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Phil Goff - Source: ONE News -
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I don't think there can be any doubt that our love affair with investment in property is a problem.
If you need convincing, let me say this.
If it starves more productive sectors of the capital they need to be productive, it's a problem.
It's a problem if it exacerbates our already heavy reliance on foreign debt; a problem if it contributes to house prices rising so far they're out of reach of the next generation.
So surely it's a problem that our tax structure makes that investment a no-brainer because the capital gains are tax-free.
The question though, is whether the way Labour plans to tax those gains is the answer?
Labour, of course, argues that, yes, it's part of it.
By excluding the family home, KiwiSaver payouts and partial exemptions for the sale of small businesses - the message very much appears to be: we're making this as painless as possible for as many as possible, but think of the economy, we need this.
It's much like the argument National is making for spending cuts and asset sales.
Pitting one unpopular policy against the other on the basis of "it's for the good of the economy" is part of the politicking, I guess.
Whether or not it's effective with the electorate remains to be seen.
Promises
But will it deliver what it promises? Because it appears to promise quite a lot: redressing economic imbalances by directing capital to more productive uses, promoting economic growth, eliminating the deficit, keeping hold of state assets and stopping record numbers of people moving overseas.
The likes of Business New Zealand was quick to comment that nothing about new taxes "will make the boat go faster".
Labour's finance spokesman David Cunliffe told me this morning on AMP Business that it will improve the economy's prospects by getting debt down to zero and retaining state assets.
It will also get "the tax incentives better for business rather than just for property speculation...improving the incentives for money to flow where it can do the most good, to productive enterprises that will innovate, export and create jobs".
On the subject of addressing the deficit he assured me that, even though the capital gains tax would only generate a little over $300 million in the first few years, "it's only part of a package that includes the top tax rate change, that's $300-400 million, an anti avoidance plan that's about $300 million, ringfencing property losses that's about $260 million a year...it all adds up and we're balancing it with extreme discipline on the spending side".
Of course they also have to account for the proposed measures that will reduce the tax take, removing the GST on fresh fruit and vegetables and making the first $5000 of income tax free.
We've heard ad nauseum that capital gains taxes are complex and hard to implement - but if they're effective in changing investment incentives, in levelling the playing field, surely it's worth the effort?
Tax specialist at PWC, John Shewan, is not convinced it would be effective . He argues the effect of the tax is blunted if you exempt the family home - and of course including it would likely be political suicide.
"As soon as you do that and have other concessions what you're doing is providing a distinct incentive to, for example, get out of the sharemarket and put another bedroom on your house or buy a lifestyle block," he said today.
About two-thirds to three-quarters of houses are primary residences.
'Mansion effect'
Therefore the tax will only apply to the minority and perhaps encourage what in Australia has become known as the "mansion effect".
That is, it pays to pour all your money into your home because when you sell it, the gain is tax free.
He also takes issue with setting the tax at 15%, which he says may encourage some top-income earners to look at ways to restructure their affairs so they pay 15% instead of 39%, because the definition of what is income and what is capital can be blurry, apparently.
As a member of the Tax Working Group he says: "We made 13 recommendations across things like growth and efficiency, fairness and coherency and so on. This package goes in the direct opposite direction on eight of them and fundamentally undermines the tax system that we recommended and which the current Government broadly adopted"
"If the OECD measured this package against their benchmarks I think they'd score it about a 3 out of 10."
But what about the argument that it will redirect capital to more productive uses, to our anaemic capital markets?
I asked Cunliffe how the policy can claim to do that when the capital gains taxation also applies to shares, which surely count as investment in the productive sector?
"It's a good question but if the shares are traded they're currently taxed at the marginal rate or the PIE (Portfolio Investment Entity) rate. Under this, if they're traded already they won't be taxed any more, but property will be."
I will give Labour this - they proudly call this policy bold, and to me it does seem bold.
We need to be talking about how to improve the economy, even the measures that send fear into the hearts of a nation of property lovers.
This policy doesn't contain all the answers.
No policy ever will.
But it has at least got us asking some important questions.
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Add a Comment:
Post new commentWilliam Jobson said on 2011-07-22 @ 15:46 NZDT: Report abusive post
When the alternative to CGT is tax cuts for the rich, non payment of tax on capital gains, cutbacks in education ,health and public services ,third world wages, and bankruptcy Greek style then voting for Labour and CGT is a no brainer.
TroySkees said on 2011-07-20 @ 14:57 NZDT: Report abusive post
I really just have a couple of questions I was wondering if anyone could answer. 1) With the CGT at 15% will share traders and property developers who currently pay tax on their capital gains at 33% (If it is sold within one year I believe) be paying 15%, 33% or 48% CGT? 2) A Farms primary residence is exempt but not the land. So everyone elses primary residence (including the land) is exempt, why not the farmers? Just seems rather un-fair if they live on the farm. Would a fairer CGT not be to place a 15% Tax on every capital gain not to mention a hell of a lot easier to implement and monitor?
William Jobson said on 2011-07-17 @ 21:13 NZDT: Report abusive post
Claims that the latest Colmar Brunton Opinion poll is reflective of Labours CGT policies are rejected as spurious in that the opinion poll predated the policy's release and its contents cannot be considered as having been disclosed to or considered by voters prior to that date.
baboosh23 said on 2011-07-16 @ 11:12 NZDT: Report abusive post
I said my vote goes to the party that introduces CGT, last year, and I stand by it now.
radar832004 said on 2011-07-16 @ 11:08 NZDT: Report abusive post
the price of milk and lamb are the highest they have ever been and national is in power