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The housing market implications of capital gains tax

Written By: - Date published: 12:27 pm, July 7th, 2011 - 126 comments
Categories: capital gains - Tags:

The landlords’ lobby group is making a lot of noise over Labour’s, still unannounced, capital gains policy. They claim that rents will go up, the supply of housing will fall, and it won’t stop house prices bubbles. Let’s examine those claims.

A 2003 study showed that most landlords were in the business for capital gain. Many landlords are ‘negatively geared’, their rental income is less than their borrowing costs and so their business model is entirely dependent on being able to sell at a higher price than they bought.

If the return they can expect to make on sale is decreased by 15% due to a capital gains tax, it will reduce, to a small degree, the validity of that business model. The results:

1) people will find being a landlord a less attractive option, meaning lower demand for houses, meaning lower prices (probably expressed as a continuation of the flat nominal prices we’ve seen over the past few years, rather than a nominal fall).

2) those landlords who stay in the business (which will be the vast bulk of them) will attempt to replace that small loss in capital gain return through higher rental income. Whether they will be able to do it or not is a different matter. Price is determined by supply and demand. Capital gains tax won’t decrease the number of houses or increase the number of people looking for accommodation, so supply and demand should not be affected. The landlords said the Budget 2010 tax changes would push up rents too. It didn’t happen. Rents have gone up 1.3% since June last year, while general inflation has been 4.5%.

Lets consider the flow-ons. Houses will be cheaper. Some landlords will be looking to exit the market. Some rents might be slightly higher. This all means that home ownership will become a more viable option. Every rental that is removed from the rental market when sold also removes a household demanding rental accommodation from the market. Everything stays in balance but we have the positive outcome of higher home ownership. I would rather have improved outcomes for the 1 million people currently locked out of the housing market than worry about 200,000 landlords paying tax on their income.

Home ownership has become an unaffordable dream for many, especially younger people, as this graph from the Prime Minister’s Department shows. A capital gains tax would help change that.

So, the landlords’ scaremongering doesn’t stack up. What about their accusation that a capital gains tax won’t stop future property bubbles?

Well, its certainly true that the driver of the property bubble (which is still largely intact) wasn’t the lack of a capital gains tax, it was easy capital which caused housing bubbles throughout the developed world including countries that have a capital gains tax. But New Zealand’s bubble was particularly large. And the government’s Savings Working Group (despite being ordered by the government not to examine a capital gains tax) said that 50% of the bubble here was due to the lack of a capital gains tax.

So, the impacts of a capital gains tax on the housing market would be more home ownership at lower prices without much impact on rental costs, and smaller housing bubbles. The 200,000 property investors get a small tax increase on their capital gains, the 1 million renters get an opportunity to get on the property ladder.

Add to that the revenue which can be used to pay for tax cuts on earned income and not selling our assets, plus the redirection of investment towards production and away from house-trading, and you’ve got a pretty compelling case.

Maybe that’s why nearly every other developed country has been doing it for years.

– Bright Red

126 comments on “The housing market implications of capital gains tax ”

  1. RedLogix 1

    Well, its certainly true that the driver of the property bubble (which is still largely intact) wasn’t the lack of a capital gains tax, it was easy capital which caused housing bubbles throughout the developed world including countries that have a capital gains tax. But New Zealand’s bubble was particularly large.

    Umm.. and one of the markets that had very similar bubble to New Zealand’s … was Australia… which DOES have a CGT. Very selective use of data there BR.

    What were DO however share in common with Aussie is four major banks…. and with similar lending policies.

    • Blighty 1.1

      SWG says half the bubble here was due to lack of CGT. You disagree on what grounds?

      • queenstfarmer 1.1.1

        According to the linked article, the SWG didn’t exactly say that. It said “tax distortions accounted for half the recent property bubble”. Presumably CGT would be a major part of this, but did they say it was the only thing?

        • KJT 1.1.1.1

          They made it clear, LAQC’s, trusts and other tax avoidance vehicles also played a part.

          • RedLogix 1.1.1.1.1

            A 2003 study showed that most landlords were in the business for capital gain. Many landlords are ‘negatively geared’, their rental income is less than their borrowing costs and so their business model is entirely dependent on being able to sell at a higher price than they bought.

            This is completely WRONG.

            As long as the investor does not sell, capital gain is not a cash flow. What does change with time is rents… slowly over a period of 5-15 years… rents will rise enough to become larger than the borrowing costs which have remained fixed in nominal terms.

            After 15-25 years the mortgage is paid off and the business then makes profit in the normal way. At that point any profits (less any accumulated losses/shareholder capital stored in the company) are taxable in the normal way. It is a very safe, insureable and largely predictable business.. This is why property is for many people the preferred form of retirement investment.

            Especially when you consider how risky any other form of investment has proven to be in this country.

            • davidc 1.1.1.1.1.1

              Capital gain is cashflow (without selling) because you borrow against it and go buy another property.

              and a CGT wont change this aspect and possibly will reinforce this behaviour.

              A huge factor in the bubble that isnt talked about about much is “bent” valuers that pretty much put whatever number on paper that made the next deal work. High fees tho!

              • Colonial Viper

                yeah limiting bank lending should be part of the package.

                • KJT

                  Changing the RBA to allow a mortgage tax as part of the tool kit. Instead of raising the interest rate. RB to control the percentage of value (75% loans only perhaps)??

                  Though the obsessive attempts to limit inflation at the expense of everything else should be reduced also.

                  Or an FTT.

  2. PeteG 2

    Lets consider the flow-ons. Houses will be cheaper. Some landlords will be looking to exit the market. Some rents might be slightly higher.

    Assumptions that may or not happen, it’s a gamble.

    If a significant proprtion of landlords exit the market it may make houses cheaper, depending on other influences, but most likely cheaper than they would otherwise have been.

    If quite a few landlords leave the market it will reduce rental stock so it could push rentals quite a bit higher. That may help the remaining landlords cover the CGT, but it may make it harder for people who rent to save to buy a house. Maybe more assistance to buy a family property would counter that.

    So it could have the desired effects, shifting some investment away from property, without too much downside. Possibly.

    • Lanthanide 2.1

      “If quite a few landlords leave the market it will reduce rental stock so it could push rentals quite a bit higher.”

      You sort of seemed to get it, but then went and said that.

      If a landlord sells a house to someone who used to rent but is now an owner-occupier, we now have one less rental and one less renter. Supply and demand is exactly balanced, because the house didn’t cease to exist.

      Now, if the house did cease to exist (landlords evicting tenants and refusing to rent to anyone, or demolishing their houses) then yes, it would reduce rental supply. But I don’t think anyone is seriously suggesting this.

      • PeteG 2.1.1

        So if landlords try to exit and there isn’t a sudden increase in numbers of buyers?

        Maybe we get major the correction some say the housing market needs, but there’s likely to be some collateral damage as equity slumps and in some cases goes negative.

        • KJT 2.1.1.1

          You have just given a good argument for more State housing.

          • PeteG 2.1.1.1.1

            Funded by?

            • Rich 2.1.1.1.1.1

              Taking the houses from the bankrupt rental investors in settlement of their tax debts?

            • Frank Macskasy 2.1.1.1.1.2

              Reversing the 2009 and 2010 tax cuts would be a good start.

              • KJT

                Yes. Though I think the higher rates should apply at more than the median family income. Reverse the bracket creep from 1990.

                Say. Follow the Ozzies and have a top rate kick in at $250k.
                And first 10k tax free.

