Owning the agenda

Written By: - Date published: 6:03 am, July 7th, 2011 - 153 comments
Categories: economy, election 2011, labour, national, tax - Tags: ,

Notice how a single announcement (not even officially made) from the opposition Labour Party has generated more interest, excitement and reaction than the last (Sub-Zero) budget? More excitement, in fact, than anything the National government has done in the last three wasted years?

The Herald editorial heaps praise on Goff for a policy that is says is courageous and “not only would a capital gains tax be hugely beneficial to the economy but the time for its introduction is right.”

Press gallery leader Guyon Espiner says “most New Zealanders do not have an investment property and if Labour can argue this properly they should be able to carry this argument”.

Fellow press gallery heavyweight John Armstrong reckons that “Goff goes for broke with huge gamble”. Got that right. But – what – you thought Labour was just going to sleepwalk to defeat? Hell no.

Poor John Key reckons that a capital gains tax will send NZ “screaming backwards”. He’s quite the expert on that I guess. In the same piece Key predicts that the CGT will raise only “$700 million a year, after 15 years”. Unfortunately for the PM the recent Tax Working Group report put the figure at more than $4 billion a year (the 2009 report from the Victoria University of Wellington Tax Working Group agrees). Perhaps Nice Mr Key should check his sums. Or even wait a week and see precisely what form Labour’s policy will take.

Danyl at DimPost nails it with characteristic economy – “National wants to finance the rebuilding of Christchurch via asset sales; Labour via a tax on property speculation”.

Everybody’s favourite Tory mouthpiece DPF was strangely muted in his criticism at Kiwiblog. Perhaps that’s because he recalls saying, just last year that “… I think the time is right to now take a serious look at capital gains tax”.

For a take out of left field, Rob Carr at Political Dumpground argues that even if the CGT causes a property market implosion, that might be a Good Thing.

John Hartevelt at Stuff reckons that that this is “Labour’s big policy play”. Key’s good buddy Duncan Garner reckons the CGT is a “bold and courageous move”. And so on, and so on.

Labour have started setting out a bold, fair and plausible policy framework for the election. No asset sales. A tax system for the many not the few. $15 minimum wage. Children at the centre of social policy. R&D tax credits. Keep ACC and Pharmac. GST off fresh food. Strengthen KiwiSaver and the Cullen fund. All good stuff!

And the Nats? A budget almost universally panned as lacking in vision, they are simply recycling meaningless promises from one budget to the next. And news yesterday that the government’s “new” $17 billion infrastructure plan in fact contains no new plans at all, just re-announcements of old ones (which were mostly Labour’s anyway).

In short, Labour has a plan, National has a record of three wasted years. Labour have taken hold of the political agenda. Now they have to keep it for the next 5 months.

153 comments on “Owning the agenda ”

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  1. Pete George 1
    7 July 2011 at 6:37 am

    It’s not bold, yet. Labour have only dipped their toes in the water so far. If only we could have a decent debate over the merits and drawbacks.

    Unfortunately it’s likely to be overshadowed by electioneering. That’s a major problem, potential votes rule the debate, as does trying to win the media battle (claiming to win the media this early is a nonsense).

    Owning the agenda? That’s political pomposity. Stuff the people as long as you think you’re scoring political points.

    Common sense appraisal gets shoved to the side, as does considering what’s really best for most people and for the country. The mad scramble for power tramples everything.

    • Colonial Viper 1.1
      7 July 2011 at 8:18 am

      A CGT from Labour is not particularly bold, but it is twice as bold as anything National has thought of so far.

    • bbfloyd 1.2
      7 July 2011 at 11:28 am

      “the mad scramble for power tramples everything”. describes the national party’s political manifesto perfectly…

  2. mickysavage 2
    7 July 2011 at 6:50 am

    It is interesting tactics the way the issue has been raised publicly. No doubt the debate will rage until later next week when the policy will be announced. It will be quite an achievement for Labour to dominate political discussion for so long.

    I am sure National will both continue to demonise the policy and try to divert attention. But it’s lack of a plan to address our economic problems is exceedingly obvious.

    • Pete George 2.1
      7 July 2011 at 6:52 am

      Danyl at DimPost nails it with characteristic economy – “National wants to finance the rebuilding of Christchurch via asset sales; Labour via a tax on property speculation”.

      Is it a good economic plan to put people off investing in property right now? Especially for Christchurch?

      • ropata 2.1.1
        7 July 2011 at 7:07 am

        Not sure how a rumour of potential opposition party policy becomes a “plan to put people off investing in property”.
        Big difference between speculative investments that cause bubbles, and long term investment in a place to live.

        Everyone was hoping that money man Key would pull $$$ out of thin air and make us all rich, but his plan for riches seems to require destroying the country’s critical infrastructure assets. Is that a good economic plan?

      • mickysavage 2.1.2
        7 July 2011 at 7:11 am

        Why should it put people off buying rentals? All that would happen is that they share a bit of their capital gain when it is realized with the rest of us.

        • Pete George 2.1.2.1
          7 July 2011 at 7:18 am

          I hope the people in Labour who are proposing the additions to CGT have a bit more understanding than you of possible effects of a tax on investment properties.

          • Jim Nald 2.1.2.1.1
            7 July 2011 at 7:39 am

            Oh yes, CGT will kill off any and every investment. Just ask other CGT countries who have been doing better than us.

            • PeteG 2.1.2.1.1.1
              7 July 2011 at 7:53 am

              Calm down. Our current CGT hasn’t killed off all investment. Neither of course will any additions that Labour might try to implement. But it could quite possibly affect investments in property at a time that it’s most needed in Christchurch.

              Shouldn’t that at least be considered? Or does a campaign for votes in November matter more than considering houses for Christchurch?

              • ropata …
                7 July 2011 at 8:03 am

                FUD
                A potential policy isn’t an attack on rebuilding CHC
                If anything a CGT will reduce ongoing speculation in AKL and free up capital for other things

              • lprent …
                7 July 2011 at 8:17 am

                We have needed a CGT to plug the investment bias for all of my adult life. It stifles business investments in areas other than property. That is the reality of setting up new business in NZ. You are completely constrained by the lack of investment capital, because it is used to buy investment properties as profits from those are largely not taxed.

                The building in ChCh will happen regardless because people and businesses need to have somewhere to live and work. In other words there is a demand. Putting in a CGT do not change that economic imperative. So essentially you’re talking straw man crap again

                Anyway, you’d hold up implementing CGT because of a one off short term issue? You do sound like a politician of the right – short term thinker and kind of stupid.

