web analytics

NZ must introduce a capital gains tax, sooner or later

Written By: - Date published: 12:41 pm, September 2nd, 2011 - 29 comments
Categories: capital gains, capitalism, class war, Economy, tax - Tags:

Recently I posted about Warren Buffett’s call for increased tax, “of course” including capital gains, on America’s most wealthy. The wealthy elite in Europe are now joining Buffett in these calls, why? Maybe it’s because they know the truth, they know that the world is likely to enter another global recession, and they know the risk this will bring to social cohesion, which they rely on for maintaining the lifestyle they enjoy.

They know that the figures released today showing worse than expected manufacturing results from the Eurozone point to bigger problems on the horizon. They know societies and social cohesion will slide if inequality is not addressed, they know they’ve had a good run over the last thirty years, and now they know they have to be part of solving the impending crisis.

In an interview with Deutsche Welle Dieter Lehmkuhl, the head of German group called the ‘Initiative of the Wealthy for a Wealth Tax”, spells out why increasing taxes on wealth is important:

It’s not that people now have become so rich and earn more; they have just changed the rules of the game. Even in the 1970s or the 1950s, income taxes to the highest [earners] were almost 70 percent, and in the United States it was 90 percent. These tax reductions [since then] have almost completely privileged the rich. The consequence of this is an increasing gap between the rich and the poor. It’s not tolerable for a society because it destroys the social matrix.”

The Economic Times is also reporting the growing support among wealthy elite from other European countries for higher taxes:

The multi-millionaire chairman of Ferrari, Luca di Montezemolo, backed Buffett’s idea in an interview with the Rome daily La Repubblica. “I am rich and I am ready to pay more taxes, for reasons of fairness and solidarity,” Montezemolo told the newspaper.
This month, 16 of France’s wealthiest people, including the chief executive of the energy giant Total and the L’Oreal heiress Liliane Bettencourt, signed a petition published in the magazine Le Nouvel Observateur urging the French government to tax them more. Other signatories were the chief executives of Societe Generale, Airbus and PSA Peugeot-Citroen.

Clearly there is a desire to solve the social and economic problems within their countries with a collective hand, where everyone shares the burden.

So, what do the wealthy elite of New Zealand know? It seems like the most pertinent question of all right now, and it is quite difficult to discern a rational answer. Before clawing into them however, we must remember that New Zealand is not a country in the Eurozone, and nor is it the 51st State of America. That does not mean we are not at risk of the impending crisis however, and it does not mean that we should abdicate our responsibility to future generations. It seems inevitable that New Zealand will adopt a Capital Gains Tax sooner or later; sooner if Labour is elected, slightly later under National who will no doubt be forced to introduce some form of it should we enter a severe recession after we’ve sold all our assets.

So to those out there who are so ideologically opposed to a capital gains tax; why not here? Why are we the exception? What will become of our society if inequality continues to grow and we refuse to tax the capital gains of those who can afford to make them?

New Zealand is a country full of good people, and this issue shouldn’t be about the masses targeting the wealthy few by prying (mostly) hard earned money from their hands. We can see that isn’t the case by the quotes above. This is about coming together as a modern & developed society and identifying the issues we’re about to face. It’s about coming together and solving these issues as one collective group, where we all play a part in the extra effort and we all benefit from the result; a civil and equal society.

We must act, it would be great to find a bipartisan way forward for our economy, but it seems ideology is blinding some of us to the difficult realities we’re about to face.

Rijab

29 comments on “NZ must introduce a capital gains tax, sooner or later ”

  1. queenstfarmer 1

    to those out there who are so ideologically opposed to a capital gains tax; why not here

    Who are you referring to? NZ already has a capital gains tax, albeit a limited one. It is safe to assume that the current Govt, and Labour up until a couple of months ago, are not at all “ideologically opposed” to the existing CGT because it has remained largely unchanged for decades.

    Labour is simply replacing one limited CGT with another, though one shot with more loopholes.