                Though I would prefer to see benefits and welfare replaced with a GMI of around 24k for Adults and 8k for kids. Administered through IRD.
                Paid for with a broadened tax base. CGT, Wealth tax, progressive income taxes and FTT.

                Simplify the whole system. No exemptions!

                Anything we want to encourage, like R and D or low emissions, should be transparently helped by direct subsidy. Paid for by a pollution charge to those who produce Green house gases or use other resources.

        • Frank Macskasy 2.1.1.2

          “So if landlords try to exit and there isn’t a sudden increase in numbers of buyers? Maybe we get major the correction some say the housing market needs, but there’s likely to be some collateral damage as equity slumps and in some cases goes negative.”

          There may indeed be a correction (if it happens at all), in the housing market, if a Capital Gains Tax is introduced. Just like farmers suffered a correction when SMPs were abolished, or manufacturers, shoe makers, garment makers, car assembly plants, etc, etc, all had to experience a correction when tariffs were abolished and cheap imports flooded the country.

          Welcome to the real world.

          If people cannot afford to pay their fair share of taxes, then perhaps they should reconsider their businesses/investment options.

          The rest of us, whether Prime Minister or street-sweeper; dairyshop owner or Fletcher Construction; fish and chip owner or international fast-food chain; have to pay taxes.

          So far, not one credible, sane, rationale has been given why property speculation/investment should be exempt.

          I’m sure that builders get more than a little irate when they build a house; sell it; and pay 15% GST on the proceeds – whilst a landlord can sell the same house and pay nothing.

          By no stretch of the imagination does this situation even come close to being fair.

          • RedLogix 2.1.1.2.1

            I’m sure that builders get more than a little irate when they build a house; sell it; and pay 15% GST on the proceeds – whilst a landlord can sell the same house and pay nothing.

            Ummm.. the landlord almost certainly isn’t registered for GST. Rents are zero-rated for GST and IRD takes a dim view of landlords who register for it.

            Which means that the landlord almost certainly paid his full whack of GST at purchase… whereas the builder by contrast claimed GST back on all his input costs.

            • KJT 2.1.1.2.1.1

              And paid income tax on his profits.

              • RedLogix

                Sure… and if the landlord buys and sells at anything like the same rate as the builder… it will very quickly get classed as trading or speculating (and then there are the very draconian associated person rules) .. and the capital gain will be treated as income tax.

                If a builder built only one home per decade it might be a fair comparison… but in that case he’d likely claim it as his ‘family home’ and it would be exempt as well.

                Far too many people have gotten caught up in the ideaof a CGT, without realising that the details are all important.

                • Frank Macskasy

                  Redlogix…

                  Which means that the landlord almost certainly paid his full whack of GST at purchase… whereas the builder by contrast claimed GST back on all his input costs.

                  The landlord may or may not have paid GST at the point of purchase – though second hand properties are also zero-rated for gst purchase.

                  But assuming the landlord buys the property from a builder and does pay the gst – so what? The purchase price might be $300,000 (including gst). Two years down the track, all of the landlords properties have increased in value (called a housing bubble), and he sells it on the market for $400,000. He has more than re-couped his original outlay for the gst – and pays NO GST on his sale.

                  Remember: second hand property does not incur gst.

                  Ummm.. the landlord almost certainly isn’t registered for GST. Rents are zero-rated for GST and IRD takes a dim view of landlords who register for it.

                  Correct: rents are zero-rated for gst purposes.

                  But outgoings are not, and the landlord can claim on gst.

                  Sure… and if the landlord buys and sells at anything like the same rate as the builder… it will very quickly get classed as trading or speculating (and then there are the very draconian associated person rules) .. and the capital gain will be treated as income tax.

                  I refer you to the IRD website on this very issue:

                  There is no GST on residential rental. However, if you own an investment apartment with a management or service agreement in place there may be GST implications to consider… Generally, you don’t need to pay tax when you sell your rental property except for any depreciation recovered. However, each time you sell a rental property it is important to consider if you are still a residential rental investor or are now a dealer.

                  http://www.ird.govt.nz/property/property-rental/prop-rental-index.html

                  If the landlord sells his portfolio in one ‘hit’, he is not “dealing”, he is selling an asset. No tax is paid; “Generally, you don’t need to pay tax when you sell your rental property except for any depreciation recovered. ”

                  If a builder built only one home per decade it might be a fair comparison… but in that case he’d likely claim it as his ‘family home’ and it would be exempt as well.

                  He would also be dead from starvation as well. I doubt any builder builds “one home per decade”.

                  Far too many people have gotten caught up in the ideaof a CGT, without realising that the details are all important.

                  Funny. That hasn’t stopped Australia, the USA, and other OECD nations from implementing such a tax. Australia has had a CGT since 1985.

                  And really, I recall people making pretty much the same arguments against gst, when Labour brought it in in 1986.

                  • RedLogix

                    The landlord may or may not have paid GST at the point of purchase

                    When I was building I paid full GST on all my inputs and claimed none of them back because I am not a GSt registered company. If I purchased second-hand I’m not paying GST directly… but depending on the age of the property the original buyer did. And regardless of the age of the property, it’s pretty much factored into the market price I am paying.

                    But outgoings are not, and the landlord can claim on gst.

                    My biggest outgoings are mortgage, rates and insurance. By far the biggest is the mortgage interest component which also is zero-rated. For the other items it’s just not really worth the effort to claim on it. Keeps my accounting cheap.

                    Besides the very best way to raise a red-flag with IRD is to claim more GST than you pay in any given period.

                    The next point you make simply confirms the main point I was making. If an investor traded at anything like the same way a builder did, all his capital gains would be treated as income. As the builder of my own investment any capital gain I might make would definitely be treated as income.. if I sold the property within 10 years. And even then I might be caught if there was a pattern of other commercial buying and selling that IRD deemed to be trading.

                    And you are right, both the builder AND the investor would starve if they only made a cash profit once every ten years.

                    Funny. That hasn’t stopped Australia, the USA, and other OECD nations from implementing such a tax. Australia has had a CGT since 1985.

                    And I suggest you visit the Australian Capital Gains Tax website to get some feel for how complex they can be to administer. It’s not a show-stopper… but it’s a very real overhead cost for a system that in Aussie only raises around 4% of all tax revenue.

                    I’m not so much against a CGT, just very lukewarm about whether it will be the magic silver bullet so many on the left seem to believe it will be.

                    • wtl

                      I’m not sure many think it is a magic bullet. However, it is certainly a step in the right direction. And it is well past the time to start taking such steps for the good of our economy.

                    • Frank Macskasy

                      When I was building I paid full GST on all my inputs and claimed none of them back because I am not a GSt registered company.

                      You don’t have to be a registered company to claim back on gst. You can be gst-registered as a Sole Trader as well.

                      Have you sought an accountant’s advice on this matter? It could be helpful to you in your building trade. Who knows – you might be due a refund – pay for that new Paslode nailgun sitting at Placey’s shelves.

                      My biggest outgoings are mortgage, rates and insurance. By far the biggest is the mortgage interest component which also is zero-rated.

                      Correct. Another one of those interesting anomalies; if a business owns it’s own premises, with a mortgage, then the mortgage cannot be claimed for gst or tax purposes. However, if the same business rents – that outgoing can be claimed, if not on a GST return, then in general outgoings.

                      There are some business/accounting tricks to get around that, though…

                      For the other items it’s just not really worth the effort to claim on it. Keeps my accounting cheap.

                      I used to do my own GST returns. But that was in the 1990s, mostly, when the entire Form was one one of a A4-sized sheet of paper. (One thing Douglas was right about, is that gst is incredibly simple.)

