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The actual implications of a Capital Gains Tax

Written By: - Date published: 1:38 pm, September 4th, 2017 - 109 comments
Categories: capital gains, Economy, greens, labour, national, tax - Tags:

This post by Matthew Whitehead is cross-posted from lemattjuste.wordpress.com

I’ve been banging the drum on this issue a bit recently, but what we’re not being told about National’s recent criticism of Labour on taxes is that they don’t actually just hate a CGT because it’s a tax, even though their loathing for taxes they themselves don’t raise, (remember, they took in huge amounts of extra tax by raising GST) is well-known. Let’s set aside for a minute Labour’s position on one, and focus on what the Greens want to do, so that we can talk about an actual CGT rather than about political uncertainty, which I promise to come back to at the end.

Now, the reason National dislike a CGT is because the upper echelons of the Party is full to the brim with people who make money off speculation, which a country with a CGT still allows, but doesn’t privilege as a loophole around income taxes. To them, this tax is economic policy that hurts their preferred method of making money, and equalizes a playing field that they have enjoyed seeing as tilted to those with sufficient capital to make money off capital gains.

The Greens want a comprehensive capital gains tax on real realized gains1, with an exemption for the family home2, which means you will never be forced to sell an asset because it becomes more valuable, in fact, taxes will only ever be paid if the owner of an asset makes a profit (after considering inflation) when they choose to sell. There is only a very small class of people for whom this would impact their day-to-day income, and thus their ability to “go shopping,” and that is people who live primarily off speculation in assets, a profession we should want to wipe out. If they’re professional investors, we want their income to be based on dividends, a financial reward for investing your capital in the productive economy. That sort of virtuous cycle is why we call our economic system “capitalism,” whatever your wider critiques of it. (and I have many)

What this will do in addition to collecting revenue is reduce the value of houses, farms, and other assets that are being brought for speculative purposes3. This might seem like a bad thing for property owners, however it really isn’t. If you buy and sell two properties in the same market, (eg. two farms in Canterbury) for the same value, you’ll likely be no better or worse off for the tax. (the sellers in each transaction will account for the tax in their asking price, but those prices will be depressed by more than the tax adjustment due to the lack of speculative demand) You might get hit badly if the CGT policy has been more effective in deflating prices in the area you want to sell than in the area you want to buy, but it’s not going to be implemented in isolation. A CGT together with a crackdown on investments to launder money, a government program to build thousands of affordable houses, and rule changes that genuinely incentivise people building and buying houses to that are occupied, should all act to depress house prices in all the overheated markets, while leaving the reasonably priced markets, such as the regions, roughly the same.

This might seem like a bad thing for business owners, who might one day want to sell their interest in a business, but it really isn’t. Why, you say? Not every business owner who sells will want to buy new assets for a new business afterwards, so it’s not like the tax balances out somehow. Instead, the benefit comes before the point of transaction, in terms of the availability of capital. Because speculative investments that allow for quick profit will now be taxed, productive investments in businesses of all sizes will become much more attractive. This means that investors will likely to be very happy to sink capital into your venture on a long-term basis, so long as they can expect periodic dividends. This will make starting ventures easier, seeking capital injections to expand easier, and, ironically enough, put local ventures on a more equal ground to ones with overseas owners, because they will have competing local capital. Even without re-investing a cent, this will stimulate the economy. And even though businesses founded before the CGT was implemented will have had to get capital the hard way in comparison, they’ll have an incumbent advantage in the marketplace, and they can always leverage the newly available capital to expand, too.

Now, onto Labour’s handling of tax uncertainty. It is fair to critique Jacinda Ardern’s statement that labour has been transparent about what it wants to do with the tax reform side of housing policy, and whether that would involve a capital gains tax that could apply to farm- and business sales. She has been clear, but she hasn’t been transparent. A transparent party would have told us what option they provisionally favour before going to the working group. However, that doesn’t mean that Bill English is being fair to her in saying she has to have numbers on such a proposal if it’s really just a sense of what option Labour favours going in to the working group. The whole point of having experts advise you is to listen to their opinions on the numbers, so if you’re genuinely going in to a reform process open to expert advice, the numbers in your starting proposal aren’t definite in the first place. If English were really sincerely critiquing her position as either a policy maker or an economist, he would know this. His crocodile tears on taxes affecting “hard-working kiwis” are nonsense. None of his economic or tax policy is sufficiently aimed at kiwis on or below the average wage.

In addition, as I’ve said above, the only people who need numbers on a CGT to know if they can go buy groceries are professional speculators. Your average waged employee won’t ever be taxed under the Greens’ proposal, and Labour is very likely to implement the same safeguards against unfairness in a CGT, but these average workers might well benefit from it in terms of being able to buy a house more easily, or being able to find a job more easily in a new business, or even being able to get capital to start their own business more easily, something every bit as much a kiwi dream for some people as owning a house.

So when you vote, ask yourself: what kind of economy do you want, and who’s got the policies to support it? Because if you want an economy dominated by big corporate farms where the actual workers are largely paid wages by overseas owners, overseas companies who can afford to set up businesses in a capital-poor environment, and people sitting on untenanted property portfolio or serially renovating houses, then you should probably re-elect the government. But if you want a diversified economy with a growing tech sector, fueled by renewable energy and maybe even some high-quality manufacturing jobs, and responsible mining that restores the environment after its done so we can keep making electronics, then you should vote to change the government. Because there’s more to voting for the economy than just finding the person who sounds most economically literate.

It’s quite possible to know what’s going on in the economy and still be captured by the interests of the current winners in the economy, like the government, or even be captured by irrational fears4 that immigration hurts the economy, like New Zealand First, but we should look at what the likely affects of economic policy would be, and also for the two long-standing governing parties, National and Labour, we should look at their record on economic indicators5. Those things both make it clear that only a progressive government, with the Greens moderating Labour’s policies to make them more about ordinary people and to commit them to a CGT or similarly effective policy to reform our economy, will deliver real economic prosperity decades into the future.

1 “Real realized gains” might seem like a repetition, but what it means is that the tax only applies on selling an asset, (“realizing” your gain) and that the taxed amount is inflation-adjusted, so you don’t get taxed for the whole economy becoming more expensive, just the extra value your asset gained relative to the economy as a whole. Another way to say this is “inflation-adjusted capital gains on asset sales,” but boy is that a mouthful. Thus the invention of jargon specific to each field.

