By Alex Tarrant
Labour Party leader Jacinda Ardern is not ruling out introducing a capital gains tax (CGT) on rental/investment properties or second homes next term, saying Labour will listen to what their planned tax working group says on the issue sometime before 2020. Labour will not take a CGT to the electorate this time around though, she said.
Ardern said any CGT imposed by Labour would not apply to the “family home,” regardless of what the working group recommends, effectively carrying on Labour’s pre-Andrew Little stance that just under two-thirds of property would not be potentially subject to a capital gains tax.
This is despite Labour saying it wants the tax review to report on how all income, assets and wealth could be taxed more fairly. In defending the stance, Ardern said on Tuesday that exemption of the family home represented a set of “values and things that [Labour] holds important and dear.”
A recent study by economist Andrew Coleman would indicate that not imposing a CGT on the family home would continue to encourage home-owners to invest in lifting the value of their property by renovating for value uplift and building larger homes, rather than potentially putting that money into other savings schemes that currently face greater tax hits than property.
Coleman’s study also focussed on how changes to New Zealand’s tax system in 1989 had likely contributed to the average size of New Zealand houses growing faster than in the US and Australia since 1989. The average size of a new build had jumped from 110sqm in 1974 to about 200sqm today.
Ardern even said Tuesday that not enough new houses were being built around the 100 square-metre mark; that new builds were still closer to 200sqm and that this was to the detriment of first home buyers.
CGT uncertainty and transparency
Tuesday’s capital gains tax talk was kicked off by Prime Minister Bill English, who said Labour’s refusal to rule one out next term would lead to uncertainty in a housing market that had entered “correction” territory in the lead up to the general election.
“They are trying to stop themselves saying they want to do a capital gains tax, and are talking about putting up income tax. Those things would have an effect on the housing market,” English said on his way into National’s weekly caucus meeting.
Ardern, speaking to media after English on her way to Labour’s caucus meeting, said the party had in fact given a large amount of clarity and transparency on the issue. “We’ve made it very clear we’re not campaigning on a capital gains tax,” she said.
“And we do not believe in a capital gains tax or anything similar, applying to a family home. But at the same time, we’ve also acknowledged that we don’t think there’s fairness in our taxation system.”
Labour had proposed a tax system review which it will hold if in government after this election. Ardern said she would not pre-empt what that review might find, in the same way that the 2010 Tax Working Group recommendations were not pre-empted.
“I am maintaining our right and ability to act on its findings and do the right thing when we’re in government. We’re yet to know what that will be though,” she said.
“I’ve been very, very transparent on this. We do not think that assets are treated fairly, relative to other forms of taxation in New Zealand. The fact that someone can go out and work a 40-hour week and pay tax on that, [while] someone can own multiple homes, flick them off for capital gain and is often not treated in that same fair manner, is something that needs to be addressed.”
“Most countries have. New Zealand sits on its own in that regard,” she said.
Given that she said Labour would not pre-empt the working group’s recommendations, I asked Ardern how that fit with her comment earlier that a CGT under Labour would not apply to the family home. What if the working group proposed a blanket CGT – including on the family home?
“We’ve set out some expectations,” she said. “Any government would say what were particular values and things that it holds important and dear. So it’s good that we be clear with that Group before we go in what our expectations are.”
261 Comments
We shared comment a couple of weeks ago, predicting that an incoming Labour Government would be under a compulsion to tax grab. Since then, petrol, water & CGT. Tax is just so easy, no need to think about anything else like stimulating productivity and reducing inefficiencies and wastage, mostly to do with government and their agencies. Given half a chance Labour will tax the country to a standstill. Remember how Clark &Cullen for example wiped out the compensation for GST built in by the previous Lange Government.
Boatman,
Once again,I think you are talking nonsense when you say;"your lifelong work and savings will be dead and stuffed". Have you ever lived in a country with a CGT? I not only spent most of my life in the UK,but part of my work involved giving advice on CGT,as well as Capital Transfer Tax(death duties) and other forms of tax.
I knew of nobody who had their finances ruined by CGT,including myself. However, it seems very unlikely that we will see NZ's existing CGT extended beyond its current limit anytime soon. It would only be a partial answer to the problem anyway-not a silver bullet.
Yes I have worked in a country where it was introduced , in the 1980's I took up a post with Standard Chartered Bank in the newly independent Zimbabwe .
The Marxist -leaning Government of Robert Mugabe sought to destroy the country's capital base and within a few years was bailed out by the IMF .
What they failed to recognize was that keeping Capital in individuals hands was good for the economy ( they tend to look after it and invest it carefully and wisely ) was better than squandering it on all sorts of Socialist rubbish .
Usual slippery slope reds-under-the-bed talk. No one ever seems to bring up European and Scandanavian examples of left-leaning policies, funnily enough...
Or only about as often as their "my own two feet" talk leads them to start talking about how the pension is an example of welfare that should be given only to those in need.
A CGT on property would raise little tax (unlike say the stamp duty raised in France). Note you have to actually make a profit first.
Sadly electoral suicide but solid sense and of course the family home should be included (they could include a safety net if they want - say no tax on the family home if sold for under a million). TOP seem to be the only party with an honest policy - all others are scared of frightening their potential electors most of whom have widely inflated ideas as to what their property is worth.
It's may start off excluding the family home.But once these new taxes come in, they can erode, and then a future government decides to 'extend' it to the family home. Many new taxes and rules have done thing. Just look at GST, Kiwisaver rules etc, they have all been changed for the worse. New taxes are a slippery slope. A bright line test IMO creates less of a problem.
We paid CGT on a recent sale - no big deal really, it just lowered the amount of capital gain we actually banked. I don't really understand the resistance and can only put it down to greed, as the thing is, one never pays unless there is a gain, and the amount of the tax never exceeds the amount of the gain.
