Prime Minister John Key has delivered an extremely upbeat view on New Zealand's economic prospects over the next 20 years, saying the period could see the strongest growth in the nation's history on the back of strong links to rising Asian economies.
In a speech to the Wellington Employers Chamber of Commerce, Key said growing Asian countries would mean sustained demand for New Zealand commodities, with prices for those commodities to stay strong for "a very long period of time."
That would underpin growth over the medium-term, which could be stronger "than any other point" in New Zealand's history.
The biggest risk to that growth would be a derailment of economic growth in China, which many commentators are saying could be overheating as inflation pressures rise.
However, Key said his view was China would sustain its growth.
Slams capital gains tax
Key also took the opportunity to hit out at Labour's upcoming announcement on a tax policy next Thursday, which is tipped to include a policy to introduce a 15% capital gains tax on property other than the family home. One News reported the 15% figure last night. It was understood the tax would be applied to investment properties.
The Green Party has been advocating a capital gains tax on all assets other than the family home, which could eventually raise NZ$4.5 billion a year. However the tax rate in that scenario would have to be about 30%.
After his officials spent the evening trawling through the Tax Working Group's report, Key told his audience a 15% capital gains tax on just investment properties would raise about NZ$700 million a year, and that would be realised over 15 years as the properties were sold, citing experience in Australia where it took about 15 years after introduction for capital gains tax revenues to peak.
Tax Working Group figures showed a 28.5% capital gains tax on investment properties could potentially raise NZ$1.4 billion a year when revenues peaked.
In order to raise NZ$4.5 billion a year without including the family home, a capital gains tax would have to be applied at 30%, and on all assets including shares, rural property and commercial property, Key said.
'NZ$11 billion hole'
It was not credible for any political party to go into the election without a set of books that added up.
“We know, through our budget process, that we can get [net] debt to top out under 30% of GDP, we know that we’ll be back in surplus in the worst case scenario by 2014/15, but probably 2013/14, in which case there’ll only be three countries in the developed world in that position – us, Korea and Australia,” Key said.
“Our books add up. As part of that there’s a range of different things we do, from adjusting the rules around KiwiSaver, and reigning in the generosity of things like Working for Families, right through to the mixed ownership model," he said.
“So yesterday, Labour came out and basically said, reluctantly, that they’re going to put a capital gains tax on, and that it would apply at 15% was the rate the hawked off around the Parliamentary Press Gallery I’m sure. They told everyone it would generate NZ$4.5 billion of cash."
Key pointed to the Tax Working Group’s report given to the government a year ago.
“They didn’t recommend capital gains tax, and neither did the 2001 McLeod tax review. We’ve had two major tax reviews in New Zealand, and both of them rejected capital gains taxes. They rejected them on the basis of the fact that they’re very complex, there is a lot of tax structuring that ultimately becomes involved, people don’t sell assets, because people only pay capital gains tax on realisation," he said.
On the numbers, Key said the report showed NZ$4.5 billion could be raised if there was a 30% capital gains tax rate.
“And not just on investment properties, but on farms, on all shares, on all industrial and business property, on everything, and you get it in 15 years’ time," he said.
"So if you have a 15% capital gains tax on investment properties, you earn NZ$700 million in 15 years. So for the next three years, if they don’t sell assets, as they’re arguing they won’t, if they do have a NZ$5,000 tax-free threshold, as they’re arguing they will, and they do take GST off fruit and vegetables, they are NZ$12 billion in the hole for the first three years of that theoretical government, with no cash coming in at all."
Raising the top personal tax rate from 33% to 39% for incomes over NZ$100,000 would bring in NZ$1 billion over three years, Key said. That would leave Labour NZ$11 billion in a hole without having started their election campaign.
One of the reasons the National government rejected the capital gains tax idea, was that it was not the panacea to rising house prices, Key said.
“If anybody thinks it is, they have to go and have a look at Australia, the United States and the UK. Because all of them have a capital gains tax, and all of them experienced a substantial increase in property prices. It does not stop those cycles, actually," he said.
(Updates with further comments from Key, figures on capital gains tax).
170 Comments
" Moody’s Investor Services, today released a report claiming that it has identified an additional 3.5 trillion yuan ($US540 billion) of potential problem loans that the Chinese National Audit Office (NAO) did not disclose". That could put a hole in the Chinese balance sheet, John!
China has a very large debt, far more than what most people realise. But it also has massive foreign currency reserves. So at the end of the day, one balances out the other. The only danger is if Chinese debt (or SOE bad loans) gets out of hand and it starts to sell some of its foreign bond holdings to cover the debt that could cause problems.
PM Key says next 20 years could see strongest growth in NZ's history on Asian links.
Considering the current and upcoming worldwide situation/ development, how on earth can a leader (leadership) of the nation tell us such a nonsense ?
We will spend more time and money for cleaning up on many fronts, what unsustainable growth already "produced" over the last 20 years PM = from boom to broom.
You are dealing with a population of citizens who are brain washed! Thats how!
Well duh Steven like Keynes John boy Key is not part of system like you said yesterday about Keynes.
You know alot about peak oil but I remember the oil drum when there were 20 posters and it was the choir singing to the choir...peak oil such a small subject once you move through it...
Regards
how on earth can a leader (leadership) of the nation tell us such a nonsense?
We expect our political leaders to lie. The bigger issue is not their lies, but what appears to be a more widespread misinformation campaign propounding rosy prospects for our economy.
