The buzz around the traps is that Labour will be announcing a capital gains tax next week. The journos are already calling it a bold move and John Key is ranting hysterically. That Labour’s winning the media battle is great but, more importantly, this is a much needed policy: it is fair, it is good for the economy, and it will pay for good policies.
Phil Goff wouldn’t confirm or deny yesterday but Guyon Espiner and Duncan Garner appeared to have had briefings. It seems like it’s a pretty sure thing that Labour will announce a capital gains tax policy.
The fairness argument is well-known. If I go out and work hard all year for the average fulltime wage, I get $48,000 a year gross and pay $8,400 tax. If I have a business and it makes $48,000 profit in a year, it pays $13,400 tax. If my only income is interest and dividends and I get $48,000 a year, I pay $7,400. If I have some investment properties and their capital value appreciates by $48,000 in a year and I sell up, I pay no tax. (yes, if it can be proven that you are in the business of selling houses, not in the business of renting them, you pay tax on profits. But its very easy to avoid that test.)
A capital gains tax fixes that unfairness.
The current tax imbalance leads to people favouring investing in houses over productive investments. We have low productivity in New Zealand because we have low capital investment by firms and we have low capital investment by firms because capital is so expensive because so many people with cash bet it on the housing market rather than putting it into a real company. That doesn’t just make our economy less productive, it also makes us more indebted. We’ve got businesses like Charlie’s selling offshore because they can’t get the capital they need to grow at a decent price here and we’ve got people up to to their eyeballs in debt to the foreign-owned banks to buy houses and farms betting on capital gain.
Now, landlords will say ‘I supply five houses for people to live in and employ plumbers etc’ – as if people would just be living in caves otherwise, but the reality is that property investors don’t do much to increase the supply of houses, they just push up the price. That locks others out of the housing market and makes them life-long renters. Look at the way the rate of home ownership has plummeted in the past 25 years as people with money to invest shied away from stocks into housing. How many people below 30 do you know who own their own homes? How does that compare to 30 years ago?
Key is spouting some nonsense about a capital gains tax being too complicated. How does every other OECD country manage it then? Or is New Zealand too dumb to do what every other country does? Some ambition for New Zealand from Key.
National’s other line, of course is ‘tax and spend’ but let’s examine that. Here’s Labour’s major policies so far: a tax-free bracket on the first $5,000. GST off fresh fruit and vegetables. Ending pollution subsidies for agriculture. Using that money to pay for R&D tax credits. Not selling state assets. No more pennywise, poundfoolish spending cuts, protecting vital public services. Abolishing Fire at Will. $15 an hour minimum wage.
Hmm. Not much in the way of spending there so far. Mostly tax changes. It looks like a capital gains tax would principally be about paying for the $5,000 tax free bracket and replacing the revenue from asset sales (which, of course, in the long-run is less than the lost dividends but not immediately). In other words: closing off a loophole that allows a few (200,000 of 3 million adults) wealthy individuals to make large untaxed profits, so that everyone can get a tax cut of $525 a year and not lose public ownership of our power companies. Pretty sensible if you ask me.
A quick google shows a lot of the business commentators and economists agree, even the rightwing ones (even Farrar!). And why shouldn’t they? Aren’t rightwingers meant to be against loopholes that mean hardworking Kiwis have to pay higher taxes to subsidise wealthy people who avoid paying theirs?
This is actually a transformative policy that the Greens and just about every economist has been calling for for years. Good on Labour. If this is the policy they’re looking to announce it’ll be the centrepiece of a bold alternative to National’s platform of cuts and firesales.
Just because National didn’t have the courage to do this, they shouldn’t whine when Labour does.