                      Besides the very best way to raise a red-flag with IRD is to claim more GST than you pay in any given period.

                      I was auditted once, after submitting a GST return that called for a considerable refund (I had recently purchased a new work vehicle). The IRD assessor looked at my files, receipts, and books, and seemed taken aback at how meticulous I had been. (Being anal pays off, I guess.) The assessment lasted 15 minutes (?) and then we sat and chatted about our respective enterprises.

                      It was a good business, until Ruth Richardson’s “Mother of all Budgets”, killed it stone dead, with the resultant recession.

                      The next point you make simply confirms the main point I was making. If an investor traded at anything like the same way a builder did, all his capital gains would be treated as income.

                      Precisely.

                      Which is what the IRD referred to: “Generally, you don’t need to pay tax when you sell your rental property except for any depreciation recovered. However, each time you sell a rental property it is important to consider if you are still a residential rental investor or are now a dealer.”

                      The “trick” is to avoid being seen as a dealer, and remain in the investor/landlord-category.

                      If landlords were seen in the same way as ‘dealers’, then the whole concept of a CGT would be pointless. There would be no need for it.

                      And if you notice, Labour has (according to media reports) made the CGT the same as GST: 15%. So both dealers/builders and landlords/investors are treated the same.

                      That seems pretty fair to me.

                      It’s not a show-stopper… but it’s a very real overhead cost for a system that in Aussie only raises around 4% of all tax revenue.

                      I heard on National radio this afternoon a tax-expert (forget his name) had emailed a colleague of his in Aussie, and asked him about their CGT. He asked how complex it was. It was reported that the Aussie tax-expert replied that it was no more or less complex than other forms of taxation, and that it depended on just getting used to it.

                      He mentioned that the Australian revenue from CGT was around 5% – similar to the amount you mentioned.

                      I’m not so much against a CGT, just very lukewarm about whether it will be the magic silver bullet so many on the left seem to believe it will be.

                      I guess that remains to be seen… At the very least, it will remove an anomaly in our taxation that serves no real purpose. And distorts the housing market.

                      Personally speaking – if it was up to me, it’s the actual builders who should be tax-exempt. You are the guys that actually do the hard-yards; working in atrocious weather conditions; and actually build the houses that every community needs to survive.

                      I could never figure out why I, as a landlord (call me a leftie landlord, I guess) could make tax-free profits when all I had to do was the odd bit of maintenance and cleaning up after some dodgy tenants. (Picking out hypodermic needles from the carpet was something of a novelty for me… )

                      I think Labour has it right on this issue. And it’ll be interesting to see if John Key announces that National would repeal it.

                    • RedLogix

                      Have you sought an accountant’s advice on this matter?

                      Well yes.. the problem being that because I didn’t intend to sell anytime soon, and rents are zero-rated, my GST refund was always going to be higher than anything I ever paid. It’s the kind of situation IRD doesn’t like and my accountant and I deliberately chose to avoid it. (He’s ex-IRD himself and has been very helpful.)

                      It was a good business, until Ruth Richardson’s “Mother of all Budgets”, killed it stone dead, with the resultant recession.

                      That’s a really interesting point. My partner was in business at the time, running five shops in three cities. She recalls it as the single biggest drop in turnover ever.

                      But otherwise, yes I can see where you are coming from. As I’ve said elsewhere I’m not so much against a CGT… as not all that fired up about how much effect it will have. I certainly don’t believe it will prevent another property bubble. Personally I believe bank lending policies are the the prime driver of property prices… and regulating the banks would be a far more effective way of preventing speculative bubbles.

                      I’ve got a question you may be able to answer. What if I sell one of the my units and any capital gain would normally be treated as income because I’m selling before the 10 year mark.

                      Now what happens if I use the proceeds to reduce company bank debt? Have I reduced my taxable income?

                    • Frank Macskasy

                      Replying to RedLogix @ 7 July 2011 at 8:21 pm …

                      …the problem being that because I didn’t intend to sell anytime soon, and rents are zero-rated, my GST refund was always going to be higher than anything I ever paid. It’s the kind of situation IRD doesn’t like and my accountant and I deliberately chose to avoid it. (He’s ex-IRD himself and has been very helpful.)

                      I totally get that. When I submitted my GST return, the IRD very smartly carried out an audit on me. Luckily I’m totally anal about keeping receipts for everything. Even if I purchased a bottle of milk that was business-related. (The local Dairy-owner must’ve thought I was nuts.)

                      So when the gentleman from the IRD called, I was able to present a paper-trail of receipts for everything. That seemed to make him very happy.

                      Me: It was a good business, until Ruth Richardson’s “Mother of all Budgets”, killed it stone dead, with the resultant recession.

                      RedLogix: That’s a really interesting point. My partner was in business at the time, running five shops in three cities. She recalls it as the single biggest drop in turnover ever.

                      Please tell your partner that my situation was a copy of hers. My turnover dropped so drastically and so rapidly that the business ceased to make any money. Result; had no choice but to close the business and let the staff go.

                      Thank you, Ruth Richardson; you made the Socialist Unity Party look positively business-friendly.

                      Personally I believe bank lending policies are the the prime driver of property prices… and regulating the banks would be a far more effective way of preventing speculative bubbles.

                      I think you have a good point there. Prior to Douglas opening up the economy to overseas investment, in 1985, the only money available for mortgages was what banks could supply using local savings. That natural cap kept housing prices reasonably low (until the oil shocks, anyway).

                      But once the economy was de-regulated, banks could borrow vast sums from overseas. They could offer endless supply of mortgage-money to borrowers. There was practically little or no limit, and this encouraged vendors to demand higher and higher prices for their properties. They knew that purchasers could sustain high prices by borrowing from an endless supply. Plus with women entering the workforce, purchasers could service higher mortgage repayments, instead of just relying on one income-earner’s wages.

                      In effect, peoples’ expectations rose, and there was no real cap to deflate higher and higher expectations for ever-higher prices.

                      The down-side? A housing-bubble/boom, built on overseas borrowings. And New Zealand indebtedness at an ever increasing rate.

                      Not good for our credit ratings. And we become very vulnerable if/when overseas funds dry up or interest rates climb. (Hence why Kiwisaver was necessary – so we can save and provide our own funds, instead of being reliant on overseas lenders.)

                      I’ve got a question you may be able to answer. What if I sell one of the my units and any capital gain would normally be treated as income because I’m selling before the 10 year mark.

                      I’m not aware that there was a ten year limit? That may be a new thing.

                      The way I understand the IRD’s rules, you can sell one or more of your units, and it isn’t necessarily considered as ‘dealing’ – as long as you are (a) not doing it on a regular basis and (b) not wholly reliant on the proceeds to live on. So if you have another income, which you live on, the income from the sale of one of your units may not be considered as income. It would be a Capital Gain.

                      (I suggest you get up-to-date advice on that. It’s been about eight years since I disposed of two of my properties.)

                      Now what happens if I use the proceeds to reduce company bank debt? Have I reduced my taxable income?

                      No, you haven’t. You still earned that income. What you do with it (save it, retire debt, put it under the mattress, give it away, etc) doesn’t concern the IRD. Their main concern is that you acquired the proceeds in the first place.

                      However, if you’re reducing company bank debt, it might be an idea to check with your accountant to make sure that it is not a legitamate business expense. I suspect it isn’t – but I’ve operated only as a sole-trader – not a company director.

                      By the way, your accountant’s fees are tax-deductible as well.