2 Which means this is a tax that will never hit most New Zealanders. Probably the easiest way to get hit with it would be to buy some shares on the stockmarket at a low price, and sell them at a high price. I actually think structuring the exemption as simply on the family home is too complicated a rule, (there are a lot of potential loopholes to close, like do all unmarried people over eighteen owning a home pay no tax if they sell it? What if wealthy people “give” homes to their adult children for tax purposes? etc… If not, how do you define a “family?”) and we should instead exempt the first, say, $20,000 of capital gains every year, or some other arbitrary figure, and let you bring forward the exemptions for a reasonable number of years into the future. (if we set that period at four years with a $20k exemption, even the average profit from selling a house would incur no capital gains tax, as it’s $70k before removing inflation) That way, when you make a profit switching houses you’re actually living in, if you’re not living off other capital gains, you can just promise away those future tax exemptions, and nobody has to make rules about what counts or does not count as a “family home.” Easy and fair for everyone, all you need to do is periodically adjust the exemption amount to account for inflation, and it also means that you can fairly set the tax rate for capital gain quite high, too.

3 It’s not a magic bullet for reducing property prices, as there’s still the problem of money-launderers buying property to be dealt with, which is another pressure that’s driving property prices upwards, and it won’t be deterred with tax because the point of buying assets with dirty money is to get rid of the money and get something useful, not to make the full profit from it.

4 I mention economic fear of immigration here as irrational because even viewed through a purely economic lens, (which is not all there is to immigration, it’s also about honouring the spirit of the Treaty, and welcoming people who want to join our society, and being inclusive, and open to new people and new experiences, and cultural exchange) migrants are a good thing for the country. The only downside of migration is that it requires infrastructure to keep up with both the population growth and economic growth it brings, which means more pressure on housing and transport if the government ignores that requirement, as National has been doing in order to deliver tax cuts to the wealthiest New Zealanders.

5 For those who are curious, probably the clearest example is in tracking overall national debt. There is a strong correlation between Labour governments and paying down debt, and a strong correlation between National governments and increasing it. This trend gets stronger the longer a government has been in office, meaning it can’t be explained away by Labour “benefitting” from the aftereffects National’s “economic management.” In fact, quite the reverse- National borrows to offset the disastrous effects of its poorly-conceived economic policies, so that voters get a “good feeling” about them at first. About the only thing National does well economically is pushing the balance of trade a bit further in our favour, however this tends to be because they’ve been stronger on subsidizing industries that can’t compete without subsidies, in short, they’ve been looking after their mates.

Republished under this Creative Commons licence.

109 comments on “The actual implications of a Capital Gains Tax ”

  1. Stuart Munro 1

    ‘Economic fear of immigration is irrational’ – depends where you are in the market. If you were a dairy or horticultural worker or deepsea fisherman you’d know that the entrance of low-wage workers is the death knell for your career path. The same is not true of highly skilled migrant workers who may indeed be economically positive so long as they do not saturate the market to the point of preventing local career progression.

    • All immigrants are positive in terms of the overall economy, regardless of their skill level.

      Now, if employers are crying crocodile tears about “not having enough labour” for certain entry-level jobs that kiwis could theoretically do when they’re not making an honest effort to offer conditions or pay to attract workers, that’s one thing. When they really do try and not even second-generation New Zealanders want those jobs, then it’s okay to bring in immigrants in my opinion. National has probably been a bit too generous letting people in for jobs as horticultural workers, for instance, but they’re not wrong that not many kiwis actually want those jobs, either.

      • Stuart Munro 1.1.1

        “All immigrants are positive in terms of the overall economy, regardless of their skill level.”

        This was comprehensively debunked recently by a commerce prof in the NBR – it seems to be paywalled, I can’t find it.

        It is not coincidental that the issuing of 900 work permits per year to foreign fishermen has practically eliminated the local skill base. Employers can and do manipulate pay and conditions so as to get their preferred result – third world workers, who, because they mean to return to a low cost of living economy, can look more favorably on returns that are not locally tenable.

        This erosion has destroyed local viticultural workers and is well on its way to supplanting local dairy workers. Truck drivers, forestry workers and bus drivers are also in the sights of unscrupulous corporate employers. The work permit process has become a joke, whereby employers need not even make a credible pretense of hiring locals – and this leaves out the large numbers of marginally genuine students who are increasingly to be found in service and care jobs.

        If you want to discuss CGT, maybe including this Pollyanna premise isn’t very sensible. Immigration like every other economic phenomenon has positive and negative features. Smart policy ensures a country maximizes the benefits and minimizes the problems – a theoretical situation since NZ governance is anything but smart.

      • All immigrants are positive in terms of the overall economy, regardless of their skill level.


        You cannot, simply cannot, say that all immigration is good no matter what when we have evidence that it’s not.

        National has probably been a bit too generous letting people in for jobs as horticultural workers, for instance, but they’re not wrong that not many kiwis actually want those jobs, either.

        Which probably means that those jobs are uneconomic under present conditions and we end up subsidising them.

        • Brigid

          Also, I’d like to see the evidence that kiwis don’t want ‘these’ jobs.
          Who the hell did these jobs before immigrants were brought in to do them at a much lower rate than we were paid?

          We did.

          When my kids were little these were the jobs I and my fellow young mothers took.
          As long as we weren’t forced to work in the rain, or endue poisonous horticultural sprays, (which wasn’t always the case, we had little to no union support) horticultural work wasn’t too bad. We knew we weren’t going to do it for ever, and generally school holidays were not worked.
          It fitted in well with our other job.

          • eco Maori/kiwi

            + 100 Brigid universal wage payed to kiwi workers to even out the unfair advantage that foreign workers have over kiwis. I say yes to some targeted immigration.

    • DH 1.2

      I’d dispute the claim immigration is economically good. I think the NZ example has many people gradually realising that immigration today is an economic ponzi scheme. NZ brings in immigrants to pay the pensions of baby boomers. Who’s going to pay the pensions of those immigrants? More immigrants.

      Immigrants bring immediate economic benefits however they also bring a long term economic cost and our own recent history strongly points to the costs outweighing the benefits by some margin.

      IMO the whole claim is ridiculous and totally irrational. We’re a nation of immigrants. If immigration really was so beneficial then we wouldn’t need any immigration would we. We’re already here.

  2. dukeofurl 2

    Their should be more emphasis that the tax only applies to those ‘with more than one home’

    Australia watered down theirs so much, its not much more than GST ( 15%) and is widely skirted by those who buy and sell quickly who do renovations as the increase in value is written off by ever more expensive upgrades.
    Capital gains should only be able to be offset by capital losses.

