Panel testing govt's long-term cost pressures considers land and capital gains taxes for broadening revenue base; But resigned to politics getting in the way as Treasury says land tax most efficient

Long-Term Fiscal External Panel

By Alex Tarrant

Whether New Zealand should introduce a land tax or more comprehensive capital gains tax is again under discussion, this time by an external panel assessing Treasury’s long-term projections.

And while Treasury argued a land tax would be the most economically efficient option for raising the tax take, the panel appeared resigned to the fact politics might get in the way of implementation.

Concerns were raised about how a land tax would be interpreted, and of political pressure for exemptions, which ultimately led to land tax being discarded in the 1980s.

The panel said returns from a capital gains tax could be volatile, and that there would be challenges administering a sound CGT framework.

It also noted that the introduction of a capital gains tax on owner-occupied housing would have implications for lower and middle income individuals as relatively more of their wealth tended to be held in their homes.

Given these perceived problems, the panel noted Treasury saying that, of the existing tax base, the least inefficient way of increasing the tax take would be by raising GST.

Testing Treasury

The Long-Term Fiscal External Panel was set up to test Treasury’s key assumptions and analysis as Treasury formulates its next long-term projections forecasting fiscal pressures over the next 40 years.

It has already questioned whether the government’s target to reduce net debt to 20% of GDP and sustaining it at that level was too high.

If so, that could mean the government would have to run bigger surpluses post 2014/15 than it is planning to, or at least put more surplus cash towards debt repayments at the expense of spending on public services.

Land, capital gains taxes

In a summary released yesterday on its third meeting to test Treasury’s assumptions, the panel said it considered a wide range of tax and spending policy options that might address long-term fiscal pressures.

An enduring response to managing the long-term fiscal pressures would likely involve a package of subtle policy changes implemented gradually, the panel said, noting not every member agreed with every point it raised.

It said an ageing voting population and New Zealand’s MMP environment meant that one-off or abrupt policy changes may be inappropriate.

The impacts of policy changes on all New Zealanders, and especially those of lower incomes, should be carefully considered  - in terms of fairness and of securing policy responses that would endure, the panel said.

“The panel raised questions about the merits of some of the tax options and were concerned to ensure the efficiency, distribution and administrative cost, sustainability and coherence features of tax options were considered and well founded and that there was a clear rationale for choosing an option, especially if there were proposals to consider introducing a new tax base,” it said in the summary.

“For example, if the rate of GST rises, there may be greater risk of political pressure for exemptions to be introduced, reducing GST revenue and adding to complexity, thereby reducing the efficiency and integrity of GST,” it said.

The panel discussed the merits of broadening the tax system by means of either a land tax or more comprehensive capital gains tax.

“Concerns were raised over the interpretation of the purported economic efficiency properties of a land tax. Some argued that reintroduction of a land tax could have adverse implications for investment and may also mean pressure for the sorts of exemptions that contributed to it being discarded in the 1980s,” the panel said in the summary.

“While some acknowledged that in principle a capital gains tax may be attractive from the point of view of improving the integrity of the tax system, revenue from a capital gains tax may prove to be volatile and there are administrative challenges in administering a sound capital gains tax,” it said.

Land tax economically efficient

In a review of submissions to its third meeting, the panel said Treasury presented a range of options for raising more tax revenue including: raising personal income tax rates, raising GST rates, raising the company tax rate, taxing capital gains on a realisation basis and a tax based on unimproved land.

"Treasury argued that the most economically efficient option would be a land tax, as there would be minimal reduction in economic performance," the panel said.

"A GST rate increase would have some efficiency cost by discouraging labour force participation, but would be the least inefficient rate increase among existing tax bases," it said.

"If distributional impact is the primary concern, changes that increase the tax burden on capital income, eg, introducing a capital gains tax or increasing the company rate, would increase the progressivity of the tax system."

"If the sustainability of revenue is the primary concern, Treasury considered it most likely that increases to personal income tax or GST rates, or introduction of a land tax, would be the most stable sources of future tax revenue," the panel said.

"Treasury noted that historically most major tax changes are made as part of broader packages of reform.  It is unclear whether using one particular tax measure alone to close the fiscal gap would be durable, or efficient, over the long-term," it said.

What the panel had to say

The summary said there was agreement among the panel that the international context would continue to inform consideration of expenditure and tax settings.

"The mobility of labour and capital are important considerations. On the other hand, population ageing is an international issue and other governments are also likely to consider tax increases as they meet the fiscal and economic challenges presented by demographic change," the panel said.

Future tax policy changes would need to be gradual and done in the context of international developments, to ensure New Zealand was moving in the direction of international trends and that changes did not adversely affect the relative competitiveness of New Zealand's economy.

"The panel was generally supportive of maintaining a broad-base low-rate approach to tax policy design in New Zealand. However, it was less supportive of some of the individual tax policy options being presented, in terms of their usefulness as a response to spending pressures arising from demographic change and there were contrasting views amongst members of the panel concerning Treasury’s interpretation of the distributional effects of some taxes, including GST," it said.

