If a government really was serious about getting results in the real estate market from implementing a capital gains tax, all houses should be included under the tax, Prime Minister John Key says.
Key has been reacting early to an upcoming economic policy announcement from the opposition Labour Party, which is due this Thursday and tipped to include a 15% capital gains tax on all assets other than the family home. National is opposed to a capital gains tax, saying changes it made to depreciation rules and LAQC laws in the 2010 Budget were good enough in creating disincentives for property investment.
"If you really were serious about real estate, you’d have to include every house [under a capital gains tax], which is why capital gains taxes don’t work well," Key said on Newstalk ZB on Monday morning.
"[If] you take out family homes, that means 80% of all properties come out – so the bulk of houses are actually not in, and therefore that doesn’t help the property market," he said.
"The only thing you will get is you’ll get landlords who put up rents – that’s what Treasury said - they’ll go up by about 6%. So how on earth that helps people that are less well off, is beyond me."
Meanwhile Key said he thought the idea that a capital gains tax would steer people away from investing in real estate was a "misguided part" of the argument.
“The first thing you’ve got to ask yourself is, do you need another tax on the economy? And the simple answer to that is if you followed National’s plans, no," he said.
"We’re going to be back in surplus in three years, debt will have topped out under 29.5%, we’re creating new jobs, we’ve got momentum happening in the economy."
Labour was trying to put out a stalking-horse for a problem that existed that while they were in government, but did nothing about it.
"It’s actually not true now [about the property market overheating due to tax incentives]. Go and have a look at real estate. We made a significant number of changes in Budget 2010 – we got rid of depreciation, we’ve changed a lot of the rules around LAQCs," Key said.
These changes meant that, for the most part, capital gains were now not as attractive as people thought.
The government had also earmarked NZ$110 million for the Inland Revenue Department to crack down on people potentially breaking the law under the current capital gains tax system.
“It’s an intention system. And actually they’ve been catching a lot of people over the last few years,” Key said.
Speech
Key will be talking to the Local Government New Zealand annual conference at 9am this morning. Follow his commets on Twitter @alexTarrant.
41 Comments
All fair enough John..but...it is not the taste of the cake that matters..it is what the voters think it will taste like...and that's why Labour are able to manipulate the voters.
This remains a benefit dependent economy clinging to a property bubble raft that's sinking in a sea of debt. .....
Your govt continues to hand out over 1 billion a year to landlords by way of a rent subsidy.
It continues to pay spin doctors to tell you what to say.
It continues to see half million dollar salaries in the state sector as ok and bonuses on top of bloated salaries in the SOEs.....all ok.....
It continues to see as OK, Treasury going through $4,700,ooo,ooo each year even though you think Treasury advice is faulty....well if it's faulty why not cut the bloody department in half...that's a saving of $2,350,ooo,ooo on top of ending the landlord subsidy...grand total saved each year......$3,450,ooo,ooo plus.
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How's the planned debasement going John?....what's the rate of loss these days...30% or 40% per decade???.....and you expect us to save..with Bollard going near zirp on us....
80 percent of houses are owner occupied according to Key? Which fundament did he pull that figure out of? DPMC quotes 2006 hone ownership figures of 67 percent:
http://www.dpmc.govt.nz/dpmc/publications/hpr-report/hpr-10.html
Last week, Statistics NZ released June 2011 Dwelling and Household data.
http://www.stats.govt.nz/~/media/Statistics/Publications/population/dwelling-and-household-estimates/estimated-households-private-dwellings-by-tenure.xls
This shows that 500,100 dwellings are rented, out of a total of 1,732,500 private dwellings.
That is, 28.9% of private dwellings are rented in NZ. 71.7% are owner-occupied.
Where does Key get the 80% statistic on home ownership rate - I thought that was more like 68% recently, for example;
http://www.stuff.co.nz/1570/Home-ownership-rate-to-tumble-further
Why shouldn't the family home be subjected to a CGT as well? After all, as all you disciples of more taxation being the economic panacea for New Zealand’s economic ills are saying, all income should be fairy taxed and that includes income from capital gains. It’s only fair. The economy needs to be balanced. Well, that should include the family home too then, right, if, at sale, it makes a capital gain and the home owner is better off. That’s income too, correct? The family home and homeowners are part of the economy as well. Exclude them and you won’t achieve a balanced economy. After all, everybody must pay their fair share and pull their weight, it’s only right!
