New Labour Party leader David Shearer has indicated he is keen to keep the party's policy to introduce a capital gains tax, but sees less need to keep the NZ$5,000 tax-free threshold policy Labour took into the 2011 election.
Giving his first major speech on the direction he wanted Labour to take over the next three years, Shearer said while policy matters would not be confirmed until closer to the next election, he wanted to give examples of policies, such as the capital gains tax, which would help grow the New Zealand economy in the direction he favoured.
"If ideas help to build a new New Zealand, we like them. If they don’t, then out they go. That starts at home with Labour policy," Shearer said in a speech to a breakfast for lawyers in Wellington.
"For example, we campaigned last year on a bold fiscal policy, with a new capital gains tax, and a NZ$5000 tax free zone. Now I won’t be setting out our fiscal policy today but I can tell you how I see things," he said.
"I've always believed the best argument in favour of a capital gains tax was the economic effect it had. A CGT is pro-growth. It helps switch investment from sectors such as housing, to the productive sector where we desperately need more capital. Over time I can also see the revenue it raises being used to offset the tax you have to pay in other areas. So I can see a role for CGT in transforming our economy," Shearer said.
"On the other hand, I would want to ask whether a tax-free zone that gives everyone the same sized tax cut is going to be as much of a priority. I believe we can look after everyone better, not by cutting taxes, but by earning more as a country and making sure that everyone gets a real chance to earn their share," he said.
"Let me be clear: these are policy matters that won't be confirmed until much nearer the election. But I present them today as examples that inevitably arise when you ask that larger overarching question: does this help to build the new New Zealand?"
Shearer heralds ‘new lens’ for a ‘new New Zealand’
By Pattrick Smellie of BusinessDesk
Labour Party leader David Shearer used his first major speech since taking the reins after last November’s election defeat to promise a new urgency in fixing intractable and long-known problems with New Zealand’s economy.
He told a packed breakfast meeting in Wellington the country had been talking about its problems since before Britain joined the European Common Market in the early 1970’s and people were “growing tired of hearing about it.”
“At a certain point, you have to stop talking about what you’re going to do, and start doing it.”
The speech was deliberately short on policy specifics, beyond Shearer expressing a personal view that Labour’s unpopular capital gains tax proposals should be retained, but that the proposed $5,000 tax-free threshold for all taxpayers should be scrapped.
There were hints also of a willingness to strain relations with the left of the Labour Party, with a pledge to reward good teachers better but get bad teachers out of the classroom, and a willingness to “accept the best ideas, wherever they come from.”
“I want to arrive in government on day one with a detailed plan that will actually achieve a shift to a new, job-rich, high-value economy,” said Shearer, who billed his vision as “a new New Zealand.”
“We won’t be waiting around for officials to give us cautious ideas and suggest a few adjustments. We will be presenting them with detailed far-reaching policies. That means looking at everything through a whole new lens.”
Shearer cited Finland, which had hauled itself out of the economic doldrums, based on high-quality education, science and technology policies.
“Today, Finland is way ahead of ours. Twenty years ago, though, its problems were the same as ours,” he said.
Shearer dwelt on the importance of pursuing not just a better education system, but “the best educational achievement in the world”.
“We need to value teachers. We need every teacher in our classrooms to be a good one. The vast majority are, but the truth is some are not,” he said. “We will work with teachers to develop their professional skills, but ultimately we can’t afford to have bad teachers in our classrooms.”
“As a parent, I want to put badly run schools on notice,” he said.
He also suggested the country needs to be more honest about how well it does as an exporter, with only 900 companies currently exporting more than $5 million of goods and services annually.
“What if we were to set a target of 2,000, and then 4,000 and then 10,000 companies to hit that mark?”
On capital gains tax, Shearer said it was a “pro-growth” measure which was less about the money it would raise than the behaviour it would induce among investors.
“It helps switch investment from sectors such as housing to the productive sector where we desperately need more capital. Over time, I can also see the revenue it raises being used to offset tax you have to pay in other areas.”
Shearer spoke confidently in his 20 minute address to the business audience assembled by an employment law firm. But he appeared less sure-footed under questioning from journalists afterwards, repeatedly declining to discuss policy specifics or to answer questions on other key Labour policies at the last election, including the pledge to remove GST from fresh fruit and vegetables.