                      [Note to The Standard’s moderators: hopefully you don’t mind a bit of business-talk on this thread. It’s one way for folk who’ve engaged in business to explain how various taxes affect us. It’s not an attempt to turn this blog into an ACT-clone… ]

      • Blighty 2.1.2

        in a few cases, you might get market illiquidity if there aren’t enough renters or landlords in a given area, but that’s a small problem of limited scope and could mean prices go up or down in that locale.

      • RedLogix 2.1.3

        The mistake you are making is conflating the supply of houses with demand for houses. They are not the same thing and have quite different drivers.

        For a start people do not easily transition from renting to buying. In order to do so it takes some time to save a deposit and meet the banks lending criteria.

        And here is the rub almost no-one gets.

        In a rising market banks will happily increase their LVR’s over 90%, because they are reasonably assured that in a few years time inflation will get the LVR back under 80% or less. But in a falling market the opposite is true… they insist on a higher deposit in order to be confident that the mortgage will not go under water within the first 10 years of the mortgage’s life.

        In other words, while a falling market drops prices… paradoxically it can make actually getting a loan harder.

        The other problem with a falling market is that inevitably there are homeowners who default on their loan (usually with the first five or so years of the loan) who are foreclosed and finish up with NO equity. They cannot buy a new home anytime soon and are forced onto the rental market.

        Again paradoxically a falling market adds to the demand for rentals.

        Both these effects are counter-intuitive… but are very real.

      • tsmithfield 2.1.4

        You forget about the fact that new houses are also built for rental. If there is a decline in new houses being built for rental due to the CGT, the rents will go up.

        • RedLogix 2.1.4.1

          You forget about the fact that new houses are also built for rental.

          For once we are on the same page ts.

          There are no reliable figures (because the data is not collected) , but a good source suggested to me some 3 years ago that he thought about 15% of the new build houses were intended for rentals.

          I personally built (that’s hands-on) six myself.

          Right now I have a piece of land in a good suburb, with sealed access, full services, plans and Resource Consent for a 120m2, 3-bdrm unit. The day it was finished I am certain to get 100% occupancy for it as I do with it’s immediate neighbours…..but on the current figures I cannot make it work.

          It’s not likely to ever get built.

  3. randazl 3

    yeah well. all bubbles since 1919 have been organised by central banks when the populace gets unruly with their money.
    what we need is more money put into productive assets and less into toys, distractions and monuments to erectors.

  4. vto 4

    There will be no major implication for the housing market. Far larger forces are at play.

    In a few years time there may be a minor measureable impact, that is all.

    The political implications are the ones to watch.

    • Nick K 4.1

      What vto said.

      Immigration, cheap credit and lack of supply including land drives up house prices. A CGT will have very negligible impact.

      But I’m sure when this fails, Labour will find another tax to make something affordable

    • RedLogix 4.2

      Agreed vto.

      The revenue raised will be zero… for at least a decade.

      That’s why I’m so unenthusiastic about a CGT… it’s so unimaginative and futile. It will not achieve what it’s supporters think it will and represents a tragic lost opportunity to do something far better.

    • Colonial Viper 4.3

      A CGT is a building block for the future. The ideal time to implement it is when its not going to hurt as much i.e. now.

      A general asset tax is also necessary IMO.

      And the price of petrol should be increased as a way of funding new high volume rail projects.

      • RedLogix 4.3.1

        In that case CV, Phil Goff has no business claiming that a CGT will fill the hole in his Budget predictions.. any time soon. Really.

        I can accept that a general asset CGT has it’s place… but alongside a raft of other far more effective and important changes to the tax system.

        For instance a Universal Income system, a global FTT, a small Land Tax, and far better regulation of bank lending into the residential market would be approaching bold in my book. We should be looking for something far better than a tired old CGT which everyone else has … and appears to have achieved little.

        What we’ve seen so far is little better than timid.

        • Draco T Bastard 4.3.1.1

          So far this is only a rumour, a fairly well grounded one, but still a rumour. And, more importantly, it’s probably only one plank of Labours tax policy.

          I happen to agree with a CGT but on the grounds that all income should be taxed rather than the possible effect it will have on speculation. It may also produce the desired tax take increase not because suddenly everyone has to pay CGT but because no one will be able to shift their income to a capital gain to dodge paying tax on it.

          • Matthew Hooton 4.3.1.1.1

            Don’t be silly. It’s not a “rumour”. It was a leak from Fran to Guyon – and a very smart leak too.

            • Anne 4.3.1.1.1.1

              Tell us more MH tell us more. And who leaked to Fran?
              You can’t make claims like that without some kind of evidence!

              Let’s see if he responds then we’ll know whether he knows what he’s talking about or just trouble-shooting.

              • insider

                Fran Mold – Goff’s PR woman, not Fran o’Sullivan, who Matthew might normally quote

            • Draco T Bastard 4.3.1.1.1.2

              Well Matthew, just for you I’ll say it simply:

              ATM, we haven’t got the policy from Labour enumerating everything in it and until we do I’ll consider it still changeable and, considering that it was leaked, that it probably will change on feedback.

              • Colonial Viper

                yeah I like the mantra that a dollar made is a dollar made, regardless of whether you got it from sweating in a machine shop all day or whether you flipped a house.

                And it should be taxed at identical rates.

            • Colonial Viper 4.3.1.1.1.3

              Matthew…what constitutes a “smart” leak in this kind of scenario?

        • Reality Bytes 4.3.1.2

          “In that case CV, Phil Goff has no business claiming that a CGT will fill the hole in his Budget predictions.. any time soon. Really.”

          He’s the leader of one of the two major political parties in this country. His business PRECISELY IS to consider the options for managing tax revenue for this country. He’s not some armchair blog commentator that fails at blindingly obvious logic. But hey don’t let that stop you, I respect your right to express an opinion, I just think it makes absolutely no fucking sense.

          • RedLogix 4.3.1.2.1

            I’m sorry mate… but given that markets are going to be flat for at least a decade…. there are going to be no capital gains, ergo … no tax revenue.

            Most informed commentators I’ve listened to have acknowledged this point.

            • Reality Bytes 4.3.1.2.1.1

              I’m just pointing out that it most definitely is his business and area to be commentating on and preparing plans for, exactly the same as it is Mr Key’s, Mrs Turei’s/Mr Norman’s, Winston’s, Brash’s, and so on and so forth.

              • RedLogix

                A CGT has it’s place. I’ve long expected that eventually NZ would get sort of big enough to make one worth introducing.

                But given that the ‘grandfathering’ date (ie the date at which ground zero values are established) will not be until 2102 at the earliest, given that it exempts the family home which consitutes at least 50% of all capital gains, and given that the majority of investment property is not sold very often (most investors hold for the long-term)… and given the flatness of markets… the actual tax base ain’t very big.

                What I’m concerned about is seeing so many lefties getting caught up in the hype of this announcement, without realising it’s very real limitations.

                PS. If it turns out to be a General Asset CGT as some have suggested, then I’d a little more sanguine.

                • Reality Bytes

                  Good points, and I agree it isn’t the great panacea, and there are limitations and problems. But Labour still hasn’t given the full speel on how they see it working in practice, but as I’ve said before I just personally believe anything that gets investment shifting towards more productive areas of the economy, will probably help everyone out overall, including fiscally conservative nest-eggers just as much as risk-happy investors.

            • lprent 4.3.1.2.1.2

              Even if that was not the case, the grandfathering clauses would mean that in the property market only someone buying and selling houses rapidly would be subject over the next few years – ie speculating or building on spec and then selling. People buying houses to rent will usually hold on to them for a while.

              But as you say, the turnover of property is likely to be pretty flat for a while.

