By David Hargreaves
So, has this Capital Gains Tax business all been a bit of extraordinarily naive ideology on the part of the Coalition Government, or has it, in the immortal words of Edmund Blackadder been "a plan so cunning you could put a tail on it and call it a weasel"?
I'm inclined to think it's the former. These days my answer to the old question of "cock-up or conspiracy?" tends to be "cock-up". The reality is humans are seldom as clever as we like to think we are and the level of intelligence needed to devise master plans beloved of conspiracy theorists is usually outside the confines of the grey matter residing in most of us.
Be that as it may, if the Government is soon - as National leader Simon Bridges thinks - about to deliver a much-watered down proposal to that submitted by the Tax Working Group, then I think this whole thing could work out rather well for the Government. And the opposite might be said for National.
Oh, yes, National will have a short-term crow about back-downs and, hey, Labour's still going to tax us more, and this will "still be bad for New Zealanders" but the reality is that by closing the door on a comprehensive CGT, the Government will swiftly pull the rug out from under National's election strategy.
Since the final TWG report was released in February National has conducted an unrelenting bombardment of media releases on how CGT will ruin our lives. There appears to have been a deliberate and orchestrated strategy to put out at least one doom-laden CGT release every day.
I have been reminded of a cartoon I saw many a long year ago by the great British cartoonist Giles, showing a man in a room surrounded by protest banners calling for the ousting of US President Lyndon Johnson (yes, that long ago). The man is just putting the finishing touches to another sign and we see someone holding a newspaper headline in front of him saying that Johnson will not stand for re-election.
And the man says, surveying his multitude of signs, his glorious work: "Damn!"
Yes, National will claim a kind of victory and say that its strenuous efforts helped derail a full CGT. And they might be right. But it's going to be a Pyrrhic victory. Because now National might have to stop telling us all what they WON'T do and what they will UNDO and tell us what they actually might DO as a Government.
And that's where a Government already buoyed by the extraordinarily adroit handling by Prime Minister Jacinda Ardern of the aftermath of the Christchurch terror attacks could benefit.
If indeed we are just looking at an extended property tax then there will be relief on the part of many of the public. And they won't care a damn that this is some sort of backdown or whatever. Let's not kid ourselves, the vast majority of people will not have a firm handle on what the working group actually proposed - not the nitty gritty. They will have heard some things that say it's "bad" and that will be it.
So, slap the property investors around a bit and a lot of people who are not property investors will be pretty happy.
Inevitably the questions will be: "What was it for?" And "what did it achieve?" in terms of the working group.
Well, if we assume this wasn't some dastardly scheme by particularly Labour to get the National Party to run into a cul-de-sac (though I believe that will be the outcome) we have to presume that Labour did want to know once and for all if it could get a full-blown CGT to fly in this country.
I think the answer is unquestionably "no". I think the outcome of this process, the heavily orchestrated anti-brigade response (and I'm not just talking about politicians, I'm talking about the business community et al), has shown that any comprehensive CGT is electoral suicide. Labour must surely have thought as such. But maybe they just needed to KNOW. Well, now they do. So, they won't.
I'll leave whether that's a good thing or not for another day. What we have had with the working group is effectively a referendum on Capital Gains Tax. "Do we want one people?" No. Apparently we don't.
I guess one open question is the extent to which the taxpayer has effectively funded a public canvassing of a Labour Party policy (a CGT). In that respect the whole thing maybe starts to look less naive and more cunning.
But as I say, I think in reality Labour probably really wanted to push the button on a full CGT and is now faced with the fact that it just can't.
For Labour though there is no harm done. In fact, by "listening to the people" it can claim to have been prudent.
National would have been better to keep its powder dry. Wait for Labour to put its head into the lion's mouth and then jump - probably closer to the election.
By going for a greatly reduced implementation of new taxes, Labour will shift the ground of the next election, I think. National dearly wants the election to be all about taxes. It might not be.
People might well think that the Tax Working Group has ultimately been a waste of time and money.
I don't think it has to the extent that it has put these issues on the table.
The unfortunate fact is though that as a country we obviously don't want to deal with the broader issues of taxation and taxing wealth. That is a little depressing.
But I'm not sure how we would change that.
39 Comments
Here is another "cock-up" scenario David might not have considered. Labour goes for a full on CGT. Labour has campigned on a CGT for a while now and the infamous "captain's call" and back-down is still fresh in my memory. There is a good possibility that Labour will think they can spend some of that goodwill from Christchuch on what they deep down in their bones want. But let's see.