His views on the capital gains tax and $5,000 tax-free threshold were “personal preferences” which had yet to go through Labour’s policy-making process.
(Updates with BusinessDesk)
74 Comments
When the allowance for depreciation on buildings was removed the property investors association said it would lead to an increase in rents. The Labour party policy of CGT on rentals is also going to push rents up if it comes in, and probably just the thought of it is putting off new would be landlords entering the market which is reducing supply. Current landlords are factoring it into their "rent required" calculations even before it happens as it is likely Labour will eventually get back in and introduce the tax. It is obvious to anyone with any common sense that increasing tax for the provider of a service will lead to a price rise for the consumer. Rental properties are no different.
It's no surprise rents are increasing fast all over the country.
The old "common sense" argument, LOL, invariably put out by those with none.....as if any landlord isnt already charging the max they think they can....thats quite common here in NZ....so I suspect that its simply at the limits, so no I dont agree...
Of course the property association said such things, doesnt mean it will happen, its known as vested interests wanting to keep their pork barrel advantage and whining about losing it.
CGT applies at time of sale so there is no firm "law" rents will rise....and you ignore the ability of ppl to pay...so current landlords can factor in all they want....if ppl earn no more they will rent in a cheaper area....they have no choice.
I looked at the rent in Auckland going from $500 a week to $550....thats $2500 extra per year...and the expectations form big daddy that he thought $800 was "fair. So OK I look at my household spread sheet as a response to that...in short I'd probably move at the $50 extra per week let alone the $800 which is simply un-achievable....dream on....
Also I see no proof that rents are increasing fast all over the country....sure in some suburbs in Auckland there is some increase.....URLs?
regards
When I buy a property I take into account the future cashflows (ins and outs) including all expenses such as tax and the expected price when I sell it in future. If as you say I can't put the rent up because people can't pay then I just won't buy the property as it makes no financial sense to do so.
If people like me aren't buying properties to let then that will lead to a shortage of rentals unless the government steps in and provides them or renters buy their own home. (Labour won't get CGT on these houses so I think they'll find their estimates of how much CGT they will get might be over estimated).
I don't believe your argument that people won't or can't pay the higher rents though. If they buy their own home it will still be more expensive than renting in the short term so they won't be able to afford to buy. (But what they pay in extra mortgage payments they will recoup in capital gain when they sell it if they hold it long enough so long term they will be better off if they can afford the higher initial cashflows and can save a deposit). They may move further away to a cheaper area but they will get sick of commuting much further in the morning and paying higher petrol cost and busfares so in time the increased rents will be the new normal and people will pay. This happens with everything - look at the price of food and petrol. Everyone grumbles about the prices but eventually you just have to pay them if you want to live.
"I've always believed the best argument in favour of a capital gains tax was the economic effect it had. A CGT is pro-growth. It helps switch investment from sectors such as housing, to the productive sector where we desperately need more capital. Over time I can also see the revenue it raises being used to offset the tax you have to pay in other areas. So I can see a role for CGT in transforming our economy," Shearer said.
Utter ..complete bollocks..!!! does he know what he is talking about..???
Does he talk about the fiscal distortion that not allowing a depreciation component on savings has... NO... because that would cost the Govt revenue.
"On the other hand, I would want to ask whether a tax-free zone that gives everyone the same sized tax cut is going to be as much of a priority. I believe we can look after everyone better, not by cutting taxes, but by earning more as a country and making sure that everyone gets a real chance to earn their share," he said.
Yeah Right... ... I can smell bullshit.
( I actually think that the ist $5000 tax free was one of labours best policies... would have made a difference to low wage earners and would most likely have been spent into the economy )
Shearer may get there eventually, Key won't ever. That's the basic diffo.
But Shearer isn't there yet, not by a long chalk.
"which would help grow the New Zealand economy"
Same old same old.
At least he doesn't suggest that making houses more expensive will make them cheaper. He doesn't appear to care about the increased rents and house prices that will result - this is about 'switching investment to the productive sector'.
Now if he could just explain exactly what the productive sector is?
There is no proof that rents can or will rise or taht this makes them more expensive.....I would assume that landlords in general are already charging the maximum rent the renter can stand.....and from evidence abroad a CGT takes some of the heat out of property speculation.
