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)
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)
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)
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)
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.