Green Party ups crusade for capital gains tax, points to Treasury/IRD figures showing millionaires benefit most from status quo

Green Party ups crusade for capital gains tax, points to Treasury/IRD figures showing millionaires benefit most from status quo

The Green Party's crusade for a capital gains tax is gathering momentum as Labour positions itself to copy its 2003 policy for taxing capital gains made on assets other than the family home.

Greens co-leader Russel Norman today put out a release saying millionaires were the biggest beneficiaries from the current tax system, and that the vast majority of New Zealanders would not be affected by such a tax.

Labour is due to announce an economic package on Thursday next week, with the centerpiece tipped to be a capital gains tax.

See Russel Norman's comments below:

Millionaires are the biggest beneficiaries from of the lack of tax on capital gains while the vast majority of New Zealanders would be completely untouched by such a tax, Green Party Co-leader Dr Russel Norman said today.

“Research produced by the Treasury and Inland Revenue shows that those on very high incomes gain disproportionately from the lack of a capital gains tax,” said Dr Norman.

“In the USA, those earning $1 million or more derived 40 percent of their income from capital gains. The figure was similar in Australia, with those earning $1 million or more deriving 30 percent of their income from capital gains. Those on average incomes gain negligible income from capital gains.

“Treasury and Inland Revenue therefore conclude that a tax on capital gains (excluding the family home) in New Zealand would fall mostly on those on very high incomes thereby increasing the progressivity of the tax system.

“It’s Treasury’s way of saying that a capital gains tax is incredibly fair.”

The joint paper published by Treasury and the Inland Revenue Department used data from the United States and Australia to draw conclusions about the likely equity implications for a capital gains tax here. They found that a capital gains tax (excluding the family home) would increase the integrity of our tax system while raising an additional $4.5 billion in government revenues over time.

“The research highlights the fact that the bulk of interest and wage income was earned by those on lower incomes. This income is fully taxed,” said Dr Norman.

“The largest proportion of capital gains is earned by those at the upper end of the income spectrum. This income currently remains untaxed.

“This tax loop-hole for those that can afford to own multiple properties needs to be closed.

“By defending the status quo, John Key is arguing those earning more than $1 million a year shouldn’t have to pay tax on 40 percent of their income while those on the average wage should pay tax on all their income.

“By refusing to implement a tax on capital gains, John Key is not protecting the interests of wage and salary earners.

“A capital gains tax is a fair, progressive tax — one that treats every dollar earned the same.”

Link to the Treasury & Inland Revenue’s background paper on capital gains tax:

http://www.victoria.ac.nz/sacl/cagtr/twg/Publications/3-taxation-of-capital-gains-ird_treasury.pdf

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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37 Comments

Before you get too carried away Russell how many and/or what percentage of Kiwis earn in excess of $ 1m per annum ????

Lets be clear, the CGT achieves more than an actual tax on capital gain, a) it actually stops exessive risk/debt taking, it means there is no point in dodging yearly tax with a tax free payout in the future aka farmers or PIs, b) it also means that any and all income is taxed as a level playing field, so there is no point in picking an investment purely on the grounds of dodging tax....which is how it should be.

Now if it was an extra tax to allow Labour to spend, spend spend, I wouldnt be too hot on it....but anything that ensures that the NZer standing next to me gets taxed at the same rate as I do for the same amount of work / effort is fair IMHO, plus it removes the incentive of investing purely for capital gain and not income which should mean more job creation....so heaven forbid I might actually vote Labour for the first time ever in 20+ years....frightening thought.

regards

 "if it was an extra tax to allow Labour to spend, spend spend, I wouldnt be too hot on it"....give us a break steven...you know bloodywell Labour would move their fat rear end as fast as possible to buy the following election....and the one after that...

You are leaping to conclusions as to what creates real employment or doesn't!

A Socialist inspired CGT would likely result in people not going for the capital gain as you envisage but....what if the resulting decline in job creation brought greater dole and lower govt tax revenue costs...have you thought of that?