                • PeteG …
                  7 July 2011 at 8:24 am

                  Before rushing in with claims of stupidity look at what I’ve said. I didn’t say it should be held up – the voters will decide that. I suggested all effects should be considered.

                  The rebuilding of Christchurch is not a short term issue. It’s very important to the South Island in particular. It’s hardly being stupid considering what effect it might have – to people outside ot Auckland and Wellington at least.

                  • lprent …
                    7 July 2011 at 8:47 am

                    All effects will be considered. What I was saying was the possible effect you were looking at was a short term one, that didn’t exist in reality, and that shouldn’t hold up doing a structural shift in the tax base that many of the business community like myself have been calling for over three decades.

                    Christchurch will almost entirely be rebuilt within the next 5 years and it will be rebuilt because the economics of the south island says that it needs to be there. The only major uninsured part is the infrastructure which will be paid and done by the government who are not subject to a CGT. So the major bulk of the funds to rebuild comes from insurance.

                    Since investors largely own their land (and therefore grandfathered), and most actually have the majority of their building asset in place (and therefore grandfathered), they will build on it or sell to someone who will. What did you think that they would do – walk away from the existing investment?

                    Quite simply your arguments were crap, short sighted, and a few moments thought would have been sufficient to figure out why it is a straw man argument.

                  • ropata …
                    7 July 2011 at 8:53 am

                    Yes the likely effect is that a CGT will be beneficial to Cantabrians.
                    It’s a fairer solution than National’s plan to sell our precious assets, ostensibly to help pay for CHC rebuilding.

                    Christchurch also has suffered low wages and high unemployment for a long time due to inequitable economic policies, and National’s solution is even MORE inequity.
                    There are other people in Christchurch than just property developers.

              • mickysavage …
                7 July 2011 at 8:24 am

                Domestic landlords do not build houses to rent.

          • mickysavage 2.1.2.1.2
            7 July 2011 at 8:05 am

            Que?

            Reread what I said.  I merely commented that a CGT should not put people buying rentals.  It may put some off but their greed and lack of understanding are not things that I can remedy.

            It was not meant to be an encyclopedic description of the effects of the policy.

            If it puts people of speculating on land then that is a good thing.

          • Lazy Susan 2.1.2.1.3
            7 July 2011 at 8:07 am

            Listen to the economics correspondent from the Syndey Morning Herald explain what happened in Australia when they introduced a CGT. Yeah they also had all the naysayers like Peter George predicting the sky would fall in – but guess what? It didn’t.

            The correspondent notes how New Zealand is considered to be a strange anomally in that it doesn’t have a CGT – Australia, UK, US all have CGT. Also some good points regarding the lack of a CGT being a loophole in the NZ tax system that enables people to convert taxable income to non-taxable capital gain. Therfore it’s not just what a CGT would raise directly but with the loophole gone it would be harder to use property speculation to shelter income and so more tax would be collected on earned income.

            • PeteG 2.1.2.1.3.1
              7 July 2011 at 8:12 am

              Susan, you’re being lazy, or deliberately misleading, or part of the Labour message machine.

              I haven’t naysayed CGT, I have yaysayed having a reasoned debate about it and suggested that possible affects be considered.

              • mickysavage …
                7 July 2011 at 8:20 am

                PeteG you are the one being deliberately misleading.  

                Lazy Susan’s very good comment does something you never seem to do, that is address the merits and state a position.

                You have this Peter Dunne ability to talk round and round  an issue without ever committing.  And you never seem to make your mind up.

                Are you Peter Dunne 

                • PeteG …
                  7 July 2011 at 8:30 am

                  that is address the merits and state a position.

                  Don’t you mean address the merits and drawbacks?

                  It’s true I don’t usually jump to conclusions – I prefer to take time to see what pros and cons are raised on blogs and in the media, to see what people think and how it might affect them. For a complex issue like a comprehensive chngne to our CGT that takes time, doesn’t it?

                  Unless you just want to jump on the “it might get us elected, don’t dissent” train.

                  And I notice that Labour are dribbling this out presumably to test the water and adjust their final proposal, even they haven’t committed yet by the look of things.

                • Colonial Viper …
                  7 July 2011 at 8:51 am

                  Are you Peter Dunne

                  Prob not. Fan club president perhaps?

                  • PeteG …
                    7 July 2011 at 9:35 am

                    Peter Dunne, on his own, has probably had more influence on government policy and has initiated more of his own party’s policy than all of the Labour MPs put together.

                    Maybe that’s the sort of “talk round and round an issue without ever committing” that Micky alludes to.

                    Having a decisive CGT policy – once Labour gets around to finalising and announceing it – is worth diddly squat if they are in Opposition.

                    • felix …
                      7 July 2011 at 2:27 pm

                      “Peter Dunne, on his own, has probably had more influence on government policy and has initiated more of his own party’s policy than all of the Labour MPs put together.”

                      HAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHA!!!!!!!!!

                      List them.

                    • PeteG …
                      7 July 2011 at 2:43 pm

                      Too much to list, so see here: http://www.unitedfuture.org.nz/successes/

                      List Labour successes this term.

                    • Colonial Viper …
                      7 July 2011 at 4:20 pm

                      List Labour successes this term.

                      Whipping John Key’s sorry little ass back to his major shareholders in Hawaii.

                      Next.

                    • felix …
                      8 July 2011 at 8:54 am

                      Did you bother to read your own link Pete? It includes things like Winston Peters’ Gold Card for seniors FFS, and most of it amounts to “National will be nice to me, be my friend, and let me come to some of their clubhouse meetings, and let me claim responsibility for things they were doing anyway”.

                      ps why are you trying to shift the goalposts to “this term”? Is it because you just realised what an utterly stupid statement you made?

                  • Jim Nald …
                    7 July 2011 at 4:27 pm

                    Re 26 Nov 2011:

                    John Key wanna sell our assets –

                    Kiss his ass or

                    Kick his ass?

              • Lazy Susan …
                7 July 2011 at 10:38 am

                PeteG – I’m not being lazy, misleading and certainly not part of Labour’s mesage machine.

                On the contrary. I took the trouble to post a link to an Australian economics correspondent who suggested the Australian experience of a CGT did not lead to the sky falling in on the property market – refuting your earlier post. He also raised a good point that suggested the tax revenue generated by a CGT was more to do with the fact it meant people could no longer avoid paying income tax by converting income into capital gain so increased the revenue from income tax – refuting the position taken on your website regarding revenue.

                Sometimes issues can be hard to debate. Did you listen to the podcast or was that too hard as well?

                • PeteG …
                  7 July 2011 at 11:02 am

                  I’ve heard a range of opinions on CGT in Australia, ranging from “it works” to regrets they introduced it because it’s just shifted problems rather than solving them.

