77% of NZ’s business leaders say a CGT or equivalent is needed as chorus for CGT increases

Written By: - Date published: 7:06 pm, October 16th, 2024 - 90 comments
Categories: business, Christopher Luxon, Privatisation, tax - Tags: ,

How many successful CEOs can manager Christopher Luxon snark at after running a government airline with a near monopoly on the domestic market?

After taking a crack at ANZ Boss Antonia Watson for her support of Capital Gains Tax last month, a new line of CEOs is forming to support the idea of more taxes.

Can someone please break it to PM Luxon that Capital Gains tax goes to the government and not the banks – Why is he spreading lies to the NZ people?

Sam Stubbs, Simplicity Founder and MD wrote for The Post:

Rarely do I agree with the CEO of the ANZ. But on capital gains taxes, I find myself in violent agreement. It’s time.

Why?

Look at the recent sale of an apartment in Wellington by the Prime Minister. The capital gains he made on it are taxed less than other investments, including KiwiSaver.

And in buying investment properties, the Prime Minister was doing a rational thing. That’s because tax is a very important factor in any investment decision. No one should fault him for investing to make the highest after tax gains.

And buying and flipping investment properties is the great Kiwi tradition. For generations it has been the most reliable way to get rich. And I bet that most KiwiSaver managers – who should know these things – have most of their personal wealth in property.

Antonia Watson, ANZ NZ CEO, caused a stink saying she supported a CGT.

Yet all those tax advantaged profits from investment properties haven’t provided more housing.

In theory, the rising prices of investment properties should have incentivised developers to build more. And with a tax incentive like we have, we should be swimming in houses.

But here’s the rub. We aren’t swimming in houses. Actually, we’re drowning in housing unaffordability. We simply don’t have nearly enough homes to live in, in spite of offering massive tax incentives to build.

Link

ASB’s boss Vittoria Shortt also spoke up for taxes:

ASB chief executive Vittoria Shortt says New Zealand has to collect more tax to invest in the infrastructure the country so desperately needs.

“I think New Zealand has to really lean into taxes,” Shortt told The Post in a wide-ranging interview.

“We’ve got to invest in this country. It’s a pretty simple equation,” she said.

“Can anybody sit back and say today that we’ve got everything we need in the country?

“We probably do need to pay more tax….I paid more in Australia.”

Link

And last month, 77% of the 100 surveyed business leaders in NZ “told the Government it was time to wake up and smell the capital gains tax.”

“77% of respondents said the Government should consider changes like a capital gains tax OR raising the super age OR similar.“

None of this is rocket science or even beneficient behaviour.

It’s merely drive by our reality.

As Treasury has been advising throughout the year, even going publicly to do so, New Zealand faces structural headwinds. (And Treasury has specifically advocated for CGT)

Put simply, revenues will struggle to meet costs due to a significantly aging population, climate change costs, healthcare needs etc. – and chopping down trees now for a quick fire is only temporary, and reduces the ability to meet future needs.

i.e. cost cutting is not the way out and can actually make things much worse by reducing the govt’s tax take [although that’s also a way to force in privatisation by claiming ‘our hands are tied’]

When the government cuts people and investments – as it is doing in Health and our infrastructure programs – it merely defers those expenses to a later, much, much more expensive time.

This government’s entire strategy appears to be to privatise and corporatise as it flings open the doors to foreigners who now say NZ’s assets look cheap, “because there isn’t a lot of competition for them, the economy is weak and, on the flipside, recouping the cost of the investment is relatively easy from New Zealand consumers.”

Does that sound like a ringing endorsement? Nevertheless, Luxon is fixated on privatisation – despite the serious and negative implications.

Meanwhile he and David Seymour are working hard to politik and drive fear about CGT into the NZ population, claiming CGT is a non-starter.

Today, Barbara Edmonds, Labour’s Finance Minister asked: “Why are you so afraid of Capital Gains Tax?”

Most of our money is in real estate, and our debt to foreign owned banks. There is a reason why most countries have a CGT on investment properties. And if we are serious about productivity and fairness for our future generations, now is the time for that debate – unfettered by misinformation and lies.

90 comments on “77% of NZ’s business leaders say a CGT or equivalent is needed as chorus for CGT increases ”

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  1. riffer 1
    16 October 2024 at 8:49 pm

    Hearing today that the main driver of inflation is rent increases, despite the government reinstating the tax incentive for landlords, does not give me a lot of faith in the argument that if we introduced a CGT then landlords would flee from rental ownership. Even if it's likely that it would increase rents due to landlords trying to hedge against potential CGT I think it's still time. Definitely time for a CGT. I can't see it happening under this mob though, sadly.

    • Ad 1.1
      17 October 2024 at 8:53 am

      The Labour bright line test gave me good pause to shift out of rental ownership towards managed funds.

      I'd love to see a united Labour-Green-TPM position on taxing asset income.

  2. Rodel 2
    16 October 2024 at 11:42 pm

    Luxon will wait till he's sold his properties and made a tax free fortune. Then he'll say he's listened to New Zealanders. and introduce a CGT like a good kiwi.

    • Ad 2.1
      17 October 2024 at 8:56 am

      Almost all MPs are deeply invested in property asset tax. It's not just Luxon.

      That's why the whole Opposition should show the sacrifice they personally are prepared to make.

      Put it on the line.

      • Mountain Tui 2.1.1
        17 October 2024 at 9:48 am

        This isn't quite true at all.

        The other part is – the donor base is different. The National-ACT etc group is funded by NZ's wealthiest and NZ has the lowest tax base for such people right now.

  3. tsmithfield 3
    17 October 2024 at 9:21 am

    Arguments against a CGT:

    1. Capital gains often occur due to inflation. Hence, the gains are only nominal rather than real. So why should those profits be taxed if they aren't actually real profits? A test for that is whether an equivalent asset would be purchased for the same/similar price in the same market.

    2. Double taxation: A CGT taxes gains on assets that result from income that has already been taxed. So, in some ways is inherently unfair.

    3. If gains are taxed when assets are sold, then investors may simply hold onto their assets for longer than they otherwise would. If assets are taxed on the basis of theoretical gains (based on valuations) then there is huge complexity that would be God's gift to accountants and valuers.