You assume investment is picked on the chance of making a non taxed gain...that is in an unknown % of investment...example: you buy copper shares in OZ on the ASX....you collect divs and pay tax...after two years you opt to sell because you want to re invest the potential capital gain into a NZ company or set up a NZ business...BUT the socialists have slapped you with a 33% plus tax on the capital gain if you sell....so you say "stuff the buggers" I'll leave it in Aus until a new govt in NZ changes the bloody laws. get the picture Steven!

And imagine if the cgt was applied each year even if you didn't sell......

And what would happen if the market crapped itself again and the stupid govt was landed with tens of billions in tax losses waiting to be applied when profits returned....think about those apples.

Labour haven't a friggin clue what their 'moneytree' might lead to....and you think it's good policy...oh bleeding dear.

Correct me if I am wrong on this but Russel Norman used to own couple of investment properties in Dunedin????

Or he got out when he realised it wasnt a good idea?  I fail to see why ppl cant learn and change their minds....

regards

and so?

regards

It's called hypocrite! Oh and I forgot he's a politician!

Oh rubbish....its known as growing up and realising what you are doing isnt the best thing and changing it....

regards

So what?

Even better if he still owns them and yet still advocates as he is, as others with portfolio property are doing. Perhaps such people are not as mean-spirited and self-interested as many others seem to be in this small section of the population - 200,000 people, only, wasn't it?

OK Russel Norman , lets map out the topography here ..... your " Greens " are no longer a party dedicated to the environment ...... right ?

....... " Greens " now means a multi-issue party to the left of Labour , to the very very left of Labour .

So you're not really " Greens " are you ....... you're " Reds " ...... super  " Reds " in fact !

..... thus , the environment can go to buggery , because you're hooked upon control of the populence , micro-managing the individuals' lives , as per Labour ?

 

Rod Donald would be spinning in his grave , Russel , you are pathetic .... piss off back to Australia , you dopey pissant loser ! .... Donald stood for something . He brought some grudging admiration to the " Greens " ...

.... You Russel , you just want to make us puke ! ... and please  take that uber Marxist Sue Bradford with you ........ . If it wasn't for the providence of the capitalist system , you histrionic left of lefties would be in the gutter ...

.... [ study some history , you wank , Marx sponged off his rich relatives , and he played the stockmarket to raise funds , when they got fed up with him leeching off them  ........ yup , extraordinarily  ironic that ! ]

.....

The greens can see the writing on the wall, the world changing and NZ needs to be sustainable if we want to survive into the future. That requires investment in the green economy. Treasury recomended CGT so if anything  Norman is at least following professionmal advice. Successful countries have a capital gains tax we have expensive houses and stuff all local owned companies. Probably wont be long till Russels gone, 3 decient contenders for his job, and you are a perfect example of the centiment that people have about him. Also they arent as red as you think, at there conference the other day they changed the footing on working with the Nats to very from extremely unlikely and John Key signaled he would work wityh them after last election. Sue Bradford was kicked out because she was the super left old way. Locke is also going in the shift away from lunacy. There will come a day when the green caucus doesnt make people vomit, i doubt the same could ever be said about labour or national.

The " Greens " are giving environmentalism a bad name ...... Decent hard working scientists & conservationalists are tarred with the same brush as clowns like Norman / Locke / & Bradford .

...... the greens movement was never about anti-smacking , nor about taxes of envy targeted at the " rich pricks " , nor even about mercury-filled squiggly light-bulbs ......

Rod Donald had a bigger vision ........

..... under Russel , the current sickly crop of " Greens " have one agenda .... to ingratiate themselves to Labour , to garner some of the baubles of office .

They're a bunch of hypocritic sell-outs !

I seriously doubt that will happen because the only way to force political accountability is to do it visibly. Until such time comes people will have the choice to vote for more lies , spin & the same failed ploys. Don't think that necessity will change Nz politics for the better via a green card. This is naive in the extreme. If you want change you have to make it happen.