    • I said twice in the post that workers won’t pay this tax on their family home, and in fact most ordinary people will never pay capital gains taxes if genuinely purchasing a house to live in it and then happening to sell it later is exempted. As per the footnotes, I actually think it’s better to put reasonable exemptions in that mean a single person or even a couple can simply defer their capital gains exemptions for the next four or five years in order not to pay tax on selling a house they’re living in, which gives you a reasonable insulation from paying tax if you made an incidental profit on selling your home in order to move, while hitting large sales at an even higher tax rate, to further discourage speculative investment.

      • Tracey 2.1.1

        Thanks for an article written in every day language for people like me to easily understand.

        • Wow I’m doing well if it sounded like everyday language! I’m usually very verbose, but I do make an effort not to use jargon because it’s unhelpful to use it in writing notes, so clearly that’s paid off.

          I’m not an economist, but I follow economic theory and broadly understand the principles, as the last name might suggest, lol, not that I consulted my father on this subject.

          This is actually an expansion on a discussion I had with a swing-voter who had voted for National in 2014. I was out door-knocking and the only issue she said she cared about was the economy, so I sold her the Green Party on pure economics, and I think she was quite impressed.

        • Why not both?

          Seriously, removing negative gearing stops the problem from getting even worse. Taxing realized capital gain after inflation is considered actually starts making the situation better. We should do the first immediately, and the second once we’ve got expert advice on the best settings.

          • Poission

            Its possible to write the policy in a paragraph in your ird return.


            Is your housing investment a business or an investment?

            If an investment you are not entitled to deductions, if a business then the normal rules apply.

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  3. or even be captured by irrational fears4 that immigration hurts the economy

    I mention economic fear of immigration here as irrational because even viewed through a purely economic lens, (which is not all there is to immigration, it’s also about honouring the spirit of the Treaty, and welcoming people who want to join our society, and being inclusive, and open to new people and new experiences, and cultural exchange) migrants are a good thing for the country.

    The evidence tells us that immigration is hurting the economy.

    Treasury warns of risk to jobs from immigration
    Treasury on immigration, productivity and real wages

    And do you have evidence that cultural exchange is good for the country? Actually, that should be At what level does it turn bad?

    I doubt if you can answer either question.

    • tracey 3.1

      If we were genuinely bringing in skilled labour he woukd be right.

      I know an organisation recently employed a CEO from the UK. There is no question the other candidate, a kiwi, had the skills and experience. The organisation preferred the Brit. Felt he was the “best” candidate. That may be true but the NZIS test is supposed to be “no kiwi can do the job”. Here is the rub. If the employer adds to the job description “must speak hindi” to be a waitress in a nz indian restaurant, guess what? Most kiwis cannot do that job = work visa issues.

      In the case of the CEO all they would need to do is put ” 5 years UK work exlerience required” and hey presto… eliminate a bunch of kiwis. Enforce what is already there first.

      • Stuart Munro 3.1.1

        There was a Southland Times article on this – by a recent pom migrant – who didn’t understand that NZ is crawling with experienced journalists downsized in the last decade.

      • That’s a good argument for more sensible enforcement of the existing law, which I would expect under Labour even with no legal changes.

        Thanks to prior migration, there are already many New Zealand residents and citizens that speak Hindi, hell I’m dating one. They need to try find a kiwi first.

        Likewise, just because they’d like a CEO with 5 years of UK work experience doesn’t necessarily mean it’s a key skill for the position they’re offering. Make them try to hire an existing resident.

      • Craig H 3.1.3

        “Must speak Hindi” would be marginal in terms of work visa advertising requirements – yes, Immigration actually has some requirements, one of which is that foreign language requirements must actually be relevant. Fine for a translator, for example, but probably not a restaurant worker.

    • dukeofurl 3.2

      The effects of immigration on wages is shown by the RBNZ figures for inflation versus wage growth for labours 9 years compared to nationals

      labour – inflation 27% over 9 years, wage growth 38%

      national- inflation over 9 years ( or so) 11%, wage growth 10%

      This online tool allows you to put a range of quarterly dates and get the CPI, wages, food, transport etc

      The big increase in immigration especially ‘work visas’ is the reason why the wages have stagnated.
      I remember a time not that long ago when ‘work visas’ were a big no no as a path to go down. They technically temporary but not seen that way even though plenty are never going to qualify for residency. I have worked in places where the owners get a stream of offers to employ where the employee pays for the job.
      It just has to be unraveled.

      • Tracey 3.2.1

        When international students are automatically given a 2 year work visa following graduation, and the 2 years work experience + age + qualification gets them over the points line, Joyce and National have been cynically selling PR at the expense of quality graduates in skilled areas.

        • Craig H

          It’s a one year open work visa for most to start with – the two year work visa follows on, if the student can find relevant work.

      • To be super clear, I don’t deny that National has been using immigration as an economic tool and essentially exploiting migrants to band-aid the economy and suppress wages. I do deny that these policies are the fault of the actual migrants who just came here wanting the same sorts of opportunities as you or I, and it’s pure scapegoating for parties like New Zealand First to be talking about immigrants taking your job. Yes, we should probably look at the rules for letting immigrants in for less skilled work, and make sure they’re being properly enforced and aren’t being used to suppress wages or subsidize bad employment practices.

        But that’s not a reason to get upset about the concept of immigration in general, and it’s really important to remember that when you’re talking about “unskilled migrants,” what that often means is people of colour, wheras “skilled migrants” often means white people, so sensible economic measures on migration to make the economy work for kiwis can also start looking very uncomfortably like racism if we’re not incredibly careful.

        • Draco T Bastard

          I do deny that these policies are the fault of the actual migrants who just came here wanting the same sorts of opportunities as you or I

          But should they have the opportunity here or should they be creating that opportunity in the country that they’re immigrating from? Especially when that immigration policy, which really isn’t the fault of the immigrants, is being used by government to keep wages down in NZ for businesses?

          We cannot take everybody in the world who wants the living standard that we have. It really would be better if they helped build that capability in their home countries. Of course, that will kill international trade.

          • Bill

            Happy enough to overlook NZs racist colonial past then DTB?

            Ain’t our fault ‘half’ the world became sunk in fairly abject misery because some buggers were stealing all their natural resources and productive capacity for their own personal gain at the point of a gun(ship), and then imposing specific economic frameworks on them to ensure they remained powerless and poor.