    4. Often people include gains on assets as part of their retirement plan. So, hard working kiwis could be disadvantaged at a very vulnerable time in their lives.

    5. Discouraging investment in job-creating activities: If entropeneurs are going to be taxed on capital gains in their businesses they may be less likely to want to take those risks and just get a normal job instead. Hence, the economy as a whole could suffer.

    • Descendant Of Smith 3.1
      17 October 2024 at 9:39 am

      Discouraging investment in job-creating activities: If entropeneurs are going to be taxed on capital gains in their businesses they may be less likely to want to take those risks and just get a normal job instead.

      What is this risk you talk about? There's businesses folding every day that owe hundreds of thousands of dollars, and in some cases millions, who then so so often start up another business the following day. There doesn't seem to be a lot of risk to the business owner – mainly the risk is to the staff below them, sub contractors, IRD, student loan repayments, etc.

      • tsmithfield 3.1.1
        17 October 2024 at 9:49 am

        Have you ever tried to start a business?

        Very often business owners will mortgage their houses to fund their businesses. Hence, they can lose everything if their business fails. Hence the potential gains need to offset those risks. The average person can simply get another job if they lose their existing one without risking anything.

        • KJT 3.1.1.1
          17 October 2024 at 11:50 am

          Thats why they have limited companies, assets in their wife's name or a trust.

          Yes. Some of us use our house mortgage and pay all our debts.

          Many don't.

          average person can simply get another job

          Have you tried job hunting lately?

        • Descendant Of Smith 3.1.1.2
          17 October 2024 at 12:12 pm

          lol like there aren't ways used to prevent that happening. You act like there is no such thing as limited liability companies or family trusts.

          https://smartadviser.co.nz/8-effective-strategies-to-protect-your-personal-assets-from-business-creditors/

          The average person can simply get another job if they lose their existing one without risking anything.

          You think – I know plenty of people over fifty who never worked again despite applying for hundreds of jobs. Tis not always simple – and no they were not fussy. Most had above average skills – which is why they had never been unemployed before. Some turned down for even working in a supermarket.

          The builder who ripped me off a few thousand dollars and a friend over $40,000 and hundreds of thousands more is happily living is his flash house, the local restaurant owner who ripped off IRD is still living in his house and taking overseas trips and still running his restaurant under a different name, the local booze shop baron who abused migrant workers hasn't lost his house, nor the dairy owner across the road who did the same, nor the Indian takeaway around the corner who had a migrant worker minus passport living in the back room.

          We see this time and time again. We have lots of family who are self employed and have no problem with that – they are debt averse and honest, don't do cash jobs, everything goes through the books and pay their taxes and make provision for future downturns.

          You well know their are plenty operating, and often touted as great businessmen, who do not do so and the risk belongs to others. Saw this in 87, saw this in the GFC, seeing it now.

          If business people cleaned their act up and held each other accountable for ethical behaviour then you might get more empathy – where are you ever condemning the behaviour of these people.

          Nah blame everyone but these greedy bastards and just carry on doing business with them again. Bluechip was a classic example of the same repeating behaviour. My father-in-law who was looking to invest in them was ever grateful I steered him away by explaining what they had done prior to the 87 crash.

          Speaking of Bluechip:

          The former property investment boss was accustomed to living well big houses, expensive cars, international holidays and visits to prostitutes were once part of his luxury lifestyle.

          He is now a bankrupt who claims his only assets are clothes, furniture and golf clubs, but he still lives comfortably in a five-star hotel and apartment block in Sydney's The Rocks.

          • tsmithfield 3.1.1.2.1
            17 October 2024 at 1:10 pm

            97% of businesses in NZ are small, not the blue chip type you refer to.

            Hence there are lots of average kiwis who likely have mortgages against their houses to invest in their businesses and are providing jobs to other kiwis.

            For example, my brother and myself together have injected about $1 million against our family homes to fund our business. And we employ 20 people.

            • Descendant Of Smith 3.1.1.2.1.1
              17 October 2024 at 3:01 pm

              97% of businesses have zero employees.

              https://www.stats.govt.nz/information-releases/new-zealand-business-demography-statistics-at-february-2023/

              Many are just layered shell type businesses or previously employed people forced into providing their own vans and equipment and annual leave and sick leave that employers used to provide.

              They aren't the heroic entrepreneur you describe.

              Here's a good example of a business set up expressly to avoid orchard owners asset liability for water consents.

              The intellectual property associated with the scheme was later sold to Water Holdings Hawke’s Bay Ltd, a company formed by six businessmen for $100,000.

              The company also holds various resource consents, originally obtained for the scheme.

              It would actually be more useful if there was a better way of ascertaining what made up that 97% of businesses with no staff. As it stands it isn't that useful.

              I do value genuine entrepreneurship that produces something of value to society. Hopefully you’re not just producing shit for profit.

              • Hunter Thompson II …
                17 October 2024 at 5:23 pm

                Use of water is an interesting example and highly relevant in these times.

                With gold extracted and the native forests clear-felled, water is the last resource. It is a public asset, but business interests are keen to privatise it.

                Not only that, land used for intensive dairying operations has resulted in major water pollution. The dairy industry’s latest effort in that direction (Sept 2024) saw a record fine of $309,500 imposed on a Waikato farm, its owner and a manager.

                When farmers sell their land after using it in that way and make a tax-free capital gain, it means the taxpayer has subsidised the destruction of public waterways.

            • KJT 3.1.1.2.1.2
              17 October 2024 at 3:54 pm

              And. You won't be paying CGT unless you sell it.

              If your business model viability depends on a tax free capital gain on sale of the business, it is not a viable business. It is just a rort on people who do pay taxes on all their gains in wealth/income. Capital gains farming. Worse. It adds to costs for genuine going concerns.

    • Drowsy M. Kram 3.2
      17 October 2024 at 11:15 am

      Every year, billions of dollars of capital gains are made, but almost none of it is taxed. This is because New Zealand does not have a capital gains tax (unlike most other countries).
      https://www.moneyhub.co.nz/capital-gains-tax-new-zealand.html

      Some arguments for a CGT. And ‘no’, I’ve never tried to start a business.