GBH you are full of it....,  The Greens have never been a single issue party, and never claimed to be....what they are is a party that has many views built around Green and Social issues and also freedom....funny that but the typical green can be quite libertarian in their views....

regards

 

Steven if you can't see what the greens game plan is under Norman then you simply have not done your research on him. I said the other day the Greens were hijacked because they are a weak easy target for scum like Norman & Bradford etc. They know suckers will vote green out of guilt, they play on simple minds. I'm for the environment but im not an idiot

Wow GBH you're on the roll, :o)

I actually care about the environment ...... as did Rod Donald ....

.... but Russel Norman is a pathetic toady , snuggling up to David Cunliffe ....

And Cunny , me old sparring partner Cunny , has a grand plan , a new design to re-model NZ-Inc ..... but you gotta await details , when he is good & ready to drip-feed them to you ......

....... when Labour have achieved greater than 50 % of the populence on some welfare junket , only then will they be satisfied .... that they have bribed the voters into supporting them inperpetuity ( Helen & Michael's utopia ! )

. and Russel Norman  ; he's  a sad incompetent  hypocrite ! ..A great disservice to the authentic " greens " movement

 Amazing some people – it must be a gummy bone – what do you think Roger - as a hysterical historian  - living obviously among these people – occasionally ?

 

http://videosift.com/video/Tribe-Meets-White-Man-for-the-First-Time

 

It's all a big experiment in natural selection (or unnatural selection).  Normally with a population of animals the weaker would sadly die, or at least not reproduce.  Those nature programs are brutal. 

Obviously we can't allow this to happen to humans- we aren't animals so we need to support those that are less fortunate.  We don't want mothers with babies begging in the streets like you see in other countries.  But unfortunately the consequences of rewarding people financially for having more children, and taking from the stronger or hard working or more intelligent to prop up the weaker or lazier or less intelligent has the unintended (and totally forseeable) consequences. It weakens the whole population.  In an animal population it could bring the whole tribe down, and if the experiment carries on here it will do the same to us. 

As a rule (I'm generalising here!) better off, more intelligent and educated people have less children, and generations are further apart than lower socioeco people. Follow those 2 lines of people a generation or two and you can see the problem.  Soon you have (as GBH) says more than 50% of the population of the populace on a welfare junket and then Labour can't help but win every time. At that point the country is stuffed and passed the point of no return.

A tribe of monkeys sent all the strong clever monkeys out to gather food and provided unlimited food and protection to the weak and old and sick. The weak and sick were able to breed and the strong monkeys kept collecting food to feed them and their babies.  The babies were sickly too and hung around their parents and soon there were grandchildren.  The strong monkeys were having trouble collecting enough food now and couldn't stop working long enough to have their own babies.  Sad story- eventually they all starved.

Whether there is CGT or not is not the point.  If we do that extra tax will soon be swallowed up.  You can't keep increasing taxes forever.  You need to decrease the expense side side of the equation rather than increase the income side.  If we want to financially incentivise people to behave in a certain way then incentivise them in a way that will help solve the problem.  More money for more kids is not a good idea. 

I am sick of the media portraying rich people as not paying their share. If you look at what they pay as a % of their income the percentage is higher than the poor pay.  (The poorest don't pay anything, they are paid)  If you look in dollar terms what the rich pay it is more in dollar terms.  In what way are they not paying their fair share?  When the top tax rate was decreased the media portrayed it as the rich people being given lots of money when in fact it is really they are just being allowed to keep more of their own money.

 

 

 

 

Well said. The problem is that the sickly parasites - even if they do understand where it all leads to - will still want and vote for expropriating the healthy more and more. They will not try to increase their own effort unless they are forced to!

Going down the CGT route of idiocy would be like lighting a fuse to see the pretty sparklies and then.....Boooooooooom

Start thinking about the unknowns......oh there will be plenty and no bugger knows what they might be...good or seriously bad.