            You think NZ and elsewhere got so-called advanced off the back of innovation, honest hard work and/or the grace of God?

            Let me put it another way.

            If you had been out on the piss (drunk with power?) and caused serious long term damage to some people, would you then incur an obligation to them?

            Your sickening ideas around immigration that screech a kind of presumed innocence, suggest not.

            • Draco T Bastard

              Happy enough to overlook NZs racist colonial past then DTB?

              No idea where you got that from.

              Ain’t our fault ‘half’ the world became sunk in fairly abject misery because some buggers were stealing all their natural resources and productive capacity for their own personal gain at the point of a gun(ship), and then imposing specific economic frameworks on them to ensure they remained powerless and poor.

              Of course it’s our fault – we were the ones doing it.

              Still, the best thing that those countries peoples can do is to rise up and stop such continuing. And that would actually include making opportunities available for those who are thinking about leaving for better opportunities elsewhere.

              If you had been out on the piss (drunk with power?) and caused serious long term damage to some people, would you then incur an obligation to them?

              Yes but there’s only so much we can do. We cannot take in all their people and give them better lives. We can help them make better lives in their own countries by providing information and education so that they can then develop their own countries.

              Your sickening ideas around immigration that screech a kind of presumed innocence, suggest not.

              1. You’re reading more into it than I put there.
              2. You’re sickening ideas of immigration are delusional and will force our entire country into deprivation and oppression.

            • Stuart Munro

              Governments are responsible first and last to their citizenry. When they allow employers to subvert immigration rules to suppress wages they are cheating their real employers.

              Citizens have the right to expect that their governments will act to further the prosperity of the country – which never coincides with the exploitation of migrant labour.

              Economists who pretend that immigration is some kind of special exception are simply lying – often to themselves as well.

          • Matthew Whitehead

            I think ideally they should have opportunity wherever they live, but that we don’t live in an ideal world so until we do I’m happy to have economic migrants coming in, like my own bloody ancestors did.

            • Draco T Bastard

              We can only do that to a limited extent. Beyond that causes major problems for us and will therefore limit our ability to help those countries develop their own economies and so produce similar living standards and opportunities there.

              Really, the best thing that we can do for ourselves and for those people is to help those other nations develop.

              And, no, saying that they want better prospects and so we should let them in is not a viable reason to do so.

        • tracey

          I get that is what you are saying. I am simply clarifying that we have some restrictions to prevent immigration being misused but there seems little or no political appetite to enforce what we have (including previous Labour Govt). So, for me, this is about enoforcing better what we have rather than slashing numbers as an arbitrary figure.

          • Matthew Whitehead

            Current Labour seems to agree precisely with your position as stated tbqh, to the point that the WSJ just likened Jacinda to Trump on immigration. (our current laws are so right-wing they can’t get the equivalent passed in the USA)

    • These are not problems of immigration, though. These are problems of not investing in our skills or infrastructure as a nation. Kiwis over the age of 25 shouldn’t have to worry about being in entry-level jobs, they should generally already be qualified through education or on-the-job training to be in mid-tier jobs in their own industries. Kiwis shouldn’t have to worry about pressure on housing or transport, because we should already have a sound public transport infrastructure and a healthy housing market.

      The problem isn’t immigrants, the problem is bad policy and under-investment. Slowing down migration temporarily, especially for people without necessary qualifications in key industries, while we wait for our policy solutions to kick in isn’t the most terrible idea, but it’s not the actual solution to the problems we have right now.

      Treasury is right to warn there are consequences to National treating migration as a band-aid for their economic mis-management. But that’s not a problem with immigration in general, it’s a problem with bad government combined with low emmigration and eased immigration to the regions.

      • Excess immigration is the problem.

        This is what I’m getting at and what is shown by your explanation.

        Immigration up to a certain point is probably good but after that it causes problems because of the costs imposed upon the country to support them and the fragmentation in society that it engenders. The question is at what point does it turn bad and we don’t know that but we do know that ~70,000 is way too much.

        • RedBaronCV

          And while employers talk up constantly the need for imported skills nobody ever mentions the large volume of people in the work force now working well below their skill levels because there simply are not enough higher level jobs.

        • RedBaronCV

          and while I’m here when are our wonderful corporate kings going to step up to the plate and stop job hoarding in Auckland? Plenty of corporates have property in secondary centre’s and jobs that could easily be transferred there.
          It’s old style thinking the need to have everyone under your nose in the one location – sign of poor managers.
          Kiwirail has I believe a large office on the north shore of Auckland where there is a distinct scarcity of trains of any sort

  4. Bill 4

    It’s not just National Party politicians who have property portfolios, but that aside…

    Can someone please explain to me how a CGT does anything to dampen or slow property price rises beyond only the very short term? When everyone’s taking the same hit in terms of tax, then the same property merry-go-round just spins around as before with the new expected rate of return or fractional loss factored in, no?

    Undoubtedly a CGT would boost the public purse, and for that reason alone I’d support it. But other countries that have a CGT (eg – the UK) have a property market that’s as much out of control as NZs.

    • Sure, it’s not just them, it’s also many Labour politicians, however I don’t mind someone having investments if they’re willing to pay tax on them, or if those investments make life better for people less fortunate than them. Given Labour’s glacial moves towards reforming capital investment, I am inclined to believe that they are broadly on the right side, even if their own properties have made them a little reluctant about a CGT. There is next to no doubt that the tax working group will recommend one yet again, it’s just a question of what settings and how high. I want them to dive in on this policy and commit, they should simply say they hope the tax working group will recommend something with similar effects to a CGT, that it should apply to businesses and farms, and here’s the sorts of rates we would have considered, and be done with it.

      The reason a CGT is effective in driving investment towards the productive economy rather than the speculative one is twofold:
      1) Any tax on income for dividends is usually set at a lower rate than the CGT, creating a tax differential. This means you make more money from your money by having it sit in paper wealth for a company, buying equipment, buildings, etc… so that the company itself can direct its revenues to paying employees and non-capital costs of business, and of course to paying out those dividends.
      2) The CGT applies on sale, not on increase in value, so as long as you never sell your asset, you don’t pay tax yourself. Productive owners of assets only sell them incidentally, ie. because they would like to move area for houses and owner-occupied farms, or because they want to quit being owner/manager in the case of a business or a rental property. Because speculative investment functions through rapid transactions and productive investment through sparse transactions, each extra speculator you add to an asset before it reaches a productive use actually hits that asset with an extra round of capital gains taxes, making it less and less profitable to continue speculating and making it more likely the asset (house, farm, or business) will be sold to someone interested in actually using it productively, ie. owning it for the foreseeable future and using it for either personal purposes or profit.