              Of course this is being reported as being a comprehensive CGT. That means there are things other than properties that are likely to have a increase in velocities earlier than that.

              But a CGT is not designed to pick up significant revenue in the short-term. It is designed to change investment behaviors and to provide a wider revenue base for the government in the long-term. The ideal time would be to introduce it in exactly the type of market that we have right now.

            • KJT 4.3.1.2.1.3

              I expect not much revenue from capital gains, but a rise in overall tax take as it is no longer possible to avoid tax by choosing your investments. In South Africa, who introduced a CGT fairly recently, this was substantial.

              Though I would prefer that capital gains are treated and taxed like any other income.

              Investment income tax from a business is not adjusted for inflation. Why should property investors still get special treatment.

              While markets are flat is the best time to introduce a CGT as the effect will not be as sudden on the people affected.

              If some landlords or farmers give up because they have been farming capital gains it puts the land back on the market for new owners. It cannot be taken away.

        • Colonial Viper 4.3.1.3

          Actually RL I’d like to see that package you outlined too.

  5. queenstfarmer 5

    The landlords said the Budget 2010 tax changes would push up rents too. It didn’t happen.

    Are you sure? I quote Jacinda Adern:

    The current National Government had a go too. In the last budget, it changed the rules for landlords claiming depreciation against their rental properties. Unfortunately, this just led them to pass on the cost to their tenants; people renting in central Auckland (about 40 per cent of all residents) are now paying on average $20 extra a week.

    Capital gains tax won’t decrease the number of houses

    True, but it might decrease the number of houses for sale (which is the argument being advanced). Anyone have any info on whether introduction of a CGT might do that?

    Generally though I agree. The “housing lobby” is entitled to its views of course, but they will need to come up with better arguments to make their case.

    • Blighty 5.1

      “The landlords said the Budget 2010 tax changes would push up rents too. It didn’t happen.

      Are you sure? I quote Jacinda Adern:”

      hmm. I quote Statistics NZ

      CPI Level 2 Subgroups for New Zealand (Qrtly-Mar/Jun/Sep/Dec)
      Actual rentals for housing
      2010Q2 1091
      2011Q1 1105
      change 1.3%

      • queenstfarmer 5.1.1

        I’m not putting forward Ms Adern as an authority over Stats NZ (!), but clearly there is division within Labour on whether this will, or won’t, put up rents. Do the Stats NZ figures reflect when the tax changes came into effect? Seems rather recent to be reflected in stats figures, but that hasn’t stopped Labour from saying that the Govt’s removal of tax breaks have in fact cause rental increases.

        Are they now saying the opposite?

        • lprent 5.1.1.1

          It depends where you are of course; Auckland isn’t the West Coast and the property markets operate quite differently in places.

          But in Auckland over the last decade or so it has been pretty easy to show that rents are related directly to market demand rather than costs. I did it while looking at investments 10 years back and I don’ t think it will have changed.

          Basically look at the net migration figures (ignore birth rates as being too low to matter) into Auckland from overseas and internal. Then look at building permissions. Then look at rentals with about a years lag from the permissions. A drop or rise in permissions correlates inversely pretty well with changes in rentals. 

          Of course over the last year rents in Auckland have been rising quite sharply. This is when the major cost of owning a property for rental (mortgage rates) has been about as low as it has been for decades. But virtually all house and apartment building ceased in 2009/10, while immigration didn’t slow much. Consequently there is a marked demand and landlords are raising rents because they can.

          Looking around at present it looks like there is a slow windup in building.

  6. tsmithfield 6

    “Capital gains tax won’t decrease the number of houses or increase the number of people looking for accommodation, so supply and demand should not be affected.”

    Except, if it affects the amount of new housing being built then it will have an impact on the total amount of housing available, and thus could impact rents. So you are not quite correct in what you say.

    • Colonial Viper 6.1

      The Government should take over a large proportion of the building of new affordable housing anyways.

      • Bazar 6.1.1

        So if the private sector finds it unprofitable to build homes and sell/rent them…
        Your idea is to have the goverment build the homes, then sell/rent them out?

        Am i the only one seeing an inherent problem with that line of thinking?

        • Colonial Viper 6.1.1.1

          Government doesn’t need to sell or rent homes out at a profit 🙂

  7. ianupnorth 7

    Correct me if I am wrong, why do those ‘property investors’ engage in this activity?
    First thought would be that the property is ‘an investment‘ – now if you have an investment, such as interest on a savings account, you pay tax on the gains – why should housing be any different.
    Second thing is that some people using it as a source of ‘income‘ – now if you can fiddle away, via losses and ‘expenses’ incurred with the property are you actually fiddling income tax?
    Third (and least likely) thought is that landlords do it because the philanthropically want to help out those in greater need.
    So all you landlords out there which is it?

    • Pauline 7.1

      I am a Property Investor because it will pay for my retirement so you don’t have to.

      • higherstandard 7.1.1

        Will you be returning your super then ?

        • Pauline 7.1.1.1

          by the time I retire, I doubt there will be a superannuation.

          I am also not a member of kiwisaver as I prefer to manage my own money.

          trouble with shares or retirement schemes is, you could retire in a diving market and your ‘investment’ might be worth 2/3rds of beggar all.

          at least with houses, you can choose when to sell.

          • ianupnorth 7.1.1.1.1

            OK, so I have chosen to pay for my retirement by having money in the bank (managing my own money); I am taxed on the interest. You are (currently) not taxed on the potential gains and additionally are able to reclaim expenses.
             
            Please explain why you should not pay tax and I should?

          • Lanthanide 7.1.1.1.2

            “at least with houses, you can choose when to sell.”

            Heh. You think that all of these baby boomers that have bought up houses for retirement and are going to have to sell them off, en masse, over the next 20 years, aren’t going to crash the housing market?

            • Colonial Viper 7.1.1.1.2.1

              They’re holding off selling at the moment because of the poor market, but there is pent up selling pressure there.

              A CGT on the horizon is going to convince some of them to start liquidating regardless.

              • M

                Right on CV, a CGT will see the pent up quiet desperation given full vent when they realise that it’s better to get a few crumbs rather than nothing.

        • queenstfarmer 7.1.1.2

          Interesting proposal. I’d happily waive my super in return for optional tax breaks now.

    • RedLogix 7.2

      First thought would be that the property is ‘an investment‘ – now if you have an investment, such as interest on a savings account, you pay tax on the gains – why should housing be any different.

      Well yes. I totally agree that is a very real issue.

      The best way of dealing to it would be to exempt the inflation portion of any earned interest before taxing it.

      ie if the interest rate was 4.5% and CPI was say 4.0%… then only 0.5% would be taxable.

      • Colonial Viper 7.2.1

        ahhhhhh so we are distinguishing between the rate of inflation and the CPI 🙂

      • higherstandard 7.2.2

        Why don’t we do that with all taxes ?

      • Blighty 7.2.3

        that’s the reason that CGT is only half the top marginal tax rate, isn’t it? To allow for inflation?

        • Draco T Bastard 7.2.3.1

          Which is basically stupid. Easy enough to estimate the inflation changes to purchase value over time.

          • RedLogix 7.2.3.1.1

            It’s how the Australians do it.

            There is a capital gains tax discount for individuals, trusts and super funds who hold a CGT asset for one year before selling. The discount available for individual taxpayers is 50%.

