Parker brandishes papers from Westpac and Treasury supporting Labour's Capital Gains Tax; Joyce says such tax would increase rents for poor

Parker brandishes papers from Westpac and Treasury supporting Labour's Capital Gains Tax; Joyce says such tax would increase rents for poor

By Bernard Hickey

Labour Finance Spokesman David Parker and Associate Finance Minister Steven Joyce have gone head to head in a dress rehearsal of the debate around Capital Gains Tax expected before the September 20 election. The full exchange is in the video above.

Parker raised a report by Westpac Chief Economist Dominick Stephens (page 11) and a Treasury briefing paper from 2012 (Page 10) to argue in support of Labour's proposal for a Capital Gains Tax on investment properties. (See here for earlier article on the Westpac report.)

The Treasury paper on the taxation of savings and investment income was produced in September 2012 for Finance Minister Bill English and then Revenue Minister Peter Dunne after English asked if changing tax settings would materially improve economic performance.

The paper traverses a range of tax reduction ideas, including personal income tax cuts, corporate tax cuts and tax cuts on interest income. But it reminded English that Treasury continued to see a Capital Gains Tax as the best way to reduce distortions in the way capital was taxed.

Treasury noted that taxing capital gains on investment properties tended to reduce the amounts invested in housing, increase the amounts invested in interest bearing assets such as term deposits and bonds, reduce the price of housing and increase affordability of owner-occupied housing, increase rents and reduce the affordability of rental housing, increase economic welfare and reduce the level of foreign borrowing compared to the status quo.

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

Meanwhile, Dominick Stephens estimated a 15% capital gains tax on rental property could reduce the value of a property to an investor by 23%.

"Even if we assume a 10% lift in rents, the loss in net present value of the house to a landlord is still 15%," Stephens said.

"Similarly, removing the tax-free status of most capital gains would reduce the capital value of farm land," he added.

"How such a change in fundamentals would affect actual market prices is, of course, unknown. But our suspicion is that the mere announcement of a CGT would have a marked impact on farm and property prices."

Parker asked Joyce in his parliamentary question if the Government had seen the reports.

Joyce said Westpac and Treasury preferred a comprehensive capital gains tax that included the family home and that Treasury had advised the majority of its impact would be in raising rents.

"The Inland Revenue Department’s view, which was also reported by Treasury, was that the practical disadvantages were likely to outweigh the advantages," Joyce said.

He said Westpac had also commented that a capital gains tax would fall heaviest on lower priced properties, given they were more likely to be owned by landlords than upper-end properties.

"So, once again, the Labour Party, in its attempt to fiddle around with the economy, would lift costs on those members of society who could least afford that," Joyce said.

Joyce also said Westpac's broader analysis was that a change of government would slow economic growth and eventually force up interest rates because of increased Government spending.

Parker finished his argument with this question: "Why does he not stop the pretence and admit that National’s housing policy has been totally ineffective and adopt Labour’s comprehensive housing policy, which addresses both demand and supply by implementing a capital gains tax, excluding the family home, building 100,000 affordable houses, and restricting purchases by offshore buyers?"

Joyce went on to highlight a 2005 speech in which David Cunliffe (then Associate Finance Minister) said the disadvantages of a tax on capital gains outweighed the advantages.

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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145 Comments

National don't want their "mate's" wealth taxed any more than it is already - and if they get another chance they will lower personal and company taxes and increase GST - disadvantaging the "poor" (labour party supporters) even more.

Its a  RESENTMENT TAX  and nothing else , and it will never , ever,  bring house prices down because sellers will seek to pass the costs onto buyers , or simply hold the asset to avoid the tax

Oh chap, we don't RESENT you - we feel SORRY for you. And as for you claiming to be a greater authority on this matter than Treasury??  You're having a laugh mate.
 
But you keep repeating your mantra and maybe one day it will come true!

That is nonsense Boatman and you discredit yourself to whinge like that. Capital gains is unearned income and taxing it is only a portion of the action needed to prevent this legalised theft happening at all. Like I put it to Don Brash, to which he could not answer. A capital gains tax is like taxing a thief on their ill gotten gains. Imagine if a thief steals $1000 from you, and the judge when ordering reparations subsequent to conviction, says pay back (to you) 15%, but you can keep the rest. That is the reality of it mate whether you like it or not.

As well as not having property I hope you don't have any savings or other investments earning unearned interest or dividends income? 

I thought I made that clear to you already Bob, I have made the moral decision to get my affairs in order. How about you with your new found understanding of your destructive behaviour?

So no savings getting interest then? Only savings in the mattress that you've earned through your own direct physical efforts?

Yes. How about you?

By the way Bob, I own an energy technology. So I have put my efforts into actually producing something of real value.

You mean you have made decisions, taken risk and expended effort in the past so don't need to work now but live off patents - a classic rentier "... that receives income derived from economic rents, which can include income from patents, copyrights, brand loyalty, real estate (land), interest or profits;" exactly like a property investor?
 
I'm not so fortunate so have to work for a living. My job frequently involves trying to provide affordable housing which is a 2 edged sword. I don't get paid much relatively, but see first hand what makes housing expensive and how misguided most of the proposed solutions (like cgt) are so can benefit from that knowledge. 
 
 
 

Affordable housing in a landlording scenario is an oxymoron. Don't kid yourself that it is actually work, work is when you produce something. Luckily I do actually manufacture something rather than live off the efforts of others.
 