"It was acknowledged that an increase in GST has less adverse efficiency implications than increases in income taxes. However, a rise in GST may raise the likelihood of exemptions that would reduce revenue raised and reduce the efficiency of New Zealand’s GST system; the sustainability of an effective GST system in the face of emerging information technologies and globalisation was discussed, developments which suggest caution may be warranted when assuming GST a stable source of long term revenue."

"Similarly, some panel members challenged the purported efficiency properties of a land tax. Land usually requires some form of investment to render it productive. If the introduction of a tax that targeted just one form of wealth created uncertainty over future tax policy this could adversely impact on investment and further increase the efficiency costs of the tax," the panel said.

"The panel also considered that its re-introduction may lead to pressure for the sorts of exemptions that contributed to its being discarded in the 1980s," it said.

"While a capital gains tax could enhance the integrity and distributional properties of the overall tax system, it is administratively challenging and it may prove to be a volatile source of revenue. More specifically, the introduction of a capital gains tax on owner-occupied housing would have implications for lower and middle income individuals as relatively more of their wealth tends to be held in their homes."

Some members of the panel noted that these tax changes may still form part of an overall tax strategy for reasons other than long-term fiscal pressures. 

Meanwhile, Treasury’s base projections fix the Crown’s tax revenue at a set ratio to GDP from 2020. Some members suggested that Treasury consider an alternative projection of revenue based on the indexation of personal tax rate thresholds to consumer price inflation, from a certain point in the future.

"Doing this would still prevent 'bracket creep’ to some extent while securing more revenue to the Crown over the long term than would occur in the Treasury’s base projections. On the basis of current Treasury projections, this could generate extra revenue equivalent to about 2% of GDP by 2060," the panel said.

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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Raising GST without opening up rental property (rents) would be a much use as 'tits on a bull'.
Do they mean Land tax that includes the building? Unlikely.
I see three big pluses for Land/Asset tax
1. It could be varied in the annual review (The Budget?) according to pressures.
2. It is possible to give concession against income taxes collected on the asset or for owner occupiers to a defined asset value. Excesses could be deferable and written off but only to owner occupiers and only if the property continues in ownership- an effective time limited CGT.
3. It would be collected from overseas investors who pay no other tax to the IRD to make any return under a specified level totally uneconomic for them to own property in NZ
Think it through and bring it on.
In the meantime discourage investors from offshore by telegraphing what MIGHT happen.

how about taxing higher income earners more?
cue moans from right wingers....

How about spending less? 

how about we tax ppl paying very little tax and reduce on the rest?

There is actually no evidence of this and actually contra-evidence that so called trickle down of the rich benefit the rest of us is a myth....In fact it looks pretty over-welming that they are more parasitc then anything.

how about we tax ppl paying very little tax and reduce on the rest?
Are you proposing to increase tax on the poor and on middle-class people with children so that wealthy people who pay the vast majority of tax can get a tax cut?  Not very socialist of you Steven!

No Im proposing that all income is taxed equally...So capital gains should be should be taxed....there needs to be a re-balance and broadening.

Exactly Kleefer!!!! What are these morons thinking? And what the heck are they trying to achieve? this is about increasing revenue to cover the bloated system but will they be practical - hell no !
Do the idiots not realise that the system has reached saturation and the people can't afford to pay anymore towards  it. The answer always lies in the last place the fools look at and change will be forced upon them if they keep this rubbish up. They'll extract every last dollar from the private individual until they can't afford to pay anymore and then they'll have no choice but to cut their extravagant spending.
Housing afforability is always going to affect lower income earners sooner, simply because their saturation point (ability to pay) is lower. If GST or income taxes are raised for low to middle income earners you are effectively drowing them for they cannot swim against the tide of Government spending.
Cut the red tape and bureaucracy and leave the people alone.
Cut Government spending by 30% immediately. 
Sell off the State assets and reduce debt immediately. If those people who want to keep the State assets start action give them the choice of paying extra taxes personally to hold the assets. In other words they can put their money where their mouths are.
Ensure the Crimes Act has the ability to prosecute rogue and ruthless employers and get rid of the Labour Dept and OSH. If an employer stuffs up they get prosecuted and a criminal conviction and ensure that Judges can direct and enforce reparation to the victims and families. 
There are several Ministries that are completely unecessary, get rid of them and save money.
The housing market is in a fiasco because of policy, legislation and bureaucratic interference -  take your hands off the control lever. Go back to small Councils and get rid of the RMA it is not working. If someone pollutes or causes damage to the environment it should be a criminal offence. The current BS of the word "affect" in the RMA has come to mean anything that submitters define as an affect. Submitters aren't bound by normal Court rules and can therefore tell lies and do not have to provision evidence. 
The big is better model doesn't work in Government there are no efficiencies of scale to be had.  There are far too many highly paid people who contribute nothing other than inefficiency and mayhem.
Governments spending contribution to GDP is far too high and all of that money has been taken out of private enterprise which cannot invest in further business activity.
Government encouraged the entitlement mentality and only Government can start reversing that mentality.