            This means that you only have to include half of your actual capital gain in your taxable income if you held the asset for at least one year. For super funds, the discount is 1/3 of the gain, and the CGT asset must also be held for one year. For trusts, the discount depends on the beneficiary of the gain. If the beneficiary of the gain is an individual, then the 50% discount on the capital gain distributed is available. Companies are not entitled to any capital gains tax discounts.

            http://www.capitalgainstax.com.au/are-there-any-cgt-concessions/

            In essence what they do is assume that half the price rise is due to inflation, and tax the other 50% which is assumed to be capital gain.

            Labour’s proposal assumes that most taxpayers have a 30% marginal tax rate, thus the 15% rate is the functional equivalent to the Australian 50% discount.

            • Draco T Bastard 7.2.3.1.1.1

              Sure, it’s a simple solution but why guess when you don’t have to? How much was paid is known, the CPI for the time period is known and thus how much the value of money has changed. From there it’s very easy to work out difference between what was paid and what the selling price is in real terms.

              We’re not stuck with manual systems any more and so keeping things capable of being done on paper in a reasonable time frame isn’t needed. Make something like Xero available free of charge and the entire countries taxes could be done in real time. Everyone effectively goes on to PAYE and relevant business expenses (going to work is a business) become tax deductible for everyone.

              Taxes become real easy when everyone does their own and they’re checked by machine.

  8. Pauline 8

    CGT is only truely effective as a Tax Gathering exercise when it is applied to ALL house sales, the Family Home included.

    If you only apply it to rental property, it is too easy to avoid the tax if you own multiple properties. EG: selling your main house ‘the family home’ and NOT paying CGT then moving into your rental for a few years, claiming it as your ‘family’ home and selling it a few years later with no CGT.

    The other thing, for me as a multiple property owner is that I just won’t sell them and continue to buy more. As I pay tax on the rent I receive now, I will do everything possible to avoid paying CGT, including ‘gifting’ my properties to family through my Family Trusts.

    This type of policy ENCOURAGES tax avoidance. I also find it ironic that Labour is pushing CGT considering Ms Clark and many other Labour MP’s of the past including Phil Goff have rental houses themselves and managed to profit from them over the 9 years they were in Govt. The Greens are another example.

    At least the current govt changed to rules to stop people renting out properties at a loss and writing that loss off against their ‘day job’ incomes, I am one of the 48 odd % that have always paid tax on my rental income. The rest were just rorting the tax system for all it was worth for 9 long years under Labours watch.

    This poorly thought out policy will not raise beggar all in tax for the country. It will become a new reason for Accountants to help their clients avoid tax. It will also do little to make home ownership a reality for lower income people. All it will do is cause many other landlords accumulate more houses for their portfolio’s and not sell any of them but pass them on to their family. We will become like Europe where only the wealthy own property and everyone else must rent off them.

    Poorly thought out policy Phil Goff. You do your party no favours and give it no hope of even coming close to winning the Election.

    BTW Phil, have you sold that apartment yet? Or are you still renting it out and collecting an allowance for the flat you live in? Hypocrite? Much?

    • queenstfarmer 8.1

      This poorly thought out policy will not raise beggar all in tax for the country

      I wouldn’t sniff at $700m a year (in 10 years time), but I agree it will bring in buggar all tax in relation to Labour’s massive spending hole. My interest in CGT is not as a revenue gathering tax to fund ever-more Govt spending, but to rebalance investment toward the productive sector.

      • Reality Bytes 8.1.1

        I just think anything that nudges investment towards actual businesses, industries and productive sectors of the economy – cannot be a bad thing overall.

        I realize people like the security of property investment, but it may be self defeating ultimately if our national economy goes to shit. What this country needs is investment in productive businesses and ventures. Nest-egg rentals to save for retirement are sadly not productive, nor the answer for our national productivity. It’d be nice if they were, but I think as a nation we put far too much into that area and it is a detriment to other capital investments.

    • pollywog 8.2

      Jeez Pauline… you give creedence to my theory that old white NZers with money lack imagination, creativity, are generally greedy and have bad taste. On the whole, just mean spirited old cusses.

      Don’t know whether its a money thing, a generational thing, a cultural thing or what…perhaps you could school me up ?

    • RedLogix 8.3

      If you only apply it to rental property, it is too easy to avoid the tax if you own multiple properties. EG: selling your main house ‘the family home’ and NOT paying CGT then moving into your rental for a few years, claiming it as your ‘family’ home and selling it a few years later with no CGT.

      Well yes.. but IRD are not the fools you seem to take them for. Do this more than a few times and you’ll get pinged. Deservedly too in my book.

    • Frank Macskasy 8.4

      Pauline, I doubt you’d be voting Labour anyway, would I be right?

      In which case it is wholly irrelevant (to you) what policies they introduce.

  9. kriswgtn 9

    Maybe the introduction of CGA will mean instead of people investing in housing,they might wanna invest in providing jobs?

    • Pauline 9.1

      kris….people who invest in housing also employ property managers, builders and other tradies etc. Alot of investors in property, like myself, also own businesses and employ staff.

      I ask you: what else is there to invest in in NZ?

      The Sharemarket? Finance Companies? We all know where THAT led now don;t we?

      Thanks to Michael Cullen telling property investors to get out of the housing market and diversify their investments, you, me and the whole country are now paying to refund the investors of Sth Cante Finance….

      Labour supporters somehow seem to believe that investing for your future is some kind of filthy-greed trip, when all people are doing is trying to look after themselves so the state has more money to pay for those who can’t/won’t invest in their own rretirement.

      • ianupnorth 9.1.1

        I hear what you are saying – there are a bewildering and potentially challenging set of investment routes, and the safe guards are, well messy!
         
        Let me add another slant; there are quite a few who cannot even get their foot on the property ladder? So, should we using the CGT to fund first time buyer assistance, or would that diminish the investment property market. (PS I am not getting at you at trying to rebel rouse/agitate), just trying to get some reasoned debate around this subject as it is a very big one!)

      • kriswgtn 9.1.2

        and a hell of alot of landlords buy alot of property who do rent out- do nothing in maintaining their properties

        the amount of crappy rentals in wellington alone that are rented out @ exorbitant prices is beyond a joke

      • queenstfarmer 9.1.3

        I ask you: what else is there to invest in in NZ?

        Come on, there’s plenty of NZ companies looking to raise money. You cited South Canterbury Finance and the finance bust, but investing in those was simply investing by proxy in the property market.

        • KJT 9.1.3.1

          Tallon, Tait, Gallaghers F and P. Just a few who eventually had to go offshore for capital.

          • davidc 9.1.3.1.1

            and do any of them offer first mortgage security and the ability to borrow 70% of the purchase price at 5% from a trading bank?

            No they dont.

      • Colonial Viper 9.1.4

        I ask you: what else is there to invest in in NZ

        Let’s be a tad imaginative and not so derivative shall we? This country does put out $5B of high tech exports every year, and if you want to know where to invest, please contact these guys

        http://www.theicehouse.co.nz/

        kris….people who invest in housing also employ property managers, builders and other tradies etc. Alot of investors in property, like myself, also own businesses and employ staff.

        Yeah but we need businesses which can generate at least $250,000 sales per employee annually, on a par with (or better than) Fonterra, F&P Healthcare, Rakon, etc.

        • Reality Bytes 9.1.4.1

          Great Link! This is the sort of grassroots ingenuity that will get this country out of the shit whilst our current crop of planless-polis-in-power are failing us.

      • Frank Macskasy 9.1.5

        Labour supporters somehow seem to believe that investing for your future is some kind of filthy-greed trip, when all people are doing is trying to look after themselves so the state has more money to pay for those who can’t/won’t invest in their own rretirement.

        Pauline – feel free to invest your money where ever you like. It’s your money.