    • Lanthanide 1.1

      Labour’s proposed legislation is in addition to what you call our ‘current’ CGT.

      So Labour is not “replacing one limited CGT with another”, they are closing up existing loopholes in the current CGT with another layer of legislation.

      But you don’t understand set theory so I wouldn’t expect you to be able to comprehend something like ‘addition’ either.

      • queenstfarmer 1.1.1

        Labour’s proposed legislation is in addition to what you call our ‘current’ CGT.

        Possibly. Though until the legislation is actually written you don’t know that (not even Labour knows – they have said they will get a panel of experts to sort out the details).

        they are closing up existing loopholes

        That deserves to go on a Tui billboard! What we do know, based on the announcements to date, is that whatever they come up with will be more complex and convoluted than the current regime..

        • Lanthanide 1.1.1.1

          Possibly. Though until the legislation is actually written you don’t know that (not even Labour knows – they have said they will get a panel of experts to sort out the details).

          By the same logic, you can’t say that their new CGT will replace the current one, because you don’t know either.

          whatever they come up with will be more complex and convoluted than the current regime..

          Yes, but because they are *adding* legislation they can’t possibly open up more loopholes unless they amend the way in which the current law is applied in some way. Given the simplicity of the current law, it doesn’t seem like there’d be any reason to amend it.

          At the moment you can simply say “no, I didn’t buy that investment property purely for capital gains” and you don’t need to pay anything. If you say “I did buy that investment property purely for capital gains” then you pay income tax on it.

          Under the new legislation, if you say “no, I didn’t buy that investment property purely for capital gains” then you have to pay 15% on the proceeds anyway. If you say “I did buy that investment property purely for capital gains” then you continue to pay income tax on it.

          Difficult to see how adding legislation that affects only the former clause would somehow open up loopholes in the latter.

          • queenstfarmer 1.1.1.1.1

            you can’t say that their new CGT will replace the current one

            Yes I can, because it will, as a regime. I acknowledge I should have used the word ‘regime’ for clarity in my first comment, instead of just in my second. As we both say, we don’t know the details.

            I agree that if they ring-fence or effectively reimplement the existing regime (and I haven’t heard anything to suggest they won’t, which is good) then there won’t be any new loopholes, but the loophole-fest will be the new stuff based on the announcements / interviews. As we know, it’s still a work-in-progress and subject to change, but they have talked about exemptions besides the family home for boats, jewelry, businesses under a certain size or owned by people over a certain age, businesses in certain industries, complex home-office rules, pegging to inflation, complex deductions for improvements, etc etc.

            I have long thought a CGT should be considered (or a land tax, which got the nod over a CGT in the tax review), and I definitely congratulate Labour for at least partly touching the third rail and proving it’s not instantly fatal (but with the usual caveats eg why didn’t they do this during the property bubble etc, and yes others have had it as policy for ages, etc). The main benefit that I see in it is to level the playing field a bit and incentivise investment towards more productive sectors rather than fundraising for ever-increasing public spending.

        • mickysavage 1.1.1.2

          Though until the legislation is actually written you don’t know that (not even Labour knows – they have said they will get a panel of experts to sort out the details)

          So why are we even debating this. It is all a bit academic.

          You are not bad QSF, your comments are often sharp. But when you try to argue that a CGT is a waste because we don’t know the details AND it is full of loopholes or you try to argue that selling shares in our power companies is not privatization of our assets you are being too cute by far.

          • queenstfarmer 1.1.1.2.1

            I actually support the idea of a CGT, have since I first heard about the flat-tax proposals back in the day. We know some broad details based on Labour’s announcements and interviews, although they are of course subject to further policy formulation and the ‘panel of experts’ process.

        • mik e 1.1.1.3

          Any move forward on CGT is better than none at all.Bludgers need to pay their fair share especially as the National govt debt is going up to $74billion the interest rate alone is going to be aprox $4.4 billion a year.