You know, occasionally, just ocassionally you should stick your head outside your room and have a look around.  You will notice that much of what you are say is wrong with the world, (while maybe looking good in a blog rant) has no foundation in reality.

Andrew R - maybe it is your own lack of experience that has no foundation in REALITY.
I suggest you get your backside out of your little room and and have a damn good look around you - the system is shambolic and full of incompetent people.
Oh yes and wasn't it you Andrew R who suggested GST was good for business? Haven't  you previously stated that it kept the business records in order?
Well that told me you know nothing of business and the significant element of profit and loss. 
Got a nice cozy job in the public service have you?? 

Cut government spending imediately and let the chips fall where they may!
Heck, I bet WINZ payroll alone is equivalent, if not larger than the 'benefits' they pay out! Not to mention all the fringe benefits their executives get. 

HG - it's exactly what's needed and you are probably right about those delivering the WINZ service costing more than those receiving anything from it.

My personal "thing" would be to make sure all income is taxed equally.  So high earnng PAYE are really already paying the rump of tax, others it seems maybe paying next to nothing, or nothing.

If you wanted all income to be taxed equally, you'd need to reduce the upper tax rates and raise the lower ones. The poorest would then be the worst affected.

Firstly I agree but what is the income level where you become a high income earner?
What is the tax amount that will be raised?
Assuming you need to raise more tax, then at what level will the high income earner level need to kick in to derive the amount of tax needed?

The top 10% (that's people earning a "massive" $70k p.a. or more) already pay 76% of all income taxes collected. Don't you think that's enough?

There needs to be another step in the tax tables at about $200K taxed at something over 40% as per Australia to ease the burden on the next step down.

The "burden" as you put it are the huge numbers of people paying no tax or very little tax. I'm not talking about the rich either, I'm talking about the huge number of people getting benefits that we can't afford. ACC is just ridiculous for instance.

I am not sure I understand you.  Any way.  ACC is principally a user funded system, I am not totally sure, but little if anything is supposed to come from government.  It comes from the employers, wage earners and motor vehicle accounts which are totally seperate from the tax take.  Ask any American if they think that their system of every body suing each other is better.  Every yank I've spoken to think that ours is a great scheme.

I think he means the superfluous ACC claims that have risen dramatically in the last 5 or so years.
Like the physio bill, for example, going from $58M in 2004 to $225M in 2011....

"cant afford" is an opinion.  To start with ACC is self-funded so its an alternative way not a benefit.....though like pharmac it seems effective. 

ACC is "self-funded" my arse... it's funded by ACC levies. You may as well say the dole is self-funded because beneficiaries "pay tax".

Just to clarify, PAYE's pay the rump of tax....not someone necessarily on 70k....

Whether or not someone pays PAYE is irrelevant. Check the TWG report to see for yourself. People earning over $70k pa pay 75% of all the tax take in NZ.

bad idea Matt - surely the thing we should be nipping in the bud is speculation. In theory those with higher incomes are more productive (yes I know this is not always true). They are not always the people with a heap of capital however, and if they are we can get them via land / cgt. We need to tax unearned gains a lot more than currently occurs, for the life of me I can not understand why we are happy to tax work but not capital gains. Maybe its just easier, but I think a lot of it is simply historical and what people are used to. All tax is a state imposition that no one asked for - if we have to have it lets at least ensure it is fairly distributed.

Whlile partially yes I would suggest broadening is better. A PAYE on say 200k for instance seems the hardest hit in actual paying tax terms....So lets set it up so ppl on any income by any method all pay 30%....

CGT should be brought in asap to slow down the current trend into property investment where the expenses are tax deductable but the gains are generally tax free. So many people are in reality buying for a quick flick but of course many do not return the gains. We just need a level playing field and the country of course needs the tax, now more than it ever has.

but wouldnt the "quick flick" be classed as speculation and hence taxable?

Correct, but unfortunately its like duty free, won't be collected unless worth their while and really really easy to do.
Unfortunately you need to be unlucky to be caught.

I know of someone spending time in Mt Eden who would disagree. They found the IRD very keen on collecting all tax owed.

That is my point. They do not return profits from quick flicks and only get picked up if audited or IRD gets tipped off.

You`d be surprised.
IRD have got much better reporting software than they used to.  And they seem A LOT more motivated to colletct the $$...
You`d better have a good explanation if you buy & sell within 3 years at present...

But it would be very easy to do, to catch them that is! And catching a few would discourage speculators, which will help bring the froth out of the market, which will discourage even more investment in housing, which is the outcome the goverment advocates it wants.
Maybe the IRD is not interested in catching them? Sine all they have to do is run a program that cross-checks recent sales database with the tax payers database.

So you're saying that people evading tax on their property profits now will magically become honest if a CGT is brought in?

thats why you have a blanket CGT - remove the test regarding "intention for resale". If someone makes a gain then thats a bonus. even if they bought for income they should be happy they made a profit and the tax is only a portion of that. At the same time though the CGT really needs to go on the family home as well to avoid the temptation to buy 1 super expensive house you dont need as opposed to 3 invst properties that make up the same value.