                  A number of people have also claimed that CGT just changes tax avoidance techniques.

                  And – I never suggested the sky would fall in, so your claim is off target.

                  Mickey claimed “You have this Peter Dunne ability to talk round and round an issue without ever committing. ”

                  You can’t both be right.

                  Doesn’t it seem a bit stupid to be making definitive statements of support or opposition when we won’t know all the details until next week? We’re debating on dribbled bits of information.

                • MrSmith …
                  7 July 2011 at 12:53 pm

                  peteG is a Concern Troll Susan , it wouldn’t have read your link as it isn’t here for education, it’s only here to spread Doubt and confusion.

                  Concern Troll http://en.wikipedia.org/wiki/Troll_(Internet)#Concern_troll

                  • PeteG …
                    7 July 2011 at 1:10 pm

                    Very funny. Read your link. You seem to use a pseudonym. I don’t.

                    [lprent: As Felix says no-one apart from the mods (mainly me) can tell who is using a pseudonym or not. we have had people on here with full blown names and detailed back stories, that the mods or I could tell were completely fictitious. We have also had people claiming to be someone that they are not (like a father of a missing kid). I usually investigate those when they arise.

                    I’ve been known to look back at peoples machines while they are online from the servers or see who else has used their IP’s here previously or see who lives in the same IP neighborhood. If I am really pushed I will even go so far as to request cooperation of ISP’s and people who I know. Neither you, nor any of the commentators can do that type of verification – you don’t have the IP’s, e-mails, logs, and other histories required. The best that can be done is if there is someone trusted here that actually knows the person and who will vouch for them – which sometimes happens.

                    But the rule is that all handles are to be treated as pseudonyms unless I can confirm that they are not. And I won’t waste my time unless there is a pressing reason so it happens very rarely and I do not allow 20 questions. The converse is also true – you cannot try to use the ‘I have a real name’ argument. If you do and I haven’t confirmed it, then I may get irritated reading the consequential comments and writing these explanations. It is not a wise tactic to use unless you are a deeply addicted gambler. ]

      • Colonial Viper 2.1.3
        7 July 2011 at 8:21 am

        PeteG you’re an idiot for not noticing that Government is going to have to lead the way in investing in Christchurch. In comparison the private sector (including the insurers/reinsurers) are chicken to do so.

        And Labour now owns the better plan for funding that rebuild.

      • bbfloyd 2.1.4
        7 July 2011 at 11:38 am

        if people are rebuilding their homes to live in, it’s not a factor.. if someone builds five houses, and then sells four of them, then the tax would accrue.

        the people attempting to criticize this policy need to understand the basic reality of what a capital gains tax actually is… i would have thought the title was self evident.. you don’t pay a cent in tax until you realise an actual capital gain. which is why it works so well everywhere else…

        get it? build a house, … no tax….. live in it,….. no tax,…. build it and sell it for profit immediately, pay tax on your profit… buy ten houses and rent them out,… pay the same taxes you always have… sell one of those investment properties,… pay cgt on the profits from the one sale…

        now you can explain to me how that will stop people from rebuilding their homes again..

  3. higherstandard 3
    7 July 2011 at 6:53 am

    I’m supportive of a capital gains tax but have reservations about the $4 billion per year that’s being tossed about in the media.

    At the suggested rate of 15% on investment properties doesn’t that amount to around to around $26 billion in capital gains that is supposedly being made in overall capital gain per annum in relation to investment property sales ?

    Is that realistic……. can any real estate agents comment ?

    • Colonial Viper 3.1
      7 July 2011 at 8:23 am

      $4B seems somewhat high to me, best thing to do would be to see how the tax working group, and the 2009 working group, came to that conclusion.

      Hopefully they didn’t just reuse each others’ results.

      Is that realistic……. can any real estate agents comment ?

      Playing with numbers, 500,000 investment properties gaining in value by $20,000 is a $10B capital gain. However, it doesn’t seem likely that all 500,000 investment properties would be sold in one year.

      • higherstandard 3.1.1
        7 July 2011 at 9:27 am

        Even if that was the case $10B at 15% doesn’t come anywhere near the $4B tax revenue that the media keeps quoting……. guess we’ll just have to await the details.

    • Lanthanide 3.2
      7 July 2011 at 9:46 am

      The $4b is from the Tax Working Group, assuming a capital gains tax applied to all capital gains, not just investment properties.

      It has been clarified today that Labour’s policy will be covering all capital gains, not just investment properties. However I think the rate (15%) may not be as high as envisioned/calculated by the TWG.

      • higherstandard 3.2.1
        7 July 2011 at 10:47 am

        Hi Lath

        Have you got a link for the clarification of what the CGT is going to look like.

        Devil as always is in the detail.

      • Tangled up in blue 3.2.2
        7 July 2011 at 11:12 am

        Yep the $4b is from the Tax Working Group is based on a CGT applied on everything and a 30% tax rate on capital gains.

        I’m all for a CGT but MSM (and original poster) should be a lot more skeptical of that $4b figure as the gain could very well be a much smaller.

        Labour have been severely criticizing Nationals top tax cut so I think it’s likely that a claw back here will be factored into the wider package to give enough funds to sort things out without having to sell assets.

        • KJT 3.2.2.1
          7 July 2011 at 2:43 pm

          4.5 billion with 30% and the family home exempted. 9 billion if family homes were included.

          http://www.victoria.ac.nz/sacl/cagtr/twg/Publications/3-taxation-of-capital-gains-ird_treasury.pdf?

          I expect there will be some gains in income tax, also if the advantage of offsetting income into untaxed capital gains was removed. As in South Africa.

          I think Labour will be adding some more progressive tax rates and remove some of the tax dodges in the mix also.

          I do not think the family home or any other income earning assets should be exempted.
          It makes it too easy to rort.
          You will suddenly see all sorts of children of the wealthy owning family homes for a start.
          How do you deal with trust owned assets?

          All income should be treated equally so that tax evasion by income shifting becomes impossible.

          Why should investment on land be taxed on after inflation profits only, when share and investment income is taxed on nominal returns.

          Families could be compensated for the extra expense in other ways as I have suggested above.

          http://thestandard.org.nz/owning-the-agenda/#comment-349170

          Unfortunately NACT are stripping the cupboard, so Labour is not going to have too much space to move after the election.

          20 billion plus deficit by next year.

          • Colonial Viper 3.2.2.1.1
            7 July 2011 at 3:03 pm

            Unfortunately NACT are stripping the cupboard, so Labour is not going to have too much space to move after the election.