Why the resistance?
"I paid tax not on a notional gain" - how did you NOT paid the tax on the inflation component ? ( I am sure you did ..).
Your point seems to be that for your particular holding period the "real" gain component happened to be much greater; this will not be always be the case . In a higher inflation environment CGT is ruinous and creates incentives to never sell ( and the distortions that come with it).
It is a tax on moving house . Example : I live and own a house in Auckland ; I receive a better job offer in Wellington ; I would like to sell my house in Auckland and buy a place of the same value in Wellington - but there is a large CGT tax bill attached to that ; I end up not taking the job.
Except just about every economist (and tax specialist ) argues that excluding the family home creates enough distortions and avoidance avenues to make this proposed CGT regime meaningless. It is hard to believe that once introduced the exemption would be retained.
Leaving the question of family home aside for a moment - do you think owners of other assets ( including investment housing ) should be taxed on the inflation component of any gains ? ( you never addressed that point.).
Never really thought about it, but the point being - as your wages increase (whether through inflation or otherwise) you are taxed on those increases. Similarly, as the price of goods increase with inflation, so too does the amount paid in GST. So my initial thought would be - why should income from property be treated any differently where the inflation factor is concerned?
"Never really thought about it" - it shows.
The bit about GST is just plain nonsense - GST is charged at a flat rate , so inflation has no impact on the real value of the tax collected.
Real value of Income tax ( including that on wages ) is only increased slightly by inflation ( IF bracket creep is not addressed - and it usually is eventually). The inflation component of interest received is one exception ( deeply unfair in my view ).
CGT is completely different in that respect .
Has it crossed your mind to think/read up about this sort of thing before advocating CGT so vociferously ?
You are missing extremely simple arithmetics here.
The same real amount of GST is collected if inflation runs at 0% or 10% a year.
On the other hand if an asset sale subject to CGT , on an asset that had its real value neither grow or fall over the holding period of 1year the amount of CGT due is 0 in a 0% inflation environment and 10%*(CGT rate) iunder 10% inflation.
If you are comparing like-for-like then the marginal increase in price for both GST and CGT is charged at a rate. If a good doubles in price then the change in price is subject to to GST at 15%. CGT is nicer in that you get to deduct the original selling price and only pay tax on the marginal amount.
Sure those professionals do point that out with respect to the family home, but their arguments are based on the efficiency of the tax and the fact that so many taxpayers attempt to structure their affairs so as to avoid the tax.
Hence, it is easier/more efficient to tax all property gains. But then you have equity considerations, particularly where a family home must be sold for other reasons (job transfer, owner unable to use stairs anymore, division of marital assets etc.).
Which is why I assume many jurisdictions exempt the family home.
In the UK you can claim the cost of significant property improvements against the capital gains. Fully agree inheritance tax is a winner - I would much prefer to be taxed after I'm dead rather than when I'm alive, and I struggle to understand why it's so unpopular.
I think the riches you may be referring to are those that go way beyond "working hard", if that were all it took, caregivers and resthome workers would be among the most wealthy in the country, but the exact reverse is the case. What it takes is guile and not minding about stepping on the toes of others in order to get what you want.
Well, here we were talking about inheritance tax. Inequality because someone works harder is one thing, inequality because your grandfather worked hard is quite another. Each generation should stand on its own merits - wealthy children get quite enough of a leg up from a better education and the influence of their parents, there's no need for financial props as well.
I agree with this.
If you have a business, you pay employees who pay tax and buy goods. You provide jobs.
The business buys from suppliers, so you pay GST, keep suppliers business running, who employ people who pay tax. Supplier pays tax, etc.
Business pays tax on profit, and if you draw a wage you pay tax on your wage.
Think outside the box to get added income, invest in businesses. Dont just sit there and do nothing.
To start the business you get absolutely no help from anyone, you mortgage your house, go without for years and years. So when you actually get somewhere, every man and there dog wants something from the business and you.
Then to top it off you get taxed again when you die. I get that Im dead, but its my money and I want to distribute it as I see fit.
If people want more money from my business, then join in the risk from the start, provide me with cheap capital, labour, networks, mentors etc. Take an equity stake, then get paid dividends. Get bought out eventually if you want a lump sum. But dont sit there do nothing and then go yee hah hes successful and take my cash.
Kate , its an insidious form of tax . If you assume my home was an investment property , then the gain on sale would be around $1,5 million at the current Auckland Council rateable value .
This gain would be added to my annual salary taking it to around $1,64 million for the year , which would push me into the highest tax bracket , and frankly it would destroy a huge chunk of what we have scrimped and saved our entire lives for .
And Labour would simply hand this windfall to the 'poor' and 'unemployed' who cannot live comfortably on welfare , and who would squander this largesse like drunken sailors on shore leave .
Some good news to reassure you -
"CGT is a resentment tax , it has more emotion attached to it than real value for the Fiscus , its difficult to collect and even easier to avoid"
According to a chap called Boatman, it's very easy to avoid CGT.
Why is your home an investment property and not your main residential home which would be exempt? Tax dodge, perhaps? Would be a terrible shame for something like that to come back and bite you.
Its dead easy to legally avoid ever paying the CGT , simply DONT SELL THE ASSET , because only a sale crystalizes the gain .
Instead you gear the asset to the hilt , and buy more income generating assets in the same entity , or draw down the gain each year as a dividend , so when you die there is nothing left to tax .
Easy as .
@ Kate , re-read my post ........... I said "assume " that my home was an investment property for the purposes of illustration , thats because I dont have any residential investment properties .