But the ownership is actually the intelligence I hold in my head. Yes income from patents are economic rent, unless they rent facilitates further development.
 
Your moral abyss is getting deeper as you disclose more.

What are you on about? You assume a landlord? I'm an architect. You saying it's not work to use my skills to design dwellings for owner occupiers that commission me to design efficient houses for them?

So you are saying you don't own any rental properties Bob? Or any other sources of unearned income? Or rely on capital gains on your own dwelling, or clients dwellings? My apologies if you don't.
 
I only hope that the houses you design(a fair endeavour) also have a moral background in that they are sustainable. I mean really sustainable, passive solar, limited reliance on a motor vehicle(oil), low embodied energy.

Oh no. I've had a rental on the side and no problem with it. Capital gains on ones own dwelling are pointless (although higher valuations do assist with improvements like insulation and solar systems) and I don't know how you'd benefit from a clients? But you'll know architects both don't earn much and want a decent enough house to experiment with. So knowing years ago that prices were going to go up and populist solutions to the problem won't fix it I used a renter to get rid of my mortgage.
 
I'd much prefer it if houses had just stayed cheaper relative to incomes and I never had to use a renter - they are hard work (ok not work in the economic sense - just in the sense that it took a lot of time, energy and money). But knowing that wasn't going to happen I wasn't interested in being poor just to avoid the moral abyss.
 
anyway that's done so now I can enjoy designing stuff.  Yes passive solar is a no brainier, as is avoiding car reliance and low embodied energy - which I reckon is first achieved by appropriate size and efficient planning.

Better you than me fighting the planners & nonsense around building, but then I will get back to design once I offlload my technology. It seems to me that Architecture Schools are more about churning out CAD technicians rather than thinking designers.

"You mean you have made decisions, taken risk and expended effort in the past so don't need to work now but live off patents - a classic rentier "... that receives income derived from economic rents"
 
Royalties themselves are not correctly viewed as rents insofar as a license deal is really just a risk-sharing contract that avoids the alternative, which is an outright purchase of the patent with a chunk of capital. The licensor agrees to forgo the capital purchase in return for a share of sales revenue, connecting his fortunes with that of the licensee. The licensee avoids having to spend the capital (big risk), and the licensee stands to benefit more over the long term if the product is successful (which provides additional benefits because it encourages successful design!).
 
Intellectual property itself is a form of economic rent (granting capital value to abstract ideas), but this really is no different from the concept of real estate able to be owned by individuals. Without such constructs of law and society, productivity would be heavily retarded because everybody would be disincentivized to risk resources developing technology (patents) or reputations (trademarks) or housing and architecture (real estate). All of those things are obviously beneficial, and more so with increasing quality, so we as a society allow proprietorship.

So scarfie, how is your "energy technology" going? Is your target market "valuing" it as much as you do? I know it, cute, but no big deal.

It is a hard sell, but they are envitably pleased when they take the leap. One customer used the term "astounding" at the result :-)
 
You won't believe the scale of where I can push the technology. If it hits home somewhere it will equal 10% of our GDP.

What is it then? Something clever/solar for houses would be cool?

Tax, any tax, increases the cost of a good or service, there is no evidence that a CGT has worked in other western countries to make houses more affordable. Labour need to call this what it is, a wealth grab.

A wealth grab tax (WGT) - it has a nice ring to it. But what about the capital in bank deposits that is taxed on interest at people's marginal tax rates when it need not be?  

huh? all profit / interest is taxed, or should be.
Hence a profit as a capital gain, should be.
So this includes shares as well as housing.
regards

a) All gains should be taxed equally.   So its not a wealth grab but a no-tax payer profit cut.
b) You ignore (surprise surprise) the weight of literature on CGT suggetsing it helps.  So OK it isnt a cure but I see no one saying it is.  But I do see lots of ppl claiming others claim taht, ie straw man argument.
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1125...
http://www.victoria.ac.nz/sacl/centres-and-institutes/cagtr/twg/publicat...
http://www.treasury.govt.nz/government/longterm/fiscalposition/2013/affo...
regards
 

It depends what your stated objective is; Labour is saying that a CGT would make houses cheaper, this is not factually correct, there is plenty of evidence to suggest the opposite will happen.  If their objective is to collect more tax then yes, it will open up wealth of all kinds to be pillaged by the govn.  The assumption being that the govn knows how better to spend my wealth/money than I do. 

Surely your tennants know how better to spend their money than you do? Same agument your use buddy. Unearned income is all equal no matter where it happens.

CGT is a RESENTMENT TAX , and goes to the heart of Labour's TAX -AND- SPEND -OTHER- PEOPLES- MONEY policies

How ridiculous - based on such logic PAYE could be dubbed a resentment tax as well - earnings are earnings are earnings, I'd have thought.  Feel free to point out why some earnings should be treated/viewed differently to others.

What about business tax? that taxes the "productive" making a real good doesnt it?  Why is it fair to tax those?
What about tax on interest that the OAPs earn? so its fair to tax their often small extra income?
Why should share holders not pay tax on a profit from selling shares?  because they are (probably) richer?
regards

...the horse has bolted.  Bringing it in now would achieve little...except allow capital losses to be deducted when property falls flat on it's face - as it will inevitably do.

No, my understanding was, there is no allowance or plan for it for capital loses, this is why the tax is 15% and not 30%.
regards

there was alos no allowance for inflation, so you could easily be in a situation where your house has gone down in value - and you still get a tax bill when you sell.
 