            20 billion plus deficit by next year.

            Thanks Bill and John, we’re lovin’ it.

      • lprent 3.2.3
        7 July 2011 at 12:03 pm

        I think that they were considering 30% so that it was in the same order as personal and business income. It’d be more effective at that level. But I just want something put in to stop the drain of every effective tech business and their people offshore.

        • Draco T Bastard 3.2.3.1
          7 July 2011 at 1:02 pm

          Yeah, National are actually right when they said that having different tax levels causes more income shifting. Of course, they then did the wrong thing by dropping the top tax rate and the business rate causing a massive shortfall in taxes. What they should have done is found a way to sheet home all income onto the PAYE scale. Flat independent rates don’t cut it as people will look for ways not to pay the higher amounts causing a massive dead wieght loss.

          • Colonial Viper 3.2.3.1.1
            7 July 2011 at 3:05 pm

            And what kinds of persons can afford the professionals needed to help shift income around different ledgers and associated persons? No one earning $13/hr anyway.

    • felix 3.3
      7 July 2011 at 11:33 am

      Is that realistic……. can any real estate agents comment ?

      You want real estate agents to comment on reality?

      Ho ho. Have you never met one?

      • higherstandard 3.3.1
        7 July 2011 at 11:38 am

        Fair call – more on the issue of the number of houses and turnover aspect.

        • felix 3.3.1.1
          7 July 2011 at 11:47 am

          Don’t get me wrong, it was a good question. I’m just being a dick.

        • Puddleglum 3.3.1.2
          7 July 2011 at 12:21 pm

          Hi higherstandard, try this. I generated it from the ‘market trends’ part of the real estate institute’s webpage. Not sure how exhaustive it is (I know it doesn’t include section sales – though you can put that in to the calculator too).

  4. wyndham 4
    7 July 2011 at 7:02 am

    Wow! Who poked a stick into the hornets nest?! In parliament this week, Key has been almost hysterical in fulminating against this proposal. Even English has managed comment other than to blame Labour for “nine years of economic mismanagement”. The usual suspects with an interest in the housing market are beside themselves. N.Z. as we know it appears to be doomed.

    Can one gauge from all this, that Labour has at last struck a telling political blow? And Labour hasn’t even officially announced the proposition yet !

  5. Policy Parrot 5
    7 July 2011 at 7:17 am

    Support the intent – its great to see the caucus finally get behind this idea, its been kicked around the workshops for a long time. However, I agree with some of the criticisms made by the some of the tax professionals that this will be possible to evade.

    A land tax would be preferable in my opinion, as it is much more difficult to evade, achieves very similar results, except that it generates a better cashflow, and on an annual and predictable basis. Concessions/relief from its unintended consequences can be much better targeted. Implement that, plus better use of the existing implicit CGT on non-real asset classes – would have a strong impact on high income tax evasion.

    Labour should be sticking to its guns on its rhetoric – that it truly wants to get at those who consider tax as something “only the little people pay”, and if that means the interests of some propertied caucus members suffer – well so be it.

    EDIT: 15% is really just clipping the ticket on evaders, and saying “well done, on your way”.

    • higherstandard 5.1
      7 July 2011 at 8:05 am

      Are you talking about the land as posited here.

      http://www.scoop.co.nz/stories/BU0910/S00067.htm

      • Policy Parrot 5.1.1
        7 July 2011 at 8:23 am

        It would be similar, but more highly skewed to target speculators. A blanket, undifferentiated land tax is obviously unfair.

        Alterations/relief from an undifferentiated land tax suggestions:
        – A tax-free threshold on total real value, available only to actual individual taxpayers, accounting and legal personalities do not qualify.
        – Use the lower of the most two recent GV’s for assessment.
        – Differing thresholds and rates for different land usages, urban residential, urban commercial, rural, industrial, Maori land etc.

        • Policy Parrot 5.1.1.1
          7 July 2011 at 8:44 am

          Note: regarding total real value – the tax-free threshold is analogous to the intention of the exemption of the family home. Basically, the total real value of an individual’s property holdings would have the tax-free threshold applied once.

          I note that in such a circumstance there is some room for structuring on a couple’s basis – so this proposal is more demanding on those who have “property empires” rather than those who own a single extra property – and as it should be.

        • Draco T Bastard 5.1.1.2
          7 July 2011 at 1:50 pm

          A blanket, undifferentiated land tax is obviously unfair.

          Nope, it’s what it should be but it shouldn’t be a proportion of income but an outright flat rate per hectare per year. Guestimate of somewhere between $100 to $1000 which would be well within affordability for all residential owners.

    • Colonial Viper 5.2
      7 July 2011 at 8:29 am

      EDIT: 15% is really just clipping the ticket on evaders, and saying “well done, on your way”.

      True; the rate should probably match the lowest income tax rate, at a minimum.

      • Chris 5.2.1
        7 July 2011 at 8:41 am

        The lowest income tax rate is 10.5%

      • Blighty 5.2.2
        7 July 2011 at 9:27 am

        of course, most capital gainers are going to be on one of the higher marginal tax rates but having the cgt rate set at a lower level allows for the fact that some capital gain is eaten up by inflation. In Aussie, cgt is half your marginal tax rate for that reason.

        • Draco T Bastard 5.2.2.1
          7 July 2011 at 2:04 pm

          Adjust purchase price for inflation, minus from sale price, tax at full marginal tax rate. Not hard, the RBNZ even has an Inflation Calculator to do it for you. In fact, you’d probably want to legislate that that is the one used so that there’s no argument about the actual value.

    • Draco T Bastard 5.3
      7 July 2011 at 1:03 pm

      A land tax should applied as well.

  6. vto 6
    7 July 2011 at 8:28 am

    Such a policy will gave diddly-squat effect on property prices.

    People will pile into property again some time in the next few years (provided the entire world economy does not implode meantime) and this capital gains tax will have no impact on their decision to do that.

    But anything which broadens the tax base and relieves the tax on income earning is good.

    How about dropping all income tax?

    btw – Doesn’t Jacinda Adern come across superbly on breakfast telly? Sheesh, you lot should be getting her face to face with smile and wave. Expose the flab drab droopy snakes eyes of Key for what they are. If you think people will vote for Key because they just like him due to his friendly smile and waving then take a leaf out the same book and beat them at their own game. And on top of that Jacinda has intellect and principles as well so she beats Key hands down.

    • Colonial Viper 6.1
      7 July 2011 at 8:33 am

      People will pile into property again some time in the next few years (provided the entire world economy does not implode meantime

      Love your ‘sweet and sour’ approach in one sentence. Bang!