      1. Fairness. Most Kiwis, and most other OECD govts, recognise a fair go, notwithstanding the huge risk our CoC PM took when he invested in property.
      2. Maybe our CoC govt could afford to do a bit more for 'ordinary' Kiwis – you know, the ones who toil away all their working lives without ever losing a wink's sleep over how 'unfair' a CGT might be.

      Also, if a CGT "would be God's gift to accountants and valuers", might it create jobs?

      Imho, opposition to a CGT is all about wealth protection.


      https://thespinoff.co.nz/society/16-08-2022/the-side-eyes-two-new-zealands-the-table

      Nicky Hager: Beware the smooth talker with a forked tongue
      The Act Party stood first in the 1996 election. That year it spent more on the election than any other party, compliments of the wealthy beneficiaries of deregulation and privatisation who underwrote the party. But right from that first 1996 election, guess what its yellow election billboards focused on? The same snide attacks on Māori that continue today.

      Then, as now, it seems they’ve used attacks on Māori in part to disguise their real agendas. The billboards say “End Division by Race”, but it is actually more like “ Defend Division by Wealth ”. Act is the make-the-rich-richer party and, at the same time, the attack-the-poor party. Both harm the country.

      • tsmithfield 3.2.1
        17 October 2024 at 1:26 pm

        Also, if a CGT "would be God's gift to accountants and valuers", might it create jobs?

        LOL. And so might deliberately throwing rubbish around so that someone else can be paid to pick it up.

        Those sort of jobs add nothing of value to the economy. They are just part of the churn that needs to be eliminated as much as possible for a healthy functioning economy.

        • Drowsy M. Kram 3.2.1.1
          17 October 2024 at 2:01 pm

          Those sort of jobs add nothing of value to the economy.

          smiley If you mean jobs such as "accountants and valuers", then you'll be pleased to know that I've never had cause to use either, and wouldn't miss them.

          “Annual income twenty pounds, annual expenditure nineteen six, result happiness.
          Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery.” – Dickens

          They are just part of the churn that needs to be eliminated as much as possible…

          If eliminating jobs is your cuppa tea, then our CoC govt is certainly getting on with ‘the job' – are we back on track yet?

          Young workers hit hardest by training cuts and rising unemployment [3 Oct 2024]
          “It appears a growing number of young New Zealanders are choosing to leave the country long-term,” he [Berl analyst Simon Hunt] said in a report titled ‘Young adults bear the brunt of increasing unemployment’.

          “This exodus of young talent will negatively impact our future workforce and deserves close monitoring.”

          “ Defend Division by Wealth ”

    • KJT 3.3
      17 October 2024 at 11:47 am

      1. Capital gains often occur due to inflation. Hence, the gains are only nominal rather than real. So why should those profits be taxed if they aren't actually real profits? A test for that is whether an equivalent asset would be purchased for the same/similar price in the same market.

      Interest on savings only just keeps up with inflation. It is still taxed in it's entirety as are ongoing business profits.

      2. Double taxation: A CGT taxes gains on assets that result from income that has already been taxed. So, in some ways is inherently unfair.

      No. Gains on the money invested is taxed. Not the investment.

      3. If gains are taxed when assets are sold, then investors may simply hold onto their assets for longer than they otherwise would. If assets are taxed on the basis of theoretical gains (based on valuations) then there is huge complexity that would be God's gift to accountants and valuers.

      CGT encourages business owners to keep the business as an contributing income earning going concern. Instead of as we have so often seen as soon as a business is viable flogging it off, usually overseas, for a quick capital gain. I do think gains are best taxed on realisation. Sale or inheritance. But there is the argument that being able to borrow against assets adds to people's effective incomes/wealth.

      4. Often people include gains on assets as part of their retirement plan. So, hard working kiwis could be disadvantaged at a very vulnerable time in their lives.

      Hard working people gain their retirement savings from working, which is taxed.

      Super is also taxed on interest.

      5. Discouraging investment in job-creating activities: If entropeneurs are going to be taxed on capital gains in their businesses they may be less likely to want to take those risks and just get a normal job instead. Hence, the economy as a whole could suffer.

      We want to encourage viable ongoing businesses. Not "pump and dumps" for tax free capital gains. Many entrueprenuers, farmers and other businesses, including myself, need land prices and rents low enough so all our earnings don't go to the landlord or banks.

      We've seen many times business owners get off almost scot free when it fails, taking the borrowings they took out as dividends in the past, and suppliers money, and leaving employees losing everything. Limited liability and trusts mean the failed employers are in a better position than when they started, while employees and subbies lose their homes.

      BTW. The arguments against CGT applies even more strongly to income taxes. They are a tax on productive work.

      Taxes are the fee for living in a functioning society. Capital gains are only possible in a functional society. Those gaining wealth in that way should pay their share, just like those gaining wealth by hard work.

      • tWig 3.3.1
        17 October 2024 at 1:18 pm

        The elephant in the room is "property speculation", a non-productive investment strategy that sucks up investment dollars from productive enterprises. It generates house price and rent inflation, to the point that home-buyers are priced out of the market.

        Any profitable speculation should pay tax.

        • KJT 3.3.1.1
          17 October 2024 at 4:41 pm

          CGT on business is a red herring, as most NZ businesses, apart from those in the business of land tax farming, won't be paying it.

          One man band, most businesses, don't sell for that much.

          The right wing like to lie and scare people who it won’t affect, into opposing it.

      • tsmithfield 3.3.2
        17 October 2024 at 2:10 pm

        Interest on savings only just keeps up with inflation. It is still taxed in it's entirety as are ongoing business profits.

        A better analogy would be interest on money invested being equivalent to rental returns on houses.

        Whether a capital gain is actual profit or not can be determined by a simple question: "If I want to replace the house I have sold with an equivalent house, will it cost me the same or similar?"

        Here is a hypothetical situation: One property investor buys a property and holds it.

        Another property investor buys property A, sells it after five years, and then (for whatever reason) immediately purchases property B at around the same amount. And then holds the second property.