      And yeah, as a tax, it collects revenue, but that’s actually one of the least important reasons to implement it!

      • Bill 4.1.1

        Okay, thanks for that.

        So the idea is to tax property sales at a high enough rate to make other forms of investment attractive in terms of cash return. And I’d guess in addition it would have to be high enough to ameliorate any perceived uncertainty or risk current speculators might associate with other types of investment.

        I can see how that might wash some property speculators out of the property market and into more socially productive areas of investment.

        Buggered if I can see how it makes houses more affordable though.

        As an aside, I’m still thinking TOPs wealth tax has a lot going for it. I know you don’t like it and I’m aware asset rich but cash poor people would be disadvantaged. I’m also picking many of them will likely be farmers and/or divorced women. But the basic premise still appeals, even if the detail of the actual proposition is fraught.


        • The reason it makes houses more affordable (at least in Auckland and Wellington) is that it cuts out one of the three big factors leading to rises in house prices, that speculating on property isn’t taxed. We still need to either go after the other two, or go after one and build more houses. I favour the latter, as the other reasons are money-laundering and immigration, and long-term I think we should be relatively open to immigration, especially from other pacific nations. It’s not a magic bullet, but it’s a necessary move to decrease prices in property markets that are overheated. (Coincidentally, that also includes farms, not just houses) If you combine that with a condition that people must be or become a New Zealand Resident in order to own property here, including farms, then that will likely cut out at least some of the money laundering problems, too, while also cutting down on Thiel-style conspiracy theorists using us as a bolthole. Then we just have to worry about money laundering using citizens or residents as a front to buy properties, and start building people apartments or other affordable properties as state houses.

          Yeah, TOP’s asset tax proposal is better than National’s 2-year brightline test, and at least more certain than Labour’s, (it’s outright better than Labour’s if you are extremely skeptical and think all we’ll get out of them is the five-year brightline test because they’ll ignore the results of the Tax Working Group) but yes, I don’t like it, because it taxes people who are attempting to use their assets productively but failing or simply cash-poor, essentially backing winners and punishing losers. It would make things even harder on small businesses, with no discernible policy gains. Of course, it makes things more efficient, so in theory that’s all well and good, but it does so in a way that will likely reward monopolistic behaviour.

          For example, a business shouldn’t pay tax because they own a storefront in Lambton Quay and the value of that storefront increases, even though they’re using that storefront productively and their wealth has only increased on paper because they ordinarily would have no plans to sell it. They should pay tax if they buy an abandoned storefront, fix it up, and on-sell it, either a corporate tax or a CGT, depending on their structure and whether they’re closely-held. Like most problems with TOP’s policies, it sounds good until you actually give it a close read or ask an expert.

          • mikesh

            [I don’t like it, because it taxes people who are attempting to use their assets]

            TOP policies aim at correcting the imbalance in the housing market, the imbalance caused by the non taxation of imputed rents. I think, though I
            can´t quote figures, that this a far greater problem, and source of injustice, than the non taxation of capital gains.

            I don´t much care if people are making a living from capital gains as long as the tax base remains adequate. Certainly it´s nice if the government can pick up a bit of extra revenue from taxing this phenomenon, but I suspect that, with the housing market apparently levelling off, the pickings will be slim. The horse seems to have largely bolted.

            What we apparently are looking for is an alternative tax base that will underpin significant reductions in the tax on earnings from productive activity, viz labour and profit. This is where Morgan comes in. He maintains that the that the best alternative source of revenue would be a tax on the rental value of the free accommodation enjoyed by owner occupier homeowners (imputed rents). Ï think the figure he is quoting is about eleven billion dollars, but I could be wrong.

            • Matthew Whitehead

              Unless you restrict rent rises somehow, putting any extra cost onto landlords is difficult because it tends to be passed straight on to tenants, often with a markup. I don’t see how we can effectively tax rent-seeking behaviour without implementing rent controls first.

              • mikesh

                The benefits from taxing homeowners would far outweigh any disadvantages from taxing landlords. These extra costs which landlords and homeowners would face would be offset by reductions in income tax, and the same thing would apply to tenants. And, who knows the measure may bring about a drop in house prices.

    • dukeofurl 4.2

      I think the main reason is the speculators dont pay the CGT, if their business is buying and selling its easy to just keep rolling it over.
      Or they become property traders where they use the business deductions to avoid most income tax.

      A good example is Bob Jones property empire, he used to own buildings all over NZ, but now for tax reasons they just buy office buildings that are tired and do major renovations/ structural upgrades. he would never buy a new office building and hold like he used to do.
      They can offset the GST from cost of renovation against office rental GST- a saving there and the costs of the reno are deducted from the increased price when its all done.
      Same goes with that Wellington property developer whos building a new childrens hospital wing. hes got all these tax liabilities stored up in his company structures and making a big donation of a building hes constructed ( not the cash to build it like these benefactors usually do) wipes out a big chunk of tax liability- $35 mill worth

      • This is why we should actually support that Tax Working Group, though. We should be doing things like treating single-shareholder corporations as individuals for tax purposes to avoid loopholes.

        A CGT is a tax that plugs a loophole around personal income. It doesn’t plug loopholes around GST or other taxes, and we should have experts tell us which are important to plug urgently.

        • mikesh

          The capital gain is simply a transfer of income from the buyer to the seller. (No additional value is being transferred by the seller – it’s still the same house!) However, tax has already been paid by the buyer on the income transferred, so there is no need for another lot of tax to be paid by the seller. The buyer may be justified in feeling miffed that it is he that has to pay the tax, but that’s between him and the seller. It doesn’t affect anybody else. There is no need for the rest of us to get upset about it.

          • Matthew Whitehead

            When a corporation pays you a wage, that money has also already been taxed under GST, and corporation tax. Does that mean we shouldn’t have an income tax? We’ve clearly decided the answer is no.

            The same money gets taxed over and over again all the time, the relevant question is whether that specific person is being taxed twice on the same transaction. The answer here is no.

            There absolutely is a reason to get upset: Those of us on wages pay taxes on our income. Those making money by selling capital assets should do the same.

            • mikesh

              [When a corporation pays you a wage, that money has also already been taxed under GST, and corporation tax. Does that mean we shouldn’t have an income tax? We’ve clearly decided the answer is no.]