      An upfront 7.5% levy on all investment property mortgages would probably have the desired effect. I agree the CGT is a blunt instrument for holding back property speculation, but it is something.

      • vto 6.1.1
        7 July 2011 at 8:48 am

        It is rare that such fiddling by governments has the intended effect. It usually just complicates things and makes it worse.

        Is it speculation that is the problem? If so, then the probem is one of human nature and applies right across every sector. Good luck with controlling that. I dont think speculation is the problem.

        Or is it high housing costs that are in fact the real problem (it is imo)? If so, then there are other and better ways of helping bring housing costs down. Two examples – get local authorities to drop their countless fee, levies and taxes on new development (about 5-10% of land). Get government to drop GST on housing (15%). There is about $50,000 per average house right there.

        Go on, drop the GST on housing. You would see an immediate overnight drop in house prices.

        edit: another example – get some decent competition in NZ’s cement supply.

        edit edit: I suppose we could build houses out of fruit and vege.

        • lprent 6.1.1.1
          7 July 2011 at 8:53 am

          No. The problem is that having an ability to generate profits without being taxed on those profits distorts the investment pattern in NZ. It means that far too much money is put into property – with the consequences you describe.

          The real effect is that it slows NZ growing it’s real economy because small companies either don’t get created, or are unable to expand because of serious shortages of investment capital.

          • vto 6.1.1.1.1
            7 July 2011 at 9:04 am

            Well lprent, as I said above, I dont think a CGT will have that effect on investment patterns. Where are people going to put their money? In finance sector? In the sharemarket? Too many bad memories. People will continue to say that you cant beat bricks and mortar. And in many senses it is true. It doesn’t disappear overnight for a start (unless you’re in Chch). There is a very consistent demand for a roof over one’s head at night for another.

            I just do not think it will cause any discernable change to investment patterns. Happy to be proved wrong though.

          • jcuknz 6.1.1.1.2
            7 July 2011 at 9:05 am

            You would be correct if it just applied to housing but at this stage I have heard suggestions that it will apply to all gains, not just on housing, so it does seem a silly copy cat of what other mis-guided people have done in other countries … as Norman said “Even the [silly] Aussies.”

        • Colonial Viper 6.1.1.2
          7 July 2011 at 8:57 am

          No GST gets paid on existing used houses which are sold right? As I understood it anyways.

          Also it is common to find house prices in Auckland which have gone from $300K to $400K in just a few years.

          There is no way that dropping rates etc will compensate for that.

          The most important understanding is this: higher house prices have been driven by banks willing to lend more and more money on mortgages for essentially the same house. (Including allowing 5% and 0% mortgages)

          If you limited that, you will effectively limit the rate of housing price increases.

          • vto 6.1.1.2.1
            7 July 2011 at 9:07 am

            “No GST gets paid on existing used houses which are sold right? As I understood it anyways.”

            Wrong in a subtle but very real way. GST is payable on new land and new houses.

            If new housing had GST dropped you would see new housing drop in price by 15%. Existing used houses would obviously respond instantly to the same level of 15%.

            Land supply is the other major bogey affecting new housing cost.

            New housing cost has one of the most dramatic impacts on existing housing values. (putting aside the extremes of bubbles and busts). Deal with new housing and you deal also with existing housing.

  7. mickysavage 7
    7 July 2011 at 8:53 am

    Ha
     
    Landlords are confidently predicting a Labour win in November.
     
    The prospect of a CGT has really spooked them.  According to the article two of the poor dears are going to buy rental property in Australia and leave New Zealand.
     
    Do you think we should tell them that Australia already has a CGT?

    • Colonial Viper 7.1
      7 July 2011 at 9:00 am

      Funny how they say that landlords are being spooked off by the CGT in one breath, and in the next breath they say that it will be dead simple to avoid the tax! lol

      John Shewan of PWC puts forward a good argument seemingly for a CGT. Everyone else they asked pretty much panned it.

      Including the guy who says that a CGT makes NZ less exciting (= less like a speculative circus I suppose!!!)

    • Blighty 7.2
      7 July 2011 at 10:26 am

      so, they’re going to go to Australia, which has a CGT?

  8. jcuknz 8
    7 July 2011 at 8:58 am

    Sounds like typical left wing class warfare by the no-hopers trying to get at those who deprive themselves today as they look to the future by saving and investing.

    • Colonial Viper 8.1
      7 July 2011 at 9:01 am

      Yeah its class war alright buddy, except its being waged by the wealthy 5% against the rest of us, and has been for decades now.

      • big bruv 8.1.1
        7 July 2011 at 9:13 am

        Sigh….still pushing that class warfare bullshit Viper?

        • Colonial Viper 8.1.1.1
          7 July 2011 at 9:17 am

          bb why don’t you go eat a cockroach and you can see what wartime rations are really like

          • big bruv 8.1.1.1.1
            7 July 2011 at 9:24 am

            Viper

            Anybody who says they have to eat cockroaches in NZ is a liar, there is NO reason at all for anybody to go hungry.

            Why do you keep insisting on pushing these lies?

  9. big bruv 9
    7 July 2011 at 9:12 am

    I cannot be bothered wading through Labour party spin (lies and bullshit), so, can anybody tell me if the planned CGT excludes the family home?

    And, would Labour use the extra income to lower personal taxes or just keep handing out money to parasites and DPB slappers with no conditions attached.

    If the family home is excluded from CGT then I think many Kiwis would support it, if not then it is another mind numbingly stupid move from Labour.

    • Colonial Viper 9.1
      7 July 2011 at 9:18 am

      would Labour use the extra income to lower personal taxes

      Every dollar less that the Govt collects is a dollar more it has to borrow from China, or dollar removed from services that it provides to you and me.

      • big bruv 9.1.1
        7 July 2011 at 9:26 am

        Then cut the “services” they provide and let everybody look after themselves.

        Why the hell do you think that the government can do it better when all the evidence shows that they cannot?

    • vto 9.2
      7 July 2011 at 9:21 am

      It had better exclude the family home. Bloody governments and councils should leave our castles well alone lest a revolt explode. Councils already do enough damage under the out-of-date rating system on family homes.

      (and what about if your family housing situation includes more than one dwelling???)

    • Blighty 9.3
      7 July 2011 at 9:27 am

      “would Labour use the extra income to lower personal taxes”

      yes.

      Labour has a policy of making the first $5,000 tax-free.

    • Lanthanide 9.4
      7 July 2011 at 9:51 am

      “I cannot be bothered wading through Labour party spin (lies and bullshit), so, can anybody tell me if the planned CGT excludes the family home?”