        The second investor would be taxed under a CGT (assuming tax on sale). But how is that fair given that both investors have effectively held property investments for the same time with the only difference being that one has sold and bought at the same price during the term of the investment.

        • Drowsy M. Kram 3.3.2.1
          17 October 2024 at 2:34 pm

          But how is that fair…

          Buggered if I know how other OECD citizens can live with such blatant unfairness. According to the NZ Taxpayers' 'Union', the imposition of any CGT “under a veil of ‘fairness’” is wrong – it’s just wrong they tell us!

          A roll call of all the people championing a capital gains tax
          [25 Sept 2024]

          The OECD

          Whatever the state of New Zealand’s independent foreign policy, its independent tax policy is unequivocal, as the sole member of the Organisation for Economic Cooperation and Development, aka the rich country club, that does not have a comprehensive capital gains tax.

          People in Australia

          They’ve had a CGT since 1985 and it seems mostly fine.

          “Mostly fine“, mostly – of course, some Kiwis will have their reasons for opposing a CGT with every fibre of their being. Luxon, for example. Does that make sense? Absolutely.

        • KJT 3.3.2.2
          17 October 2024 at 3:48 pm

          I work for say, 10 years. Pay 30k+ PAYE every year in tax. Including on any house I may renovate as a builder, even if I live in it.

          Someone sits on an Auckland house for 10 years. Charging rent to pay for the mortgage and repairs. Makes the same amount in house price rises. Pays no tax!

          How is that fair?

        • KJT 3.3.2.3
          17 October 2024 at 4:04 pm

          Here is a hypothetical situation

          Which is an excellent argument for charging CGT on unrealised gains. "For the sake of fairness".

          It is not a good argument against CGT.

      • mikesh 3.3.3
        17 October 2024 at 2:22 pm

        No. Gains on the money invested is taxed. Not the investment.

        This is irrelvant where businesses are concerned. Capital gain is part of the selling price. The whole selling price is paid from the buyer's tax paid income. Since capital gain is not income no new income has been created as a result of the transaction.

        • KJT 3.3.3.1
          17 October 2024 at 3:30 pm

          So. I renovate someone's house. They pay me from their income they have already paid tax on. I pay tax on what they pay me. Happens all the time.

          Capital gain is income. That it is “not income” is purely an accounting convention in tax laws. Set up by people in Government who want their way they gain wealth to avoid tax.
          If it quacks like a duck!

          • mikesh 3.3.3.1.1
            17 October 2024 at 8:45 pm

            So. I renovate someone's house. They pay me from their income they have already paid tax on. I pay tax on what they pay me. Happens all the time.

            In that case the source of the income is not capital gain but, rather, the service you have provided in renovating his house. For a gain to count as income it needs to have come from some value generating process such as producing stuff, or providing a service. A capital gain occurs when cash is is transferred without the creation of any additional value.

            PS: In the case above the owner of the house would/should probably "capitalise" the cost of the renovation.

            • KJT 3.3.3.1.1.1
              18 October 2024 at 2:40 pm

              A capital gain occurs when cash is is transferred without the creation of any additional value.

              All the more reason to tax capital gains. When things that "add value" are already taxed.

          • mikesh 3.3.3.1.2
            17 October 2024 at 9:03 pm

            Capital gain is income. That it is “not income” is purely an accounting convention in tax laws. Set up by people in Government who want their way they gain wealth to avoid tax.

            Accountants usually define "income" as being that which one can extract from an entity without reducing its capital. Thus if you sell a asset, such as a property or a machine, no part of the proceeds from the sale would constitute income. However, if an asset on which depreciation has been claimed, sells for more than its book value (BV= original cost less depreciation) the excess depreciation will be assessable. But in the latter case it is the excess depreciation that is being taxed, not capital gain.

            These are fine points, of which the unitiated are often unaware, and they are not simply an "accounting convention".

    • mikesh 3.4
      17 October 2024 at 1:55 pm

      Apparantly 77% of business owners fear that if they don't support a CGT they will be lumbered with something worse (from their point of view) such as a wealth tax, or land tax, or higher personal taxes etc.

      It is difficult to see the ANZ CEO's pronouncement as anything other than venal.

      • Mountain Tui 3.4.1
        17 October 2024 at 2:21 pm

        On the contrary this has been Treasury's strong advice this year, to the extent that the outgoing boss came out publicly to state it – despite being clearly politically neutral and publicity averse.

        It's a matter of economics and common sense.

        And Luxon's attempts to smear her as "the banks have made enough money from NZers" when CGT goes wholly to the government and can dampen property prices – shows how fearful the right and wealthy are of a fair and legitimate tax adopted by most countries in the developed world

        • mikesh 3.4.1.1
          17 October 2024 at 2:29 pm

          It's a matter of economics and common sense.

          "Economics and common sense" suggest that a capital gains tax is too selective to be considered "fair". A wealth tax or land tax would be preferable.

          • Mountain Tui 3.4.1.1.1
            17 October 2024 at 2:36 pm

            I see where you're coming from and in that regard, I genuinely look forward to a good debate on that.

            CGT is often recommended because

            1. Most of our wealth in NZ is in property

            2. Property is a non-productive asset but heavily invested in in NZ

            3. CGT is mostly applied outside of the primary home and has the advantage of taxing at source on investments

            4. It has more of an equitable application in terms of being taxed as applicable – versus a general wealth tax

            I don't have a strong preference other than it should be a robust conversation examining the pros and cons of each – and also considering it from all sides.

            Thanks,

            Tui

            • Descendant Of Smith 3.4.1.1.1.1
              17 October 2024 at 3:10 pm

              Simpler just to bring back stamp duty but at a higher rate say 10%. Still gets paid at purchase time.

              We would also have more tax revenue by having PAYE and student loan deductions paid directly to IRD when deducted from wages. Stop employers using employees money then going bust owing IRD millions.

            • tsmithfield 3.4.1.1.1.2
              17 October 2024 at 3:35 pm

              If the only concern is property, then just push the brightline test back up again if you are bothered about profits on property sales.

              No need to impliment a whole new tax unless the aim is to tax gains on all sorts of assets.