15% tax is way less than current CGT that people who flick property for profit must pay. So investors wouldn't like it, but speculators must be all for it?

Even a third wordl corrput dictatorship like Zimbabwe allows for inflation in the calcualtion of the TAX

The UK removed inflation adjustments (called indexation allowance) from its CGT in 2008

So if you have a $100,000 house for 10 years with inflation at 2% you would need to sell it for $122,000 to break even - i.e. to have zero capital gain - then you'll get send  a tax bill to pay for $3,300 on capital gain you have not made.  

It is by no means a foregone conclusion that the gain could not be linked to the CPI or inflation index.
If the gain can be linked to inflation, then in this scenario no tax would be payable.

Given that rises in house prices are the main driver of inflation, then why should they be exempt?

Funny thing about Zimbabwe Boatman, Mugabe and the ruling ZANUpf, just like the Nats appear to be doing in NZ, put extremely pro party followers like you Boatman and Happy123 on forums like this... The question is, do you get paid by the pro National, everything else is communism and corrupt comment? Or for something else? Becuase surely it can't be by the 'thumbs up' indicator...
I can draw a number of similarities between our ruling party and theirs... cozying up to Chinese big business (read China Central Government funded) at  the expense of their own people is just one...

Hmm, yes, well there certainly appears to be a need for such an allowance?
regards

Ah the old its too late so why bother argument.
By the same token if its "too late" (and its not, CGT can be calculated today going back say 10 years)  then how can it bother you by seeing it implimented?  its not going to effect property specualtors, is it?
yeah right...
regards
 

Labour is saying they will make houses more affordable, which can mean only one thing, force property values lower.  That then begs the question, how far is Labour going to crash the housing market?  The combined effect of building 100,000 homes (massive over-supply considering we have only 40,000 shortage), a CGT, a ban on foreigners and limiting immigration and then the economy turns.....
 
My estimate is that a Labour govn would crash the housing market by 60%.  We will have very cheap homes but at what cost?  If they are not going to force prices lower then how are they making housing more affordable and what is the difference between them and National?

60%, oh dear. All those property investors might actually have to get a job where they produce something.

My theory is a lot of these investors are 'boomers' seeking to secure a stable income (i.e. rent) from a 'real' asset before they retire. Whilst yields are out of whack and probably favour renting over buying, I suspect they don't care provided they have that secured income stream - stocks may crash and burn but land will (almost) always be there. 
Anyone nearing retirement has probably been burnt at least twice by the stock market (which isn't any more 'productive' than housing - buying shares in an already floated company won't make it more productive) so you can't really blame them for seeking 'real' income producing assets.
I wouldn't touch the markets with a 10 foot barge pole right now, they're all pumped up on easy money, and (overseas at least) leveraged to the hilt. I wouldn't expect anyone to invest in this market - particularly if you're nearing retirement and can't take risks. 

Stock in companies is by definition productive. You are making your capital available for the company to use. Buying shares in an already floated company contributes to demand for those shares and expands its market cap (or slows its contraction), and thereby ups the capital available to it. That you're trading shares rather than buying on day #1 from the IPO is irrelevent.
Residential housing is not productive other than the baseline provision of a roof and ceiling for people. If a given house doubles in value without any fundamental changes such as doubling its capacity to house people, the inflation is not linked to sensible fundamentals. Capital sunk into such false valuations is unproductive. QED.

capital and buying houses has same effect as paper instruments.
the increase in value allows more leveraged borrowing to be invest there or elsewhere. in both cases

CGT will increase house prices as investors will opt never to sell rather than lose 15% of their equity (in addition to 5% in selling fees).
 
Supply in older desirable areas will dwindle as homes remain rentals for decades.
 
It's a simple calculation, if I have a house I paid $100,000 for and it is now worth $525,000, if I sell, I pay about $25,000 in agents and lawyers fees and associated costs, then I pay about $60,000 in CGT (15% on $400k).  Net result I have $440k to spend on another investment.
 
If the rental returned 5% ie $26,250PA, then to get the same return I would need 6% from the $440k invested, ie a return 20% higher...
 
If the investment was held for a further 10 years and both the new and old investment ended up having similar returns then the investor (after doing the math) would be better off by around $100,000 (pre tax) by not selling the first property (assuming the return was about 5% for both and capital growth was about 30% for both over the ten year period).
 
The morale is people will hang on to their property, very rarely selling, hence prices in inner areas go ever skyward...

The morale is people will hang on to their property, very rarely selling, hence prices in inner areas go ever skyward..
Where is your evidence of this? 

Chris J has very succinctly demonstrated that it will be more efficient to retain an existing property rather than sell it, pay the CGT and then reinvest the proceeds. IE less supply of property.
If you cant follow the maths just put yourself in the position of the owner of an asset. You will be much less likely to sell it if you have to pay CGT. It makes more sense to retain it and get a return on the money you would otherwise have paid to the Government.This will particularly true once rental yields have increased.
If properties are held in companies or trusts they will never have to be sold as the owner never dies.

I suggest he will not let his morale be sequestered by any moral attitude

Sorry I failed to corral the stray 'e'...

Where's your evidence that they will sell? 
 
As an investor I can tell you I certainly won't be selling under a CGT, just wait until the govn changes.  Or sell a home that I 'live' in and avoid the tax. 

he just spelt it out for you.

Are you going to sell and lose 2 years worth of returns?  Or just keep it another two years?

