Coal face commentators views on what effect a capital gains tax will have on the agricultural community should be listened to, especially when one is leading farm accountant Pita Alexander and the other top farm adviser Andy MacFarlane.
Their comments that this tax will do nothing to achieve its goals and may indeed speed up changes of farm ownership from the family farm to more corporate involvement are revealing.
The family farm is a key driver in NZ agriculture and succession systems set up for the new generation are interferred with at peril for the future of agriculture.
Operators reinvest in their farms for the future generation, and allow the business to grow and insulate itself from market or weather fluctuations, but with a tax disincentive why would they bother. Historically the return on investment in farming has been poor world wide, and it is only when coupled with some capital growth that owners can justify their investment.
Political parties should be creating policies that encourage the growth in agriculture and the flow on effect to the NZ economy, not create disincentives for reinvestment. Your views?
Labour's new tax policy will make farm succession harder and and put land ownership into fewer hands, farm consultant Andy Macfarlane says. "We have seen that in the UK where intergenerational transfer has been extremely difficult. What families tend to do is hold onto the land until they are very old, but they stop farming it and you get big corporates farming land owned by multiple families."
The policy would set at a flat rate of 15 per cent with no indexation for inflation reports The Central Farmer. The main residence on a farm would be exempt from a CGT, but not the land. It would also deter the next generation of farmers striving for farm ownership, Mr MacFarlane said. When retiring farmers sold their farm, the price they received would be the only superannuation they received and the price equivalent was often no better than a good super scheme. Land values responded up and down to the availability and cost of credit, optimism to the future and investment that increases productivity.Those three things drove land prices and were more important than the tax impact on land as a storer of value, he said.
"The perception that putting a CGT on is suddenly going to make big behaviour changes, I don't think is necessarily correct."
Well-known Canterbury farm accountant Pita Alexander said a CGT had been promoted as being easy to manage but it would not be. "It will be complicated, slow to produce much real tax income for the Government and will increase incomes for all accountants and solicitors, probably indefinitely." NZ had three world class industries in dairying, tourism and sheep and beef farming. It was unfortunate that all three of those industries involved substantial land values in terms of a potential CGT, Mr Alexander said.
He doubted, based on worldwide evidence that a CGT would improve the distribution of capital so that it would improve productive investment for New Zealand as a whole. He also doubted it would fix NZ's farmland and housing shortage. "NZ farmers' production output has been affected by climate, prices received and costs. Lower interest costs which a CGT may bring about in time may improve profitability, but the production output is already high and still increasing gradually."
Real care was required in ascertaining what effect a CGT would have on New Zealand's land based export sector. Very few of other developed countries with a CGT would have this particular export and economy `mix', he said.
Federated Farmers national president Bruce Wills said a CGT would act as an inhibitor for farmers thinking of selling their properties. "I imagine with human nature you would be encouraged to hold on to your property as long as you can to avoid paying that tax. I'm not sure that's going to be useful when we need young, keen guys coming into farm ownership."