        But I fail to see why you expect a tax-free capital gain when others have to pay tax on their business activities. Whether it’s the corner Dairy owner of Fletcher Construction; John Key or the lawnmower guy – they all pay tax.

        Please explain to us why you feel you should get a free ride?

  10. higherstandard 10

    I wonder where that chap Battleheed has gone ?

  11. grumpy 11

    Will people believe Labour when they say they will exclude the family home???

    How about a starting limit on family homes – like $1m…. that’ll get the Rich Pricks.

    Then start bringing it down………….I can see where this is heading in Election year.

    • Reality Bytes 11.1

      I know also the pain of the politicians lie. It must have been hard to trust them again after hero of all Kiwiana -The Right honorable John and Smilest-McWaviest Key- broke his promise about not raising GST. I understand how you must struggle to trust those polis again. I understand your pain mate, our stories are personal, but our destiny is shared.

  12. Todd 12

    Of course one could use a counter argument and say.Hell look now they have put a CGT on property lets go and buy a few rentals,i dont think so.Just like the scare many NZs got in 1987 on the share market and never gone back I predict that the mum and dad owners of rentals(a very high proportion)will ditch them real quick at the meer mention of a CGT.As a whole NZS are not good investors of anything,and i would think that if you scare the horses they will bolt.As a general rule of any govt regulation,the introduction of such will likely have all kinds of unintented consequences,i notice here in this post there are many I think and maybes.

  13. Matthew Hooton 13

    A CGT would have little if any impact on house prices. Australia, US and UK all have CGTs and they all experienced crazy house-price inflation too. House prices are a function of availability of credit. If you can borrow 100% of the cost of a property from a bank, and make a near guaranteed 50% annual return, you’ll do it regardless of whether the tax on that profit is 0%, 15%, 30% or 45%. The reasons for implementing a CGT are overwhelming and independent from this issue. Labour will look silly next week if they claim their CGT will stop the next property boom.

  14. BR 14

    “Maybe the introduction of CGA will mean instead of people investing in housing,they might wanna invest in providing jobs?”

    Increasing taxation does not encourage any kind of investment except compulsory investment in government and bureaucracy; an investment that no sane entrepreneur would willingly have a bar of. If investment in productive job-creating industry is what is required, then it would be far better to reduce the tax burden on that sector than to bludgeon even more taxes out of an already overtaxed population.

    Bill.

    • Frank Macskasy 14.1

      Kris:

      “Maybe the introduction of CGA will mean instead of people investing in housing,they might wanna invest in providing jobs?”

      Followed by:

      Increasing taxation does not encourage any kind of investment except compulsory investment in government and bureaucracy; an investment that no sane entrepreneur would willingly have a bar of. If investment in productive job-creating industry is what is required, then it would be far better to reduce the tax burden on that sector than to bludgeon even more taxes out of an already overtaxed population.

      Reduce the “tax burden”?

      NZ already has one of the lowest taxation regimes on the planet. And if we reduce taxes even further, would you care to enlighten us how we will pay off $16 billion of debt and keep schools, hospitals, roads, police, etc, etc, operating?

      The introduction of a CGT simply puts property investors/speculators on an even footing with those that originally built those assets.

      For the life of me, I cannot understand why you (and others) seem to think that property investors/speculators deserve an exemption that no one else gets.

    • Draco T Bastard 14.2

      We’re not over-taxed. If anything, we’re under taxed (That’s what the government deficit is – taxes failing to cover the services we used) and cutting taxes never seems to boost the economy. In fact, it seems that it goes into a tailspin each time it’s tried.

  15. KJT 15

    “”Increasing taxation does not encourage any kind of investment except compulsory investment in government and bureaucracy; an investment that no sane entrepreneur would willingly have a bar of””.

    Why are investors so keen on getting a piece of State owned enterprises, then.

    • Draco T Bastard 15.1

      Well, capitalists are interested in state assets as they’re a no risk guaranteed return. An entrepreneur, on the other hand, probably isn’t but then the entrepreneur probably isn’t complaining about taxes either.

      • Colonial Viper 15.1.1

        Not much to pay taxes on if you are a start up company not making any profit yet and the founders are still living on 2 minute noodles. That’s real silicon valley stuff.

        • Reality Bytes 15.1.1.1

          That’s very true. If you are paying bugger all tax, it often can mean you are earning bugger all, and there is very little to live on, so you certainly have to be very 2-minute-noodles-style-frugal! I pretty much fit that struggling silicon valley IT stereotype. Hell instead of a gym membership, I walk to the supermarket and carry the heavy groceries for a few kms back, great workout, and saves a lot of fuel and car maintenance. I work from a home office so my effects on the national transport system are also lower too. 🙂
          My conscience is clear on my low tax contribution, I take solace in the fact I do pay some tax albeit quite a low amount (would love for it to be a lot more, since I’d be doing better too!). I intentionally told my accountant to declare a decent portion of my income not as drawings, but as PAYE, even though I could have legally almost paid no income tax, i.e. I pretty much voluntarily paid a bit more tax than I had too. And I’m also effectively creating my own job thereby freeing up a job for someone else. I’m not employing anybody yet, but would love to do so in the future once cashflow is a bit healthier, even if it means I’m not profiting as much, and taking on more financial risk. Economic patriotism perhaps?

  16. Jan 16

    Great article from Gordon Campbell on Scoop
    http://gordoncampbell.scoop.co.nz/2011/07/07/gordon-campbell-on-the-capital-gains-tax-debate/
    A couple of really good points in that not made here so far. Although a CGT will be slow to get off the ground it will deliver in the long term compared that with Mixed Ownership Model (aka privatisation) where once sold the asset is all gone. CGT could /should really be part of a centre right agenda for very sound centre right reasons – such as lowered income taxes.
    Nail on head hit hard.

    I was worried by the news as it appeared to be an inadvertant leak but the more I read the more it looks like savvy politics by Labour – both the policy and its slow burn release. Yoohooh! Almost time to get excited!!

  17. McFlock 17

    The Alliance take on Labour’s CGT

    • Colonial Viper 17.1

      🙂 You can’t say Labour isn’t learning

      “We encourage them to use as many of our policies as they want, they do not even have to give us credit for coming up with them.”

      Hehehehe.

  18. BR 18

    If anyone feels that they are under-taxed, they can always volunteer to pay more.

    The hell NZ is under-taxed. There is PAYE, GST, rates, GST on rates, a tax on a tax, More than half one’s petrol money and other day to day motoring costs are tax, and then there is the ridiculous carbon tax scam on electricity and petrol etc. What about all the council fees and other unnecessary bureaucratic hoops one has to jump through and pay for if one wants to do any building work or cut down a tree on one’s own property? That’s just taxes by any other name. The resource management act involves all sorts of fees and expenses, taxes in drag. One doesn’t get anything in return for them, they are money one spends to buy permission to do things. Legalized corruption is what it is. Now go to the government’s website and see how many government departments there are. Most are unnecessary, and many can only be described as obstructive. The department of women’s affairs, Maori affairs children’s commission, race relations commission, Waitangi tribunal, Arts council, RNZ, TVNZ, and many others too numerous to list here. The list keeps growing. That’s just in central government. Local government is arguably worse with all their vehicle crossing inspectors, swimming pool police, and other compliance and enforcement bureaucrats. This level of bureaucracy didn’t exist thirty or forty years ago, so why is there a need for it now? None of these people produce a damn thing that anyone would willingly pay for. They are so damn busy poking their noses into things that should be none of their business that they neglect the things that they should be doing. Remember the little girl in West Auckland who died when she fell down a manhole? The blame for this can be sheeted home to all the way to council negligence. It happened in Waitakere city, the swimming pool fencing enforcement capital of NZ. These people are all on expensive time wasting work for the dole schemes. It would be better for the country if they were all sacked and put on the real dole. It would certainly be cheaper, there would be less obstruction and interference the productive sector and in the lives of ordinary New Zealanders, and would offset any real or perceived necessity for another bloody tax.

