools, no hospitals etc and every citizen will be ( as it used to be not that long ago!) - on their own.
If we want mutual protection; protection of property rights, we have to raise taxes, and at some stage 'the norm', a CGT will come in in New Zealand, and when it does, it should take the logical step that Baucher suggests - inclusivity. Failure to do so perpetuates the 'unfairness' of taxation.

The obvious problem I see with introducing a CGT at moment is that it may soon become a Capital Loss Rebate.

This depends on the implementation of the tax. Labour's 2014 version was on gains only with no losses allowed and to compensate for this, the rate was set lower at 15%. Not saying this is the solution but the devil is in the details.

Note that our current regime also only taxes gains. If you speculated on a property and sold within the 2 year bright line timeframe at a loss, you don't get a tax credit.

Okay, thanks.

Exactly, that 'but what about reimbursing me for capital losses' is a nullity in terms of the argument.

My comment's wildly off topic, Kate, but reimbursement for capital losses (even in terms of capital loss via reduced intangible value) is an idea firmly lobbied into the putative terms of the TPP by multinational corporate interests. Other local asset holders might be interested in the idea?

Very interesting - I sure hope the Nats respect the caretaker convention in that regard. If they sign us up meantime, it would be deplorable.

Full CGT is coming, all we are arguing about is when it will be introduced.

Labour seems to have to make all the clever, hard decisions so the timing will be when they have a govt.

I think CGT is far less likely in the foreseeable future compared to the state of play even a month ago. Labour had to back out of it ( tail between the legs .. ) due to the damage it was doing to them in the polls. They would actually be forced to take a full fledged proposal ( and not a vague statement of intent ) to the electorate next time round if they want to persist with it . That proposal will be picked apart , for better or for worse.

No, there isn't the political leadership on the issue. We've been asking the same question for a decade now, it's not happening. Dead. Stop wasting your time.

Remind me again ........... how many investment properties were owned by MP's by the last count ?

Was it not something like 300 ?

NZ does have capital gains tax if Inland Revenue thinks that capital gains was the intention. Property investors who are negatively geared obviously expect capital gains so should already come under inland revenues scrutiny.
Landlords who are not negatively geared pay tax on their profit.

If you remove too much incentive for people to be landlords then we are back to the state having to provide the rental property. The state built rental suburbs like Otara and then decided to get out of the business and gave tax breaks to landlords to encourage private enterprise to provide the rental housing.

The government recognized that the taxpayer was getting a bad deal with the state providing the rental property and it also created slum suburbs of low socioeconomic people concentrated together.
The government has since removed some of the tax breaks that were put in place to encourage private landlords for example you used to be able to claim depreciation on your rental property.

It is interesting to note that since that tax break was removed the government is being forced back into building rental accommodation with its new 'special housing areas' These special housing areas are likely to become the new Otara's.

As for this artical saying that we would simply get our properties valued and the capital gains would be from that day forward who pays for that? it can cost thousands of dollars to get a rural property valued.

"If you remove too much incentive for people to be landlords ( they will desert the market)" - Only if the entry price is a discouragement. Landlords will flock into the market if the price of stock is ( say) 50% of what it is today. It becomes that cash-flow positive from Day One that you mention. It's not the business of property rental that's at issue, it's the tax subsidy that is ( as you mention also above - the reason the State left etc).
Private landlords have been in existence since the year Dot, and always will be. They will adapt to whatever regime is in existence. Change the regime, and landlords will change accordingly.
It's CHANGE that is frightening, not the facts.

Of course there have always been SOME landlords, it is just idiotic now. Numbers of landlords and rented houses needs drastic pruning.
And the government needs to go back to being the provider of social housing, this business of the public purse topping up private rentals has become utterly repugnant, especially if it happens that the private rental is owned by a foreigner.

or a MP

the state stopped building otara's decades ago, they changed to building in one of two streets in a subdivision to "add flavor" diversification which become very very unpopular, eg conifer grove
one of the motives of encouraging private rentals was to spread even more, but now we are back to the otara's with whole areas full of rentals with one or two OO mixed in

Totally agree sharetrader. We have done a full circle with the state being expected to be the landlord again.

The recent burst of property investors will melt away quite quickly with some sorry tales as negative gearing doesn't seem very exciting if the market is stable or dropping like the current Auckland market.

Negative gearing is subsidizing your tenants rent if your not making a capital gain. I would rather have a holiday or a flash car.

If Winston gets to cut back on the immigration flow to 10,000 people, the property market will take a hit and the recent landlords will be ditching just like after the GFC. No one likes losing money and the banks don't like supporting a failing investment either.

After the GFC and the drop in property values the banks foreclosed on lots of property investors even if they were up to date with mortgages. The banks don't like negative equity.

We already have a CGT on every single house in NZ.
Its called "Rates" and it pays for a huge amount of social services for home owners AND people who don't own homes.
This is a TAX on home owners.
We already have CGT

Does the 'blue' part mean in the sense of being a National voter?