A blanket CGT would increase property prices.

No because a price is determined by what ppl can pay....

That's not quite right - otherwise, why would the % of people able to own their home have dropped? Seems to me that people have to put up with changing their standard of living.

Of course but that's a simplistic answer that proves nothing... prices rose from 2001-2007 even as interest rates were rising and you think people were already paying as much as they could in 2000?

Ex agent - how is a CGT going to slow down property investment?? there is a housing shortage NZ needs more housing urgently. CGT will just put property prices up.
Property speculators not investors are usually the ones doing the quick flick. The IRD was I understand inspecting all real estate transactions made so I'm hopeful that those who have evaded tax will get caught and have to pay the penalties.

I would like to see stamp duty or transaction tax on every property transaction.  Low admin, easy to administer and collect, can be easily adjusted upwards or downwards, can be removed for low value housing or rebated for first home buyers, can be collected regardless of what property market is doing.  Say average $5K per sale on 6000 sales per month gives $360m per  year.

Shorts - that's a great idea - lets inflate property prices right now. And that $360million per year is hardly going to pay for a week of Government borrowing.

By your logic $360m is hardly going to impact inflation either.  So we can eliminate that from your arguement.
$360m is more then they are getting now.  Make it $10K and double it if you want.  Make it $20K for sales over $1M.   At least all or most transactions will be contributing.  Make it payable by the purchaser.  Stagger it so sales under $350K are exempt and x% for every dollar over that simpler and more efficient then a blanket CGT.
Let treasury grow some balls and impose minimum deposit requirements on lenders and use the $360M to build some low cost housing to sort out affordability,

ive not seen anything to really show that stamp duty really is  just a tax.....what you want to do is really tax a profit....

ive not seen anything to really show that stamp duty really is  just a tax.....what you want to do is really tax a profit....

I'm sure CGT is wonderful way of increasing tax take - as long as no one has the absurd notion that it will reduce house prices. Making houses more expensive so that they will be cheaper does not work in much the same way that increasing GST did not make anything cheaper.

Exactly Bob! You can't add taxes to something and expect it to cost less. Duh.
We actually need people to invest in property so that the people who will never buy anything have somewhere to rent. The best kind of CGT would be a staggered one where after a number of years (say, 10), there is no CGT to pay.
However, I have also heard that other countries with CGT collect very little as the costs of administering it are too high.

Increased tax take and reduced house prices are mutually exclusive under a CGT model.  IF CGT decreases house prices then there will be no capital gains on which to collect tax.  CGT is also costly to run.

It costs you nothing to work out your PAYE.  It's deducted from your salary and paid to the IRD.  Working out how much capital gain or loss you make could be alot more complex.   Collecting it would also be an issue.  Stamp duty would be alot easier and more efficient.

Shorts - it might cost you nothing to work out your PAYE - it costs your employer!!!! this is a compliance cost to all business on employees behalf.

So if brought your house 20 years ago for $150K and sold it for $650K  you would have made a profit of $500K with tax payable of $150K.  $650K less $150K would leave you with $500K .  Kind of penalises people for holding on to their homes.
Also why do you use exclamation marks and bold font?

bad analogy there Bob. People dont buy bread with an intention to make a profit from it, and the GSt is not contingent on them holding the bread for a week and then selling at a higher price. People buy bread becasue they NEED it. People buy investment ppty as an INVESTMENT. Most buy because they EXPECT to make a gain. The gain is more attractive when you dont have to pay tax on it becasue the net gain will be BIGGER. If you tax the gain, the investment becomes LESS attractive. This means there will be LESS investors willing to pay at existing price levels. This means LESS demand. This means LOWER prices. This WILL WORK ... to some degree.

I don't agree. Firstly people do buy bread to make a profit... bakers, cafe's, restaurants. So if you want to compare, do apples with apples. Property Investors hold property long term, as opposed to Property Traders who should be paying tax on profits, just like the bread traders.
As a property investor, I don't give a damn about CGT, it will actually make property investing more profitable for me!

Another thing that has been thrashed to death here over the years. People buying investment properties can't be the main cause of house prices increasing.
Putting in the simplest possible way we see that the number of property investors in a market is inversley proportional to the capital gain. Explain how it is that the suburbs with biggest capital gains are those with the least (or not a single) speculators or investors, whereas the suburbs with the least capital gain are always those with the most investors/speculators.

No because the price paid is determined by what the buyer can pay. So a CGT taxes income/profit and takes out some leverage.

See my answer to this comment before. It's too simple.

Yes, and we should value houses and farms every year and tax the little shits as they make money out of doing nothing yearly, none of this waiting till they sell rubbish.  Only one question, what if assets fall in value?

No worries. With an Asset/Land tax the amount collectable goes down. Unlike CGT it will always incentivise the owner to get the best return on the asset no matter its current worth.
CGT has too many thorns to operate fairly.

But is more tax the answer to our problems? 