I fully understand that my home is NOT an investment property , I was just using it as an example to illustrate my point
People born at the right time to get cheap access to housing, who have then seen a massive untaxed increase in their capital wealth, will naturally be attracted to the idea of other people paying tax on their incoming wealth but they themselves not being taxed on their incoming wealth.
Human behaviour.
Only to some extent Rick. People who own just their own home have to live somewhere, and they buy and sell in the same market all their lives so although paper wealth increases, only to the extent that gain is realised (reverse mortgage for example) is there any material benefit.
Houses have always been a difficult purchase, of course. No denying people have worked hard.
In fact, even looking at the policy statements of earlier governments who helped to foster the supply of smaller, more affordable homes tells you that. They were focused on making sure average Kiwis who worked hard could manage to own their own home by making average Kiwi wages.
Income tax is an insidious form of tax that attempts to destroy talent by disincentivising productive hard work by prudent people, spending it on welfare to entitled people who don't want to pay tax themselves.
If tax is balanced between land (for example - don't get distracted) and income, there's nothing to stop you working hard to make a good income.
You've got to be kidding. Perhaps Rick, entitlement is best expressed by the uneducated 1950s, 60s and 70s high school dropout cohort, who now own multiple properties and are afforded multiple income streams, in addition to non means tested superannuation, by simplisitcally being in the right place at the right time. Not talent, not hard work, still uneducated.
There's no question that the envy argument can be made against any tax. There's also no question that NZ has a history of public involvement in housing to foster affordable homes for Kiwis - up till the late part of the 20th century. Getting in at that time certainly provided folk quite the different opportunity to that accruing to young Kiwis now.
There's no question - absolutely - that people worked hard. Government policy statements recognised that too, aiming to achieve affordable housing for the average hard working Kiwi. Since they've stopped those efforts now...the maths has certainly changed quite a bit.
Not to mention companies training them for their jobs, not requiring them to have an expensive university degree even to have their CV considered. That cost is now being born more by the young, and companies are underinvesting in training compared to previous times.
Really, there's no reason tax shouldn't be a little more equitable toward the means by which wealth is earned / accumulated. There's little sense to giving one mechanism an easy, free ride while lumping the burden disproportionately on another.
Why should we have an envy tax in PAYE? Anyone has the opportunity to get out there and work hard to earn a wage or salary.
@r-mc I am neither privileged nor entitled , in terms of my upbringing my father worked in a warehouse , my Mum worked for a doctor as a receptionist and then stayed at home to bring us up , we lived in a pokey hose
I received a state education as did the rest of my family , and its the only thing that gave me a leg up .
I did not own a car until I was well into my 20's , and use a bike and the bus .
No one is "entitled" to own a house, it takes sacrifice and discipline and careful planning of money .
Unfortunately . today we have a culture of expectation among young folk who think home ownership is as easy as buying a mobile phone , big screen TV , an Island holiday , or a latte .
Its not , and it never has been
I'm sorry you had to live in a hose. That must've been terribly uncomfortable. I bet you're tall and thin.
Kidding aside, if you really believe that today we have a culture of expectation among young folk who think home ownership is easy, I can understand your perspective based on that.
From what I've seen of the young today, it's not true. Hence my quite different perspective.
The plain fact is they're saving harder than previous generations and they face worse maths, without the same government support for affordable housing that existed for previous generations - and with a greater cost accrued before that, just to get into a job.
Some resources:
https://www.greaterauckland.org.nz/2017/03/07/no-boomers-its-not-like-i…
http://bwb.co.nz/books/home-truths
You miss the point , my eldest thinks you just go to ANZ and get a mortgage , and its just like getting Finance at the Warehouse for the latest i-phone .
The shock comes when they realize you need a deposit , which requires discipline, planning and saving , which lets face it is very hard for most people
How about we "assume" that instead of you putting your savings into an investment property, you put them to work in the real economy. You and the hundreds of thousands of other property investors. Those funds would help to grow NZ business and the economy and provide a much better outcome from NZ as a whole.
We can't all get wealthy selling houses to each other.
Yes, that speaks to the very nature of wealth. Is the wealth the house that exists and provides benefit of shelter, or the paper value of that house according to a bank or marketplace?
By selling our houses to one another at every increasing "prices" what actual material wealth is being created?
You can't get wealthy either if you don't have good shelter. Houses are part of the productivity eco system, much like electricity to power a warehouse you need a house to rest the slaves. Not all businesses help much, e.g I don't see how hello kitty dolls or McDonald's really help New Zealanders but you'd have me believe they are more productive than a house...CGT is an envy tax and labour just lost this election, better luck next time
@ O4 normal , they dare not say it ............ but once the tax is in place its all too easy to extend it to all assets including the family home .
It gets "extended " to include the family home later under the guise of making the tax easier to administer , or when the Government has taxed and spent everyone else's money and is broke .
Just like Zimbabwe and Venezuela
Dear Sir, before you go into it you need to understand how the CGT works. The capital gain never ever adds to annual salary. A flat rate is applied on capital gain , capital gain means gain on capital which then before applying tax is adjusted to net gain by discounting the inflation factor for each ear the property has been held. It is not s straight tax and there is no fear for long term investors or home owners. This is one way of curbing speculation and it is applied in many countries. It is fair go and should be applied. I fail to understand why so mush fuss about CGT . It seems we are getting into habit of criticizing the policies without knowing the impact. It is good , good and good for every first home buyer who wan home to live.
Because owning a home is extremely expensive...
Rates, maintenance, bank interest... all things tax deductible in a business... you could conceivably be paying CG tax when you have in real terms made a loss... I've had friends buy houses that they paid large mortgages on and sold the house for less than what they paid for it... would have been substantially cheaper to rent... and in that situation do you get a tax credit?