              This is completely incorrect. ¨Wages¨ is a tax deductible expense under the Income Tax Act. This means that a corporation can deduct its wage bill from the revenue on which it pays tax. So the employee pays the tax and the corporation receives a reciprocal tax deduction. We could of course set up as system in which employees pay no tax, but this would mean that the employing corporation would have to forgo the tax deduction. This is more or less what happens with dividends. The difference between dividends and wages, though, is that the worker provides a service, in return for his pay, while the shareholder doesn´t.

              [The same money gets taxed over and over again all the time, the relevant question is whether that specific person is being taxed twice on the same transaction. The answer here is no.]

              This also incorrect. Money doesn´t get taxed, but income does. As money changes hands more and more income is (usually) being produced. Each slice of income is taxed only once. As far as transactions are concerned it is the income arising from the transaction that is taxed.

              That´s why we call the tax ¨income tax¨ and not ¨money tax¨.

              [There absolutely is a reason to get upset: Those of us on wages pay taxes on our income. Those making money by selling capital assets should do the same.]

              The seller is not producing anything in return for the monies received for the capital gain so this payment is similar to a gift. Would you pay tax on a gift?

              The point, though, is that the transaction involves the transfer of a chunk of income from the buyer to the seller with the former not receiving anything from the seller in return, so no new income is created. And as far as the income transferred is concerned, tax has already paid on that by the seller.

  5. Ad 5

    House and farm prices are already stabilising. Under National.

    If Labour got in, their housing and renting policies would further entrench that property price stabilisation.

    If Labour wanted to further reallocate capital away from housing, they had better find some way to magically create better asset classes than just taxing the ones they don’t like.

    Labour have not in this election made a case for why we need a CGT.

    • tracey 5.1

      Correction. Stabilising under the Resetve Bank.

    • They’re already at levels that are unaffordable for almost everyone who would use them productively, so speculators can’t afford to re-sell at higher prices and continue driving up the value. That’s not to say the government has taken sufficient action. In overheated property markets, we actually want property values to fall, not stabilize.

      • Ad 5.2.1

        Who is “we” Tonto?

        Meth addicts denied meth turn violent. If a CGT just appears like socialist revenge, you’ll get a Tea Party.

        I see National weaning us off already without a CGT.
        And Labour doesn’t need it.

        • Wow are you national-lite lately.

          I welcome National supporters going full-ACT and making it clear exactly who they are if they oppose a fairly set CGT. The USA has one, and it’s basically a libertarian paradise at this point. They have a CGT and they don’t even have proper healthcare.

          If we make an argument for a CGT properly, National will lose. 60% of the country wanted one after hearing David Cunliffe argue for one, and he wasn’t exactly the most persuasive. This is a fight National will lose because a CGT isn’t socialist, it’s about fair capitalism.

          Now, if we put the rate at 90% and started paying out a UBI, then you can start talking about socialist revenge. But right now I’m not actually talking about seizing the means of production, comrade.

          And, by the by, the word “overheated” in the context of the economy literally means “supply is unable to keep up with demand.” When you have people going homeless in significant amounts, there are at least sections of the housing market that are overheated. And again, practically by definition, you want prices to fall in that situation if you want the economy to stay healthy. Both Hayek and Keynes would agree there.

          • Ad

            The 2 and 5 year bright line tests are doing a great job already.

            “More tax” is already Labour’s weakest point. If they lose, their tax policies will be blamed. And CGT will be put away for ever here.

            If you think I’m anything ‘lite’, then you haven’t metvthe Opposition.

            Best shut more taxes away and let Twyfords policies do their job.

          • mikesh

            Of course 60% of the population would have wanted a CGT when Cunliffe made the case for it; households were to be exempted. CGT is a politician’s tax, not an economist’s.

        • Bill

          There’s no private property involved in any socialist scenario I’m familiar with. So calling a CGT “socialist revenge” is…odd to say the least.

          • Matthew Whitehead

            Well, depends where you’re setting the lines for communism vs socialism vs social democracy vs capitalism, and how steep an asset tax you’re talking about, and what its settings are. Arguably the EU is socialist, for instance, but it’s also arguably social-democratic, but that’s more about what they spend their revenue on, than how they collect it.

            You can have something approaching fractional communism by taxing capital heavily and then paying out a very generous UBI.

            Nobody in New Zealand is calling for a tax on assets so high that it could reasonably be construed as leaving social democracy behind. No, not even the Greens. Yes, I checked.

            • Bill

              Socialism/communism/anarchism can’t be centrally administered. That’s dictatorship – either by bureaucracy or by personality cult and either way, deeply disempowering.

              Within capitalism there are only two broad platforms up for any semblance of democracy to climb on. One is Social Democratic and the other is Liberal.

              Both those options embrace the capitalism and market economics that socialism necessarily rejects.

  6. Ad 6

    “…collecting revenue is one of the least important reasons to implement (a CGT)”

    Just because the state can take our money doesn’t mean they should.

    • Bill 6.1

      The state doesn’t “take our money”. It redistributes money. (Granted, in a Liberal set-up it tends to let it accumulate and concentrate, whereas in a social democratic set-up things tend to be far more distributive.)

    • I literally just said in the bit you quoted that the behaviour change is the important part, not collecting the money. They should catch up with infrastructure spending then pay it back to us, preferrably in a tax-free bracket in the income tax system, or maybe through reforming income tax to a UBI system if the incoming revenue is high enough.

      • Ad 6.2.1

        “Tech”, “reneweables”, and “manufacturing” are apprioriate policy goals since the housing market clearly doesnt need it.

        So why is a C GT the optimum way to achieve that policy goal?

        • What are you even saying there? I’m going to guess you’re asking why I’m not saying they should subsidize those three sectors with the profits from a CGT?

          A CGT as an economic policy diverts money/capital from speculative investment to productive investment before you even consider the effects of spending its revenue. The government doesn’t even need to spend the tax to get that money into the productive investments, they’ll almost always be the ones paying the best dividends, and as per my reply above, a CGT will most likely divert investments into companies. Those most productive companies will naturally be areas like technology, renewable energy, or high-quality manufacturing that’s differentiated from cheap-labour generic goods that we can’t reasonably compete with, but unlike the National government, we don’t actually have to pick winners to do it using the CGT as a mechanism, it’ll simply happen on its own.