Well, National are doomed anyway until they ditch the smarmy know it alls currently at the top of the heap. National are just so behind the times. They need someone who is more chatty, more smiley, and more capable of maximum empathy projection. Worked for Labour, and it it only took a few weeks. No policy or prior experience required.
In effect, yes, I suppose. John was brilliant in many ways, and Bill English was a first rate General Manager. Put another way, John was the Sales Director and Bill the Factory Manager. Their failure was housing and immigration, where they just went along with decades old established policy, and dug a deeper pit. Apart from that they were an unusually competent team.
Events have a habit of constraining politicians' reforming zeal. The Nats did have the GFC and the Christchurch and Kaikoura earthquakes to keep them busy. Having said that, nine years is probably long enough for any party to stay in power. Yes, it gives stability, which is nice to have, but stability breeds complacency, and I think complacency is National's great weakness.
Yep, no doubt the coalition backing down on a CGT will take a fair bit of wind out of the nats sails but the clock is ticking on the coalition's 'year of delivery'. Memories of Ardern's 'extraordinarily adroit' CHCH performance will fade as the year winds on and little policy of substance materialises or when things go pear shaped. As they will. Remember CHCH mayor Bob Parker - hero to zero almost overnight. Our dear leader is yet to face a real crisis that can't be overcome by clever soundbites, competence in TV presentations and a pleasant interpersonal style. When Peters judges the time right to assert his own brand or her adoring media fall out of love and begin properly holding her to account on the multiple ministerial failures on her watch, she'll need more than a telegenic profile.
Yes that is the rub. If WP does not stand, or if it is obvious to the electorate that he could and/or would not see out the term if he did, then NZF will not feature. The electorate then has to decide if a Labour/Green outfit all on its own is palatable. The Greens, I think, have been clever to play this as an end game, by keeping their powder dry, a reasonably low profile. Without any sort of “handbrake” that government in my opinion will be disastrous for NZ and I will not vote for it. The dilemma of course is the alternative. How does a sorry looking National lot with a limp leader get up and win an MMP on its own. Even Key at his popular best couldn’t do that. Next election is going to be a very strange affair.
CGT will NOT lower house prices.
CGT will NOT suddenly make other investment opportunities more appealing than investing in properties.
CGT will NOT create extra stable tax incomes.
CGT will ADD additional tax burdens.
CGT will ADD confusions.
CGT will ADD uncertainties.
CGT will ADD more wealth transfer from productive part of society to unproductive parts.
Agreed on all points.
Having a CGT and not applying it to the family home would probably be the worst possible decision, as it would increase the relative attractiveness of investing in the family home, relative to all other classes of investment.
The other objection to a CGT is that is would visit a plague of tax lawyers and accountants on the nation.
The funny thing about parasites is they always find a way to feed off their hosts. So it might not be through bigger gains, but maybe through more frequent rent increases. People also often forget that parasites sometimes have a symbiotic relationship with their hosts too, although the ways in which we rely on property investment to prop up our inadequate state housing stock doesn't usually fit on a billboard, nor does it sound as good through a megaphone when all you've got is slogans to shout.
Agreed. Just need to remove the loopholes and exceptions. Why should fine art, jewelry, and other high end investments be excepted? Why should the family home be excepted? There are serious issues in regards to a CGT and family farms and businesses when passing from one generation to another. Maybe use a "step-up" value if transferred upon death, similar to US law with a limit value where there is a CGT for transfers in excess of the limit value.
Because now National might have to stop telling us all what they WON'T do and what they will UNDO and tell us what they actually might DO as a Government.
It was an odd thing about National's campaign in the last election that even though the incumbent they spent more time campaigning against Labour policies, as opposed to campaigning for their own policies. I think that was because their own policies were little distinguished from the status quo.
NZers I speak to do seem keen for a brand of transformational change - and this coalition govt are delivering some real structural changes.
I am hoping it is an election fought on defending one's own policies, as opposed to scaremongering about 'the other guys'.
I would also hope that the next election is about one's own policies as opposed to scaremongering about "the other guys'. There is a reason why the prior leader had such low ratings. Andrew Little, as leader of the opposition, devoted a large amount of his energy doing just this scaremongering. It was a masterstroke to cast aside the negative baggage associated with him just prior to the election. In a very short time, Labour went from scaremongering to relentlessly positive, at least for a short while. Maybe someday politics will take the high road in general as opposed to the low road. Sadly, there are certainly lots of "low roads" that both parties have taken, and continue to take when there is the least opportunity.