Don't spray and walk away
You also have to say where and who is going to pay for the initial subdivision costs, and if you want roads and electricity and schools and hospitals and waters and how that will be paid for
I challenge you ... explain what you mean by release ... surely you don't mean draw some lines on a map
Supply side options are not a 'spray', they are the other side of supply & demand.
Restructure and deregulation of local government to *remove* made up lines on maps that distort land values, encourage land speculations, slow construction, drive up business costs and contribute to a housing affordability ration somewhere over 6x income.
At the risk of posting out the obvious, there is no need to build a hospital and school for every suburb. What is required is basic services; road, water, and electricity.
This isn't rocket science, people all over the western world have been successfully building affordable housing for decades.
Increasing supply is just as a valid solution to any demand/supply issue as any demand side solution.
Now that's avoidance
Question:- Where are you going to release these lands
The very first hurdle is if you rezone some rural land and a land owner has 50 hectares of subdividable land which has now increased in value, who is going to subdivide it and who is going to develop it with roads and phones and power and footpaths
Unless the original owners are extremely wealthy it wont be them.
They will have to sell it off to a developer
Right at the moment I have serious doubts there would be many developers queing up to buy and develop and carry the massive holding costs
I smile everytime I see claims that releasing land happens by magic
So, please explain how you achieve your increase in supply
Empty scoffing isn't really a structured *argument*, so I'll point out that if we believed your *insinuations* we might believe housing hardly ever got built in the past 80 years and affordability is a some kind of mirage that never existed or can't doesn't exist now.
If the problem is housing has become unaffordable then changing one demand factor -the favourable tax treatment for real estate buying/trading will never be the whole answer. Taxation on capital is only part of a bigger picture -there are lots of demand factors which affect the housing markets/cities and lots of supply factors.
National has gone defensive in its opposition to Labour -releasing "Let's Tax it" attack adds on social media against Labour and attempting to influence journalists and the public to only look at the little picture of taxation on housing or taxation on water. Not the big picture of completely fubar-ed housing markets and clean waterways, which National have presided over for the last 9 years.
You can see this work here on interest.co.nz. Where previously embarrassed cheerleaders for the housing market equity growth economic model are on the attack -with multiple comments. The consistent theme of the comments being a one-eyed myopic inability to look at the bigger picture.
Anyway, if readers want to look beyond one factor influencing the housing market, if they want to look at some big picture thinking. Check out my article here. It will explain what Kiwimm meant by Making Room principles and MUD financing (off Council balance sheet infrastructure financing).
https://medium.com/land-buildings-identity-and-values/successful-cities…
As promised Capital gains tax, no surprise for anyone I'm sure. Add to this removal of tax loss offset and the real possibility of no future capital gains due to reduced immigration, and ban on overseas ownership, again all as per policy and listings are sure to pick - great for agents. Suspect the IRD might need to keep those 1500 jobs to work through the fallout and correct taxation for speculators (I mean investors).
Here we go again ............ not just flip-flopping but spectacular somersaults and all sorts of gymnastic displays from Labour .
CGT is a resentment tax , it has more emotion attached to it than real value for the Fiscus , its difficult to collect and even easier to avoid .
The rabid lefties don't have the foggiest idea how it works , and assume its a wealth tax to be extracted from rich pricks every year .
They dont realize that it only takes effect when an asset is sold at a profit , and if you are immediately re-investing the proceeds , you are exempt from the tax ( in most countries )
The idiots in the chattering class think it wont affect them , until they are forced to sell their parents family home in a hurry after Nanna has passed on ........... to pay the CGT due from the Estate .
Can anyone give me an example in the history of mankind where a new tax has REDUCED the cost of anything?
Here we have the ludicrous suggestion that somehow a new and potentially onerous tax ( from which non-resident foreigners are exempt because we have a residence-based tax system ) is somehow miraculously going to bring house prices down .
Thats got to be the most skewed logic I have ever heard .
I gave you an answer to this question when you asked it yesterday:
It's generally accepted that a land tax would reduce the price of land by making it less attractive to hold. Slightly different to a CGT, but your often repeated claim that taxes cannot bring down prices has no basis in fact.
"No specific rate was proposed, but former Reserve Bank Chairman and Tax Working Group member Arthur Grimes put forward a paper in late 2009 that estimated a 1% land tax would raise NZ$4.6 billion and cause an almost overnight reduction of land values of 16.7%. That would have bought a substantial income tax reduction and avoided a GST increase."
http://www.interest.co.nz/opinion/81296/bernard-hickey-points-out-1-lan…
@mfd , firstly Capital Gains tax is NOT the same as a Property or Land tax , and secondly Arthur Grimes made all sorts of assumptions in his paper .
What he forgot to consider was that that increasing capital values encourages people to borrow more and stimulates consumption , which in turn stimulates growth .
That growth stimulates employment , and the rising tide raises all vessels .
Yes, I agree that house price rises can have benefits in terms of a wealth effect. I'd also argue that it's not sustainable for prices to rise faster than income over the long term without significant social and economic issues that will ultimately outweigh the benefits.
Something like doping in athletes - great for short term performance, but their long term health suffers as a result.
I agree Boatman, it is a resentment tax and the think tank is hoping to gather some extra cash, While ( as Jacinda said) to satisfy their envy and jealous supporters ....
every where CGT was introduced house prices have gone up ... IRD has rules in dealing with property investment and both negative gearing and CGT exemption for long term investment are there to encourage the private sector to provide rentals ...there is CGT for traders ( the 2 year brightline tax now reinforces that)
removing this exemption will simply result in a paralyzed investment rental selling and encourages investors to borrow against their houses and buy more ...Until the rules are thrown out
No it doesnt Rich .. residential investment properties are not ATM machines as most here think they are ! ... so investors have to live on some sort of other income and almost all work for wages or are retired ... the idea that investors can borrow money against the properties as they appreciate and spend that willy nilly is also false !!! ... that money mostly goes to maintenance or paying off other related obligations ... running investment properties is a business and has its ongoing costs - which are not necessarily ( almost never) covered by the rents they produce! - this is certainly the case in 99% of rentals and investment holders.