  2. The reason is the central historical role of the land. There was a huge campaign to tax land and capital gains in the 19th century. The ‘unearned increment’ was popularly recognised as a blight on the economy except by the landowners. Most of these radical initiative were seen off by the landed gentry and the bankers until the Liberals took office. By then the gentry were riding the hog and stealing much Maori land. Farmers are still farming capital gain and that’s where the resistance comes from. The switch to graduated income tax was Lib/Labour’s attempt to make capitalism work for all. Today the shift from graduated income tax to consumption taxes exposed once again the inequity of unearned capital gain as rent paid by the working class. Its all about the historic white settler entitlement to stolen land and succeeding generations living off the unearned increment until such time as the working class wakes up again and threatens to take it all back.

  3. Nick K 3

    If you think this economy will have capital gains on assets within the next 7-10yrs you’re in fantasy land.

  4. Herodotus 4

    The problem with Labs CGT are the exceptions (why have these is Labour trying to appease/buy some votes- I can accept the family home exemptioon but the rest?????) and the fact that is this is 8 years to slow in comming, but better late than ever
    Also why is the base line for valation 2007/8. Was that not the time when property hit the high values? And how will property ever achieve these values again given the crap earnings most Kiwis are on?
    And why did not the IRD under Labours term not chase up the majority of people trading in property? It was not hard especially given that Property ownership, sales prices, dates etc are held on a LINZ database. This whilst there is limited time where any govt should be hitting hard. We already have lost the ability to recoup profits in trading pre 2004. Take what the law already allows the govt to tax, before constructing a new regime that will take many years before real revenue can be realised.

    • Lanthanide 4.1

      I don’t know where you got the idea that the valuation date was going to be 2007/2008.

      They’ve repeatedly said it’s not retrospective, for both losses and gains. If we used valuations from 2007/2008 then anyone who sold a house at 2013 in a loss would get a refund on it and anyone who sold at a profit would have to pay the tax. They’ve specifically ruled that out.

      • Colonial Viper 4.1.1

        Herod got mixed up with Brownlee’s Christchurch red zone valuation scheme.

      • Herodotus 4.1.2

        AS this would be a new law- there must be a base date that is applied to what the “Capital Cost” is, and 2007 was from memory used as a date for valuation.
        And re exemption how does this work?
        “The family bach would be caught by the tax, but only if it was sold. If it was handed down, no CGT would be paid”
        http://www.stuff.co.nz/dominion-post/news/politics/5284934/Labour-reveals-its-capital-gains-tax-policy
        If it has changed ownership then it has been sold? This is an example of the crap exemptions that for me have greatly tarnished this policy. Who is Lab trying to protect with this?
        And Lanth how does Lab ruling out Capital losses, reconciled with this quote? “Losses on assets could be carried forward and could be offset aganst future capital gains.” So there is an ability to recoup taxes from cap losses.
        Great idea, great headline BUT in reality full of crap.

  5. Colonial Viper 5

    At this stage, it is an asset tax and an estate tax which would be the gutsy moves; the CGT is good but just playing a little bit of catch up to everyone else.

    • Aye.

      These taxes were common in the past but have had a sustained attack over many decades that have caused them to be very unpopular amongst ordinary people.  Funny really, because ordinary people would normally never have to pay them.

      Funny what a good advertising campaign can achieve.

  6. Afewknowthetruth 6

    A captial gains tax presupposes there will be increases in capital values.

    In practice most so-called assets are declining in value -the major exceptions being precious metals and a few commodities, for which CGT will be unbe unenforecable.

    • davidc 6.1

      Land will continue to grow in value for many many years.
      Think about a New Zealand with another 2 milion people in it and the pressures that will create both on town edges and farming.