      Yes. It is a broad/comprehensive CGT on everything that has a capital gain, not just investment properties. One of the exemptions is the family home.

      • grumpy 9.4.1
        7 July 2011 at 11:12 am

        Choice!!!

        So it means I can claim for capital losses associated with such investments as well???

        Will it tax both realised and unrealised gains or losses?

        • Colonial Viper 9.4.1.1
          7 July 2011 at 11:56 am

          Only realised, by the sounds of it.

          • grumpy 9.4.1.1.1
            7 July 2011 at 12:22 pm

            So, they only pay the tax when the asset is sold? What about losses?

            • Lanthanide 9.4.1.1.1.1
              7 July 2011 at 12:40 pm

              I don’t see why losses would be treated any differently.

              • mickysavage …
                7 July 2011 at 8:29 pm

                A loss is a diminution of capital.  A gain is income.

                Sorry but if investors lose the state will not partially compensate them. 

                • Draco T Bastard …
                  7 July 2011 at 9:26 pm

                  Provisional tax. It’s paid before you get the income so if you get a loss during the year you’ll get a refund from the taxes paid. Really stupid idea that came about because, I suspect, doing all the accounting on paper took a bloody long time and hasn’t yet been corrected to the present day.

    • bbfloyd 9.5
      7 July 2011 at 12:20 pm

      you really are a lazy minded git aren’t you big bruv… you admit you havn’t the attention span to read any documentation relevant to the policy question, or the heralds speculations, yet still find it acceptable to waste space and time arguing against it..

      what a dickhead. typical right wing moron. critical of anything that isn’t national party propaganda simply because it isn’t national party propaganda… for no more reason than bigotry, stupidity, and utter laziness when it comes to adult discussion.

      READ THE INFO YOURSELF, and then shut the fuck up.

  10. ianmac 10
    7 July 2011 at 9:34 am

    There was discussion this morning that the CGT would be broader based than just rental properties. Include business, farms and land? Now that would be outstanding.

    • PeteG 10.1
      7 July 2011 at 9:40 am

      This was also suggested (no source given):

      the Labour Capital Gains Tax will be UNIVERSAL and comprehensive with exceptions only for the “first home” (for now and also note: not the “family home”)

      and

      Also that it will now be RETROSPECTIVE with Government deemed initial prices where no purchase records exist in order to start raising tax immediately.

      If that’s the case it will impact a lot more people than a few rich property investors.

      • Lanthanide 10.1.1
        7 July 2011 at 9:53 am

        I think that’s just bullshit.

        Russell Norman was on Morning Report talking about it. He says he hasn’t heard the detail from Labour (as they’re not telling anyone), but that any proposal by the Greens was that all existing capital is grandfathered in, and the tax only applies to new purchases after the date of enactment. This means that it’ll take up to a decade before the money really starts rolling in – you can bet National are going to trumpet this from the parapets (but at the same time, it means this isn’t a short-term bogeyman that’s going to trap everyone).

      • KJT 10.1.2
        7 July 2011 at 10:06 am

        At last Labour are showing some signs of offering real visionary alternatives.

        Good on them.

        Some thoughts.

        The reaction shows that sensible people have been waiting for alternatives from the present voodoo economics.

        CGT should be universal on any appreciating asset.
        Without a CGT PAYE payers are subsidising speculators .

        It expands the tax base in a way that also discourages unproductive speculation and borrowing.

        Capital gains income should be treated the same as any other personal income for tax purposes.
        Why should you pay up to 33% on your work income and a speculator or someone who does up a house for sale pay only 15%.

        It has to be retrospective to have any real affect.

        The family home will probably have to be exempt to make the policy politically palatable, but I see no real reason to complicate CGT by doing so.
        Like GST, I believe tax systems are much harder to rort if they are kept simple.
        I can see a lot of single children of wealthy people suddenly acquiring a family home.

        If it is there are several ways to make it less distortionate. )Suggestions only. There are more).
        1 The family home could be exempt up to say, twice the mean price.
        2 First homes only could be exempt from CGT.
        3 More State housing both to rent or buy keeps prices within reach of ordinary people and puts a further downward pressure on house prices.
        4 Only charge CGT on the gap between selling a house and buying the next one.
        5 Allow for inflation and normal maintenance.

        Now we need to look at the bonanza for banks and speculators and nightmare for manufacturers and workers. The reserve bank act.
        Considering FTT and exchange controls would be good too.

        • Colonial Viper 10.1.2.1
          7 July 2011 at 11:59 am

          Labour has signalled it is going to target the RBA pretty hard so hope they come out with good courageous stuff.

        • RedLogix 10.1.2.2
          7 July 2011 at 8:48 pm

          Capital gains income should be treated the same as any other personal income for tax purposes. Why should you pay up to 33% on your work income and a speculator or someone who does up a house for sale pay only 15%.

          Asset price rises have two identifiable portions; that due to general inflation, and that due to the action of the market. What the Australian system does is assume that over a period of time about 50% of capital gain is just due to inflation, while the balance is taxable as income. That is why individuals are given a 50% discount on the nominal price rise.

          What Labour is proposing assumes that most taxpayers liable will have a marginal tax rate of 30%… so their proposed 15% CGT is functionally equivalent.

          It’s not accurate… but it simplifies the calculations a lot and over time is probably near enough to be good enough.

      • lprent 10.1.3
        7 July 2011 at 12:04 pm

        If that’s the case it will impact a lot more people than a few rich property investors.

        Sounds like the usual spinners astroturfing trying to push a meme out there. Boring really.

      • mickysavage 10.1.4
        7 July 2011 at 8:31 pm

        PeteG 

        You are losing your Peter Dunne type independence and engaging in spin.  The only reputable comments are that the tax will not be retrospective and will apply to family homes and other areas.

        Spinner … 

  11. Adrian 11
    7 July 2011 at 9:37 am

    Wasn’t it nice of the PM to give the country all that free and quite technical advice on how to avoid the CGT in Parliament yesterday, this is almost certainly unprecedented in any parliamentary country. I have often said that this germ is a traitor to his country given his involvement in the Hi-fee and Andrew Kreiger episodes. The apoletic reaction of his and Englishs is because they can’t steal the policy, as to do so would cost them more votes ( to ACT? or not turning out ). Goff and Labour have to sell this well. I am taking the day off next Friday to deliver the explanatory leaflets to mailboxes, and if any here are as supportive as they claim it would be great if you could do the same.

    • big bruv 11.1
      7 July 2011 at 9:46 am

      Tell me Adrian, did you feel the same level of outrage at Helen Clark’s theft of 850k of tax payer money?