Investors make " Some" money out of rentals when they become free hold or when they sell them after long...! and that profit is actually like cashing your Kiwisaver fund money when you retire ( the result of your saving and compounded inflation)
All that's fine - if you're not receiving an untaxed increase in wealth then you wouldn't face tax on that wealth were the law to change anyway, would you? So, nothing to worry about.
All people are suggesting is taxing increases in wealth equitably, rather than exempting some...
And if you're no longer working for income but demand people who are pay lots of tax while your increases in wealth stay untaxed, that's surely an envious tax.
I have no issue with capital being taxed, as per TOP policy. In fact I think it's a great idea. Let's tax the actual wealthy, not the asset poor middle class.
But capital gains taxes with exclusions are just an horrendous idea for a whole bunch of reasons. I wish our politicians were capable of coming up with good policy, not populist nonsense that doesn't help the issues. Here's a few issues with the Labour policy for starters:
- One of the issues I see is too many people just pouring money into their family home and that's their whole retirement plan. None of that capital goes to support businesses or help grow the economy at all. We have too much money tied up in housing as a country. This policy doesn't address this issue. FAIL
- A lot of people move into a run down house, do it up and then move out a year or two later banking a massive capital gain, then rinse and repeat. Does Labour catch up with these speculators? Nope, it's the family home they are speculating on. FAIL
- When i get to retirement and need to sell my 5 properties I'll just spend the minimum time 'living' in each before flicking it off and that way not only avoid the tax but take a livable house our of circulation for a period of time. FAIL
- As soon as you get exclusions and special cases you get people spending time thinking about how to get around the rules, as I have above, in a legal way to minimize their tax paid. All of that time and energy is unproductive and ultimately doesn't help our country move forward at all. The complexity of our tax and benefit system is a massive drain on our economy and needs simplifying, not more complexity. MASSIVE FAIL.
The TOP policy of taxing capital is far superior to deal with these issues.
I don't think you can go so far as to say there is "no rational reason".
If one was trying to target speculation, and if one determined single home owners were not speculators one might rationally conclude that any CGT imposed for the purpose of targeting speculation should not include a single family home as it could do more damage than good.
"One of the issues I see is too many people just pouring money into their family home and that's their whole retirement plan. None of that capital goes to support businesses or help grow the economy at all."
So spending large sums of money on Architects, tradesmen, suppliers does nothing for the economy!!!!
How do you see an economy working then?
And Yes CGT is actually a TAX on inflation ... which is only paid by asset holders
we yet have 4 weeks to go, so at this rate Labour will milk every dollar gained in the last few years and will be gained in future to waste it on Driving instructors , mono rail inefficient project, floundering river cleaning issues, and god knows what else...!!
Labour's problem is that they are Soooo predictable !!
Regardless of your scare tactics, the detail is in the implementation. There are several ways to adjust for inflation - taper relief, reduced CGT rate vs Income tax rate and/or a CGT threshold, tax-free accounts with investment limits. All 4 have been used in the UK.
And remember ayone with a bank deposit is already paying tax on inflation.
" the detail is in the implementation" - quite right; which makes this vague , half-baked "policy" pronouncements from Labor particularly scary. They had all the time in the world to come up with a fully formed proposal ; what we get instead is populist on the hoof policy making . Bunch of Muppets.
I think the idea is right but your maths might be a bit aggressive.
Here's a calculator for what Australia call 'stamp duty', which is a tax on housing purchase:
http://stampduty.calculatorsaustralia.com.au
Here are the rates in the UK, where they call it a CGT:
https://www.gov.uk/government/publications/rates-and-allowances-capital…
You will see on both there are exceptions and calculations involved, so (like almost all taxes) a bit of complexity is involved.
two different things
here is the CGT for australia on investment properties:
https://www.yourmortgage.com.au/calculators/capital_gains_tax/
The average rental is worth rather less than the average owner occupied property - are you suggesting the average investor has a lesser house than the average owner occupier? I'd have thought investors tended to be at the upper end of the spectrum.
I have never known an investor that has built a new house to rent out, despite knowing many who rent out existing properties. I don't have time to look for data right now I'm afraid, but feel free to enlighten me.
Well now you know that a lot of new houses, subdivisions and new units are bought by investors to rent out ... your view about rental is a bit outdated.... Most of the suburb of Frankton in Hamilton is high intensification area where old houses sitting on 600-800 m2 are demolished and on goes 4 -6 or more 80-90 sq meter 2-3 bdrm units ..all new ..and all are rentals ( very few owners) .. this has been going on since 2005 I think ...
that solution is idea for Auckland - but ACC is smarter than that !!
Keith Hay homes has a line targeted at investors. Sentinel homes has an investor homes brand. Ashcroft homes knew exactly the type of dwellings that I was after when I said I wanted rental income. I think you'll find that a large number of investors build rental accomodation new. Minor dwellings and granny flats can be found all over Auckland.
I had exactly the same thought. Shuffle the beneficiaries of the trust.....no sale, no CGT, simple Rissolution of the Trustees.
But this line of thinking is precisely what a New Tax will set off - a search for the most resplendent Legal Eagle and the sharpest-clawed Accountant, to arrange affairs such that tax is minimised.
