As another election rolls around the anti-freedom socialist element in New Zealand is dragging out the Capital Gains Tax policy again for another trundle past the masses.
As usual Labour and the Greens implore us to believe on the grounds of "fairness" that a CGT will level the playing field and lead to all sorts of magical beneficial results.
So lets take each argument in turn and see how it stacks up against reason and the facts.
1. New Zealand doesn't have a capital gains tax but other countries like the US and Australia do.
Well just because someone else does something has never been a very good argument for doing anything. Many countries don't have gay marriage either but I think we've pretty much been able to make our own mind up on that one.
The US has one of the most complex tax systems in the world and I think would love to have the simplicity of ours.
In fact New Zealand does have a form of CGT already, a fact supporters of a CGT conveniently either ignore or are ignorant of. The Income Tax Act already catches those speculating in the property market and in fact any other asset bought with the intention of selling at a profit. All that is needed is for the Inland Revenue Department to enforce this more rigorously.
Labour is proposing these property speculators be taxed at a CGT rate of 15% when they are presently charged at there marginal rate of up to 33%. A tax cut many developers will be only too happy to accept
2. A CGT will keep house prices down.
The Australian experience shows this just isn't true. House prices have continued to rise in Australia and the only effect on prices was they sellers built the CGT into the sale price they wanted.
The Greens and Labour argue that the majority of the rise in house prices can be attributed to us not having a CGT. The OECD has reported that house price rises both here and in Australia are mainly attributable to easy monetary conditions and immigration flows. No mention of the absence of a CGT being a cause. With the vast majority of house purchases in NZ being domestic family homes, how is a GCT going to keep a lid on prices anyway if family homes are expected to be exempt from CGT?
If you want to find the main culprit for a rise in house prices in the past decade you need look no further than our own Reserve Bank. Their artificially low OCR for New Zealand is responsible for much of the housing boom and misallocation of resources in New Zealand.
The Reserve bank Act was brought in at a time of runaway inflation and, blunt as it was as a tool, did achieve it's single aim of bringing inflation below 3% and keeping it there. Never mind the businesses that went to the wall because of it. It had the desired effect.
But the Reserve bank Act has had it's day. In fact it has outstayed it's welcome by over a decade.
Now most political parties are too afraid to get rid of it. The tinkering by Labour with it's addition of another tool using Kiwisaver is a step in the wrong direction. Far from giving the Reserve Bank more power we should be removing it's powers. And I'm very surprised Winston Peters and NZ First support this increasing meddling. I would have though they would like to see a repealing of the Reserve Bank Act.
With the Reserve Bank out of deciding what interest rates should be in this country, rates will return to supply and demand market levels. Yes they may be higher than now, but this alone will do more to encourage saving and reduce speculation in non-productive assets. The Reserve Bank should be a lender of last resort, not a dictator of day to day interest rates. They have had too much power for too long.
3. A CGT is fair and equitable.
Well to the Greens and Labour any new tax is fair. You see they all believe in a progressive tax system as if it was something that's always been there. Well no it hasn't. Taxes were first introduced to pay for wars and the running of the government. Later on came the socialists who saw the opportunity to tax as a way of income redistribution. And that's what a CGT would be - just more theft. Money taken by force by the government.
If the government forecast surpluses running far into the future the Left would still want more taxes. Not because the money was needed to run the country but as a way of redistributing money, which is rightfully one persons, to someone else.
Progressive taxation is nothing but immoral Robin Hood theft.
Unintended Consequences
As well as not having the kind of effects the Left expect, there will also be a number of unintended negative consequences conveniently not mentioned.
1. The tax system in NZ will become so complex with transitional rules, exemptions and avoidances that accountants and tax advisors will be in short supply.
This is what happened in Australia. It was a boon for this profession and they were run off their feet helping people to try to understand the many exemptions and to find ways of organising their tax affairs to pay as little CGT as possible.
2. Those who have houses already will not only hold onto them for much longer ( decreasing supply and forcing up prices), but rather than putting money into businesses and rental properties will instead put all their money into their CGT exempt family home.
Wealthy people will create mansions and large estates to hide their money away from the tax grab.
3. As mentioned before speculators, under the Labour proposal, will now pay less tax (15%) than they currently do using marginal tax rates.
In summary, the reasons put forward for introducing a CGT into New Zealand do not hold water. Not only will they not have the intended effects, but they will have unintended negative effects. All together a recipe for disaster, and a socialist increase in complexity not worth the experiment.