Or are you trying to suggest that there are sound economic reasons for why the family home should be excluded? Surely if more tax is good, then even more tax than that is even better?
Or are we really just talking the politics of pursed lips, spite, self-interest and envy here?
Didn't tenants who had their principal money for a home in the bank, pay 'capital gains' tax, when they were levied RWT when deposit rates were above the rate of inflation ( only a couple of years ago, when they were @ 9% and CPI was 3% and you could argue that the difference was a capital gain?). So if we must have a CGT on all assets; there should be no exemptions.
If you want to do something about house prices without affecting rental supply too much, have a black and white property trading tax on capital gains. Make it something like 25% on properties owned for less than 1 year and decrease it by 5% a year for properties owned for each additional year. So own a property for more than 6 years and there's no CGT.
This would slow velocity and limit booms.
Also look at changing the tax on property developments. At 15% GST plus 33% top marginal rate, it means that most developers are paying nearly half the profit in sale price on residential property in tax.
This limits supply and rises prices.
How does a lender factor that 25% in in the first year, etc.? Will they or won't they sell, may be discriminatory against new property buyers. And those with 5 or 6 years out of the way have a comparative advantage against lesser time holders? Keep it simple, and just make it 15% flat, no duration.
Key is the master of 'short-termism' so he can only see as far as the end of his nose.
That does not prevent him on generating an opinion on everything.
He should concern himself on finding a real alternative to generate real revenue.
Assets sales is not it because you only get a short term gain and give away all of the long term revenue. That is just the same as borrowing the money!
Start by cutting the tax give aways of the last budgets for a start.
On what two values is the capital gain calculated? I assume one is the purchase price. What of the sell price? Is that 'as is' or is it adjusted with some pulled out of the ar5e inflation factor?
If you sell in a dropping market, could you end up with a tax credit to offset your capital loss?
CGT is usually indexed; say to the CPI. So if your house goes up 10% in 5 years and the CPI is a flat 2% p.a. there is no tax to pay. Oh; and it's a cGt, there is no L, for loss, in the acronym. If your property falls, that's just a cost for the owner to bear, without tax offset.
Thanks.
I'm not particularly bothered either way. My guess is unintended consequences will drive a small step change in asking prices where the vendor would try and get the purchaser to cough up to cover any CGT. So a possibility here that it will just be another small cut to first home buyers. But I'm sure the banks would loan them the extra....
It is not impossible for a CGT to have an upside but all the above show it is not straight forward
Labour should have done this before the boom which happened on their watch. Personally I am tired of new taxes.
The property market is hardly booming. This is really about raising revenue for new spending promises and a return to big government. Is that what we really want? Not for me
This is primarily to test the reaction of the masses of sticking it to the "rich" (ie the people who are saving for their retirement). Once they have the numbers, taxing the family home over $300k and means testing the pension will be next. They have already earmarked the CGT for various vote buying schemes so any further bribes will need to be paid for by extending the net.
Correct! What most the people don't understand is they are being tested continually for a reaction, then groomed over a period of time, then when they have got enough for the bribe , more taxes follow.
Baa ah goes the sheeple, and down goes Nz. This low level of politician who practice this behavior must be rid from government or we are pushing it uphill harder.
Key is really starting to spin it now.
If he was so against CGT why would he be suggesting making it more comprehensive? He's just trying to scare people into thinking that that's what Labout might do, even though they have said they won't.
80% non rentals? I find it really hard to believe he could be so far off knowing the actual percentage of owner occupied homes, which is only 67%, pretty far off 80%.
He is supposedly an expert on the subject, but not enough of an expert to get the actual facts anywhere near right.
The change to LAQC's was a non event, virtually all property investors can still claim just as much back, socializing their losses, and privatising their profits, with no CGT.