It may well be a simple calculation helped by tunnel vision that the property is worth $525k.
It may also be worth a lot less once the CGT is implemented because the 'net' yield and price is then set by the forward potential with the CGT in place.
Without the benefit of easy expectations of capital gain the owner will want a higher yield based on income only, Since the rents market is severely limited by ability to pay by the renter, the owner will want say 7% return not 5% as now and if the rent does rise (let's be generous and say by 10% to $29k rounded) the new sales value is $414k.
Conclusion is that the "devil will take the hindmost"
Those selling first will get closer to $525k than those who wait to get $414k
Oh dear, how sad, never mind

Your comment is confused, why have you assumed a 111k drop in the properties value?  If the rent doesn't change, in fact goes up due to fewer rentals hitting the market the return for the investor improves.  A CGT simply removes any incentive for investors to sell until a) the law changes or b) they move into the rental for the minimum amount of time to be able to declare it their 'home' and sell without the tax.

If you don't understand the drop in value, you don't understand the impact of a CGT or Basel's comment.

Yes a nice piece of logic by BB that undermines ChrisJ's numbers, which on the face of it look sound but fail in a depreciating environment. The first out scenario is coming, rest assured of that.
 

If there was a one off price decline from the introduction of CGT (ie investors requiring a higher cap rate) then that has no impact on the decision whether to hold and not sell in order to defer any CGT payment.
 
Mark my word a CGT will cause less supply of centrally located property as investors buy and hold or if they already own, just hold.
 
A short term reduction in prices from a rush of sellers trying to avoid CGT's introduction will be very short lived. 
 
If you buy a rental investment for its yield the capital gain is only a bonus and over the longer term (say 20 years of ownership) pales in comparison to the income derived from the property.  Paying a CGT won't deter genuine investors.  Only short term speculators masquerading as investors will be impacted, and the tax system and property prices would be better served by targeting those people.

Here is the bit you've missed:
 
A lot of property investors are mortgaged, some heavily, and many will be sitting somewhere around breakeven on the income and costs related to holding the property. An increasing number will have to put some of their personal income into the property as interest rates rise (making a loss). So aside from the fact that gross yields are probably more like 3.5-4%, the real issue is that capital gains are the only reason they are invested. So the CGT takes a significant slice of the only real earning they can ever expect to see from the property (the capital gain).
 
So the impact of the CGT is partly dependent on how expensive property is: if property prices are rising at 10%+ per annum or if yields are 7%, perhaps it's not so significant. But given Auckland's (in particular) price bubble, the direction of interest rates, throw in a ban on foreign buyers, and the equation is very different.
 
Mum and dad investor are left subsidising their investment to the tune of $5k-$10k per annum, with prices flat or falling, earning no interest on whatever equity they have, and the knowledge that any capital gains will be taxed. Not so rosy, the more switched on will sell early.

The bit missing off that, is while houses sale prices are higher to recover CGT, and rents rise to make the yield on those prices acceptable.

It means that all those sitting are seeing a rising equity in their holdings and that gives them more equity to borrow with.

Which is why we'll probably see a CGT in the next Red/Green Government.
It increases government coffers marginally, helps bank loan size moderately, and the only losers are the renters....who will blame it all on the rich and vote red/green again.

Exactly Zp. Happy has been (or is) captured by the belief that rental investment is effectively a given capital profit.
He should study the share market. The only difference is the speed of the market. What happened to Chorus when they were given the bad news over their allowed pricing? There was no threat until months out but Mr Market said "too high" and the fast money jumped out.
The same thing will happen with CGT. Prices will start to move at election day if the Nats are dethroned. As I said the timid will avoid getting in and the cunning will start to get out.
Soon after price movement will encourage some renters to dip their toe into owning their own. One less renter equal one more owner. No change in the number of houses. Certianly no increase in rents.
What about the ban on overseas buyers? Their money is much softer than the locals and the capital flight could be quite quick. The property prices will ease. The dollar will ease. No pressure on the RBNZ so interest rates can stay lower.
Happy, be happy....for now anyway

Fair enough when you die your kids pay the tax....no biggee in waiting.
In a way though I'd suggest real landlords wont buy and sell frequently, but look at the income.  Speculators on the other hand look for the quick $ and income doesnt matter much.
regards

The rule for any new  tax is
IF YOU WANT LESS OF SOMETHING , THEN SLAP A TAX ON IT TO DISCOURAGE IT
Do we really want fewer houses available for rent ?
AND
If you remove private investment from the housing rental market , who is going to provide rental stock
HOUSING NEW ZEALAND ?
I cant see it
 

OK, so using your dubious logic less specualtive demand for houses as well means a lower cost for FHBs.
Sounds great to me.
NB, I would suggest genuine, professional landlords who would also then be able to buy houses cheaper. These who look for a steady income stream will also be glad to see the property gamblers exit.
regards
 

"see the property gamblers exit"
 
Property gamblers already pay income tax on properties they have flipped at the normal income tax rate 30%+ (depending on how much they make/earn).  The devil is in the detail so Labout will need to declare whether it then drops to 15% only after the intro of a CGT or whether it's income tax + CGT

There will be more impact if there is a change in the definition of tax on Capital Gains or rather definition of Capital Gains. Right now it is all based on "Intent". I can make a gain of X million but if my "stated intent" was "Not" to make a profit then it was "Not" a Capital Gain. IMHO, that is where the catch is with the existing law.

but if the IRD decides it was your intent? You might have to justify yourself in court...
regards

If a capital gains tax exempts the primary residence investment will flow into owner occupier homes. Is that really what we want? At least investment in rental properties provides a place for people to live. How a capital gains tax is supposed to solve a housing crisis is beyond me. The lawyers and accountants will love it and renters will pay for it.
If labour are fair dinkum about this they will need to make the tax comrehensive. Good luck getting elected then.