      • Herodotus 6.1.1

        Question when most farm values have little in regard to their economic value. They are overpriced. Wages are stagnant at best in real terms, with ever increasing demands on what there is with everyday living cost price increases how can land increase in value unless there is inflation ? (That is when a CGT is really profitable for govts)
        With councils being as greedy as ever in their contributions (taking money from land developers to mitigate against large rates increase) and the price of developed land and building costs at the upper limit of affordability, the only 2 results I can see are: either raw land decreases in value or developers go under: with the 2nd option being at best very short term.
        On a side issue to allow cheaper new housing the councils have to allow section sizes to increase. As the smaller the building site – the necessity for double storey dwellings, a larger site to comply with site coverage regulations (35% site coverage)can allow single storey. Yet councils have a desire to increase densities = very small section size = expensive construction .

      • Colonial Viper 6.1.2

        davidc – land will only grow in price when private debt in the form of mortgages grows in size.

        • davidc 6.1.2.1

          Well banks like to make money by lending the suff out so that isnt going to stop any time soon.

      • Draco T Bastard 6.1.3

        When I think about NZ with another 2m people I wonder what we’ll do about the 30% abject poverty that will come with them. NZ, IMO, doesn’t have enough resources to support 6m people.

  7. HC 7

    Despite of the misled perception by many wage and salary earners in NZ the taxes and levies combined are lower than in many comparable countries. The problem is rather the comparatively low wages and salaries many are getting. It is at least partly due to NZ having become a low wage country due to following wrong policies. Running a country on producing and exporting mostly primary products with no or little added value is one of the reasons. Also do countries depending on tourism usually have low incomes and low living standards.

    So it is about time that the tax system gets adjusted, so that the true big earners pay their fair share.

    Also do we need to radically change economic direction, to enable more value added production and more diversification of economic activities.

    It is a no brainer, but try to convince many of this. The increasingly uncritical, low standard media has a lot to answer re the state of affairs we have in NZ. News focus on murder, rape, death of a lonely elderly person, how a police dog was hurt, high supermarket prices, celebrity stories, the Royals and only very brief and superficial reports about what else happens in NZ and the world. Smiley Key gets much attention, but people with new ideas hardly feature.

    No wonder this country continues to be dumbed down.

    Bring in a CGT sooner rather than later. The first step to a fairer tax system can be made on 26 Nov. 2011. What do you prefer? A hollow man with smiles and incessantly waving to the TV cameras, or policies with substance?

  8. Excellent post Rijab.  Perfectly weighted.  No sign of wealth envy but a desire to improve things.  Well done.

  9. prism 9

    I heard this on the radio this morning. Isn’t it amazing. It confirms that things are bad though.
    When all else has failed….

  10. Herodotus 10

    From a simplistic perspective – Why not instead of a CGT increase stamp duty from the current level of 0%. This would from my understanding be as simple as it could be to administer and police. Once a property has changed ownership the govt receives its monies. With a CGT would not the govt receive income the following year or well beyond the transaction date?