Productive sector are say manufacturing exporters.
regards
You could (and some did) have make exactly that arguement one or two years ago. Since then the additional cost of no-depreciation has been added to housing cost and rents have risen, so not logical arguement.
What evidence abroad? you could also make the opposite claim from 'evidence abroad' like say Sydney.
Just a practical question about 'switching investment to the productive sector'.
Currently one owns a house. One uses the equity one has in the house as a 20% deposit on a rental property. Based on this 20% deposit a bank lends the other 80% with the rental house as security.
When 'switching investment to the productive sector' is Shearer suggesting that one would use the 20% equity in ones house, go to a bank and expect to get another 80% with a the 'productive sector investment' as security? Or does he expect people to risk their home to gamble in the sharemarket or similar?
I dont think its that unusual for small business owners to use their home as collateral. Isnt this what farmers do btw?
and yes I would say that's what Shearer is saying....if you want to use such a scenario and are of the inclination to take such risk. What it does also do and I like it is reduce the incentive to load heavily with debt in order to pay no business tax but cash out tax free on retirement....So in terms of achieving policy and leveling the tax system I agree with it....the only Q is what % CGT.
regards
If I go into a bank with 20K and ask for another 80k so I can gamble 100K in the sharemarket they will say no.
So I only have 20K to gamble with not the 100K I'd have to gamble with in property (presumably because bank considers property a better risk).
The property investors CGT tries to push away from property is presumably the leveraged ma pa type. I suspect that if they don't invest in property they won't be investing in anything but will be paying off mortages etc. Institutional investors etc. already invest only in the productive sector already.
The outcome of CGT will be more expensive houses and rents and no additional investment in the 'productive sector'
Productive uses resources. So he's urging an increased hoeing-into of resources.
The only other ingredients are a trend to efficiencies, and a trend to lower wages. The first is essential, but will always trail the eight-ball. The second is anathema to Labour.
His rock and his hard place are the same ones the Fed faces. Not enough rocks left, which leaves you in a hard place. It may be that he knows this, and is trying to push the bleating mass in the right direction, but tangled webs have a habit of ensnaring the weaver.
I dont think even if he does see it....(and I suspect from what he has said he might well) there are any options for him....
Lets say he "comes out" and says growth is finished we need to knuckle down to hard work" Pensions are toast, healthcare will be minimised, we stop exorting our non-renewables etc...What does Key and Whinney Peters say? "He's gone kooky, vote for us for more gravy, growth will resume" and where will the lemmngs vote? just look at tthe last election result for that.
regards
So productive sector is say providing hotels for tourists but providing a home for a family is not productive?
Once the government has succeeded in driving most of the small time landlords from the sector (who are holding rents artificially low as they are amateurs and not business people) all that will be left will be the large commercial operators who are business driven and they will be demanding a realistic rate of return on their capital.
Hotels, no not really...the entire industry employes the low skilled and low paid so by encouraging it we lower our Natioanl productivity its crazy.......Not only is it not really productive with rising jet fuel costs its un-sustainable, tourism is a sunset industry as is Air NZ. I see nothing wrong with being a landlord were there is tax paid on the profit of the business and when its not a cover for asset speculation.....but this isnt just PIs, farmers do the same thing.....buy a property, load up debt to avoid paying income tax and even claim healthacre and WFF and then cash out on retirement tax free......then there is share trading.....all tax free....while PAYE is hammered.....it has to change...
I think you are day dreaming if you think rents can rise....and I see little to suggest "small time landlords are holding rents down".....all I can say is, go for it.
regards
For lots of kiwis they remember their grandparents losing lots of money in the 'productive sector' in the 80's, then their parents losing lots of money in the 'productive sector' in the 2000's. Meanwhile their friends and relations whose ancestors invested in property have done really well.
The perception will be that it's still better to invest in property and pay CGT on capital gains than to invest in the 'productive sector' and lose your capital.
Hence result will be more expensive houses and no additional investment in the 'productive sector'
More expensive houses, no I dont agree, the limit of the bubble has been reached IMHO, its now downhill to 60%+ losses.....for those in it, enjoy.