Tax and beareacracy always make things more expensive, Labour is trying to sneak in yet another tax.  And remember ALL capital gains on any asset will be covered. 
 
What happens to Kiwisaver and retirement funds when you cash in? 

Question: look at our neighbour across the ditch. They CGT for ages, did it make housing more affordable there? 
Try to buy a similar house in Sydney or Melbourne compare to Auckland.. Auckland is a bargain!

Mumbai is cheaper still even without CGT.

Land tax
Fair, easy to collect, broad based,
A Land tax should be part of the mix, GST increases and changes resulting from the internet are making that tax distortionary. So bring GST down, and bring in a Land tax. CGT to me is like GST and PAYE you have to keep them low enough so as not to cause distortions in markets- ie don't let them get so big that people work around them. To do this have lots of different taxes but keep them all low.
In the end it is all a Red Queen Race.

Y'all are assuming that CGT would be payable on a Realised gain.
 
In which case the effects will be delayed until the sale crystallizes - could be decades.
 
But as the point of any tax is, as with plucking a goose, the most feathers with the least hissing, expecting any Gubmint to wait Decades for its revenue is a forlorn hope.
 
So, a thought experiment (the safest kind).
 
What if the CGT is based, as with foreign shares, on a Unrealised value (imputed...), and is payable as with any other tax, as part of an annual return?
 
Gubmint gets its revenue Now, not in ten years or when the Hold-out Land-lord carks it.
Expenses (which now have CGT as a PAYG deal) rise.
 
Rents rise......
 
Uh-oh....

Why do many people believe rents rise as costs gp up? Rents should be charged at the maximum anyone can afford weighted by the risk of the landlord to having an empty house. The increased cost will not change any renters abilty to pay.

I only wish that ability to pay was the way our rental market functioned, then we taxpayers wouldn't be spending $1.1 billion on accommodation supplement.

Correct Kate , the problem will not be solved by charging more tax ............. it simply adds costs , and pushes the prices higher

You mean has the potential to push the subsidy higher! And good luck getting that out of any government in the future :-).
 
Point is, there wouldn't be the need for a subsidy if prices were in line with income/ability to pay.

Rents are set by the market and rents for current tenants are generally a bit under market as landlords are happier with the devil they know. There is no real shortage of rental property, even in Auckland so rents have not moved much. That is the explanation for house prices in NZ being very high in relation to the income they produce. Where accomodation has been removed form the rental pool in Christchurch rents have increased markedly. Nothing to do with tenants ability to pay.
If a GCT come in there will be a lot less properties added to the rental pool and some gradually withdrawn. That is the idea as it  is intended to take investors out of the housing market  and thus reduce competition for the purchase of homes, especially lower priced ones which make better investment properties. Less houses to rent, higher rents. Cant afford to pay?  Shift in with Mum and Dad

Agree, renting is Christchurch is a nightmare with many landlords pushing as much as they can.
Your second part is only correct for new builds, but you then talk about investors pulling out reducing prices. If the investor sells or doesn't buy the house, it is still a house for someone else to buy and doesn't just disappear.

I am inclined to think that a reasonable portion of new build units and apartments are sold to investors and their willlingness to purchase off the plan helps developers get projects away. If that dries up there will be less dwellings built.
In some cases , if an investor does not purchase an existing property it may well be sold to an owner occupier who would then be able to buy it cheaper because there is less competition. However I dont  to think that a large chunk of renters will be able be home buyers over night just because the housing market cools a bit. There are the small matters of deposits, debt service , credit ratings as well as many renters not wanting to purchase where they are living. Those people will be caught by a falling supply of rentals and they are the ones least able to afford higher rents.

It's not a problem that renters won't all turn into home purchasers overnight, because investors won't all sell up overnight.  They'll be a slow rebalancing as each economic actor comes to a life point, weighs up the options, and for some, choose a different course of action.

The stated purpose of a CGT is to force landlords/investors out of the market, if landlords exit the market there will be fewer rentals and what's left will be fought over by more people, forcing rents up.  You have to remember in Auckland it's a supply constrained market, so there's a shortage of all kinds of property, including rentals. 

No, the stated purpose of a CGT is to remove the tax incentive to invest in untaxed investments.  The investor will then weigh up their options, and for some choose investments other than property.  No one will be forced out of the market, anyone is still free to invest in rental properties, they just wont be given favourable tax treatment over other investors.
 
As you say with less investors, house prices will come down, rents will go up, and the OECD will stop saying we are the most expensive housing market in the world on a price to rent ratio.   With lower prices, and higher rents, it will still be a rational decision for many to enter the rental market.  For many renters it will become a rational decision to own instead of rent.

CGT = less investors = higher rents = higher house prices
 
Also less investors = less buyers = less houses built = less supply of houses = higher rents and higher house prices.
 
You can't win, all equations end in higher house prices UNLESS they start with less people or more houses.
 
