We tend to get very wrapped up in our own world here in NZ. Same old voices running the same old lines round and round in circles until we’re all dizzy and just a little bit nauseous. Sometimes it’s good to hop off the merry-go-round and seek an outside perspective on the issues of the day.
Case in point the CGT (capital gains tax) debate. Yesterday’s Morning Report interview with Sydney Morning Herald economics correspondent Peter Martin (hat tip Gordon Campbell) is an excellent overview of the topic, and an eye opener of an international perspective. The audio is here, but I’ve transcribed some extracts.
On how odd we are for not having a CGT:
I thought NZ was something of a worldwide orphan … members of both sides of [Australian] politics use NZ as a sort of case study in strangeness because there’s a yawning gap in New Zealand’s tax system, which isn’t there in the UK’s tax system, isn’t there in the US tax system, isn’t there in the Australian tax system.
And yet the New Zealanders showed the way for us in the mid 80’s with their goods and services tax. And yet there’s always been this strange thing missing that New Zealand’s been unable to do, and I must say I thought it would never happen, it would be one of the continuing quaint things about our cousins across the ditch.
On how a CGT allows all income to be treated as income:
… the idea is that if you earn a buck, you’ve earned a buck, it doesn’t matter how you’ve earned it. So if you earn a buck from working hard, labour, you’re taxed on that at your marginal tax rate. If you earn a buck from selling shares at a profit, or buying anything else really and selling it at a profit, speculation I suppose you could call it, you’re taxed on that at your marginal tax rate.
So if your marginal tax rate is low, 15%, that’s what you’re taxed. If your marginal tax rate is 30%, that’s what you’re taxed. …
There is no [separate] capital gains tax in Australia, and there is no [separate] capital gains tax in a lot of other countries. Capital gains are regarded as income.
Far from the nightmare of complexity that the Nats are trying to scare us with, that sounds pretty simple doesn’t it! There’s plenty of other good stuff in that interview on how the lack of a CGT creates damaging distortions in our tax system, and how (despite all dire predictions) the CGT didn’t destroy the property market in Australia. But I want to finish with one final point, that is particularly important, as hysterical Nats try and talk down the amount that a CGT might raise:
Raising isn’t the point. This is misunderstood.
A capital gains tax could be very effective if it raised nothing. What the capital gains tax does ideally is stop people, for tax reasons, changing income into capital gain. So even if the amount that you forecast you would raise from the capital gains tax is low, that isn’t an argument against the capital gains tax. Because if it is low, it’s because what it is doing is encouraging people to make fewer “capital gains” (with quotation marks around them) and make greater income.
It’s more a case of just not having (sort of) a big gap in the tax system people can drive trucks through.
Far from the complexity, avoidance, and low yield that the Nats would have you believe, the picture of CGT that emerges from this interview is one of simplicity, fairness, and closing loopholes. No wonder the Nats hate it.