The 80s etc was a ponzi scheme with ppl gambling on making a "killing" that wasnt deserved....I have no sympathy for fools who get burned.
eg I remember my grandparents telling me how bad the 1930s was....and my parents still do as they were kids then......it was pretty hard....and how much the value of housing dropped. The GD was a debt driven event as is this, but this time its way bigger....and there wont be the energy to pull out of it....
regards
My mother has gone down to ChCh to work and has a house in Auckland. She may be down there for 9 months to 3 years. Instead of leaving the house empty she has rented it out.
Does that mean she will have to pay CGT on the house now? Or try to figure out if she is better off leaving empty?
What if she comes back after 3 years and lives in it for another 15 years does she pay CGT on the whole time?
If not does that mean she has to get it valued before she leaves and when she returns?
If so does she then pays CGT after she sells 15yrs in the future money with seriously degraded purchasing power if the RBNZ mandate is for 2-3% inflation? Or does she have to find the money immediatly to pay for the tax?
Its a big section, what happens if she builds a smaller dwelling on the back, keeps it all as one title, and rents out the smaller house for 5yrs. Then shes getting old and needs looking after so asks me and my family to move into the big house and just pay expenses plus $100pw and moves from the bigger house (after renting it whilst in ChCh for 3 yrs and coming back and living in since) into the smaller house. Is the whole lot subject to CGT now?
This whole policy is purely ideological not logical.
p.s The senerio is true. (apart from the minor dwelling part)
Come on Steven you know I'm trying to make a point that a stupid selective tax like this will make things increasing and needlessly complex. As most laws based around ideology usually do. Shouldn't we be trying to make things less complex if we are wanting to be productive?
And by the way according to the 2IC at IRD there is a CGT. Its effectivness/ implimentation is another issue.
From the article above
"Shearer expressing a personal view that Labour’s unpopular capital gains tax proposals should be retained"
From that it's pretty reasonable to assume that it will be the same... tax investment property but not the "family home" BS they were spouting before the election. Is it not?
By the way that scenario I said in my first post was not made up.
The poster was pointing out the ucomplexity of defining what a 'family home' is. Can you have a boarder? can you have flatmates? can you have a homestay student?
The CGT is also proposed with no inflation adjustment. So if you buy a house for $100K and have it through 5 years of 3% inflation the house owes you $116k to break even/zero capital gain. You sell it for $110K you have lost $6k and then get a $3K CGT bill to for losing capital on top of it.
will not be getting my vote - i can pay a lot of GST on fruit and vegetables with the money proposed to be stripped from me as a home owner - never mind the fact I can grow my own veges just like anyone else with the patience - oh by the way, that's also how you grow property - with patience..... A new tax on property would be like a wild goat let loose in the prized vege patch - destroying all the hard work and putting pressure on other available properties/vegetables... just so it can push a pebble through the other end...
NZMEA - Removing tax harbours the right move
David Shearer’s announcement that Labour will keep their commitment to remove tax harbours around capital gains, and seek to support the real economy is part of what is needed to balance our economy and reduce our current account deficit say the New Zealand Manufacturers and Exporters Association (NZMEA). Shearer made the comments during a speech this morning.
NZMEA Chief Executive John Walley says, “The proposed removal of the capital gains tax harbour is one indication that political thinking is shifting in New Zealand. A better balanced tax system is one component of moving investment incentives towards productive activity and away from unproductive assets, which is a change New Zealand urgently needs.”
“It is important that a commitment to reform monetary policy is also part of this package.”
“Like it or not, local real estate and domestic activity will not close the current account deficit; New Zealand needs to earn more.”
“The details around Labour’s plans still need some serious and detailed work, but there does seem to be some political will to create a more productive economy and that has to be supported.”
http://www.realeconomy.co.nz/263-removing_tax_harbours_the_righ.aspx
Have great day,
Les.
If David Shearer does get to introduce NZ Labour's beloved CGT , the accountants and tax-advisers of the country will erect a statue in bronze of the man ........
...... it'll look pretty next to the bronze casting of Michael Cullen , courtesy of the Kiwi-Saver Fund Mis-Management industry ....
why do Labour have such BORING leaders ? - I mean Clark was severe and dull , Goff robotic iand now Shearers trying hard, but clearly struggling . Basically Labour is dead but wont lie down - and Greens and Winni FirstandLast parties are going to be the effective opposition until Shearer comes off the trainer wheels
Hehehe. Yes. Clayton's lectures. Given by the esteemed Prof. Clayton himself.