              That is probably where the thin edge of the wedge argument kicks in. Once governments have this tool, they will be able to start extending it in all sorts of ways than was its initial application. e.g. inherit your mum's diamond broach (no cost) and sell it for $1000. $1000 capital gain thank you very much.

              • KJT …
                17 October 2024 at 3:42 pm

                And. "If we allow gay marriage, it will later be compulsory".

                "Thin end of the wedge".

                • tsmithfield …
                  17 October 2024 at 3:49 pm

                  Your example is obviously ludicrous and unbelievable. Governments extending the reach of a tax, not so much.

                  • KJT …
                    17 October 2024 at 3:59 pm

                    Your example is obviously ludicrous and unbelievable

                    So is yours.
                    As ludicrous as Luxons ignorant rant that CGT would be applied to kiwi-saver. (Note. Already taxed at PIE rates, unlike land scalping!)

                  • Descendant Of Smith …
                    17 October 2024 at 4:04 pm

                    Governments reducing the tax that wealthy pay and shifting the tax burden to the working class has been the modus operandi since 85. Do you not think that the pendulum should ever swing back even though it has been well recognised it has increased wealth disparity.

                    Death duties gone
                    Stamp duty gone
                    Tax on luxury items gone
                    Reduced taxation at the higher rates gone 66% to 39%
                    Business tax reduced
                    Trust tax reduced
                    Tax on transfers to trusts gone
                    Sector wide wage bargaining gone

                    GST introduced and increased

                    Tis been one way traffic for a while. Brightline test and Labour increasing top rate from 33% to 39% the few exceptions.

                    • Bryan Dods …
                      17 October 2024 at 5:05 pm

                      Bill English also removed gift duty. He said it cost $5m to run per year but only brought in $8m.

                      Left wing maths must work differently to Right wing. It looked like a $3m profit to me.

            • mikesh 3.4.1.1.1.3
              17 October 2024 at 8:31 pm

              2. Property is a non-productive asset but heavily invested in in NZ

              Capital gain occurs mainly on land. So a land value tax levied on all land, not just land which is being sold, and which is levied on a reular basis, say yearly or half yearly, would pick up capital gain as it is charged. This would be fairer since it would not be "selective". The same thing would apply to a wealth tax, which would also be more broadly based.

              1. Most of our wealth in NZ is in property

              But a lot of that property is represented by family homes, to which a capital gains tax would not apply.

          • KJT 3.4.1.1.2
            17 October 2024 at 4:12 pm

            One way to scotch a CGT I suppose.

            Suggest politically impossible alternatives to split the debate.

            What TOP have done.

            • mikesh 3.4.1.1.2.1
              18 October 2024 at 10:29 am

              And one way of scotching land taxes or wealth taxes is to keep harping on about capital gains taxes. That there are better alternatives is one of the best reasons for not having a capital gains tax.

          • mikesh 3.4.1.1.3
            18 October 2024 at 12:42 pm

            Another option I forgot about is involves tax deductibility of business interest. This interest should not really be deductible. Not just interest on residential rental property, but all interest.

        • mikesh 3.4.1.2
          17 October 2024 at 8:33 pm

          The Treasury is not a "business owner".

      • KJT 3.4.2
        17 October 2024 at 3:35 pm

        It may be.

        But CGT should still happen.

        • aj 3.4.2.1
          17 October 2024 at 6:38 pm

          Example:

          Capital Gain $1,000,000

          CGT at 15% – $150,000

          Leaves a still very useful $850,000

      • Belladonna 3.4.3
        18 October 2024 at 10:43 am

        It is difficult to see the ANZ CEO's pronouncement as anything other than venal.

        I do note that they have been entirely silent on the prospect of a financial transactions tax, or a windfall profits tax applied to banks.

    • Incognito 3.5
      17 October 2024 at 9:14 pm

      To counter your arguments:

      1. Indexation ensures that only real gains are being taxed by a CGT. More tax revenue could help to off-set inflationary effect of government actions such as by this coalition government.
      2. Income tax is on earnings and CGT is on profits from (property) investment. CGT is making sure all sources of income are taxed more fairly and that the tax burden is distributed more evenly.
      3. Smart tax policies can mitigate against this, e.g., a regressive brightline test where the tax rate goes down the longer the asset is held. Complexity is a red herring and AI and super-computers will largely replace accountants and the likes; valuation is done by actual sale price.
      4. Investing in property is not good for the economy and productivity. Family home is usually exempt or can be taxed at lower rate w/wo different threshold. Additional government revenue can be used to bolster super and other benefits for retirees.
      5. Many countries have one form or another of CGT and this hasn’t killed entrepreneurship. Investing funds in genuine productive businesses is a good way of balancing the economy away from being a FIRE economy and creates more jobs that will lead to higher tax revenue for the government (e.g. for more roads with higher speed limits).
      • tsmithfield 3.5.1
        18 October 2024 at 9:01 am

        Incognito,

        It seems that most of the discussion is around property. Hence, wouldn't adjusting the brightline test be the simplest way of achieving an effective capital gain on property? That is a mechanism that is easily understood, and probably captures most of the areas of concern.

        In many areas there is also effectively a capital gains tax where people are engaging in trading for profit. For example, used car sales people pay tax on selling cars for profit because that is their source of income, whereas private sellers don't.

        The only point to me in a full blown capital gains tax is if other areas are to be targeted, and where the line will be drawn, and how it might be extended in the future. And, I see that as an archilles heal for a CGT, because voters will also see that future potential, and hence feel nervous about the idea.

        People generally don't mind taxes if they aren't affected. But, in the case of a CGT, no-one can be certain they won't become the target of said tax in the future.

        • Drowsy M. Kram 3.5.1.1
          18 October 2024 at 9:08 am

          And, I see that as an archilles heal for a CGT, because voters will also see that future potential, and hence feel nervous about the idea.

          I don't feel nervous about the idea of a comprehensive CGT, and I'm a Kiwi voter. Neither am I nervous about SPC’s ideas @6.
          https://thestandard.org.nz/77-of-nzs-business-leaders-say-a-cgt-is-needed-as-chorus-for-cgt-increases/#comment-2014449

          A roll call of all the people championing a capital gains tax
          [25 Sept 2024]

          The OECD

          Whatever the state of New Zealand’s independent foreign policy, its independent tax policy is unequivocal, as the sole member of the Organisation for Economic Cooperation and Development, aka the rich country club, that does not have a comprehensive capital gains tax.