And once socialist pollies get their greedy little fingers on your money and your lives...look out.

Wolly's smug little world is falling apart.

Ah no...wrong again alen...I have now, no capital gain potential to be stolen by Labour..waiting for the market to spew its guts...might buy copper then...for the divs you understand!...meanwhile I now own property...bought for over 30% below 08 valuation..prime location...cash sings alen!...haha

I dont think so alen. Wolly has seen socialist Labour over the years. Tax, Tax and Tax  some more and then waste it all on give aways and mismagement ( kiwi Rail one example) to buy votes and so the circle goes around. They never have any ideas or policy to advance the country.

Please name one party that has had any policy which might advance the country. I think they should focus on stopping the rot first eh, That in itself would be feat. I have no faith in those you run our cities & countries , & that really bothers me!

McGilicuddy Serious....we always lose the best.

 Another from the right going left on this issue:

John Roughan: Time to slay old demon about tax 

http://www.nzherald.co.nz/opinion/news/article.cfm?c_id=466&objectid=10737349

"John Key and Bill English have been very good at highlighting this problem but they're not doing enough about it."

The problem is not the lack of tax income but the increase in spending. See above.

I largely agree, we spend too much and could and should cut back. However implementing a CGT isn't just about increasing revenue to cover spending. That said I'd rather a CGT than sell off NZ's assets, how about you? CGT is also about removing investment incentive distortions, see Roughan article, is that important to you? Do you think it's important to NZ?

 Some assets could be partially sold, and others should never be sold. I don't think selling assets is the only alternative and again it is only putting off the inevitable. 

I don't think you are removing distortions unless you tax all properties including family homes, and all shares, businesses etc. (Not that I want to see those taxed either).  By removing the depreciation allowance you have already distorted things by disadvantaging property. 

I have no problems with taxing short term gains on properties that are bought and flicked off at a profit, likewise shares that are bought and sold quickly for profit.  That is speculation. 

Landords are mainly middle income new zealanders saving for retirement.     Property is the only investment that can provide income and capital that increases with inflation.  There isn't anything else in NZ that does that, that's why people do it.

As a biproduct they provide subsidised accommodation for lower income families.  (The depreciation allowance that has now been removed meant that theyused to be able to  charge less for rents and the tax rebate supplemented the rents. ) 

When I buy a rental I look at the present value of the future income + the present value of the sale price allowing for taxes, expenses etc at a rate of return that allows for a return that is more than a bank deposit rate to make it worth taking the extra risk.

If tax is increased either rent has to go up, or price has to come down.  We've already discussed that with new building costs rising, population increasing, shortage of convenient land to build on prices aren't going down.  So either I don't buy which leads to less rentals and the shortage leads to increased rents, or rents rise.  I don't buy the argument that some renter will then buy the same house for less because the people that rent rarely have enough deposit (or income) to buy. 

 I object to the notion that being a landlord isn't a business and isn't productive. We use to spend (before our rentals were all destroyed in the earthquake) almost full time on the business - it is not a passive earner. Some tenants can be great to deal with but others can be a real pain and hard work, and properties require lots of upkeep.

Maybe if we want to play fair we should list the $$ paid in tax publicly so everyone know how much everyone is contributing to society.  At the moment the media can basically say what they like and the public believe it all.  Surely if someone has more assets because they have deprived themselves of luxuries and worked hard they are entitled to have more than other people who have earned the same and squandered it all on consumer items and lifestyle. 

eg (True story)

Person A  earns $100k pa lives in a cheap house( $300,000) and saves to buy a rental $300,000.  The rent helps to pay off the rental and they don't spend much so they use their income to pay off some of the  mortgage on the rental. A family with kids lives in the rental.  The landlord fixes the house if things break, mows the lawns.

After 3 years the rental income has gone up and the interest payments are less so the land lord starts paying tax on the rents. They also pays tax on 100k salary.

10 years later they sell the 2 houses for $500k each and have to pay 15%x 200k or 30k tax

 

Person B earns $100k lives in a $600,000 house .  They take overseas holidays and go out for dinner every week.  They buy a new car every 3 years.