Of course my view is that lectures are like anything else in life. You get what you pay for. So how much did you pay for your lecture, PDK, that was open to the public and held at night? A test coming up on that to make sure you understood it correctly?
Ah the old if he believes its bad why does he do it routine...aka "Al Gore flies how could he, if he believes in AGW he should live in a cave". or "He invests in renewable companies...so he's pork barreller like the rest of us"....brigade.....or the twist the words oor sceenario into what it isnt in order to shoot it down, straw man type mentality kind of worn thin....see through in fact.
If your ships, energy propulsion system is renewable and wind is, efficiency is not of primary concern.....you just use bigger sails or go a bit slower......no biggee and guess what, no CO2....
I dont see him complaining on "urban plots", what he does comment on is the un-sustainable nature of the expansion over good land with un-sustainable housing the dinosaurs such a hughee rant on about. He sees and understands that such has gone past its sell by date....
And as he says, you are shooting he who reports whats highly likely to happen if you do nothing, not he who wishes it to happen....he does not, as I do not...
Ive got past being amazed at how stupid some are in here.....congrats you made the list.
regards
Where's the incentive to invest in the 'productive sector' here? Why would I stop investing in real estate and invest in the productive sector if my investment in the productive sector is also subject to the exact same CGT? How would that encourage me to invest in ‘productive assets’? Makes no sense.
So the purpose of a CGT trumpeted by Shearer, Hickey et al., to bring about a change in investor behaviour, and a rebalancing of the economy, is pure delusional bullsh&t.
Imagine - to,,,scheme, or devise,,,,to suppose....to fancy...
Interesting you would instinctively choose that word, perhaps you would have had a more successful career-path if you paid more attention to linguistics.
Me, I prefer 'to know', rather than 'to imagine'. I get there via learning.
You see that's just another example of your flawed grandiose thinking and inability to apply logic to it. You can't 'know' what you will score on a test until you have sat it and it has been marked.
Only a grandiose fool would claim to know something, that is not possible to know!
The latest political poll shows National still has a commanding lead over Labour.
The Roy Morgan poll shows National's up three points on three weeks ago, now sitting on 48.5 percent.
Labour has lost 1.5 percent, down to 30.
It means if an election was held today, National would continue to govern.
It's no surprise gonz...Shearer is trying to move to National's middle position but the past madness and failures of Labour are a stone round his neck.
9 wasted years.
It will require some utterly brainless policy moves from the Nats to see them booted out...just what they are capable of.
Meanwhile this govt continues with the usual scam behaviour that Clark was up to...appointing mates to feed on the taxpayer dosh.
Over three years so far and finally we start to see the Nats take an axe to the bloated state sector...yes hundreds of make work positions will go...the fatcat bosses will come out smelling of roses...the cuts are the only action possible to slash the splurge...and taking a razor to the fools who set the higher state salaries mps pay etc, should be next on Key's list for prompt action.
Smith promising to do the same throughout local govt...is it too little too late once again?...probably.
Meanwhile the demand for new builds continues to die along with the materials suppliers in the regions...the GST smash in the face was the final straw....No wonder people are off to aus.
Smith has ranted about councils making building too costly...and he said nothing about GST...go figure. The average box of shite has $45ooo slapped on top in tax.
Wolly, I have resource consent for two sections on my property about 1 acre in size. I have just done the costing to see what the total would be. I will use $170,000 per section as a price guide as in this market it is the best I can hope for. Both sections have been planted out with lots of trees and they look great.
Resource consent 60,000
State highway Roading 60,000
GST 51,000
Council Contributionn 28,000
Estate agent fees 12,000
Lawyers fees 2,000
-----------
Total costs 213,000
Tax @ 19% on profit 24,000
Profit 103,000
Just enough to make up the value lost on existing property. Who said land was expensive???
And good luck to you keriwin...must be semi rural at those prices...it's not the selling that's important...it's what you do with the loot...shameful that so many fingers are in your pocket...I wouldn't sell unless I needed the loot...The RC cost is just theft by a fancy name as is the council grab....We would all be better off if we refused to subdivide and told the lot of them to take a hike.
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