          People in Australia

          They’ve had a CGT since 1985 and it seems mostly fine.

          • tsmithfield 3.5.1.1.1
            18 October 2024 at 9:17 am

            Fair enough, but you are a sample of one.

            The good thing about what exists now, (e.g. the brightline test) is that it is easily understood and targets the main area of concern.

            Sure, a CGT can be extended to other areas. But, another major issue is that it starts becoming progressively more complex to understand and enforce. And, as I pointed out above, it can become even more complex if it starts targeting paper gains and say annual valuations of assets are required.

            So, if there is a simple mechanism in place that achieves say 80% of the goal of a CGT, there may not be that much point in going further, especially if it dramatically increases churn and inefficiency.

            • Drowsy M. Kram 3.5.1.1.1.1
              18 October 2024 at 9:32 am

              Fair enough, but you are a sample of one.

              Fair enough, but so are you smiley

              Apart from ‘unfairness’, another 'concern' seems to be the complexity of a comprehensive CGT.

              Kiwis who found it unbearably complex could always decamp to the lucky country, that pit of “churn and inefficiency with its CGT and GST-free sales.

              It's enough do do one’s head in! smiley

              “Defend Division by Wealth”

              • tsmithfield …
                18 October 2024 at 10:25 am

                I agree with the GST free sales as making things unnecessarily complex.

                The thing with countries that have implimented a CGT from the get-go is that they may not have had a brightline test as a starting point. Given that we have, it seems a lot of extra complexity for a system that may not capture that much more than a brightline test does without all that.

                • Drowsy M. Kram …
                  18 October 2024 at 12:55 pm

                  Given that we have ["a brightline test as a starting point"], it seems a lot of extra complexity for a system that may not capture that much more than a brightline test does without all that.

                  Our bright-line test seems to be ‘capturing’ less than it used to wink

                  Luxon’s brightline test change has him escape tax on apartment sale [1 Oct 2024]

                  The price of Luxon not getting it [3 Oct 2024]
                  True to form, Luxon has spun this issue as being all about envy – “I get it, I’m wealthy” – rather than outrage at the glaring lack of fairness within our tax system. Wages get taxed, wealth from property speculation doesn’t. That’s obviously unfair, and it widens the gaps in income inequality. Luxon doesn’t get it.

                  “ Defend Division by Wealth ”

                  Is the bungeeing of the bright-line test period contributing to "churn and inefficiency"? Time for a bipartisan agreement on a wealth tax, imho.

                  Billionaire Mainfreight co-founder Bruce Plested backs wealth tax – with a catch [9 Sept 2024]

                  • tsmithfield …
                    18 October 2024 at 1:52 pm

                    I agree with bipartisan approaches to a lot of things. The biggest waste of taxpayer money IMO is when one government spends truckloads implimenting their policies and then having the next government come in and undo it all. There must have been billions wasted in that way.

                    The term the brightline test is applied can be changed with the stroke of a pen. So, nothing to stop Labour putting it back up next time they get in.

                    There is a principle that holds true in a lot of areas. That is the principle of diminishing returns. For example, if a company is at 5% share in a given market, it is relatively easy for them to climb another 5%. But a company with 50% market share will find it much more difficult and expensive to go up another 5%.

                    If the same thing applies to say a CGT, then the brightline test may provide the best bang for the buck and further efforts in that respect get progressively more expensive and inefficient.

                    • Drowsy M. Kram …
                      18 October 2024 at 3:30 pm

                      If the same thing applies to say a CGT, then the brightline test may provide the best bang for the buck and further efforts in that respect get progressively more expensive and inefficient.

                      It certainly may – or it may not. Our Tax Working Group made a recommendation which was politically unpalatable at the time.

                      “All members of the Group agree that more income from capital gains should be taxed from the sale of residential rental properties. The majority of us on the Group, by a margin of 8-3, support going further and broadening that approach to include all land and buildings, business assets, intangible property and shares.

                      “We have judged that the increase in compliance and efficiency costs is worth it if we can reduce the biases towards certain types of investments and improve the fairness, integrity and fiscal sustainability of the tax system.”

                      https://taxworkinggroup.govt.nz/resources/tax-working-group-delivers-final-report.html

                      Progress has been slow at best, which suits some for than others.

                      … then having the next government come in and undo it all. There must have been billions wasted in that way.
                      …
                      So, nothing to stop Labour putting it back up next time they get in.

                      Wouldn't "Labour putting it back up" be wasteful? Imho, the abrupt reversals our CoC govt enacted have been unnerving, and young Kiwis are voting with their feet. Two more years is just too long too wait, and it also happens to be the new bright-line test period, which suits our self-serving PM down to the ground.

                      Luxon’s brightline test change has him escape tax on apartment sale [1 Oct 2024]

                      “ Defend Division by Wealth ”

                      Billionaire Mainfreight co-founder Bruce Plested backs wealth tax – with a catch [9 Sept 2024]

                      I'm glad you think bipartisan approaches are a good idea – time for a bipartisan agreement on a wealth tax, imho.

  4. Andrew 4
    17 October 2024 at 2:35 pm

    With regards to your headline:

    77% of NZ’s business leaders say a CGT is needed

    And

    And last month, 77% of the 100 surveyed business leaders in NZ “told the Government it was time to wake up and smell the capital gains tax.”

    This is not strictly true at all. What the "Mood of the Boardroom" actually said was:

    "77% of respondents said the Government should consider changes like a capital gains tax OR raising the super age OR similar."

    77% did not say it was time for a CGT.