10 years later they sell the  house for $1m - no tax.  They only pay tax on the $100k salary.

Now tell me why/how that is fair and why living in a $1m house and spending all your income is productive while saving, paying more tax and providing a home for a family is not?

PS land lord doesn't go wild splurging all his money, he uses it to eke out an average standard of living in retirement and helps his kids out buying their first home by giving them an interest free loan.  Well why shouldn't he spend his money helping his own family out rather than subsidising lots of people who never contributed anything to the economy, EVER, and were net takers.

 

 

A Tax for People In Glass Houses

http://www.stuff.co.nz/sunday-star-times/opinion/5261282/A-tax-for-people-in-glass-house

"What, then, is the moral of this story? There are many. Capital gains taxes are perfectly ordinary taxes used by most developed countries. They are not recipes for instant economic ruin – otherwise these wealthy countries would be poor. A capital gains tax does not mean everyday Kiwis would be crushed. Capital gains taxes should not lead to panic in an election year: there is nothing in them to panic about. In fact, the argument about capital gains taxes, once you get past the scary headlines, tends to be rather intricate. It requires some thought and knowledge.

So will we have a rational debate about this?

Don't bet the house on it."  

Indeed, hard to bet on this one, when so many of the only 200,000 'non-everyday New Zealanders' are disproportionaly represented in media, parliament and string pulling lobby groups.

Some questions:

1) Are we less likely or more likely to get downgraded if a CGT is implemented?

2) In regard to a downgrade, is the implementation of CGT better or worse than selling national assets that return more than CoC?

3) Are you part of the 200,000, just 5% of New Zealanders?

I feel sorry for all you suckers in Kiwisaver. It looks like the penny hasn't dropped for any of you yet, has it? Where do you think the returns for Kiwisaver come from? That's right, capital gains. And what do you think a capital gains tax is going to do to that?

How will you feel when, on turning 65, you have to hand over a large chunk of your Kiwisaver to the govt in tax, so Labour can buy more elections and pay even more money to its core constituents - welfare beneficiaries? Of course you won’t get National Super then either as Bernard says we can’t afford it.

So exactly how should Mr and Mrs Worker on average pay exactly save for their retirement?

Isn't it better to give say 15% of something away in tax than 0% of nothing? 

Whether they save in Kiwisaver or some other kind of investment they will be hit with CGT.

As well profits from actively managed units (share and property) are subjecvt to tax on capital gains already (only passive funds usually aren't taxed on capital gains).

P S I don't agree with CGT but believe Kiwisaver is better than no form of retirement savings for Mr and Mrs Worker.

So exactly how should Mr and Mrs Worker on average pay exactly save for their retirement?

Don't know. Ask the Labour Party, they are the ones who want to perversely introduce a capital gains tax.

Isn't it better to give say 15% of something away in tax than 0% of nothing? 

No. It’s better to pay 0% CGT which was the deal when people signed up to kiwisaver in the first place. They should get and keep what they were promised.

Whether they save in Kiwisaver or some other kind of investment they will be hit with CGT.

Only if Labour gets into power.

As well profits from actively managed units (share and property) are subject to tax on capital gains already (only passive funds usually aren't taxed on capital gains).

I’ve already said that on this site numerous times that speculators/traders have to pay tax on their capital gains, and at their marginal rate. Labour’s proposed GCT will in fact be a tax cut for speculators. However, the current regime recognises that there is a difference between speculators/traders and investors; that allows the taxation treatment of the two to be different. With a CGT that distinction and discretion will be lost and tax will apply to everything and everyone, including passive funds and bonds.

In my view it is the same clowns and their hangers on who favour a capital gains tax who are also responsible for the failed policies that have so blighted this country since the 1980s. They are just going from one screw up to another.

Clearly, Russell Norman has never heard of John Galt.