      • Lanthanide 11.1.1
        7 July 2011 at 9:57 am

        Please provide evidence that Helen Clark personally stole and kept $850k of tax payer money.

        • ianupnorth 11.1.1.1
          7 July 2011 at 10:08 am

          I am looking forward to that answer!!

        • Colonial Viper 11.1.1.2
          7 July 2011 at 11:51 am

          “Please provide evidence”

          haha nice play mate

          • Adrian 11.1.1.2.1
            7 July 2011 at 2:56 pm

            I can’t word for word it, but it went along the lines of trading assets through shell like companies etc. It was on a Natrad news broadcast, very hard to follow because it was in Authentic Keysian Gibberish.

    • Lanthanide 11.2
      7 July 2011 at 9:57 am

      What was his advice?

  12. Matthew Hooton 12
    7 July 2011 at 9:47 am

    I guess I better start thinking about what to say about the CGT in tomorrow’s NBR …

    • Kaplan 12.1
      7 July 2011 at 10:09 am

      What’s to think about? If you want to write some honest facts on the subject then that’s pretty damn easy.
      Of course if you want to ignore the facts and spin it negatively then yeah you better get that thinking cap on…

    • Blighty 12.2
      7 July 2011 at 10:30 am

      well, you can’t argue against the economics of it. Your business readers will be loving the prospect of more capital directed at productive investment in business.

      You could call it tax and spend, except it won’t bring in much money at first and Labour’s big policies ($5K tax-tree, R&D trax credits, no GSt on fresh fruit and vegetables) are all tax cuts.

      I guess you could admit that it shows a hell of a lot more courage and vision than Key has managed in three years.

      • vto 12.2.1
        7 July 2011 at 10:43 am

        Yes, can someone outline what courageous vision Key has in fact shown since taking office?

        I don’t think there has been any has there? Anyone? Anything at all?

        • Colonial Viper 12.2.1.1
          7 July 2011 at 11:52 am

          His greenstone wool fabric suit was nice.

        • felix 12.2.1.2
          7 July 2011 at 12:08 pm

          I think he sat next to Obama once.

        • higherstandard 12.2.1.3
          7 July 2011 at 12:11 pm

          Only one and that was pre taking office……. the removal of Helen Clark and Labour.

          Scrub and repeat, same thing will happen to him in 2014.

          • Lanthanide 12.2.1.3.1
            7 July 2011 at 12:18 pm

            He’ll be leaving in late 2012 or mid-2013, assuming they win the election. Otherwise he’ll be leaving late 2011 or early 2012, like a spoilt child who didn’t get his way.

        • pollywog 12.2.1.4
          7 July 2011 at 1:12 pm

          He minced his way down a runway.

      • Matthew Hooton 12.2.2
        7 July 2011 at 12:55 pm

        You commos might be pleasantly surprised!

        • The Voice of Reason 12.2.2.1
          7 July 2011 at 1:18 pm

          If we read the NBR, yeah, we might be. But $9.95 on paper and a paywall on the net, even us chardonnay socialists are priced out of access to your pearls of wisdom, Matthew.
           
          And the thought of not knowing what you are told to think keeps me awake at night.
           
           

  13. vto 13
    7 July 2011 at 9:59 am

    Again, what about if you have two family homes?

    • felix 13.1
      7 July 2011 at 11:43 am

      You’d have to define family. Maybe you have two families.

      • vto 13.1.1
        7 July 2011 at 12:05 pm

        Many do have two families. Think split families. Step-families. Or even one family that simply lives in two places. Family set-ups have myriad forms.

        One of the many complications no doubt.

        • felix 13.1.1.1
          7 July 2011 at 12:10 pm

          Yeah, I wasn’t being facetious 😉

        • mickysavage 13.1.1.2
          7 July 2011 at 8:36 pm

          Well with one of the houses if you make a great big capital gain you will have to pay 1/6 of it to the state so that kids can be educated, citizens provided with health care, police wages paid and those unfortunate to be unemployed or recently single can get some support.  Sound fair enough?

  14. ianupnorth 14
    7 July 2011 at 10:11 am

    The hardly scientific poll on the Herald’s website is currently at 40% for, 60% against. As stated earlier property speculation is not a majority activity; it is crucial to spell out exactly what it means and how it is better.
    BTW on Radio NZ yesterday the total rental property holding is in the region of NZ$200 million, yet a staggering NZ$500 million of registered tax losses are claimed against that – that simply is not fair and is rorting the sytem.

    • indiana 14.1
      7 July 2011 at 10:46 am

      Which Govt introduced LAQC – the vehicle used to avoide tax by claiming depreciation on your assets?

      • ianupnorth 14.1.1
        7 July 2011 at 11:51 am

        That isn’t just depreciation; its the GST on the vehicle used for the inspection visits and much, much more. I had a neighbour who owned several investments, every trip to town was ‘replacing a lightbulb’, inspecting the lawns, etc.

      • lprent 14.1.2
        7 July 2011 at 11:54 am

        LAQC’s were introduced into Income Tax Act 2004, replaced and tinkered with in 2007, and changed to LTC’s in 2010.

        In other words a legislative idea that got used for purposes that were probably not intended. Pretty normal. You can find this type of act scattered around throughout previous acts of parliament from all parties. Especially where taxes are concerned as the IRD tinkers with those almost continuously closing loopholes and frequently opening them as well.

        I’m sure that you have a point. But apart from your limited understanding of the legislative process and it’s frequent failures, I have quite failed to see it.

      • Lanthanide 14.1.3
        7 July 2011 at 12:25 pm

        Clearly you don’t understand the usefulness of LAQCs, because you can still claim depreciation of your assets against your income and reduce your tax liability.

        When you have a mortgage on an investment property, you can claim the mortgage interest (but not principal) against your income and reduce your tax liability.

        When the house is owned by a LAQC, the LAQC pays the entire mortgage payment as an expense. Rental income goes to the LAQC as a straight income stream. If the LAQC makes a loss overall, this can be claimed against your personal income tax.

        Example of what this let you do:
        Your rental mortgage costs $10,000 in interest and $10,000 in principal each year. You receive $15,000 in rental income from tenants. If the house is held personally, you claim $15k in income, and deduct $10k in interest, for a net income increase of $5k, on which you pay regular income tax.

        If you own the house under an LAQC, then the LAQC has mortgage expense of $20k, and rental income of $15k. Overall it makes a loss of $5k. You then transfer this loss of $5k to your personal income, and get a refund on the tax paid.

        So if your income from other sources (eg salary) was $50k, in the first scenario you pay income tax on $55k income, and in the second scenario you pay income tax on only $45k of income.

        The difference here is that with an LAQC, you get to claim your mortgage principal against your income, whereas without one you can’t.

