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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.


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

          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

            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

          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

            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

          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”
        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

          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?

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