Recent Comments

Recent Posts

  • NZ announces a third P-3 deployment in support of UN sanctions
    The Government has deployed a Royal New Zealand Air Force P-3K2 Orion (P-3) maritime patrol aircraft to support the implementation of United Nations Security Council (UNSC) resolutions imposing sanctions against North Korea, announced Minister of Foreign Affairs Winston Peters and Minister of Defence Ron Mark. “New Zealand has long supported ...
    BeehiveBy beehive.govt.nz
    3 days ago
  • Pacific trade and development agreement a reality
    Pacific regional trade and development agreement PACER Plus will enter into force in 60 days now that the required eight countries have ratified it. Trade and Export Growth Minister David Parker welcomed the announcement that the Cook Islands is the eighth nation to ratify this landmark agreement. “The agreement represents ...
    BeehiveBy beehive.govt.nz
    7 days ago
  • Securing a pipeline of teachers
    The Government is changing its approach to teacher recruitment as COVID-19 travel restrictions continue, by boosting a range of initiatives to get more Kiwis into teaching. “When we came into Government, we were faced with a teacher supply crisis,” Education Minister Chris Hipkins said. “Over the past three years, we ...
    BeehiveBy beehive.govt.nz
    1 week ago
  • Border exceptions for a small number of international students with visas
    The Government has established a new category that will allow 250 international PhD and postgraduate students to enter New Zealand and continue their studies, in the latest set of border exceptions. “The health, safety and wellbeing of people in New Zealand remains the Government’s top priority. Tight border restrictions remain ...
    BeehiveBy beehive.govt.nz
    1 week ago
  • First COVID-19 vaccine purchase agreement signed
    The Government has signed an agreement to purchase 1.5 million COVID-19 vaccines – enough for 750,000 people – from Pfizer and BioNTech, subject to the vaccine successfully completing all clinical trials and passing regulatory approvals in New Zealand, say Research, Science and Innovation Minister Megan Woods and Health Minister Chris Hipkins. ...
    BeehiveBy beehive.govt.nz
    1 week ago
  • International statement – End-to-end encryption and public safety
    We, the undersigned, support strong encryption, which plays a crucial role in protecting personal data, privacy, intellectual property, trade secrets and cyber security.  It also serves a vital purpose in repressive states to protect journalists, human rights defenders and other vulnerable people, as stated in the 2017 resolution of the ...
    BeehiveBy beehive.govt.nz
    1 week ago
  • Ministry of Defence Biodefence Assessment released
    The Ministry of Defence has today released a Defence Assessment examining Defence’s role across the spectrum of biological hazards and threats facing New Zealand. Biodefence: Preparing for a New Era of Biological Hazards and Threats looks at how the NZDF supports other agencies’ biodefence activities, and considers the context of ...
    BeehiveBy beehive.govt.nz
    1 week ago
  • New Approaches to Economic Challenges: Confronting Planetary Emergencies: OECD 9 October 2020
    New Approaches to Economic Challenges: Confronting Planetary Emergencies: OECD 9 October 2020 Hon David Parker’s response following Thomas Piketty and Esther Duflo. Good morning, good afternoon, and good evening, wherever in the world you might be. I first acknowledge the excellent thought provoking speeches of Thomas Piketty and Esther ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • Kaipara Moana restoration takes next step
    A Memorandum of Understanding has been signed today at Waihāua Marae between the Crown, local iwi and councils to protect, restore and enhance the mauri of Kaipara Moana in Northland. Environment Minister David Parker signed the document on behalf of the Crown along with representatives from Ngā Maunga Whakahī, Ngāti ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • New Zealand and Uruguay unite on reducing livestock production emissions
    Agriculture Minister Damien O’Connor and Uruguayan Minister of Livestock, Agriculture and Fisheries Carlos María Uriarte have welcomed the launch of a three-year project that will underpin sustainable livestock production in Uruguay, Argentina, and Costa Rica.  The project called ‘Innovation for pasture management’ is led by Uruguay’s National Institute of Agricultural ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • 3100 jobs created through marae upgrades
    Hundreds of marae throughout the country will be upgraded through investments from the Provincial Growth Fund’s refocused post COVID-19 funding to create jobs and put money into the pockets of local tradespeople and businesses, Regional Economic Development Minister Shane Jones and Māori Development Minister Nanaia Mahuta have announced. “A total ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • Health volunteers recognised in annual awards
    Health Minister Chris Hipkins has announced 9 teams and 14 individuals are the recipients of this year’s Minister of Health Volunteer Awards.  “The health volunteer awards celebrate and recognise the thousands of dedicated health sector volunteers who give many hours of their time to help other New Zealanders,” Mr Hipkins ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • Community COVID-19 Fund supports Pacific recovery