  15. tsmithfield 15
    7 July 2011 at 10:37 am

    So the CGT is to apply to all asset classes.

    Does this mean I will also be able to claim for losses against personal assets that depreciate, such as the family car?

    • grumpy 15.1
      7 July 2011 at 11:09 am

      Losses that are covered in Australia include losses on investments, so if you lost money on Finance Companies you can claim against tax. If Labour get in, all those losses could be written off and the CGT would make a loss.

      Also, if you own a house in the Red Zone, then any loss can also be offset for tax purposes.

      CGT in Australia provides a whole new raft of tax avoidance opportunities and the ability to actually make money from Capital losses.

      • tsmithfield 15.1.1
        7 July 2011 at 11:20 am

        I agree. It would be very unwise for any government to plan for income from a CGT. It could only really be considered on its merits for directing investment into more productive areas other than speculation. The tax itself might well make a loss more often than not.

        Also, how would the CGT affect Kiwisaver investments? Will the return reduce to investors because the underlying assets have increased in value and therefore become taxable?

        • grumpy 15.1.1.1
          7 July 2011 at 11:22 am

          That’s how it would appear, in Australia though, one of the great rorts is through “superannuation schemes”.

          My advice to anyone who has lost money to finance company collapse is to hold off writing off the loss as long as possible. You might at least get 15c in the dollar back, courtesy the Taxman.

          • Lanthanide 15.1.1.1.1
            7 July 2011 at 12:30 pm

            The scheme is likely to have a grandfathered clause so all existing capital gains and losses are excluded from the tax.

            This means if you bought a house 30 years ago for $20k and sold it in 2014 for $350k after the tax is in place, you would NOT be paying tax on $330k. Whether you would pay any tax at all is not yet clear – they may have some way of working out the capital value of the property in 2012 and then taxing you on the difference between the 2014 and 2012 price.

            So any existing losses from investments you have are highly unlikely to get you a refund.

            • grumpy 15.1.1.1.1.1
              7 July 2011 at 12:38 pm

              Ah, but losses on investments (such as finance companies) are only realised after the liquidator has finished disposing of assets and recovering debtors. Even then, there can be delays sorting out priority etc. If Labour get in, there are likely to be quite a few where the liquidator has not completed until into Labour’s term.

              • Lanthanide …
                7 July 2011 at 12:47 pm

                Timeline:
                * 2005: You invest $50k into a finance compan.
                * 2009, the finance company goes bellyup, and your investment is now worth maybe $2,500-$5,000 (what you can expect to get out of the liquidation)
                * 2012: CGT with grandfathered clause brought in.
                * 2012: Liquidation finally settled. You receive $3,250 from your investment.

                At the time when the CGT was brought in, your position with the finance company was estimated at between $2.5k and $5k. You eventually receive $3.25k, meaning you have either made a capital gain of $1.25k or a loss of $1.25k, or because it’s slap-bag in the middle of your investment’s expected value, you haven’t changed your capital position.

                Of course, this is speculation on how these losses would be treated, and the process could be broadly the same but with details that change the exact results. But the point is that if the grandfather clause protects you from having to pay CGT on the $330k “profit” you made from the house you bought 30 years ago, I don’t see why the grandfathered clause would work any differently for finance company investments that went bust prior to the CGT being brought in.

                • grumpy …
                  7 July 2011 at 3:43 pm

                  That is assuming it is “grandfathered”. I’m not sure prior transactions will be – not if they are trying to raise $4b.

                  • KJT …
                    7 July 2011 at 10:05 pm

                    It should not be grandfathered. Speculators have been bludging off the rest of us for long enough.

                    Why should I work 100 hours a week and pay 33% tax on my retirement savings. While someone sits on a house, shares, gold, farmland of other assets doing nothing and pays no tax on their income.

        • Lanthanide 15.1.1.2
          7 July 2011 at 12:32 pm

          Unlikely to affect Kiwisaver investments negatively.

          My Kiwisaver provider is set up as a PIE investment entity. The returns are already classed as income and taxed at 28%. There’s no way they’d be introducing a double-whammy tax.

          If anything, Kiwisaver funds may be given special treatment and taxed at a 15% rate instead of the usual PIE rate. Or if the kiwisaver fund goes down, it might be eligible for 15% refund; not sure if you can get a tax refund if your PIE shrinks.

  16. mikesh 16
    9 July 2011 at 12:19 pm

    “A loss is a diminution of capital. A gain is income.

    Sorry but if investors lose the state will not partially compensate them.”

    If you are going to regard a gain as income then a “diminution of capital” would have to be treated as a loss, and therefore would be deductible, for tax purposes, from other income.

    However CGT doesn’t require “gain” to be defined in this way.

  17. mikesh 17
    9 July 2011 at 12:41 pm

    “Listen to the economics correspondent from the Syndey Morning Herald explain what happened in Australia when they introduced a CGT. Yeah they also had all the naysayers like Peter George predicting the sky would fall in – but guess what? It didn’t.

    The correspondent notes how New Zealand is considered to be a strange anomally in that it doesn’t have a CGT – Australia, UK, US all have CGT. Also some good points regarding the lack of a CGT being a loophole in the NZ tax system that enables people to convert taxable income to non-taxable capital gain. Therfore it’s not just what a CGT would raise directly but with the loophole gone it would be harder to use property speculation to shelter income and so more tax would be collected on earned income.”

    A CGT needs to judged on its merits. Even if every other country in the world has one, this does not in itself mean that we should adopt a CGT.
    The trouble is that CGT doesn’t address the main problem, which seems to be the deductibility of interest. Undercapitalised landlords pay large wads of cash to moneylenders, and as a result fail to make a profit and therefore they pay no tax. They then rely on some future capital gain to justify what they euphemistically refer to as an investment. Another landlord might invest his own capital, pay nothing to the moneylenders, make a healthy profit, and instead pay large wads of cash to the government in the form of income tax. Is it really fair that these latter landlords should pay CGT on the same basis as the former? Make interest non deductible and you would probably solve the problem.
    If a wouldbe landlord doesn’t have the capital to invest, one would have to ask, what the hell is doing in the landlord business.

  18. mikesh 18
    9 July 2011 at 1:10 pm

    “If you own the house under an LAQC, then the LAQC has mortgage expense of $20k, and rental income of $15k. Overall it makes a loss of $5k. You then transfer this loss of $5k to your personal income, and get a refund on the tax paid.”

    Actually the LAQC is making a profit of $5,000. Only half of the $20,000 mortgage payment is an actual expense. The remaining $10,000 represents a reduction of liabilities.

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