Rates are NOT a CGT. They are a mix of taxes, based on differing combinations of Capital Tax (using CV or LV), Uniform Annual General Charge (UAGC) Targeted Rates, and Unit/Volume Charges. The combination and levels of these taxes is a decision of the rating authority - i.e. Council. The one tax that they are NOT is a CGT. They are also, as I stated earlier, egregiously regressive. That being said, they give the lie to the claims by some (e.g. TOP) that we have no property tax in NZ. Indeed, OECD rankings, based on property tax as % of GDP, put New Zealand just above the OECD average. Again, as I said earlier - there is a frightening level of ignorance in NZ on the topic of taxation. I'd love to see an editorial that outlined the shared 'ground' that any fruitful discussion/argument requires, because as long as arguments are based on (wilful?) ignorance, we are unlikely to make progress.

True for Auckland, but I was told that some Councils e.g. Kapiti base rates on the quantum of property values as opposed to using relative CVs as a means to reapportion rates between various properties.

I don't know if that's correct, but if it is it's still not a capital gains tax.

Kapiti uses a variety of rating tools - scroll down to the bottom of this link below.

U = universal change (same/fixed charge per property)
L = charge based on land value
C = charge based on capital value (i.e., land + improvements)

They are unusual in using land value, as opposed to capital value as the basis of their General Rate. I think there are perhaps only 2-4 councils left in NZ that use land value.

http://eservices.kapiticoast.govt.nz/properties/11927

Yes, willful ignorance. That's why I asked about political affiliation.

My view is that not all the ignorance is wilful - but when the political party proudly proclaiming itself evidence-based starts going all Steven Joyce and making statements that are demonstrably untrue, the challenge of addressing the (wilful and non-wilful) ignorance gets so much harder. As a young (58) ideallist, I want the fourth estate to step up and get all Reithian - and do some educating and informing rather than entertaining and opining. If all goes well, I'll be paying more taxes sooner rather than later.

"For example, according to information supplied to me by Inland Revenue, the rental losses reported by the top three income deciles for the year ended 31st March 2016 totalled $339 million (about 60% of the total losses for the year). At 33% that represents about $112 million in tax. This is effectively a subsidy from the general taxpayer to property owners."
It is unclear if this statement means the top three income deciles lose money or some of the people in them do but another section of them pay tax. I know many long term property investors who pay tax on their rental profits. It is also unclear if these figures (and arguments) refer only to residential rentals or include other types too (e.g. commercial).
I see a lot of money going into improving luxury homes (my bet is that in Auckland at least, this exceeds the amount spent in improving or creating rental properties). If CGT excludes owner occupied then there will be less incentive to improve rental properties. I for one would divert my money into my own property (generally I spend less on it than on my rentals).
Finally, how can you calculate the value of the property the day that CGT is implemented. The Rateable Value (or Capital Value by another name) is very crude and does not account for any improvements made to the property over the years unless captured in building permits (that typically understate value). Such calculation would have a bevy of valuers employed on a one-off exercise. How would you account for any improvements made over the life of the property (e.g. installing heat pumps, insulation and the like) that are capitalized rather than expensed. These are just some of the difficulties (all deference to Winston Churchill) the author of the article would have us ignore. So we would create an army of accountants to take these factors into account. How would this improve our supposed poor productivity?

I agree roadster, creating more work for accountants and valuers is not productivity. every job in the country that doesn't produce a product is a beneficiary of our productive work force.

Hi Roadster, thanks for your comment. Here is the full Inland Revenue data I received

Income decile 1, rental profit $36 million, rental loss $72 million
Income decile 2, rental profit $37 million, rental loss $17 million
Income decile 3, rental profit $29 million, rental loss $12 million
Income decile 4, rental profit $42 million, rental loss $14 million
Income decile 5, rental profit $94 million, rental loss $25 million
Income decile 6, rental profit $125 million, rental loss $36 million
Income decile 7, rental profit $133 million, rental loss $46 million
Income decile 8, rental profit $158 million, rental loss $64 million
Income decile 9, rental profit $217 million, rental loss $91 million
Income decile 10, rental profit $544 million, rental loss $184 million

These details are for all individuals who returned rental income during the year. They therefore probably include some commercial rental. My arguments remain valid regardless of whether it's commercial or residential.

As for the difficulties of valuation, IMO that's a secondary issue of implementation not of first principles. It's also not proved insurmountable in other CGT jurisdictions. The overseas experience with CGT tends to get glossed over. The debate should focus on the principles of taxing capital either through a CGT or an annual asset tax. As for productivity, the debate there is about the deployment of capital, in which context a one-off cost of valuation would be insignificant.

Thanks again for the comments, keep them coming!

Is this really about about fairness? Why should certain investments be included for a CGT but the increasing monetary value of benefits derived through consumption not be? For example - If I were to spend my post-tax disposable income on a fishing holiday my mental health may improve. This presumably could be valued and that value may increase over time. Furthermore, improved mental health would presumably pay dividends of sorts - perhaps increased earning ability etc. Fairness would demand that everything is taxed equally. What proponents of broadening CGTs are really trying to do is favour consumption over investment and consumers over investors. This is probably not healthy for any economy. Unless one believes countries and individuals can consume their way to success.