Andrewj - phew it can get lonely on these pages.......more taxes most certainly won't solve the  problems.  And many respondents have gone off on a tangent and haven't understood the article. Treasury is simply after more money and looking at ways to get revenue up.

you dont think adding a tax makes something cheaper?
wouldnt making something more expensive - then make it cheaper?

SK - If you make something more expensive - how the heck can that make it cheaper? Buyer reluctance because something is more expensive can only work to drive prices lower when demand is lower than supply.
Adding a tax on to the price is like any other cost of production it gets added on to the final price. In NZ's case the housing shortage is already placing upward pressure on prices another tax of any description would only make housing more expensive as the supply is lower than demand.
If you want cheaper housing you have to get rid of the hidden costs like taxes and the enormous Council costs that are charged in the Building consent and RMA process.  There is also the issue of Council zoning which puts upward pressure on land prices. You can follow Hugh P on that issue as he has dedicated an enormous amount of effort in explaining this on interest.
I have to question whether Treasury is really after more revenue or whether they deliberately want to hold land prices high for economic stability reasons. The Government can make Councils change the rules through the legislative process but they aren't taking any action which indicates they do not actually want cheaper housing. WHY - NZ economy is unstable and the banks could come under pressure. Don't think our Govt can afford any type of bailout.
The ordinary NZ person needs lower cost housing and government decreasing expenditure while the government needs higher housing prices and more income from the ordinary person. The ordinary person and the Governments needs are in conflict.

Prime Minister John Key reiterated later a land tax and broader capital gains tax were still off the cards. Asked whether the implementation of one or the other could allow government to reduce income taxes to give people more income to spend, he replied:
    “At the risk of repeating myself from last year, we looked at a land tax, and land taxes, one, reduce the value of land in New Zealand, by definition, and it has an impact on every single homeowner in New Zealand."

And now we can broaden the intent of the  statement to something along the lines "every single homeowner in New Zealand and every single non-citizen owner of New Zealand homes that resides outside New Zealand"

Everyone would need an accountant.  Wait a minute....I am an accountant.  Forget I said anything.
I'm guessing capital losses would also be able to be offset against income? 
Could the cost of renovations be deducted on sale?  Over 20 years that could make a massive difference. 

Still going to cost you accountants fees to work out how much profit you have made. 
Interest costs must be deductable then as that is the cost you had to incur to make the profit.  But then you have to add back the market rent that you haven't been paying and deduct the cost of renovations and maintenance as some of the gains you make on sale will be due to that and adjust everything for inflation.  Or you could just slap $5K or $10K on to every sale regardless of whether there is a gain or loss.  Make it that the title can't be transferred until it has been paid and watch the tax take increase.

"tax the little shits as they make money out of doing nothing yearly."
oh the vitriolic bile that spews forth.
Love it - keep it coming.

How about a stamp duty on property transactions as per Australia with a lighter rate on familly homes (not the case in Australia I vaguely rember)

Why not a capital gains tax and a land or property tax?  In this case I would allow the land tax to offset income from that property (not transferable)

Gosh, AT, hasn't this here topic brough a whole bunch of Earnest Tax Designers out of the shadows?
And wiv such Marvy schemes (all, I notice, with incidences which curiously enough, apply to Everyone Else!)
Second these Geniuses to Treasury!

Waymad - yep its a trifle concerning how some people want to solve the problems of Govt expenditure. I wish some of these Earnest Tax designers would go back to the drawing board and do a profit and loss report on what government is actually costing them. Brainwashed by bureaucrats and Pollies into believing that taxation is the answer to all the problems. Free thinking has gone the way of common sense. RIP.....

Why not remove the tax deductability of the inflation component of interest on property finance.  Similarly make the inflation component of interest for deposits tax deductable.  This inhibits inflation rewarding speculators and partially compensates savers for the effects of inflation.  Seems fair?

A) There is no "inflation component" and,
B) Inflation calculations are about as accurate as my golf swing (hit and hope)

No inflation?  Then you will have nothing to worry about will you?  Should leave you more time to practice your golf.

Land tax is a great Idea , and it may never happen, Nz seems to be followers not leaders these days.
Land Tax works because it is unavoidable. A land tax does not care who or what owns the land nor where they are. All it wants is payment, if the owner cannot pay then either.
The land tax accumulates and is paid out of the proceeds of the sale upon the death of the owner.
If there is not a real live owner then the tax is simply payable now.
So offshore owners have to pay something.
For the rest of us the fact that Land has a cost associated with owning it will compete with the interests of banks who want to have the majority claim on land the tax will win and over time land values will come down/stabilise because of the tax so the cost to us is mainly the trade off between the competing interest of banks charging interest and of governments taxing.
I like the land tax idea. It is simple unavoidable and if implimented with a big reduction in GST and in PAYE it will help NZ get on with the job of earning a living.

By historical standards high income kiwis are paying low tax. It's just not sustainable in a society with growing dependancy. Sure, some spending cuts can be made, but thats tinkering around the edges. CGT has its problems
low taxes are fine until there's no work. What's the point of haivng low taxes if lots of kiwis are out of work? Increase taxes on higher incomes and get the economy going. The private sector isn't stepping in. Trickle down is a myth.