Not a great recipe for Productivity, as all of that activity is economic deadweight of the most egregious kind....
It isn't cheating. We are blatantly stating that this is an issue so that the government fixes it when they make their policy. If they don't bother then we know that what we have proposed is in the spirit of the law.
As they keep patching holes they will eventually realise that the only fair tax is a flat % tax with no exceptions that is applied at the same rate to people, trusts & companies.
There is a simple way never to pay CGT ever.
Just never sell.
No sale = no CGT tax.
Just keep accumulating, collecting rent and you will never ever be bothered by the IRD to pay any capital gain.
Even better by just buying and buying and buying some more, you will dry up the market, creating a shortage which will drive up prices even faster than ever.
Sound like the philosophy of Channel 10 shareholder in Oz! "Keep buying, regardless of the market!". Even those in the Top 1% found that The Market can inflict a wicked revenge from time to time. Buy and keep buying? Fine as long as ( for whatever reason) you don't HAVE to sell......
http://www.smh.com.au/business/cbd/more-digital-alchemy-from-mike-canno…
I own my own small slice of NZ. I have no problem with a capital gains Tax maybe then one day my kids will actually have a chance of owning their own home. Sounds like a load of boomer wingeing to me.
Saw Bill english on the news the other night trying to get some pictures with hordes of national supporters. Honestly looked real wet blanket party. Everyone i know is voting for Jacinda this time round.
The idea that the people that have the least may have some hope is fabulous and if i have to pay a little extra tax for that no problem at all. Hopefully families living in their cars and garages can have some hope back too.
Well , great to see determined supporters ....A little tax? hmmm, Not sure really, be prepared to be disappointed under Labour... they Dont, Have never, Will never be satisfied with Little tax, even the Last Little that they had was gone by lunchtime ...
Yes, it is all about the families who live in their cars ... but hey good on you and your mates ... go for what you believe is the best for all ....
https://touch.trademe.co.nz/property/listing/view/1193925032
This is about 40 mins from the edge of hamilton and would give a beneficiary a DTI of roughly 4 (solo, 2 if buying as a couple, 1.x if there are kids) with the entire deposit being covered by the first home buyer subsidy if a couple bought the place. The welcome home loan is government guaranteed so I don't see why any bank offering it wouldn't lend to a beneficiary.
The main problem with CGT is the time to collect the tax. If an investor is sitting on a property for years and using it to leverage into further properties, the gain could potentially not be realised for 50 years when the properties are eventually sold. It is quite clear that the investor is getting richer as prices rise but (unfairly) no tax is generated.
The TOP proposal of taxing the gain annually is fiscally much better as it provides cashflow linked to asset performance. It also has the bonus of operating as a yearly incentive for owners of capital to reassess their investments to ensure they are tax efficient.
I have some equity in property and some in shares. I have absolutely no problem paying some form of tax on those. With reductions in income taxes, this should balance it for the average person.
I don't see why me being lucky with gains in property and shares over the last few years should be protected vs income from working.
Why even reply if you're going to take a comment out of context. From what I can see, you're assuming I'm pushing some agenda that people with equity should just give it away?
The thing is, balancing it with a reduction in income taxes. Most likely I'll be in the same situation as before. However, the younger generation and other demographics would benefit as most of their wealth is generated from working.
hey, dont let us stop you ... If you feel so bad about it , you may donate some money to the Salvation Army, they were crying for 2500 social houses every year for the elderly people - I hope you will feel much better for doing that... Oh and, BTW that donation will be TAX deductible too as they are a charitable organization ...Good On you
You know , many of us have savings and Capital assets because we want to be comfortable in our retirement , we want to be able to afford a new pair of spectacles , see the Doctor , or dentist , and visit our children and grandchildren .
To build this small pool of wealth , we have forgone consumption , where other have spent what the have earned , sometimes spent it like drunken sailors .
Those savings , in my case , form part of the capital on the NZX , thats capital used in productive enterprises like Air New Zealand , Port of Tauranga , Spark, and Fonterra bonds .
I pay dividend taxes and other withholding taxes on the distributions to bondholders
Why should I bother if it going to be taxed at 33% on sale
Now Labour want to take up to 33% of that wealth , its crazy .
Because the gain on sale is as real as the gain from a dividend? Why the current distinction? I benefit greatly from the lack of CGT too at the moment, but it's not inherently obvious that the world should be this way. Other countries have a CGT on shares and the markets are rather better developed than our own.
I'm not particularly enamored by a CGT. But I have tried to read the international experts who write on these topics, and the international literature is remarkably consistent on a few issues. It is a little disappointing that whenever this topic is raised, a lot of standard tax theory is ignored.
The consensus opinion is that the core problem is that income taxes cause particularly bad distortions when applied to capital income. The income tax system that we have is much better described as a distortionary income tax system. The standard theoretical position is that a distortionary income tax system has the least distortions (but not none) when all capital gains are taxed on an accrual- basis - that is, tax is paid when asset prices go up, not when they are realised. If it does not have a an accrual-based CGT an income tax distorts investment decisions Most countries don't have an accrual based CGT so they tax capital gains on some assets on a realisation basis. This is better than nothing but it is still distortionary. An income tax without any capital gains taxes is probably more distortionary than an income tax with one, because income taxes are very imperfect taxes. This should be the starting position of the debate. "Income taxes are distortionary." The core problem is the income tax when it is not applied to all forms of capital income, which is very hard to do well.
Paul Samuelson, the 20th century's greatest economist, made this very clear in 1964. That is 50 years ago, and it is probably time New Zealanders recognized his logic.
