Holes in the too-hard basket

Written By: - Date published: 9:15 pm, July 10th, 2011 - 6 comments
Categories: capital gains - Tags:

The Tax Working Group said in its report:

There is a major hole in the tax base for the taxation of capital, which is manifest, for example, in high investment and low taxable returns in the property market. (p. 21)

and:

New Zealand’s high personal and company tax rates are in marked contrast to the taxation of capital. Unlike most other countries, New Zealand does not generally tax capital gains on property, unless the property investment was undertaken with the intention of realising capital gain income. As a result, taxpayers have realised substantial capital gains on residential property investment in recent years without incurring tax liability. (p 25)

and:

People earning their income by salary and wage payments should be able to expect that they will be treated in a similar way to someone who earns the same level of income from property investment. This is not the case in New Zealand. (p 35)

and:

The most comprehensive option for base-broadening, with respect to the taxation of capital, is for New Zealand to introduce a comprehensive capital gains tax. (p 66)

but:

While the comprehensive nature of this option is seen as attractive and therefore its introduction is supported by some, most members of the TWG are concerned about the practical challenges and efficiency implications of introducing a CGT. These issues include the lock-in effects that can result from a realised CGT and the inherent complexity of a CGT. (p 67)

Oh dear. Majority decision. Too hard. If we are to believe the Herald’s political quiz, (10 out of 10 in 10 seconds), the Inland Revenue Department officials on the group were among those who think it is too hard.

Professor Craig Elliffe and Chye-ching Huang of Auckland University address this issue in a recent lecture to the Fabian Society in Auckland. They use the example of the introduction of a comprehensive tax in South Africa in 2001. Their papers can be found here. Surely if the South Africans can make it work, our officials can too.

6 comments on “Holes in the too-hard basket ”

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  1. Colonial Viper 1
    10 July 2011 at 9:36 pm

    Surely if the South Africans can make it work, our officials can too.

    Probably, if English and co. stopped cutting the most experienced and able heartwood out of our public sector that is.

  2. Ben Clark 2
    10 July 2011 at 9:44 pm

    A fabulous column in the Sunday Star Times today on Capital Gains Tax too…

  3. Craig Glen Eden 3
    11 July 2011 at 11:28 am

    Im waiting for Key to flip flop as it now looks to all ( not just those pesky people at the standard) that National have no economic plan. The trouble for National now is, how can they flip flop without it looking like a belly flop.I think I know how it could be done just like closing the wage gap with Aussie, Nationals CGT “aspirational”.

  4. prism 4
    11 July 2011 at 3:25 pm

    When we have the greatest use of computers and other tools that make accounting easier, we have these bunch of narrow-minded purists doing a groupthink on tax. It’s no wonder it is so hard to make positive changes in NZ – if there is a precedent of some smart aleck turning down something then it would be lacking proper respect for that person to go against that previous decision. That applies rightly for continuity in the law, but there is no reason we should get a flashmob running to the no corner on tax initiatives without looking at possibilities with their minds open.

    My latest musing is that we should introduce a 5 year term for new law or policies, monitor and discuss them after 3 years, adjust finer points to give them the fullest opportunity to work, and then at 5 years, give a thorough assessment. If they are showing poor returns on the stats, then we revert back to what we had, with adjustments of finer points to correct the egregious aspects for which they were originally abandoned. That could apply to tax also. There is nothing like trying something on the basis that it has value, and could be extremely useful and effective, with a get out of jail option if it isn’t.

  5. David 5
    11 July 2011 at 8:42 pm

    What I think will happen Thurs. is that the same Crosby Textor arguments Abbott has been using against the carbon tax (a big tax on everything, the end of the Australian way of life) will be rolled out (with a little more finesse than last week) this week, (when they were, I think, basically muffed first up by John Key et al.

    They will have had a week to recalibrate them: but it will be this kind of all or nothing terrorising of the electorate, because no rational argument will do it.

  6. David 6
    11 July 2011 at 8:45 pm

    From Antony Hubbard’s article in the SST on the cgt Sunday: http://www.stuff.co.nz/sunday-star-times/opinion/5261282/A-tax-for-people-in-glass-house

    What, then, is the moral of this story? There are many. Capital gains taxes are perfectly ordinary taxes used by most developed countries. They are not recipes for instant economic ruin – otherwise these wealthy countries would be poor. A capital gains tax does not mean everyday Kiwis would be crushed. Capital gains taxes should not lead to panic in an election year: there is nothing in them to panic about. In fact, the argument about capital gains taxes, once you get past the scary headlines, tends to be rather intricate. It requires some thought and knowledge.

    So will we have a rational debate about this?

    Don’t bet the house on it.