Stamp duty was charged on all property transactions, both residential and commercial, up until relatively recent times. Residential was oblished decades ago, but commercial was still paying stamp duty on transactions until the late 1990's.

Stamp duty still exists in law, as it was never abolished but is set at zero. It can be reintroduced from one day to the next without legislation.

Stamp duty was also charged on all invoices, legal documents and other similar instruments. Cheques still have stamp duty charged on them ( called cheque duty but actually stamp duty)

In Australia stamp duty is charged on all property deals with an exemption for first home buyers up to $500k.

A CGT will be impossible to police as a "profit " may have been earned by the owner spending hundreds of hours of their own time with partner and kids working on a property themselves.

How do you make allowances for that "expense" to arrive at the profit to be taxed? Are people to be punished for putting in their own sweat and labour?

Name one democratic country where a CGT has increased the number of properties built or reduced the price of homes. You can't because there are none.

How do you make allowances for that "expense" to arrive at the profit to be taxed? Are people to be punished for putting in their own sweat and labour?
Isn't that what income tax is??
The real problem with a CGT is keeping track of all of the expenses over potentially decades.  You would need to file an inventory of all expenses each year and the IRD would need to collate this and keep it on record.  Imagine the paperwork!  Every indulgence would become a deductible - $300 a roll wallpapers, $400 a metre carpets, $12,000 palms... even the gardener's wages would be a capital improvement...
I suspect a lot of homes in top suburbs would have had so much spent on them that there probably isn't a capital gain in actuality and that capital losses are more likely...

Chris_J - Your spot on. There will be those who ensure the right expense documents are filed and those don't bother. The former will not pay CGT and the latter will pay the lions share.
Homes owned by those who do the bookwork will probably get bigger as well.

Despite stamp duty and CGT house prices in the big cities of Sydney and Melbourne have still increased at a similar rate to NZ and housing is more unaffordable there than Auckland if you compare equivalent suburbs and travel distances.
There will be no CGT, stamp duty or any other property related taxes while a National Govt is in power - so that's at least another 5 years.

There is a problem comparing housing prices in Auckland to Melbourne and Sydney. The biggest impost is "stamp duty" which makes buyers think very carefully about the location of where they want to buy a house and whether it suits their needs. Stamp duty has a great influence on the behavioural responses of residential housing buyers. Once locked into a house if it no longer suits their needs it is more often cheaper to extend or modernise or spend a lot of money doing the existing place up rather than move. It can cost $80,000+ just to move. Many people end up over-capitalising their homes. That is why Australian housing price keep increasing, which is a completely different set of circumstances compared to what is happening in Auckland.

Stamp Duty still on the Statutes
Thanks for that historical bit of info BigDad. Now that is interesting. It means the government could activate it and turn it on and off via simple gazette and regulation without needing to introduce a new act of parliament or amend the law. It demonstrates the value of having a grey-haired "man-in-the-cupboard" around to remind us. (we get you out of the cupboard when we need you). Bernard. This is history being lost in time. You should laminate BD's comment and preserve it for future reference to use as a template for when Gabriel's MI team have completed their mission.
Wonder if that recent UK blow-in Gabriel Makhlouf and his posse of four now doing the numbers and tossing ideas around, simply regurgitating Land Tax and CGT have tried going out and talking to some village elders, or even a conference call to the australian taxation authorities for their experience, or getting Dr Ken Henry over for a few ideas. Bet not. Even Gareth Morgan's Big Kahuna doesn't get a mention.


See that Bernard Hickey just sold his home at auction for $1,050.000 after only paying $613,000 a few years ago.
Good on him I say. He did it up  bit and that shows some foresight.
Nothing like good old raw capitalism is there? 
No tax, no stamp duty, nothing at all to pay for helping to ramp up prices another notch.
All good old fashioned tax free profit straight into the hip pocket. Can't beat that can you? 
But wait!
Wasn't he in favor of CGT and controls on property speculation and predicted a massive housing market crash every year for the past 4 years?- yeah right.

Cheers. I think.
I'm still in favour of a CGT and or land tax. It'll come. It's one of the reasons I'm getting out now. Sold the house I live in. Will buy another one to live in mortgage free. Better than a tent.
My 30% prediction was in 2008 when there was a real risk the global financial system would grind to a halt. It actually did for about 6 weeks.. I changed that when the facts changed in 2009 after central banks started printing money, bailing out banks and unleashing massive capital flows around the world.

I thought it was $1,005,000 Big Daddy, but I could be wrong...

I thought the house could have gone for more - my guess was around 1.2 mil however I suspect most of the 800+ sqm land are un-usable looking at the pictures.