    • Mountain Tui 4.1
      17 October 2024 at 2:40 pm

      Thanks Andrew, I've updated. And will note that their preference is similar to that which outgoing Treasury Boss Caralee McLiesh recommended –

      i.e. The government should implement a CGT AND it need to review super etc. as the structural financials aren't sustainable with our aging population and over 80,000 young and/or mobile Kiwis leaving.

      https://mountaintui.substack.com/p/nicola-willis-seeks-new-sidekick?utm_source=publication-search

    • Andrew 4.2
      17 October 2024 at 2:45 pm

      Update for clarity from the original article from Fran O'Sullivan:

      As a departing salvo, Treasury Secretary Caralee McLiesh warned that structural changes are required to address the Crown structural deficit such as a capital gains tax and a more efficient superannuation scheme.

      Some 77% of respondents to the NZ Herald survey agreed; 13% didn’t.

      More than half of the 41 respondents who put forward their own suggestions as to what should be considered to plug the structural deficit mentioned a capital gains tax.

      • alwyn 4.2.1
        17 October 2024 at 6:47 pm

        All the story says is that 77% thought that structural changes were necessary.

        It does not say that 77% wanted a capital gains tax. Perhaps they all wanted instead to means test super to make that more efficient?

      • Ed1 4.2.2
        17 October 2024 at 11:03 pm

        We do get ourselves confused at times. One issue is a capital gains tax. I don't think we have ever had a capital gains tax. What we have had, and still do, is Income Tax, and under current arrangements a lot of capital gains are taxed as part of income in the year the taxable capital gains are realised. So for example as I understand it most capital gains (and losses) incurred in selling shares in a Kiwisaver fund will be taxed. Then there is what happens to capital gains on selling houses. With the exception of a personal dwelling (and that gets complicated), my understanding is that until relatively recent years, the sale of a commercially owned property would trigger income tax being payable on the increase in capital value (adjusted by capital improvements during the time of ownership). I think there was some exemption, which meant there could be arguments about whether capital gains were or should be part of income, and to cut back on extended arguments some government put in a "bright line" test that said that any sales within a specified period of purchase would automatically generate income tax payable on the capital gains – and it appears that sales after that period, being arguable, were over time considered to not generate taxable capital gains as part of income.

        Now I am confused, but I am sure there is a tax specialist who could explain it all. . . .

        • mikesh 4.2.2.1
          19 October 2024 at 10:41 am

          The problem seems to arise because one needs to distiguish between "capital" and "income". Capital is what we invest in order to earn income, and then the income that we earn thereby is taxed. Capital is usually invested in things we call assets e.g. property, or plant and machinery, which we employ to generate income; these are called "fixed assets". But cash itself is also an asset, though some might mistakenly think of it as income because most income is received in the form of cash. When we sell a fixed asset for a sum of money the capital that was previously invested in that asset is then invested in cash, but it remains capital not income.

          Income is acquired by some process such making products and selling them, or providing a service; and sometimes also by extraction from a process to which it makes no contribution and this may therefor be thought of as giving rise to a sort of "quasi" income. Examples of the latter would be interest and rent, which, while they don't actually contribute to productive processes, "allow" such processes to take place, and we pay tax on quasi income of this sort. Capital gain, however, is simply a perceived increase in the value of a fixed asset and falls into neither of these catagories, therefor the question of whether it should be taxed has become subject of debate.

          The IRD has attempted to tax capital gains on the basis of intent: i.e. they argue that if an asset is purchased for purpose of resale the any "profit" from the transaction should be taxable. However it is virtually impossible to prove intent so the department prefers to assume intent to resell if the asset is sold within a certain period of time following its purchase. Originally that period was six months but politicians have recently increased that period first to two years, then to five years and, following that, to ten years. They have now brought it back to two years. There is also a feeling that if a landlord makes little or no profit from rent on his property he must be intending to resell it at a later date for a capital gain, and that therefor that any gain he makes from the transaction should be taxable, though it is not clear that he is entertaining such an intention; he may just have made a poor investment.

          I hope that all of the above will serve to dispel the confusion.

  5. Nigel Haworth 5
    17 October 2024 at 3:32 pm

    Perhaps a note of caution? Beware of business leaders and pundits promoting suddenly particular taxation arrangements, especially in the context of the IRD work begun before the last election, and quickly scotched thereafter.

    • Incognito 5.1
      17 October 2024 at 9:22 pm

      The ? was redundant.

      • Mountain Tui 5.1.1
        18 October 2024 at 10:02 am

        I find it fascinating that people are suspicious of a robust tax discussion – especially on Capital Gains Tax, which NZ has long been an outlier for – and the reason why property here is seen as a mainstream path to wealth.

        I understand Bernard Hickey has recently endorsed the idea too – should we be suspicious of him too?

        Business leaders aren't beneficient but some could actually make sense and care about NZ's future. And while we shouldn't take their words as gospel without examination, I fail to see the suspicion aroused here.

        i.e.

        In my view we shouldn't be afraid of a robust conversation – and that certainly includes superannuation and other taxes.

        • Nigel Haworth 5.1.1.1
          18 October 2024 at 10:36 am

          Nothing against robust debate. Just aware that elements of Capital are regrouping around CGT as the more acceptable direction of travel in a strategy to deflect the Wealth Tax argument.

          • Mountain Tui 5.1.1.1.1
            18 October 2024 at 11:56 am

            Ah yes, I hear you on that and a good point – the question for me will be the pragmatic application of either in our democratic system of government, and what makes most sense.

            I think that either way, Nigel, the right will be arguing an election fight about taxes vs no taxes (National/ACT will promise their way doesn't involve taxes, and the non spoken part will be they will taxing us through private enterprise).

            The lack of economic education in our country is a sore weakness and one that will be taken advantage of.

            • Nigel Haworth 5.1.1.1.1.1
              18 October 2024 at 2:25 pm

              So true about economic thinking. My own simple view is this. Global and domestic political economies are such that, to fulfil its historical role, Labour will have to change gear, not just on tax and income difference flattening, but also on wider economic and industrial settings. This will be difficult and will require careful preparation and consistent presentation. The current Fabian approach is unlikely to serve working people well in a world long departed from 1930s Keynesianism. I understand why this is not a popular view. It comes from being stalked by post Keynesianism, from early ‘70s Peru onwards.

          • KJT 5.1.1.1.2
            18 October 2024 at 2:33 pm

            We are very unlikely to get a wealth tax through. A CGT is well within political possibility.