The only taxation which would potentially lower house prices would be a velocity tax - ie lower the incentive for short term speculation.  Why?  Because owning a property for a few months or a year means that the buyer can disregard debt servicing requirements if they can see a tax free windfall in the short term.  Tax them at their marginal rates and this will all seem less attractive.  Funnily enough this is the current tax law, but it needs to be more thoroughly applied.

all equations end in higher house prices UNLESS they start with less people or more houses or less property investors.  Particularly relevant to the Auckland market.
 
A capital gains tax will direct some investment away from housing. Less investors = less buyers = lower prices. 

...but new zeland is different, our experts have decreed it so </sarcasm off>

when you say, higher prices, higher than what?

I have not looked at Labour's proposal in any detail as I dont think we will have a CGT anytime soon, but I do think they are looking to tax realised gains. That is probably why they are not counting on much revenue. They know very little CGT would actually be paid.
Stevens point above about there being no intention to allow deductions for capital losses is true I believe. That really is not fair and not too many people seem to have cottoned on to that. Any tax that the taxpayer regards as manifestly unfair wont stand. It was the tea tax that started the American revolution.
I thought the 15% level was because they dont want to tax any capital gains at above the tax payers marginal rate. I did not realise it was some wild guess at making up for no deductions for capital losses.
 

I would assume that any landlord who isnt a half wit is already charging the maximum the renter will pay. Therefore I doubt that rents can rise much overall.
regards

problme is that least hissing bit... they wear very expensive earmuffs....  then it doesn't even matter if the goose is killed in the process

It cant work , you are asking for cash to be paid on a no-cash gain .
How are landords ever going to pay the Capital Gains Tax when they have not received any money ,and the so called gain is merely a book entry estimnate  ?
And how are you going to get each an every investment property valued every 12 months to arrive at value ? ,and
What happens if the market falls ?
 
 

Precisely Kimy , it seems most supporters are quite clueless about how the tax actually works

Yes indeed Boatman, you and Kimy are ignorant of how the tax works.
 
Labour's CGT WILL NOT replace the current income tax paid by speculators, that remains.
 
First telling everyone about 'Median' (wrong) and now this.
Boatman; your credibility is sunk.

Again you do not understand kimy.
 
The IRD does not have to establish intent.
It is up to the taxpayer to disprove it,
 
The income tax for traders will remain.
The IRD will simply follow the legislation.
 
Check with Labour if you still disbelive.

 
Chuckle
There are lot of things Kimy aka ZZ doesn't understand
 
Have been following the case history of Kimy-ZanyZane's favourite property lady
Check this out
By the time the IRD has finished with her you can bet she wished she had kept her head down, mouth shut, paid up, and never went to court
http://www.nzherald.co.nz/property/news/article.cfm?c_id=8&objectid=1125...

Ha, that's funny two otherguys.
I didn't realise kimy and Zanyzane were one and the same.
 
I recall ZZ and cowboy trying to convince us that bank shareholders were higher in the pecking order than term depositors in case of a bank operating under OBR rules.
That was worth a chuckle as well.
Explains a lot however.
Thanks for the heads-up.

The comments about Houston gave it away.

we'll see who pays haircuts then on the next round.

I came agcros a few of these when i was last looking.  One of my first Qs is is it freehold if it isnt I walk away. 
regards

Really? not my understanding of the IRD. Depends on the amounts I suspect....a few $100k OK, some millions, thats a nice 30% to collect, becomes very worthwhile plus with back taxes and penalties.
regards

I didnt think it did, is if you are still speculating then you still pay that rate? and the CGT catches those left.
Selling, well OK maybe, but It also discourages ppl from buying short term for speculation driving prices higher so prices could well stay lower as their would be less demand.
Im sure you can read anything in you want if you try.
regards
 

What is the purpose of all this?
 
Does the government want to collect more tax or does it want to make housing more affordable as a means to push home ownership rates back up to historic averages? Or both?
 
If a bit of both, then why not exempt the sellers of residential dwellings to FHBs from the newly introduced CGT on investment properties?  It would push owners of multiple residential properties into getting out while there was still a good supply of FHBs in the market. And finally, FHBs would have an advantage over the investment property purchaser.  It also would not erode the value that an owner-occupier might get for their property because they are on a level playing field given they were never figuring CGT into the equation anyway.

Good idea.
regards

Thanks!

Oh I do suspect the future labour Govn wants to collect more tax BTW, it has things it needs to fund, so I think its all not sweet smelling.  Whats not to like for Labour? they get more tax off ppl who wouldnt vote for them anyway to spend on ppl who would.
 
regards

Thank  God Labour have resurrected this stupid  TAX AND SPEND policy , they are now g'teed to lose the next election , having just excluded almsot every intelligent and remotely ambitious Kiwi in the whole country from ever  voting for them

What makes you think the people excluded from voting Labour by the CGT policy are in the majority?  They probably aren't which is why it may be smart politics even if it is harmful to their own constituency. Those people may in the majority of those who will actually vote though.

Well you're wrong there - intelligent and ambitious kiwis are the votes National are losing.  I'm sure you wouldn't know, but young professionals are genuinely angry about how they've been shut out of the housing market.  Even with $50-100k help from mummy and daddy they can only get as close as Onehunga when they're used to living in the heart of London, Melbourne or Sydney.  On top of that, they're used to efficient public transport and the Nats aren't interested in helping there either.
 
These are young, creative, ambitious people but they feel they've been let down by the baby boomers and more particularly - National.  The children of true blue National families are going to vote Labour this year and it's an absolute scandal!
 