Obviously just spoiling tactics from Key.
I personally prefer CGT on all assets, including family home. However it is political suicide. Hence Key's communication.
All that stuff about twinks to the landlord regimes is just obfuscation. The only effect that landlords I speak to mention is the inability to claim depreciation, & that is hardly of great significance. The rest is just window dressing. Plus this nonsense about rents going up 6% (ha ha! - Key, the great sympathetic friend of the renting classes!) - Key of all people should know that rents are decided by suppy and demand. Key is impressing less and less.
Cheers to all
If he impressed you at all that would have been somewhat a paradox given your posts & ability to mind read Philly.
You are an advocate of tax to level a playing field which can't be levelled under the current systems, yet you offer nothing of value in the options department to he debate.
The elite you seem to despise so much are mostly the middle class I would imagine , & if the middle class is further eroded then escalation of serious problems will accelerate in Nz. So put your psychic people reading skills to good use & come up with something more beneficial to your country!
Thanks for your compliments re my mind reading, Lloyd, but I must humbly decline that accolade, in all modesty!
I don't despise elites. I just think that their income-earning streams should be taxed like everyone elses, in all other developed countries.
Hardly extremist I would have thought. Though it depends on what fixed mindset you operate from, I suppose!
Cheers\
Philly I'm very tempted not to reply because I risk turning this into something it's not, but I think we past that point sometime yesterday , so here goes.
Please just try to be the best person you can , & having an open mind free from bias of any kind is the key. When you think you worked someone out in a blog , you will be far from right, if in doubt ask questions. People are so used to lies , spin & deceit nowadays that they assume everyone is untrustworthy or just full of it.
Please open your mind , or if you are of an age where Nz is no longer of concern because you have had your chance to make a difference, just don't judge or label those who have the guts to put themselves on the line, ok!
Is the big "blow up" coming soon ?
About greed and the consequences: http://topdocumentaryfilms.com/super-rich-greed-game/
..and we all aren’t in it – just a few "Key buddies".
Listen: 10:00+ sounds like JK's our PM's intention.
Why have a CGT and which will discourage people to sell and encourage them to hold property and they have to sell before we get any CGT based on the difference between a friendly valuation obtained at the start of the CGT system (or cost after) and sale price. Maybe better to charge the buyer and not the seller, that way it becomes part of the purchase price. Why not charge say 5% stamp duty across the board on all properties including new leases. Buyer pays, no exception. Better to tax a buyer entering the new system than a seller who was already part of the system under different rules. Then again, who said tax has to be fair.
Key is actually far smarter than most understand. There is now already in place, by stealth, a type of CGT for those that buy and sell properties. No longer for example can a builder build his own home, live in it for a couple of years and then flick it on at a profit. Also the rules for associated parties are far tighter now which brings a lot more people/companies into the net. Need to get up to date with current legislation if you intend to purchase a property and resell for a profit. The rules have certainly changed substantially.
On a separate note, why would you ever want to sell property? Just learn from the Jews.
Key is actually far smarter than most understand. There is now already in place, by stealth, a type of CGT for those that buy and sell properties. No longer for example can a builder build his own home, live in it for a couple of years and then flick it on at a profit. Also the rules for associated parties are far tighter now which brings a lot more people/companies into the net. Need to get up to date with current legislation if you intend to purchase a property and resell for a profit. The rules have certainly changed substantially.
On a separate note, why would you ever want to sell property? Just learn from the Jews.
Key is actually far smarter than most understand. There is now already in place, by stealth, a type of CGT for those that buy and sell properties. No longer for example can a builder build his own home, live in it for a couple of years and then flick it on at a profit. Also the rules for associated parties are far tighter now which brings a lot more people/companies into the net. Need to get up to date with current legislation if you intend to purchase a property and resell for a profit. The rules have certainly changed substantially.
On a separate note, why would you ever want to sell property? Just learn from the Jews.
Gavin you hit the nail on the head. How many people have read one single piece of legislation & then had it translated into language they might understand. Very few I suspect , because of this laws often do not provide what the people expected. They do usually provide exactly what the vested interests expect.
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