BH things were bad and some investors lost their shirts and some still are. Many have been saved by low interest rates which were only brought in world wide to stem the blood flow. It will be interesting when interest rates go up as they will eventually. That now seems a long way off. People will need to be at affordable debt levels when it happens.
People need to remember two things. We have low interest rates because economies are behaving  badly. Secondly there is such a thing called inflation. When BH bought his house the dollar was worth a lot more than it is now. Houses need to go up to keep up with inflation. Most of the gain he achieved in his sale is only catching up with inflation, maintenance and repairs, the cost of the improvements he made and interest he paid to the bank. The spruikers on this site need to get real and be honest. Inflation erodes wealth every year and there are times when houses do not keep up with it. If and when interest rates go up it will be interesting as historically people borrow less and this puts pressure on values.

"Inflation erodes wealth every year and there are times when houses do not keep up with it."
This is what makes a CGT a bit of a travisty....  When u compare the rates of growth of money supply with the rates of growth in House price....  there is a relationship.. ( over the long term )
The conclusion I come to is that House prices better reflect the value of money than does the CPI...  
Peoples called... love affair with real estate is really just common sense.... 
My guess is that when they bring in a CGT  ..they will create some sort of  "CGT deflator" that they think reflects the inflation component of Capital gains.....  
BUT .. u can be sure that it will be just like the CPI and will not truely reflect the "depreciation of money".
In the end it is all about raising tax revenue and not about removing "fiscal distortions"....  If it was the latter ..they would have brought is a "depreciation allowance" for money that is invested to earn interest...

Bernard predicted a big house price drop but looks like he has made a massive gain from the market:
Looks like he is now predicting further increases "Mr Hickey said he could not see signs of the market slowing down any time soon with what he called "a cocktail of drivers for prices", namely Auckland's lack of housing options, more migrants bringing in money and more corporate offices moving from Wellington to Auckland, bringing more people."

Best you read the article in full where it talks about how much we spent on doing the house up before you assume I made a massive capital gain. At least BigDaddy read that far.
I haven't done a proper accounting, mainly because I fear would it would not look so good. 
My rough back of the envelope suggests we didn't make much more than we would have if we'd put the money in the bank. 
The main benefit we had was 7 years of living in our own house without any inspections from landlords or the fear of being kicked out without much notice. We also met some lovely neighbours and I came to love our little part of Auckland. 
I worry about all those other young Aucklanders who want to start families and get on with their lives and start families and get the stability I've benefited from. I was very lucky. I'm 45 and therefore am old enough to have owned property before prices took off. 
Those arriving after the boom are not so lucky.
There's more to life than just making a profit for myself. I actually care and worry about whether my kids and your kids might be able to afford a house. 
Do you?

There's more to life than just making a profit for myself. I actually care and worry about whether my kids and your kids might be able to afford a house. 
Do you?

Of course he does those that don't are in the minority.
Take the money and be done with it - it's an indefensible action but one without choice.

Bernard are you seriously whinging about how much work you did???
No disrespect, but take a look at a "renovated" house in Ponsonby or Grey Lynn and you'll realise that your house was barely "tidied".
Spending on decks that don't add value is just like buying a fancy lounge suite or plasma tv - you can't really include that in what your house cost.  Also just because you spent 4 hours trying to install a toilet roll holder AND because you believe your charge out rate is $200/hr doesn't mean you spent $800 trying to attach the pesky thing to the wall!
From those photos I would be seriously suprised if you wrote cheques of more than $50k on the work on that property (and that's assuming you've been ripped off).  Unless you either did a major repile, rebuilt a part of it, or replumbed or rewired which it doesn't look like you did.  Reading the paper, I hope you had a permit to convert the basement!!  Maybe $15k for the roof?  $10k for converting a room is generous.  You probably got an EECA grant for the insulation, and painting and paving is just maintenance!
And really, "Mr I watch every penny" has no idea how much he spent???
Considering that you would probably say that a landlord need to take into account 0.5% to 1% of the annual cost on maintenance, then you should have spent some where between $23k and $46k just on maintenance over your tenure anyway!
Ungrateful sod moaning about a 63% gain when the general market rose just 28% over the same period...

OMG Chris_J why are you so mean to Bernard??  I don't agree with the taking a look at the "renovated" house in Ponsonby or Grey Lynn bit you mentioned.  They don't look lived in, they look new, remind me of sickbays and they are characterless in the inside...I don't understand why there are so many oooh's and ahhh's for those soul-less houses.  Take a look at 20 Orakei Road and you will know what I mean.

He is like that to everybody OMG it is just his generally mean disposition. 

only mean to Bernies and scarfies...

Orakei Road is a beautiful property but in need of total renovation.
I wan't trying to be mean to poor old Bernie but he can't seriously complain about making a $400k (over 60%) capital gain when the market only moved half of that!
Considering $400k would have built a far fancier house from scratch than Bernard's one, he can't suggest he spent anything like that amount on titivating his home, unless he was an extremely poor manager of his own finances of course!

Ur joking...?? total renovation.??
That place looks very ok to me...

