At the moment the UK is debating a rise in Capital Gains Tax, from 18% to 40 or 50%. The debate is largely going on within the ruling Tory party, as their coalition partners the Liberal Democrats won several tax concessions so that they could create a GBP10,000 income tax free band. The proposed tax rise is to treat earned and unearned income the same.
Most other western countries have a capital gains tax, but in New Zealand unearned income (or capital gains) is not taxed at all. As Sam Morgan pointed out, he doesn’t seem to be able to find any tax to pay. If you just make a profit from buy and selling stuff (eg houses) there’s no earned income. There’s also not a lot of benefit to society, as you’re likely just pushing house prices up and making us all more indebted. A Capital Gains Tax would help rid us of that perverse incentive.
It would also help close a loophole where a business can be created, increased in value, and sold at a profit, avoiding a lot of tax (or any tax at all if the business avoids making a taxable profit) for the owner.
It is hard to see a better tax that would raise billions of dollars to be used elsewhere (a tax free band in NZ please? funding superannuation anyone? All the Nats cancelled Education back?) and help re-balance the economy, reducing another housing bubble like the one that popped in 2008. As it stands we’ve been borrowing money off Japanese housewives to bid ever higher against each other for houses. The Japanese get rich from loaning to us, and our exchange rate goes artificially high from all the yen buying kiwi dollars to lend to us; this in turn hurts our exporters who we need to increase the wealth of the country. It also means that we have no domestic savings to grow NZ businesses, who turn to foreign ownership to grow… before you know it foreigners own our entire economy and New Zealand is a permanently poor nation with no control over our destiny – our debt (mainly private) is already more than 100% of our GDP (yearly income), so we’re well on the way.
A fair capital gains tax would probably be very like the Australian version. The family home is excluded, the tax on any gain is only paid on realisation (ie when you actually sell an asset), and the gain is attenuated for inflation. It would only be paid by those who can afford to own expensive assets beyond their own home ie those wealthy enough to pay it, and including some of those who currently avoid tax.
National aren’t interested, as it’s their rich mates that benefit from not being taxed, while hard-working Kiwis foot the bill. The Greens support it, and Labour it dallying with it – they need encouragement, and help in selling it, to grasp the nettle.
The other side of the coin is that as well as not mortgaging ourselves to invest in unproductive sectors of the economy we also need to save. But the left seems to slowly be getting jiggy with such ideas as compulsory super, so there’s hope there. As long as the right haven’t sold New Zealand’s few remaining assets off before they get back in.