    Bill.

    • Frank Macskasy 18.1

      Try paragraphs.

      Easier to read.

      • clandestino 18.1.1

        Haha! Funniest rant I’ve read thus far today, is it serious? Or are you taking the piss? The irony of raving against inspectors whilst simultaneously blaming government for their failure to inspect is priceless!

        • ianupnorth 18.1.1.1

          Bill, what was the population 30 or 40 years ago? Remember it was the Tories that brought in business models of accountability to hospitals and councils; they wanted to see where everything went, they wanted everything reported, minuted, re-reported, filed. Blame the legal system not those employed to do those roles.

  19. The Chairman 19

    Serious points to ponder:

    A capital gains tax would diminish New Zealand’s wealth base.

    Considering the majority of New Zealander’s wealth is tied into housing, diminishing that wealth base would be a fiscally dangerous endeavour.

    Policy designed to slow the price grow in housing would be far more astute.

    Changes to the current property investment business model will force landlords to either increase rents, or worse, exit the sector.

    A mass exodus would be extremely detrimental to the sector and the nations property prices overall.

    Policy designed to create a fall in property prices will lead to many homeowners having to meet the property value shortfall in their mortgage. Moreover, many small business owners that mortgaged their homes to fund their business will find themselves in a similar position.

    Reducing a property investor’s return will only force them to turnover more properties to maintain return.

    Property investors in New Zealand have shun the market as an alternative and won’t return till at least new market regulation has been gauged to be a success.

    As long as banks keep favoring property, investors will continue to invest.

  20. BR 20

    “The irony of raving against inspectors whilst simultaneously blaming government for their failure to inspect is priceless!”

    It is typical of propaganda merchants to take what someone has said, and then rephrase it into something completely different. Where did I mention anyone’s “failure to inspect”?

    Regarding the blocked pipe that caused the manhole cover to flip off in heavy rain creating the death trap that killed the little girl. That had nothing to do with council inspectors. There were numerous complaints from property owners in the area because the blockage in the stormwater drain was causing their sections to flood, so the council already knew there was something wrong, inspectors notwithstanding. Drainage is part of council core business but the bastards did nothing to fix the problem.

    The repercussions of this avoidable tragedy resulted in a council decision to waste even more money installing a grill in every manhole. If some of the vast number of council employees did what the ratepayers were paying them to do, the grills would be unnecessary. I don’t believe that anyone lost their job or was held accountable for this in spite of Bob Harvey’s fake commiserations on national television. What a disgrace.

    “Remember it was the Tories that brought in business models of accountability to hospitals and councils…..?

    I am not going into bat for any political group or party here, I am disagreeing with those who are trying to convince the readers that this country is under taxed. Nothing could be further from the truth.

    Bill.

    • Colonial Viper 20.1

      This country is under taxed.

      Especially the wealthy part of the country with net investment assets of over $1M, and the high income 5% earning over $90K p.a.

    • Reality Bytes 20.2

      Maybe we need more audits, policy improvements and restructurings of councils then, but hey that is a cost too. Those audits, policy improvements and restructurings don’t grow on trees, they have to get paid for somehow.

      We have had the National party in power for nearly 3 years now, they have had their chance to sort things out, their ethos and platform is about being fiscally conservative, spending less on public services etc, they are all about cutting costs in order to fund tax cuts for a trickle down effect and stimulation of business investment. And yet the books still are not balanced. They have to borrow and fire-sale profitable SOE to pay the bills. Unfortunately reality has played out very differently to their vision of economic development.

      It is blindingly obvious the government is receiving insufficient tax revenue, ergo there is insufficient tax take to meet the needs of this country, even with a penny pinching government in power.

      This country is under-taxed. It is living beyond it’s means. But hey we could just continue to follow the Irish tax strategy and hope for the best?

      We’re paying less tax now, but trust me we will ALL be picking up the tab for this ‘illusory-lower-tax-savings’ in the future if we don’t get things sorted out.

      Lets get real, it may not be popular, but Labour at least has the guts to put out policy changes that have a shot at sorting things out.

      A one-off fire sale of profitable SOEs is not the great hope for this nations future.

    • Draco T Bastard 20.3

      Drainage is part of council core business but the bastards did nothing to fix the problem.

      Ever consider that they didn’t do anything because they couldn’t afford to?

      We are under taxed (no, the number of taxes doesn’t make any difference to that) and then we complain when the services we expect government to do (like clear drains) don’t get done and it never seems to occur to anybody, especially the RWNJs, that it’s because we aren’t supplying enough resources for the council/government to do them.

  21. mikesh 21

    “So far, not one credible, sane, rationale has been given why property speculation/investment should be exempt.”

    If I sell a property worth half a million for 500,000 where’s the profit? What I paid for that property originally is irrelevant since the difference is not income but simply an increase in the property’s value. However if I were selling lots of properties in a short period of time there might be a problem, but in that case IRD would deem me a trader and assess any profits as taxable irrespective of whether a CGT was in place.

    • Colonial Viper 21.1

      What I paid for that property originally is irrelevant since the difference is not income but simply an increase in the property’s value.

      Well, the difference once realised gets pocketed, and it sure looks like income if that is the case.

  22. mikesh 22

    It doesn’t look like income to me. It’s simply the exchange of one asset (property) for another of equal value (cash). Except of course where the seller can be deemed a trader, but that situation is already catered for.
    The trouble is that the non seller gets all the benefits of the increased value (eg he can borrow against his increased equity) without paying tax, while the guy who sells gets slammed.
    The elephant that nobody seems to be seeing in all this is the deductibility of expenses that relate to ownership but not income, eg interest, insurance, rates, depreciation, and some maintenance costs. Disallowing these would contribute more to the government’s coffers than any CGT.

  23. BR 23

    Ever consider that they didn’t do anything because they couldn’t afford to?

    What utter nonsense. They couldn’t afford to fix the drains, but they could afford to send engineering teams to fit a grill on every manhole in Waitakere city.

    They couldn’t afford to fix the drains, but they could afford to spend th ratepayers’ money building a very expensive multi-storey building in Railside Ave.

    They couldn’t afford to fix the drains, but they could afford to send enforcement bureaucrats to goosestep onto people’s private property to check whether they’ve fenced their swimming pools, and that the fences are of regulation height, have the regulation gate installed etc.

    “We are under taxed”

    We? Speak for yourself. How much more tax do YOU want to pay?
    Do you actually pay any?

    “(no, the number of taxes doesn’t make any difference to that)”

    Funny that, because as all these new taxes and levies were implemented, there wasn’t a single reduction in PAYE ot GST to offset the extra costs that these taxes would incur. The money taken from ordinary New Zealanders by local and central governments per annum just increased cumulatively over time. Now there exists a massive bureaucracy with large numbers of regulations and a huge batallion of enforcement and compliance stickybeaks who PRODUCE NOTHING OF VALUE but cost everyone else a fortune in wages and salaries.

    “and then we complain when the services we expect government to do (like clear drains) don’t get done and it never seems to occur to anybody, especially the RWNJs, that it’s because we aren’t supplying enough resources for the council/government to do them.”

    Bullshit.

    Bill.

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