If we ignore the small-minded stuff above - the puerile name-calling and the personal denigration, we can think big-picture.

Yes, in this DavidB is right - Kiwisaver is doomed, as is every kind of investment on average, with the possible exceptions of renewable energy developments, and with the caveat that the fiscal system doesn't implode.

Then - even if it's not going to return tax revenue, is not a CGT a good way of training the Breakfast Flock? Attuning them to what is to come. so to speak?

And as to what is the best vote, addressing the future?  Well, the Greens have a problem. (Note: Bradford wasn't a Green, she's a throwback to the International Brigades and Jack Lee). Their problem is that if they tell it like it is, they'd be voted into oblivion. Perhaps 5% - max - of the populace understand that..

The rest want to assuage their various unrequitednesses - and will vote accordingy. What the Greens problem is, then, is an immature society. A deluded one, too - the majority really believe the growth/investment/unlimited wealth-for-all crap.

That said, they're the nearest to what we need, and we're seriously overdue the change.

 

A bedtime story: Take 3 people, all equally skilled and able, and 1 person who is less fortunate and can’t find work.

Person A earns $100k pa buys and lives in a $300,000 house and saves to buy a rental for $300,000. A family with kids lives in the rental. The landlord fixes the house if things break, mows the lawns in his weekends.

 Initially the rent is less than his expenses so he subsidises it from his own income and can claim this as a tax deduction as he has lost money that year. After 3 years the rental income has gone up and the interest payments are less (he has paid off some of the loan with his salary) so he starts paying tax on the rents. He also pays about $27,000 tax on his 100k salary.

10 years later he sells the 2 houses for $500k each and has to pay 30k CG tax. In 10 years he has paid about $320,000 tax and has paid off his student loan.   (If it wasn’t for the CGT it would have been $290,000 so he grumbles loudly and votes for the ACT party).  He loans his capital to his kids interest free so they can buy a house and when he retires he has a lump sum that supplements his pension by $20,000 per year.

Person B earns $100k buys and lives in a $600,000 house. He takes overseas holidays and goes out for dinner every week. He buys a new car every 3 years. He never has much left over.

10 years later he sells the house for $1m and pays no CG tax. He has paid tax on the $100k salary.  In 10 years he has paid about $270,000 income tax and has paid off his student loan.   He buys another $1m house as he doesn’t want to downsize.  When he retires he has to live on the pension- a bit of a drop in standards so eventually he has to sell the big house and move into a unit as the pension isn’t enough to live on in the big house.

Person C earns $100k.  He works for a year then goes overseas for an OE for a 3 years.  When he comes back he rents because he doesn’t want to be tied down and it’s cheaper than buying his own house.  He can live in a better area and nicer house if he rents for the same money. He spends all his income on technology, cars and holidays, meals out etc. 

At the end of the 10 years he has nothing to sell and pays no tax.  He joins the Green party and complains that it is unfair that the rich people A &B are millionaires and aren’t paying their share.  He blames personA for buying an extra house pushing prices up so he can’t afford one.   In 10 years he has paid about $190,000 tax. He still has a student loan as when he was overseas the interest has mounted up on it.  When he retires he is forced to live on the pension as he has no savings.

Person D has problem getting a job as he has no qualifications as he left school when he was 15.  He rents and pays no tax.  He gets the unemployment benefit which allows him to live a meagre existence in a small flat and he is jealous of the big house PersonB lives in. Sometimes he does a “cashy” helping a mate labouring which gives him enough to buy cigarettes and lotto tickets.  . He joins the Labour party and complains that it is unfair that the rich people A &B are millionaires and aren’t paying their share. In 10 years he has paid no tax.  He has cost the tax payer about $140,000.

Who is paying their share? 

A year after they all retire Labour gets in and decides to means test the pension as the country can’t afford to pay it universally anymore. Person A and B have too many assets so aren’t entitled to it even though they contributed more while they were working.  Person C and D are self justified taking the pension as they aren’t rich.  Why should the rich people get it too?

 

 

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