The main international response to the problems with an income tax is to collect more tax using expenditure taxes - these are far less distortionary, and do not require separate capital gains taxes. NZ joined this trend in the mid 1980s, when it adopted a CGT, but it also went against the trend by scrapping the expenditure tax treatment of retirement savings in 1989. As far as I can tell, this was a backward step - it is certainly one that has not been copied by other countries. By increasing taxes on retirement saving but not increasing taxes on housing, particularly owner-occupied housing, the distortionary effects of distortionary income taxes are heightened. This is why the question of housing taxation is so important in New Zealand: the difference between the taxation of housing and the taxation of other assets is particularly large in here. Logic suggest if you increase the tax on item A but not on item B, you place upward price pressure on item B. It is perhaps no surprise that NZ has had the largest increases in house prices of any country in the OECD since 1989 - we have had one of the most distortionary tax environments for housing in the OECD since then. It is not the way we tax houses - it is the way we tax houses relative to everything else.
NZ politicans and policymakers seem wedded to distortionary income taxes. The more interesting question is whether there is a way forward that reduces reliance on distortionary income taxes
without reducing the progressive nature of the tax system. There are several models overseas for doing this, some in practice and others not. The Hall-Rabushka flat tax is a famous example of a progressive expenditure tax that does not require a CGT and that would not be so distortionary. So is David Bradford's X tax. Several Nordic countries appear to have successfully adopted a different approach, taxing labour income much more than capital income. (By international standards NZ has a very low fraction of its tax revenue collected from labour income and a high fraction collected from capital income - which makes the incentive to seek out tax-exempt assets greater than in other countries.) One can only hope that NZ starts to consider these alternatives instead of just tinkering around the edges by adding a limited CGT to a distortionary tax system.
andrew
Thank you Andrew, for pointing out what is quite obvious , even to idiots like me .
We need a balanced and fair tax system , which is the basic premise of a sound tax system , but to suddenly introduce and change the whole basis of taxation in pursuit of socialist agenda is just dumb ,and in this case its populist aimed at those voters feeling aggrieved at not being able to buy a home.
Well just to be sure , we know from past experience that CGT HAS NEVER MADE HOUSES CHEAPER
By international standards NZ has a very low fraction of its tax revenue collected from labour income and a high fraction collected from capital income
Did you get that around the right way? I've been looking for something with that int'l comparison. If you've got any info easy to hand that could be linked to - I'd be really appreciative.
Here's the NZ situation/mix re government revenue sources;
https://upload.wikimedia.org/wikipedia/commons/thumb/5/5b/New_Zealand_t…
How does all this taxes work on rentals , I pay taxes every year on the rent I have coming in, in the pass where I've brought a house to get ahead I've had a 60 to 80% mortgage on the property for 25 years , even tho I had rent coming in it never paid everything by a long way, doesn't a house normally cost 2 or 3 times what you payed for it, if you sold it after it was payed off would you pay very little capital gains anyway because of costs, although flippers are a hole different thing, big profits really fast
This is a rather silly debate.
As always the lefties that are non productive will vote Labour and think that taxing anyone that has more than them is great.
How financially successful have the Labour Party politicians been in their lives, and you want them running the country??
Seriously if you can't succeed for yourself then why would you trust them with the future of NZ.?
Of course CGT is an envy tax nd I am sure that the vleaters on here that go on about greedy landlords would have a different opinion if they in fact had purchased property and were financially secure!
Different strokes for different folks as the saying goes, but I surely know who are the happier people out of the bleaters and moaners and the investors of property!
Property investors everytine because they have got off their butts and tried to improve their financial position.
Good on all of them and to you doomsaying people who are jealous vote for Labour if you want and you will get what you deserve.
Anyone who calls themselves The Man I am not jealous of.
Im not sure if I will vote labour, but I will definitely not vote for National who want to make us a low wage economy, who bring in 300K plus people in 5 years, where house prices are beyond most people, where we are creating a two tier society, and ruining our culture. NZ is becoming little britain, with all the ailments that a large, non NZ culture will bring with it.
That includes creaking infrastructure, smog and pollution, crime, hospital ques. We may even get to hogging sun lounger stage on the beaches.
Its about time.
You can own a business , work your balls off , and every year pay tax on the increase in value of the business.
Or you can buy a property, sit back and do nothing , watch the value increase, and pay zero tax.
No wonder we lack investment in everything except property.
I would think that would be less the tax you have already paid each year. A bit like selling a depreciated business vehicle in reverse , if you sell it for less than the depreciated value , you pay no tax , if you sell for more than the book value you pay tax.
Sadly , most businesses would sell below their book value these days, so presumably , under GCT , retiring business owners would get a refund, not pay tax. .
It turns out that the claim was made by Gerry Brownlee. Internal Affairs tell a different story. It's simply a cheap tactic by the Minister of Disasters on the run up to the election.
By the way the problems that the Deputy PM is having in Australia is purely because of their badly written dual citizenship rules, and he's worked his way around it already.
I'm finding this whole absurd Australian drama hilarious. Couple of weeks ago they used this constitutional law for a witch-hunt to get rid of some Green senators, but now that the same law has blown up in their own faces they're hysterically flailing about with this crackers conspiracy theory.
With Australia's history of immigration, there must be a hell of a lot more in parliament who could fall into this constitutional pit-trap. What if your dad was from Lebanon, Cyprus, Malta, and American GI ...
Yes agree don't shoot but keep the powder dry. Damn problem is if this National Government had paid more attention to its ordinary everyday people rather than creating Corporate New Zealand and sidling up to all the high altitude power of that world (for example NZ is not a tax haven so why did all those trusts fly out the window after we thought we should take a second look, and who the hell leaked it in the first place) we would not have this worry about the prospect of an incoming tax hungry Labour Government, almost on speed about what they can grab. Sadly reminds me of the complacent, lazy out of touch performance by Bolger's government that ushered in the chaos of the NZF coalition. Can't remember the election year. Don't really want to in fact.