          By putting the revenue into our infrastructure debt first, it will help set up businesses to succeed. (it meets other social policy outcomes as well, but I’m focusing on economic) We can then put the money into reducing other, less desirable taxes that punish productive behaviour, like income taxes. This shouldn’t be controversial economic policy, it’s literally the sort of stuff that everyone from right to left should love, but it’s become controversial because of the National Party’s capture by speculators.

          • Ad

            No, I’m asking why starting a CGT would encourage such sectors.

            Do you have any comparable countries where the introduction of a CGT transformed property over-weighting to productive assets?

          • mikesh

            [A CGT as an economic policy diverts money/capital from speculative investment to productive investment before you even consider the effects of spending its revenue.]

            I wouldn´t bet on it. Even if capital is driven out of the housing market as a result of introducing a CGT, it will most likely go straight into the stock market rather than into productive investment.

    • Stuart Munro 6.3

      A lot of taxes don’t collect a great deal.

      Remember the gift tax – revenue neutral – but it prevented the use of family members as shells to hide income. Gone now of course – tax evasion is a core value to this kleptocracy.

      • Even a modest CGT would collect multiple billions of dollars. The revenue’s not entirely irrelevant in this case, and is likely funding promises by the Greens and could possibly fund additional promises by Labour, but my focus was on the economic effects, because we all already have positions on whether we want additional taxes or not, and how we feel about government spending, and people won’t find an additional angle on that debate as valuable. I want to tell people things they haven’t thought about themselves to convince them to vote in a progressive government, whether that means voting Labour or for the Greens is of course up to them, although I have a clear preference, I try to be analytical when I blog rather than just a cheerleader.

        • Stuart Munro

          Fair enough, and it seems that you have some expertise to play with. What do you think of non-residential property capital gains? Foreclosures spring to mind, as do takeovers and bonus share issues.

          Do you suppose Labour will take the opportunity to tax these? I think that the logic of refocusing the economy productively is clear for these – but the political will is less readily determined.

          • Matthew Whitehead

            I’m entirely an armchair expert, FYI. I don’t have any relevant expertise, but I do have regular access to a high-level expert on economics, lol, so that has probably informed my view on policies.

            I expect tax experts would recommend taxing foreclosures and takeovers, as they are ownership changes of existing assets. I would be in favour of exempting any issues of new shares, because one of the reasons to have a CGT is to encourage capital investment for non-sale purposes, so it’s arguably the equivalent of building a home to rent it, which wouldn’t be taxed under a CGT, and the point of the capital transfer is to put the capital to productive use, so not taxing it is ideal. I’m actually fine with the initial sale of any shares not being taxed, but subsequent sales incurring CGT, so as to encourage productive investment. I have no idea if that opinion would be shared by a potential TWG, it honestly depends what approach they would take to taxation’s role in the housing crisis.

            • Stuart Munro

              Yeah – the thing I had in mind was the rights issues that characterized the 80s sharemarket – a move away from dividends that I gradually concluded was a very bad thing for the economy as a whole.

      • Craig H 6.3.2

        The original reason for gift tax was to prevent dodging inheritance taxes.

  7. Christine Pullar 7

    Two aspects of CGT to consider that I havent seen discussed so far:

    Firstly, if CGT is going to apply to all assets other than the family home, it will apply to everyone’s Kiwisaver shares. If the CGT is applied only on realised assets then it will occur every time your Kiwisaver provider sells a block of New Zealand shares that your Kiwisaver account is involved with. I dont know what would be the implication for Australian shares, but international shares (any shares in companies other than in New Zealand or Australia) are already subject to CGT every year calculated on the nominal gain over the last 12 months, not the realised gain.

    Secondly, the brightline CGT that is already in place for house sales and for capital gains on any business is calculated on the marginal tax rate, that is the highest tax rate that a person pays. So the highest rate of CGT is 33% for an individual and 28% for a company. Have any of the parties advocating a CGT said whether that rate of CGT would apply?

    • One Anonymous Bloke 7.1

      …if CGT is going to apply to all assets other than the family home, it will apply to everyone’s Kiwisaver shares

      Which is exactly why you set up a working group to consider all the issues. Labour’s ruled out the family home. That doesn’t mean nothing else will be excluded.

      • Took the words out of my mouth. Cheers.
        Either you would repeal existing taxes on sale of shares and apply the CGT, or you’d exempt them from the CGT and apply the other taxes. Depends on exactly what you want to do regarding retirement shares. It might be reasonable to make them taxed less to encourage saving.

    • tracey 7.2

      Isn’t the point that sale of shares is already taxed, or at least kiwisaver funds are, so there is a differentiation. You can designate what a tax applies to and does not. EG property but not shares?

  8. Gristle 8

    If one has one’s house being owned by a trust, does this mean that it is not one’s family home? Thus it would be subject to CGT.

    Concerned of Fendalton

  9. Ad 9

    So far, no evidence it will transform our economy.

    No evidence it will do more for property speculation than current measures.

    No evidence it’s politically smart.

    No evidence from any comparator country.

    No evidence desired sectors will benefit, or benefit any better than under more targeted policies.

    Plenty of hope it takes lots of money off National supporters.

    Not convincing.

    • Pat 9.1

      gutsy assessment given theres no detail yet as to how and where a CGT is to be applied….it may indeed achieve outcomes desired if well constructed and administered, we will have to wait a see…as to politically smart I guess the election result will be the judge of that.

  10. greywarshark 10

    I think that CGT should be tried as the Greens version. It would be ironic if the lower income getting their house should suddenly find that government was unhappy about them becoming upwardly mobile, and at the same time having a buffer against inflation. Having class structure in society is handy, and workers having the cockiness of some security and standng that goes with property-owning is unsettling.

    We had neo lib sprung on us and endured it for decades leaving us in a poorer state of infrastructure and governance, so why not spring some other surprises – one being CGT. Give it a try and note the gradual change of sentiment. Of course some people don’t care about things improving for the precariat, which mightn’t happen at first, but it would start the trickle down we were promised, somewhere over the rainbow.

  11. Nic the NZer 11

    I doubt we should give this discussion much authority on what the ‘actual implications of a Capital Gains Tax’ are going to be. First of all the underlying model (e.g assumptions about how the economy functions) is that the economy is naturally balancing investment between speculation and productive investment except that because some tax rates are set wrong the balance is out of whack. Its pretty inconceivable that investment is naturally organised into the most profitable sectors or that investment is efficient enough (in the efficient markets sense) for this to work out in practice. Probably the upshot of this policy will be similar to other countries which have Capital Gains Taxes, e.g not very much effect.