You were looking at this weren't you:
Even if you clear out the shabby furniture, the scruffy curtains and pre-loved carpets, this place would still only suit a dishevelled eccentric.  You did see the kitchen...
Now I have nothing against axminster carpets or antique furniture (although not even a handful of items in those photos would classify as that) but in all honesty in that condition you would probably have to aim at letting it to students.
We had a similar grand old timer near in Fendalton near the University (until the EQ dealt to it) axminsters and all.  Only suitable for students to rent.  Similar to the faded glory of all those grand Dunedin homes.  Certainly Orakei Road is not remotely up to the "ready to move in" expectations of Remuera buyers...

I suspect I might be a dishevelled eccentric..   :)...  
( I thought the kitchen was cool )
i see what mean..thou.

Is this better?
or still total do-up?

Tidy enough, but not my cup of tea.  Personally not a fan of that 1930s/40s style, too much like a state house for me.
Good building site though.  A bit on the pricey side to tear down though - but then 2 unit sites in good inner Mt Eden streets are going for over $2m.  If it was good value it would have sold before being priced in this market anyway.

Congrats Bernard - now the fun starts in looking for a new home - all the best!
My advice to young Aucklanders wanting to start a family is - move to the provinces.  From the stats it looks like during 2005/07 (the big loosening of credit period) the best capital gains in percentage terms were to be found in the provinces as they were coming off a low price point during that speculative run.  Hence whereas in Auckland over that 2 year period the growth was around 15% - it was around 30% in a number of provincial markets - even Wellington prices increased faster than AKL prices over that period.
The diffference is once credit tightened in 2008/09 these markets stagnated or went backwards - whereas AKL continued with modest gains on a low turnover.  Looks to me like AKL gained 15% in median price between 2005-2007 and then it took another 4 years to get the next 15%.  Some of the provinces behaved more like 30% over 2005/07 and then 0-5% since then. I'd say in general, buying is good at the moment outside AKL and if interest rates stay low, combined with credit conditions remaining favourable, I'm guessing the provinces might see another short, sharp increase.
International money flows into AKL - and Aucklanders take the profits off to the provinces, e.g.;

The spillover from Auckland to the Whangarei district has been going on all year Kate, probably other coastal areas also. But they are all banking on continuing cheap oil so they can commute back to Auckland if necessary, and I would hazard a guess they plan on a retirement income continuing. Might be some nasty surprises ahead for some.

Looks like Olly Newland continues to make better predictions than BH ever did, not to mention the other gloomsters on this site.
It's strongly rumoured that Olly gave years of intensive tutoring to BH (and Garath Morgan) in private, on the secrets of making money out of property.
That must be the reason why BH and Gareth made the pile they did.

Yeah, but the debt legacy shackles the rest . Private and public debts not including LA rates are significant for such a small working population - no time to enjoy the property for most. 
I am happy to keep lending my unearned income to the banks to compound that return for as long as it takes - but a terrible price is being extracted by few from the many for the occasional show pony winner.

The other very interesting thing about Bernard's house sale was all the publicity pictures of his house interior BEFORE the sale... very few books to be seen in that house!
Not a good look from a person who thinks he knows enough to tell us all what's going on.

why all the concern about BHnot paying cgt and making a huge profit on the sale.
Certainly not his fault that govt can't get their act together.
As for having no books in the publicity shots well a good clean up usually gets rid of all that crap and of course there are such things now as kiddle computers and tablets

Wow! Wow, wow, wow...!
Taxes got everybody up and writting. Popular subject indeed!
I ask why pay tax? Because without taxation you can't run a country, they say...
Does anybody want to pay tax? We all know the answer to that one....
Do we have to pay tax?
Only as long as the mayority pays taxes. Thay can't throw their whole tax base in jail, they'll have no livelyhood, nobody will vote for them, they'll have no one to 'pull the wool' over their eyes. No, not even politicians are that smart!

Finance guru cashes in - Herald
Mr Hickey was on the other end of the phone to the real estate agent and rejected the first two offers. There was only one group in the race, a middle-aged Asian couple.

Chris j
happy to invite you around for a beer and show you the renovations that added a bedroom and bathroom and replaced the property's retaining wall and pathways. 

Thanks Bernard, but I'm not sure that I'll be back in Auckland before you have to vacate (unless you're still there in the new year?)!
Being a teetotaler I'll have to decline the beer anyway...
Retaining walls, and bathrooms?  So all those works were consented??  I'd still struggle to see an amount having been spent that would make a significant dent in the $400k capital gain ... which is my point, that most of the gain is market appreciation. 
To be honest, without the basement renovation and decks etc, you would probably have found the sale price not being widely dissimilar.  And a lot of the works may be considered general maintenance - certainly the outside needs painted every 7 - 10 years in Auckland anyway.
Just trying to keep you honest Bernard!
Remember if you use the argument that most of the capital gain is from capital improvements, then house price gains would probably be entirely justified at current levels because of larger and more expensive homes, which of course completely negates your "house prices overvalued" argument...
Can't have it both ways...

Ha...Bernard makes a packet in the property market, just like all those 'orrible property investors, then still can't get off his moral high-horse about the 'terrible' high house prices and how bad it apparently is for all of us.