By Alex Tarrant
A capital gains tax on 'absolutely everything' would work in a perfect world, although no politician has the guts to introduce one in New Zealand, Prime Minister John Key says.
Speaking to a KPMG tax briefing in Auckland on Friday, Key told the firms' clients why he was so opposed to Labour's and the Greens' Election 2011 capital gains tax policies, which would have exempted gains on owner-occupied housing from being taxed.
"I hate capital gains taxes – I just don’t like them. The reason I don’t like them is that, in political terms I don’t think they work," Key said.
If government was prepared to do with a capital gains tax what had been done with GST – put it on "virtually absolutely everything with no exceptions - they work well."
“Because, in theory, if you earn NZ$100,000 from going out there and having a job, and you pay tax on it, well fair enough. If you earn NZ$100,000 from buying a property, well you probably should pay tax on that – fair enough," Key said.
“But this is where the problem comes along, and that is, that no politician has the guts to do that. Because they go, ‘well that’s a vote-loser.’ They turn around and say, 'OK, we’re going to have exemptions - the exemptions are all private housing,'" he said about Labour's and the Greens' policies.
'Rich guys in Parnell smarter than the left'
The fact that three-quarters of housing was owner-occupied, and would therefore be exempt under those proposals, meant their argument that a CGT would discourage investment in housing was "nonsense."
"The theory is they’re going to sock it to rich guys who live in Parnell – so they’re going to really nail them. But actually, those rich guys in Parnell are way smarter than the left, because they’ve already worked out to buy a big house in Parnell [which] would be exempt," Key, himself a wealthy Parnell resident, said.
“So [those house prices will] go up faster, not go up slower.”
"It encourages people to go into housing; it doesn’t discourage them," he said.
Key reiterated his argument during the election campaign that New Zealand already had a capital gains tax on housing if a property was bought and sold with the primary intention of making a profit.
"And by the way, IRD are hiring people, at Bill English’s request – it’s always his fault – and they are trawling through these returns, getting lots and lots of money from people who are doing just that and not paying their taxes," he said.
Labour would then apply its capital gains to other forms of investment, including farms, businesses, orchards and shares.
“Well, that is the productive sector," Key said.
“So then you get to a point where you say, well, eventually long-term it raises some revenue for you. OK, what ends up happening is, people just don’t want to pay it. Instead of getting to a point where they have to pay capital gains, which they pay on realisation – when you sell the asset – they don’t sell," he said.
“They sit around forever not selling. And then they even do remarkable things like they’ll give it to their kids. So you’ve got to bring back in gift duty. We got rid of gift duty, I think in Budget 2010, because it was raising us literally NZ$1.8 million a year, and it was costing us NZ$70 million a year to administer."
“In a perfect world, if you’re prepared to put it on absolutely everything – no exceptions, from the boat to the house – it works. But then you’ve also got to lower personal taxes and things, because that would be the right logical sequence of what you would do," Key said.
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