I'd be pissed if I was a National supporter, between this issue and their Ministerial corruption they're losing votes fast.

Spot on. And don't forget the growing numbers of mums and dads who can see the situation for what it is. My dad is a National voter who is sufficiently pissed off with the crony corrupt politics and foreigners buying NZ that he will be voting Labour this time.

Maybe you could explain to me how a Capital Gains tax is going to get anyone past Onehunga ?
Its a recipe for disaster

Tax ppl who wouldnt vote for them and spend on those that might, a win win for labour.
regards
 

Hiya Boatman,
"having just excluded almsot every intelligent and remotely ambitious Kiwi"
Isnt it tempting to assume all left voters are have no business savvy and are dumb.
I challenged a friend recently about this , I was able to name several friends who very successful business owners who are lefties. This person was at best aspirational to this but lacked the discipline required.
This constant mantra that those who dont share our political views are dumb, is a standard lazy arguement.

CGT will not just apply to real estate, I think, but to all capital gain. Labour also proposes the gain/loss from housing be ringfenced.
 
http://www.nzica.com/News/Archive/2014/March/Capital-gains-tax--an-elephant-in-the-room.aspx?p=1
 
 

Interesting piece, didnt realise the 39% top rate was still a goer...
regards

Wow, Joyce just got owned - not often you see that!
 
It's no surprise that National would ignore Treasury advice when it hits them personally in the pocket, but they need to realise that this issue is a common talking point among the public now and they are on the WRONG side of the debate.
 
They're shedding votes fast - September 20 won't come quick enough for them!

National still looking backwards expecting us to vote on things that were said in 2005

They should forget CGT and introduce death duties.. Once you gone, you wouldn't have to worry about it, someone else problem.

Too easy to circumvent as there is no gift tax. People would just gift most of their assets to their offspring.

wow the panic is setting in....
regards

Fear, here we go, yet more of lets do something else! anything else!!! but the tax that's going to hurt me...
Interesting....
Yes fear.
regards

Property investors moaning about a CGT miss the wood for the trees. Whether for political or economic reasons NZ's property madness will not continue. CGT or no CGT. At 8x income or more it's only a question of what starts the correction and when, not if there will be one. It might not be a "crash", but the capital gains won't continue from here.
Good on those who see endless gains in property, back yourself and go and buy another investment property.

Kimy, you may well be right and make a fortune. But this is similar to being able to pick good stocks while the market is tanking. Some individuals might do well but the majority won't.
Lets assume Auckland needs 10,000 new homes each year, and 4,000 of these are apartments like you describe with 180 homes, 4,000/180 = 22 people doing well out of their road frontage positions each year. Get in quick before we have an over supply!

Agree with the CGT with a proviso.  Ifsome goverment ever manages to get property values down to a sane level, would property investors be able to claim the tax benefit of the lost value.  It would be obscene if they had tax free gains when values rose, the law changed and they enjoyed a tax write off when values fall. 
A CGT would have other benefits also.  How many companies are managed purely for the tax free gain when they are sold.  This is not in the countries long term interest. 
A land tax would be a good alternative or a tax on the total value of the asset that reflects it's fair earning capacity.  This would catch a lot of tax dodgers and entities that transfer profits overseas.
Sooner or later one of these options will be implimented.

There is no priviso for a loss claim in labours plan, hece teh 15% tax and not 30%. 
I dont think there should be either, the policy is to make property speculation risky with substantial losses possible and low gain in-between.
regards
 

The problems that a Capital Gains tax are meant to resolve are over-priced housing, primarily in Auckland, and provision of investment capital for economic development of New Zealand (increased domestic savings).  The problems of Capital Gains tax have been well and truly outlined previously, and are in the balance, too punitive for the domestic hard-workers who have saved and succeeded .  In New Zealands case, there is actually NO NEED FOR A CAPITAL GAINS TAX, because simple changes to our investment rules for overseas investors can change the Auckland overpricing problem, and contribute to domestic investment.  We should stop any purchase of current housing stock in the Greater Auckland area, and require resident immigrants to build new houses.  In addition, we should define what is an excessive return on overseas investment and tax the excessive income.  The latter proposal will be a disincentive to exploiters in the overseas investment community from repatriating their earnings and provide another means to stop overseas banks and financial institutions avoiding paying reasonable contributions to income tax. 
Labour's proposal will be a major blow to those who have saved to help children and grand children make their start in life, and must be seen as a continuation of the Marxist ideology which wants to control the means of production.  Thank God the people of New Zealand will have no part with a Capital Gains tax because they can see through the real reasons behind Labour's efforts to worship mediocrity and attack the tall poppies.

yada yada....all these commies no one wants...
yeah right, really? dont you think most ppl can see labour isnt communist? except maybe for the extremist nut jobs on the right?
regards

Yeah yeah...you sound just like national, make it up...on the fly....makes no sense but then that seems par for the course.
regards
 

" Labour equals lower interest rates " .....
 
.... there are many forgotten heroes in our society , the savers , who have $ 120 billion reasons why they want higher interest rates , not lower .... Why do we continue to punish the savers , and pander to the real estate speculators ?
 
VOTE Graeme Wheeler of the Reverse Bank  , he's the only one around making more than half bugger all of any sense at all !

