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Capital gains tax 'elephant in the room' - expert

Published: 11:37AM Friday May 25, 2012 Source: ONE News

The capital gains tax is the "enormous elephant in the room" lingering after yesterday's Budget announcement, according to a tax law expert.

The Budget hits smokers, bach owners and low-earning youngsters, but Professor Craig Ellife told TV ONE's Breakfast the current tax set up is soft when it comes to the "truly wealthy".

The Government said yesterday it will save about $109 million over the next four years by tightening tax rules about deducting costs relating to assets that are used by their owners and occasionally rented out for income, like holiday homes.

But Elliffe, a professor of taxation law and policy from the University of Auckland, said it is "way out of line" for New Zealand to still be the only country in the OECD to not have a capital gains tax.

"There is just no excuse for us being the only people in the OECD that has a graduated tax system, but when it comes to the truly wealthy people making significant gains, we have a zero rate of tax. Where's the logic in that?", he said.

Elliffe said European countries would balk at the idea New Zealand still does not have a capital gains tax.

"If you said to a European country 'we don't tax our companies on capital profits', they'll say 'what? that's business income - that's lunacy,'" said Elliffe.

According to Elliffe, in the past the Government has used administrative cost to explain away legislating for a capital gains tax.

In yesterday's Budget the Government injected an extra $78.4 million over the next four years to bolster tax compliance enforcement.

That is on top of Budget 2010's allocation of $119.3 million over four years to strengthen the IRD's tax compliance policing.

Elliffe said the Government's expected return on investment of around $345 million is just the "tip of the iceberg" in revenue it can find.

"When the Government really looks at property transactions...it can find the revenue that's truly there. But that's revenue using a test that's 50-100 years old, rather than a comprehensive test that is truly economic income," he said.

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