            Then there is the easy target, of taxing unrealised gains, to give to those who oppose broadening the tax base. Not hard to find examples of hardship with that.

            • Mountain Tui 5.1.1.1.2.1
              18 October 2024 at 3:35 pm

              This is my view too – but I am happy to stand corrected on it. The problem with taxes is that a verifiable large part of the populace are adamantly opposed to them – and there is a lack of nuance on economic knowledge from what I've seen. For example National and ACT appear to argue no taxes, but privatise NZ so that we can pay through our noses to private enterprise – and not the government. Until that information can be reliably understood, it's a hard task to get people to vote for their interests – aka Brexit.

            • mikesh 5.1.1.1.2.2
              19 October 2024 at 3:55 pm

              Land value taxes, in effect, tax capital gain since, I think, nearly all capital gain is on land. When the value of land increases so does the amount of tax collected. This would seem to be a more effective way of taxing capital gain since the tax can be collected on a regular basis instead of at the point of (occasional) sales.

  6. SPC 6
    17 October 2024 at 10:15 pm

    My preference

    1.restore the bright-line test (5-10 years*).

    2.have a 1% mortgage surcharge on all landlord property (except new builds)

    3.a 5% stamp duty on property purchased at above $2m.

    1-3 to end the focus on investment in existing property ownership as the way to wealth.

    4.a wealth tax (see work done in 2023 pre bonfire) that precedes the future establishment/replacement by an estate tax (money paid in wealth tax being a credit in the estate tax liability)(we need the money now).

    5.a multi-party agreement on there being a future CGT*, a SC process, as to inclusion and timing of the introduction of "sectors of the economy" into the regime.

    • Ed1 6.1
      18 October 2024 at 4:27 pm

      I commented at 4.2.2 above – my preference is that realised capital gains be taxed as part of income, noting that gains can be positive or negative; with the sole exception of special treatment of one primary personal residence. This is in effect what I believe currently happens for Kiwisaver investments. Why should there be any "bright line"?

      • SPC 6.1.1
        18 October 2024 at 5:07 pm

        Bright-line (temporary period of time involved) only applies for residential property (the realised CG is assessed as part of income and at the marginal rate).

        The KiwiSaver fund pays tax on unrealised capital gains (each year) – the tax on this could be 10.5%, 17.5% and 28% – the PIE rate is based on other income.

      • mikesh 6.1.2
        18 October 2024 at 6:19 pm

        Why should there be any "bright line"?

        There is of course the "windfall" element. In other words, if the gain seems excessive given the brevity of the seller's tenure of the property prior to the sale, then the gain should probably be regarded as a windfall rather than a captital gain as such, and taxed as a windfall rather than a capital gain. A genuine capital gain would then be regarded as legitimate and therfor non taxable. This approach would seem to be a way of avoiding the problem of having to guess the seller's intent.

        • SPC 6.1.2.1
          18 October 2024 at 6:47 pm

          The reason it occurs is that National agreed to a limited form of taxation on CG, where it was seen as a windfall profit derived from speculation in the housing market.

          There is disagreement as to how limited the period should be.

    • mikesh 6.2
      18 October 2024 at 6:31 pm

      2.have a 1% mortgage surcharge on all landlord property (except new builds)

      This would seem to put mortgaged property at a disadvantage as compared with freehold. But surely simply making interest non deductible would be better.

      • SPC 6.2.1
        18 October 2024 at 6:52 pm

        Technically land is either leasehold or freehold. Residential property either is with, or without, a mortgage liability.

        It is a disadvantage either way, whether with a surcharge on the mortgage cost or with an inability to have mortgage cost payments deductible against rent income.

        Labour and National probably now appreciate the inefficiency of the former practice in setting it up or in the winding of it down.

        It is too onerous, a mortgage surcharge is easier and yet lucrative.

  7. mikesh 7
    18 October 2024 at 6:21 pm

    Why should there be any "bright line"?

    There is of course the "windfall" element. In other words, if the gain seems excessive given the brevity of the seller's tenure of the property prior to the sale, then the gain should probably be regarded as a windfall rather than a captital gain, and taxed as a windfall rather than a capital gain as such. A genuine capital gain would then be regarded as legitimate and therefor non taxable. This approach would seem to be a way of avoiding the problem of having to guess the seller's intent.

    • Ed1 7.1
      18 October 2024 at 11:43 pm

      I don't think so – unrealised gains are very volatile – and hard to measure for some assets (such as property) – which is why I suspect Kiwisaver do not invest directly in property – they need liquidity to cover people withdrawing for various reeasons. Kiwisaver involves the managers trying to maximise net gains – and for shares they will have to balance realising capital gains against keeping a particular stock for longer and risking the unrealised gains going away. I believe they pay tax on realised gains only. And yes that is why they need tax rates from investors in Kiwisaver – effectively everyone in Kiwisaver pays tax on realised capital gains at their marginal rate. If that is the case, why should a landlord not have to do the same if that investor sells a property?

      • SPC 7.1.1
        19 October 2024 at 12:55 am

        Capital Gains Tax on KiwiSaver, Managed Funds, Index Funds and PIE Funds

        No tax is charged on capital gains your fund makes. Income generated (i.e. dividends and interest payments on cash invested) from KiwiSaver funds are taxed at the PIE rate (10.50%, 17.50% and 28%), depending on what the investor's annual income is.

        https://www.moneyhub.co.nz/capital-gains-tax-new-zealand.html

        Share investors (not KS Funds) are taxed on CG in the UK and USA share markets, but not the Oz and Enzed ones.

    • mikesh 7.2
      19 October 2024 at 12:03 am

      I have been wondering how we can get away from the use of intent as the criterion for taxability of property gain since intent, which is the crterion usually relied upon, can usually not be proven. That an investment might be speculative is not really the right criterion since one can legitimately speculate on a capital gain and yet still wind up with a windfall. In an overheated market one can often speculate on a rise in property values even when there is no obvious reason why the intrinsic value of properties should have risen at all.

      I realise that my thinking on this issue is still a "work in progress": i.e the time factor is one element, but another element is the question of what has brought about the gain in the first place.

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