So you have sold your shares and now have your money on deposit?
Anyway they arent heroes by and large, merely the previous generation who have used up the world's resources...and banked some of it.
Labour CGT will help keep interest rates lower as will the LVR...im sure your "heroes" wont want an OBR event taking their money.
regards

What rubbish,
"Joyce also said Westpac's broader analysis was that a change of government would slow economic growth and eventually force up interest rates because of increased Government spending."
Govn spending where there is insufficient private spending can have not only a positive effect but in a recession a multiplier effect.
So whatever the action it will be worse because it was labour that done it...
Really they way national are going shows they have no economic acumen at all and cant even lie well.
regards
 

If you want to pay tax on your bach, your shares, your business, your farm, your inheritance and your home office then vote for Labour - hard Labour.
 

or vote for the other lot and sell them all off to a foreign vampire

Yep tax ppl not paying tax, Im all for it, reduce tax on ppl paying tax yep sounds good.
regards
 

Smell the fear..... Boatman, Kimy, Happy 123, Olly....

The price to wages on affordability is already 6 to 1. Im not aware of any property market that has gone significantly past 9 to 1.  Yet with a doubling you imply 12 to 1 and trebling 18 to 1.
That frankly sounds loopy.
regards

the price is decoupling to the purpose and average salary,  it's a separate trading market now.  APM (Auckland Property Market)

How many years now…  Seriously, how many years have you been claiming that me and others are scared all the while we’ve been making millions.  In a city that’s population is forecast to double in size in the next 20 years, geographically restricted land supply, council restricted land supply and two major political parties that are barely different from each other and neither would dare force house prices lower.  What do you think will happen if Labour get in, we’ll all go buy Xero shares, term deposits at 4.25% return?  I’ve lived and worked under two governments in my time and I can tell you from experience there is little difference.  Jealousy is an ugly thing. 

P { margin-bottom: 0.21cm; }

Where is the analysis from the Labour party on what they expect the effects of there policys to be? Do they just try things until they make headlines then work on the detail?
 
I quite like the idea of Kiwi build, if first home buyers have first right to buy these new homes, then does this not solve just about all the issues? No need for a CGT if house prices do not rise faster than inflation.

This thread is deja-vu all over again. I'm expecting Nicholas Arrand to show up any moment now.

Dont panic folks ....... CGT is unlikely to happen in the next term . Winston Peters who could hold the balance of power and represents  oldies and Baby boomers will never , ever support this , after all dont we own almost all the investment properties ?

No, although becoming a near extinct species, there are some that, SHOCK HORROR ,actually produce things.

Oh so make the inter-generational theft blatent?
Maybe think again on the %s of OAPs who support WP and how they look for handouts like Gold cards and increased pension as an indication of how asset and cash poor many OAPs are. Also how they are concerned for the children and grandchildren.  I'd suggest that the rich BBs wont be voting NZF at all.
So sure there maybe a % of BBs etc that wont "stand for it" but I wouldnt bet on it being a big % of the NZF vote, and hence saving your bacon.
or show us some numbers otherwise.
regards

Noise noise noise. All the Govt needs to do is get rid of the "I didnt buy it to sell and make shednloads" dodge, and enforce normal taxation on any property sale (perhaps exept the famil home. The fact you can claim you didnt mean to make CG and thus not pay is just a farce.
This should be backdated over the last 10 years as well.

Definately agree with that.  An easy and sensible approach could be to make anyone who has owned an investment property, that is negatively geared (assessed objectively by looking at IR3 tax paid, or claim back as the case may be, on the property) on average over the term of ownership then liable for cap gains tax.
Simple test, sum net losses and net profits for property, if net losses over term of ownership then the assumption that it was bought for income and not capital appreciation should be closely tested, i.e ask for reason for the consistent net losses, if no good reason, then open to tax cap gains.

I have a rental property in Auckland (brick and tile, single level, 4 bedroom, double garage, 2 bathroom, reasonable area, not really FHB property).
I was going to consider selling it within the next year or so. With a CGT I will probably not do this and just keep it. As my LVR has now fallen under 50% neither the LVR restrictions nor interest rates make any difference to me. There must be hundreds of people like me, so all it will achieve is to remove supply from the market, further pushing up prices.
 
The cost of the CGT will be born 3 ways - by the renters, by future house buyers (as they chase to buy less stock than otherwise would have been the case) and the property investor. It would have been simplier and meant more tax revenue if they just ring fenced property losses.... oh well whatever.

Why would you keep the property and subject yourself to future accruing tax on capital gains, as opposed to getting out scott free while you have the chance?
 
What has changed about your original intention to sell? You will not be taxed on backdated gains.
 
Either way you are just deciding to hold onto a given 'investment' which would be then treated no differently to any other.

Jeez , I recently heard that when someone thinks they are losing an argument  they resort to getting personal.
I personally think CGT is dumb , its always introduced by Leftwing governments , and its beacuse the party in power is anti-- capitalist , anti-personal wealth , and self resilaince , and dont want you to show initiative creation and resetful of people who have saved and taken risks and invested in income generating assets .
So , to the person who says my credability is sunk , ............ I dont have any cred , dont aspire to have any , I merely have opinions
The  fellow who suggests I  dont know anything about Zimbabwe CGT tax  , should be advised that I worked for Standard Chartered PLC in central Africa in the eraly 80's , I was based in Harare and worked throughout the region and have actually met Robert Mugabe .
CGT was introduced there while I worked there , and its an insidious form of taxation that does more harm to Capital creation than good., and it discourages investment  
 

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