Let us for a minute assume I am not from NZ, I am looking around the world for some property to put my money in, I have sorted all the pros and cons of here or there, just one to go, shall I buy in the country with a CGT or shall I buy in the one without.
A CGT may have helped to keep some of the ludicrous prices that houses have reached from happening. It is not really a tax for the purpose of filling coffers it is more one of some semblence of control. I think we need one, it is probably too late, as house prices are on the retreat, and we all really know why
@Pocketaces , you are delusional , its not foreign investors , rather its migrants chasing limited supply of houses .
CGT would not deter a foreigner , they would be exempt from CGT because we have a residence based tax system , AND THEY WOULD NOT BY DEFINITION BE RESIDENT
I do love the promises of not taxing the family home. I wonder how they will treat the tax on sale of the family home if you have let it out occasionally like for holiday periods, or when working out of town. Even a boarder or two. Oh shucks everyone lies about boarders don't they? Well only if your children are hungry.
I also wonder, but only if the comment was in fact correct on an earlier post, that father in question was listed as unknown. Again if that is correct two questions. How come the father'saddress was known for election purposes, if he was unknown. Did he or was he paying maintenance. Anybody shed any light? Appreciate this is now history and at risk of being called a muckraker but the integrity of, let's say the left, is at stake here so a good question and opportunity to clear up the confusion one would think.
Labour really are at sixes and sevens right now , firing the leader on the cusp of the election , raising the CGT issue which cause them to lose the last election , and then causing trouble inside the Aussie Parliament .
And they want us to let them run the country ?
You cannot seriously be stupid and/or one-eyed enough to believe this ridiculous Aussie brouhaha. It's absurd. One mouth-foaming rant from that crazy Bishop woman with no supporting evidence, because her party has fallen into a pit-trap they were happily exploiting a couple of weeks ago and you're actually buying it??? Get a grip.
Fair enough. Problem is there are just far too many yappers yapping in parliament from all sides of the house. Yap first, think later. And that applies equally, obviously, on the other side of the Tasman. Just wish they could get on with the responsibilities they were elected to uphold with some dignity and professionalism. Side shows like this achieve absolutely nothing least of all for any of us.
Boatman is letting his desire for National blind him from movements in public sentiment - ie reality. His comments are an attempt to sway voters. As an observer, I'd suggest the Aussie thing will have zip affect, if any, it wil lift Adhern. The water policy and cap gains tax will see further lifts in the polls.
What would STOP labour (if they get their way with CGT) to include the Family home in the future ( even at a lower rate) - who can trust them (once in Gov) that they won't shove that down the throat of NZ home owner when they run out of money and fall back on their empty promises - which most will fire back one way or another - ??
When you invest in a business or go into partnership the first thing to do is to check out your partners and if they are worth to do business with or if you can trust them or have any credibility !!... who in his sound mind would trust such a flimsy amateurish team like the current Labour formation to go in business with? How can you trust what they say when they are so shaky and their policies are riddled with hole ??
Nothing , and it fact when CGT does not produce the windfall they expect ( and it wont ) , they will simply include everything including the family home , justifying this by saying that specific exclusions are too administratively difficult to manage , so everything with a faint smell of being "capitalist" is taxed ............just like Zimbabwe and Venezuela
Ah! You mean just like National promised they wouldn't put up GST? Societies change all the time, and how they are funded does as well. If there was a 'right way' to tax a population all countries would do the same, and no changes would be necessary. But by definition, societies change, and so will taxation/promises over time. To stick to something/taxation because 'that' what we have' condemns us to failure.
You lie again
The Greenhithe Revisionist revising history again - the Minister of Truth
http://www.stuff.co.nz/national/politics/3311679/Key-no-GST-rise-video-…
Exactly they are not to be trusted. Again refer to how the Lange govt introduced GST (even though it was not on their manifesto) but compensated by heading towards a flat income tax. Then in come Clark & Cullen & fire the income tax right back up there again. You can go back to Nordmeyer if you like. Taxing those with for those without is all they know plus wacky arty feely things, and they & those without just wait for them to come around again.
Agree with that totally but this National lot have to take some responsibility too. By that I mean stop the indiscriminate and wholesale wastage of the taxpayer's money. Ie ridiculous flag referendum, huge unwarranted expenditure at MBIENZ (or whatever it is )blow outs at ACC, what was it $35mill over the top for Ministry of Health headquarters. Stop all that wastage & even Labour could reduce tax.
went to 12.5% 1989 do believe, would still have been Labour & think again there was compensation made for this in the direct taxation. True National took it to 15% but again with compensation. And agree none of these events were pre-advised in any way that can recall.
In the circle I keep everyone has a clear idea of what they want.
Everyone's had a gutsful of compliance and being the governments keeper.
40 bloody hours a week in the office on compliance for the industries I'm in makes me nothing more than incarcerated with invisible bars!
I astounds me that some well educated Kiwis want to pay MORE tax to a Government with whom they have a love-hate relationship and that they despise and criticize , when the Government does not even need to money .
Quite honestly , I dont believe a government should do for people , what they should or could be doing for themselves .
Jacinda doesn't understand how the current tax laws actually work.
If she thinks people can buy and sell and buy and sell and not pay tax she is very mistaken. These types of traders must pay tax!
The policies she is pushing can only come from someone who has no practicial commercial or business experience.
I want to know what Ardern and her ilk intend using taxes on?
I want to know if the illegal changes to the 1688 Bill of Rights will be addressed?
I want all parlimentarians to provide me with documentation that they have the authority over me!
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