    The Minister for Pacific Peoples, Aupito William Sio says a total of 264 groups and individuals have successfully applied for the Pacific Aotearoa Community COVID-19 Recovery Fund, that will support Pacific communities drive their own COVID-19 recovery strategies, initiatives, and actions. “I am keen to see this Fund support Pacific ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • Community benefits from Māori apprenticeships
    Up to 50 Māori apprentices in Wellington will receive paid training to build houses for their local communities, thanks to a $2.75 million investment from the Māori Trades and Training Fund, announced Employment Minister Willie Jackson today. “This funding will enable Ngāti Toa Rangatira Incorporated to provide its Ngā Kaimahi ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • Training fund supports Māori jobseekers
    Rapidly growing sectors will benefit from a $990,000 Māori Trades and Training Fund investment which will see Wellington jobseekers supported into work, announced Employment Minister Willie Jackson today. “This funding will enable Sapphire Consultants Ltd. to help up to 45 Māori jobseekers into paid training initiatives over two years through ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • Ruakura Inland Port development vital infrastructure for Waikato
    The Government is investing $40 million to develop an inland port at Ruakura which will become a freight super-hub and a future business, research and residential development for the Waikato, Urban Development and Transport Minister Phil Twyford, and Māori Development Minister Nanaia Mahuta announced today. The funding has been has ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • Appointments made to Defence Expert Review Group
    Defence Minister Ron Mark announced today the establishment of an Expert Review Group to review a number of aspects of the New Zealand Defence Force’s (NZDF) structure, information management and record-keeping processes.  The Expert Review Group’s work arises out of the first recommendation from the Report of the Government’s Inquiry ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • No active community cases of COVID-19
    There are no active community cases of COVID-19 remaining in the country after the last people from the recent outbreak have recovered from the virus, Health Minister Chris Hipkins said today. “This is a big milestone. New Zealanders have once again through their collective actions squashed the virus. The systems ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • Clean energy upgrade for more public buildings
    More public buildings will be supported by the Government to upgrade to run on clean energy, the Minister for Climate Change James Shaw announced today. Minister Shaw announced that Lincoln and Auckland universities will receive support through the Clean-Powered Public Service Fund to replace fossil fuel boilers. Southern, Taranaki, and ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • Schools back donations scheme for the second year
    More schools have opted in to the donations scheme for 2021, compared to 2020 when the scheme was introduced. “The families of more than 447,000 students will be better off next year, with 94% of eligible schools and kura opting into the scheme,” Education Minister Chris Hipkins said. “This is ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • Ruapehu cycle trails gets PGF boost
    The spectacular Mountains to Sea cycle trail in Ruapehu District will receive $4.6 million in funding from the Provincial Growth Fund for two additional trails, Regional Economic Development Minister Shane Jones announced today. “This is an exciting development for the local community, and one that will provide significant economic opportunities ...
    BeehiveBy beehive.govt.nz
    3 weeks ago
  • Update to air border order strengthens crew requirements
    Additional measures coming into effect on Monday will boost our defence against COVID-19 entering New Zealand through the air border, Health Minister Chris Hipkins said today. “As part of our precautionary approach and strategy of constant review, we’re tightening the requirements around international aircrew,” Chris Hipkins said. The COVID-19 Public ...
    BeehiveBy beehive.govt.nz
    3 weeks ago
  • A true picture of Māori business activity
    A better picture of the contribution Māori businesses make to the economy will be possible with changes to the way information is collected about companies and trading enterprises. Māori Development Minister Nanaia Mahuta and Small Business Minister Stuart Nash have announced a new option for Māori enterprises who are part ...
    BeehiveBy beehive.govt.nz
    3 weeks ago
  • PGF funding for Taranaki projects
    The South Taranaki museum, a New Plymouth distillery and a Pasifika building firm will benefit from a Government investment totalling more than $1 million, Regional Economic Development Minister Shane Jones says. The $1.05m in grants and loans from the Provincial Growth Fund (PGF) will help the recipients expand and create ...
    BeehiveBy beehive.govt.nz
    3 weeks ago
  • Fijian Language Week 2020 inspires courage and strength during COVID-19 pandemic
    The Minister for Pacific Peoples, Aupito William Sio says the theme for the 2020 Fijian Language Week reflects the strong belief by Fijians that their language and culture inspires courage and strength that is strongly needed in times of emergencies, or through a significant challenge like the global COVID-19 pandemic ...
    BeehiveBy beehive.govt.nz
    3 weeks ago