    The major issue with this discussion is that it is in several points completely incorrect in its understanding of how the economy functions. One of the assumptions is that there is a limited supply of investment funding in the economy which needs to be balanced between speculation and productive investment. In reality the financial system of the economy is never constrained by the amount of savings and is at all times able to invest as much or little as it chooses in both speculation and productive investment sectors. If there is anything constraining this investment it is the perceived risk of various investments paying off. The main implication of this is that anything which shrinks available income, spending and demand for NZ produced goods is likely to shrink investment (especially in productive sectors). Investors typically don’t put their money into ventures where there is perceived to be shrinking demand.

    The discussion also doesn’t discuss the implications of a major reduction in house prices. One of the main concerns is that mortgage contracts are set in nominal figures. A major reduction in house prices will likely leave many existing borrowers under-water. This is likely to cut off one source of spending growth the economy does have, which is the growth in borrowing associated with increasing house prices. A government looking to trigger this should also be immediately looking to replace this spending shortfall with increases in its own spending. The alternative will be a reduction in total spending following the collapse in house prices, also called a recession. A recession would most likely undermine productive investment as they typically do.

    On the other hand looking at GDP accounts we can come to understand that by accounting the government deficit doller for doller adds to and grows GDP (total spending) and is reverse a surplus doller for doller subtracts from and shrinks GDP. This ought to undermine the aspiration for the government to run surpluses for the foreseeable future as this will be undermining productive investment.

    In the longer term the house price issue is relatively easy to understand. The obsession with government surpluses has cut off a major source of spending growth (public sector spending growth) from the economy and this has caused overall GDP growth to be slow. This, coupled with financial de-regulation, has caused house prices to jut out in relation to GDP growth itself, especially coupled with quite low CPI inflation and low rates of wage growth.

    The solution of an incoming government to this should be to turn their primary economic obsession from balancing the budget to achieving actual full employment (e.g only frictional unemployment) and so to allow the deficit (or surplus) float to what ever level is necessary to achieve that outcome. Apart from traditional public goods such as health and education the government spending should also be directed towards investment in transitioning to an environmentally sustainable economy. By maintaining full employment the economy will be growing more rapidly and fair wage growth will be an outcome. Soon enough the house price problem will simply stop being a major concern.

  12. Craig H 12

    Would a Land Tax be more useful than CGT? It drives money away from land banking, pushes development of land along, is easy to collect (Councils collect it with rates), and can’t really be evaded or avoided.

    Can also potentially use an Income Tax offset so people only pay Land Tax if their Income Tax liability doesn’t cover it – a minimum tax of sorts.

  13. Antoine 13

    I’m not agin a well designed CGT, but I think you’re overselling it when you say it will push down property prices.

    You may reply that it will push down property prices as part of a package of other measures, but then I think it will be the other measures reducing prices, not the CGT.

    To sustainably reduce house prices you need to reduce the population and/or construct some new houses.


    • You don’t think an extra tax applying to each speculative transaction for properties will make house values fall to some degree, by reducing the number of speculative transactions that demand for housing can realistically absorb? (That is to say, it probably won’t stop speculation altogether, but it will likely knock off one or two transactions off hotly-speculated properties, which will amount to a final price reduction for the person who buys a house for productive use, ie. to live in or keep and rent)

      I don’t claim the pressure from a CGT would be enough to cool down the market on its own, and I’m very clear that it won’t cause prices to drop in areas where speculation is a minor factor in house prices, such as housing in the regions, or in low-demand suburbs in cities like Christchurch or Wellington. I would expect it to drop housing prices in areas like Auckland or urban Wellington where speculation is an important factor in current property prices.

      (Arguably, what it’s really doing is taking out a factor for the prices being raised as high as they have been, but in practice that is the same thing as a fall)

      I do think that housing is a big enough crisis now that anything we’re talking about to help with it should be obviously assumed to be an ingredient in an overall suite in policies. Nothing will be sufficient on its own. A CGT will apply pressure, and combined with government measures to build low-cost quality housing, and to encourage the private sector to do the same, will work reasonably well, and then also combined with other policies like making residential property purchases conditional on obtaining NZ residency, and more aggressive attempts to stop money-laundering through asset purchases, and we might actually manage to solve the problem within, say, 6-9 years.

  14. savenz 14

    Prefer a stamp duty. Will raise a lot of money and stop people speculating a lot more than a capital gains tax that the rich can avoid as they pay each time they buy and the taxes banked for the tax payer straight away before it ‘disapears’. Then it also means that those who pay a lot for their house aka Peter Thiele types who are now citizens but don’t actually live here, corporations with farms etc pay a tax to buy here, not just get to put down some tax free ‘gold bricks’ around the world which no doubt they can either pretend it’s their family home or just not be paying any taxes in NZ anyway.

    Also what happens if the family home is in a family trust? That was what bought down Cunliffe last time. What happens when people start putting their houses into other peoples names as their ‘family home’ . The best way to tax it to keep it simple and make sure it is fair and nobody can avoid it by rearranging their tax affairs.

    If many of the corporations pay zero taxes on billion dollar turnovers in this country and 1/2 the rich listers are not on the top tax bracket then there is very little chance that they will pay their share under a capital gains tax. Nor will the shady characters who seem to have immigrated here, but never put in a tax return such as the P dealers that did not put in a tax return for the 26 years they had been resident in NZ and caught last year driving with cars full of drugs and money. At least a stamp duty will take a bit from the thriving black economy unlike capital gains.

    • Stamp duty can mean a lot of things, as in general it’s a “tax on documents.” The one you’re talking about sounds very similar to a CGT that applies to the purchaser rather than the seller. I’m not sure how that wouldn’t give you similar results?

      I think we should probably bust tax-dodging through family trusts, and have the beneficiary pay personal taxes as if they owned the property in the trust, (or the trust pay the applicable taxes on their behalf perhaps) and the benificiaries pay their share of personal taxes as if they owned the property, relative to their share of the benefits of the trust. It’s fine if they want to use trusts as ownership instruments, but they should pay fair amounts of tax.

      • mikesh 14.1.1

        You seem confused. Either the trustee pays the tax on the trust´s income or the beneficiaries do. When it´s the former he pays tax at the top rate of 33%. When the beneficiary pays he may or may not pay the top rate depending on his circumstances. It is therefore better for the state if the trustee pays since the amount of tax may be less when income is passed to the beneficiary.

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