As for transformational changes, that would be nice to see.
Speaking of cock-ups, if the government spends 1 billion dollars on a gun register (because that's what the Canadians spent) and another 1 billion dollars buying back guns to destroy them then I will be a very unhappy camper. It occurred to me that the government should encourage people to sell their automatic rifles overseas. A sticks and carrots with X $ cost per year to register, and X $ rebate for a tax tree overseas sale. That would reduce the current account deficit, reduce the wastage of government money, and could even foster a valuable weapons exporting industry. What did the government do? literally the opposite. They banned people from selling their guns overseas.
https://www.newshub.co.nz/home/politics/2019/04/government-closes-poten…
Speaking as a gun owner I am sure there are lots of plain stupid schemes to hide the dangerous guns. But plan and simple it's now illegal. The world has changed - so adapt. If the stupid choose the illegal option, I sincerely hope they are led away in cuffs to the cells.
A good friend of mine has several machine guns, along with dozens of rifles, bayonets, and even a grenade launcher. He’s not a criminal, he’s a military historian, who speaks five different languages and has a PhD. I think he’s spent well over 100K on his collection, and I know he feels pretty vilified at the moment. I understand his frustration, but I don’t personally care too much about guns. I do care about the government passing hasty ill-conceived legislation, and wasting up to two billion dollars on a likely futile effort that will not increase productivity or generate zero overseas revenue.
If some offshore F'tard hadn't sold military styled weapons to some kiwis we wouldn't have this problem would we.
If we encourage the export of the same murderous weapons we instantly become the F'tards ourselves.
Your comments are usually okay but this is riddled with bullet holes.
Unfortunately humans do kill humans....
If we could encourage that less it would be helpful - especially if it's not just confined to our own backyard
Just remember these guns are specifically designed for warfare....ie killing humans.
If you need a boltgun for your bobbycalves so be it.... as a machinegun is not required.
President of Property
The coalition will campaign on a much reduced capital gains tax, and probably on property investment but at a reduced amount of say 20%.
It will not work at all, as it will only apply to future capital gains which will work out fine for seasoned investors.
Personally I will start to trade, by buying undervalue and and selling for a profit!
If the CGT is not applied to shares etc. how is that FAIR, and yet this coalition is all about being FAIR!
They wouldn’t have a clue about being fair!!
What is stopping you from trading now? How would a CGT encourage you to change your tactics to target CGs?
The argument for taxing property more strongly than shares is the Government did not come to power arguing that company prices need to be brought down. A strong capital market makes the country more productive and helps businesses grow. An expensive property market makes us less competitive and increases the cost of living. Everyone needs a house to live in, but the masses are not agitating because Spark shares are too expensive.
"The unfortunate fact is though that as a country we obviously don't want to deal with the broader issues of taxation and taxing wealth."
I actually think that is an incorrect statement.
The people I speak to at work very much want to deal with it, and they are unimpressed by the current governments "effort" of trying to tax us a second time. Remember we created this from income that was already taxed once. This is going to win or loose an election, and yes the PM is popular, but that does not mean when the time comes to vote CGT will be forgotten.
Have mentioned before that Labour will go for CGT in Housing to curb speculators for sure (Most who are in favour of CGT will be happy) and will not touch farms (Winston will be free) and small business.
This way labour wil keep its promise of CGT on housing and also Winston will be happy.
Another thing that labour could have done is that too have CGT not linked to Income tax but 20% or something or could have long term CGT (20% After 2 or 5 years) and Short Term CGT (say 30% within 2 or 5 years). Also CGT should include inflation and cost associated to that asset as set off.
Better to have Low CGT than 33% or 40% - balance to be maintained and everyone will be happy - well almost as cannot please all the people all the time.
And to reduce / change Income tax slabs as that will benefit all and go into next election with their agenda of Fair Tax system.
"By going for a greatly reduced implementation of new taxes, Labour will shift the ground of the next election, I think."
Which will open Labour up to attack from the Greens, who will attack to get above 5%. If Labour decide to ignore the recommendations of the expert TWG panel and water it down, they open themselves up to attacks from both sides. National will be anti-Tax and Greens will be pro-Tax, Labour will be left trying to defend a muddle.
The CGT wouldn’t have been necessary if the housing market hadn’t become so distorted under the previous government. I can really see the mansion effect, or a flight to quality, playing out. Avoiding tax is a powerful motivator, and I’m already planning pivoting to home ownership. An increase in home ownership probably isn’t a bad thing for the country though.
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