Remember all the attacks that Labour sustained because it proposed a Capital Gains Tax so that something could be done about addressing spiralling house price speculation and the lack of investment in Aotearoa’s productive sector? Remember back in 2012 when John Key said that he hated CGTs and they were vote losers and did not work unless they were comprehensive? Remember last election when Key attacked Labour’s proposed CGT and claimed that a house owned by a family trust would be subject to the tax even though the legislation had not been drafted? Remember recently when Key said “I don’t think a capital gains tax works” and that they are highly inefficient?
Well suddenly the Government is proposing one. It is an insipid easily avoidable one, but nevertheless the Government is going to introduce a CGT that will apply to profits made on the sale of houses in certain circumstances.
Key is trying to say that it is not a CGT. He is also trying to say that there is no housing bubble and that he has not recently changing his mind, despite a month ago stating that the Government was not going to introduce measures to address land speculation. Perhaps he is referring to the situation on Planet Key and not Planet Earth.
Even Key’s extraordinary ability to persuade some people that black is white will be stretched to pull this off. The tax is a tax that is paid if the capital item you purchase goes up in value and you sell it within two years of of buying it. From initial reports intention will be irrelevant and only transmissions on death, sale of the family home and relationship property settlements will be exempt. If it looks like a CGT and sounds like a CGT …
From Radio New Zealand:
Mr Key said there was already a tax for people buying properties with the intention of selling it for a profit but enforcement of that tax relied on proving intent.
He insisted the new policy was not a capital gains tax.
“I’m opposed to capital gains taxes … A capital gains tax means that when you buy a property, it doesn’t matter when you sell it, you pay the capital gains tax.
“The reason I’m opposed to them is you can drive a bus through them because people structure themselves in a way…
“This is just simply saying the current law is you have to pay on intent; we’re taking away the presumption that you can argue [that] within a two-year period, buying or selling a property, other than your family home, that actually what you’re really doing was looking to make a gain – it’s quite a different sort of thing.”
There is more than a whiff of panic about the measure. Apparently backbenchers were hastily told on Saturday night about the announcement of the policy (whaleoil donotlink link).
The measures to tighten up on identification and require the provision of an IRD number are advisable and follow continuous criticism by Labour and by Winston Peters at the Government’s failure to collect data concerning purchases of land by foreign entities. This article is from April 2014. That it has taken this long to respond shows the Government’s commitment to doing something.
Despite speculation to the contrary Labour has not shelved the idea of a CGT. Andrew Little has advocated for a review of the policy and consideration of all options. It may be that the party will agree on a general review of the tax system to work out what is the best way to address the housing crisis.
Question time in Parliament this week should be interesting. Perhaps the first question to Key should be what happens if a couple transfers the family home to a trust and within two years the trust sells the home …