Charles hugh Smith puts it far better than I can. An extract:
This month's Double Feature: Cognitive Dissonance and Wishful Thinking, two thrillers about floundering Central Banks and frantic Ministries of Propaganda.
The global economy is now dominated by Cognitive Dissonance and Wishful Thinking on a grand scale. The push to convince us of "normalcy" and a "return to growth" are strongly reminiscent of the Phony Year of 2007, when the subprime mortgage meltdown was toppling the entire global credit market, yet we were constantly reassured by financial authorities that it was all safely "contained."
We were promised a happy ending to the second feature, Wishful Thinking.
As the second half of 2011 begins, the level of cognitive dissonance between what we're presented as reality by the central banks, media and government--that the "soft patch" is over and the "recovery" is once again full steam ahead--and what the data says is extreme.
http://www.oftwominds.com/blogjuly11/cognitive-dissonance6-11.html
His conclusion:
In other words, neither Cognitive Dissonance nor Wishful Thinking have happy endings.
Election year dribble, got the same BS from a local MP this week, %4 growth but real growth not based on debt like under labour,Nat guy from Waiarapa, must have all been schooled to say the same thing like parrots, happy times are back, but no one believed a word. Its pointless having a capital gains tax if asset appeciation is the only game in town, Goff better be prepared to make some sector profitable fast, by cutting costs.
It could be more like this,
http://www.spiegel.de/international/europe/0,1518,772176,00.html
The package includes cutting around 150,000 public sector jobs by 2015, with the sale of state-owned assets bringing in a further €50 billion. The only problem is that many of those assets will prove difficult to sell. They include run-down Olympic stadiums and four aged Airbuses, although the government also holds thousands of square kilometers of land, some of it in prime coastal locations.
The state will also offer up to 17 percent of the utility company PPC, currently 51 percent government owned, to private investors. This is despite bitter opposition from the union, which is right to anticipate that the sale would mean layoffs among the current workforce of 21,500. During the parliamentary vote on Wednesday, the lights went off in several regions of Greece as a sign of protest.
Economics professor Georgios Argitis from Athens University sounds disdainful as he talks about the "ruling class of politics and capital that made the country its prey" and caused this mess. Contentious best-selling author Petros Markaris derides the "ailing state apparatus." Its representatives "have only one interest, namely maintaining their privileges," he says. "They don't give a damn about anything else."
He's referring, for example, to the parliament employees who still draw 14 months' salary each year, with an additional two on top of that. He's referring to the land of plenty that is the public sector, where politicians provide for those who have helped them, fathers for their family members and agency heads for their personal favorites.
Each new government which has taken office in Greece has hired thousands of officials and employees, without firing the old ones. No one was bothered by this, as long as each person's own job prospects remained good.
Now, though, people are rejecting the entire political elite. This May, 71 percent of Greeks said they didn't have confidence in their government, while 76 percent had just as little confidence in the opposition.
or if it gets worse like this
http://ferfal.blogspot.com/2008/10/thoughts-on-urban-survival-2005.html
and how much interest has Greece paid
>>>>>
Add also that the loans to Greece (because there isn't charity help but loans from eurozone & IMF) are almost at twice the rate they gave to Argentina!!
Greece from 90b euro debt in 1994, by 2009 had paid 600b INTEREST and their debt was 300b
Goofy don't need to cut costs AJ...he has a money tree....the filthy rich will pay and pay...and leave and leave...which is ok by Labour cos they want a country full of low income poorly educated cult following fools who believe life is better when it's organised for them by ...you guessed it...Labour.
Wolly, leave to where? this is a global event....its jumping out of the frying pan into the fire.... Anywhere you look, the taxes will have to rise and it will have to be those with the most disposable income.... Also onsider that money is a proxy for energy, in effect its a IOU or a debt, a debt that cant be paid because there isnt enough energy....
regards
Hamish - both:
http://www.econ.utah.edu/~mli/
http://earlywarn.blogspot.com/2011/07/update-on-north-sea-oil-production.html
http://www.hubbertpeak.com/bartlett/hubbert.htm
You can't do more work than there is energy to do it. Not negotiable.
There will be winners and losers - just as an investment in blacksmithing in the 30's would have been a loser. Expect renewables to grow exponentially, and anything to do with 'efficiencies' likewise. The question is what happens to fiat/usury fiscal systems, and to the incredible number of parasitic activities, when the dominoes start to fall.
Don't 'invest' in a parasitic activity (landlord, middle-person/flogger-off), they will simply be worth less, increasingly with time.
Well, I look outside and the sun is shining (in between passing showers). And the grass and trees may have grown a little bit more, just like they did yesterday, likewise the veggies in the garden. There's a heap of energy out there! Like a lot more than we are capable of capturing and using.
I'll re-use a quote from a friend of mine, which he may well have taken from somebody else, I'm not sure. But the stoneage didn't end because they ran out of stones. And to update that a little bit more, the steam age probably didn't end because they ran out of steam either. The oil age is still ticking along, because for the moment, energy out is less than energy in. The age of oil may very well come to pass sooner or later, but then what? Who knows? If I was to go a bit Carl Pilkington, I'd be saying something like I bet stoneage man didn't look into the future and decide to stop knocking about with stones because he could see that the steam age was just round the corner. Why am I scuffing my knuckles on stones? No need to worry now, the solution is just about on us. And I bet the old fella didn't think I might knock off shovelling dirty coal into this 'ere steam engine and go 'ave a pint. There's them petrol powered motorcars on the way. I'm done here.
Now don't get me wrong. I'm not thinking to myself that just because I could fill up my car with petrol a couple of weeks ago, and it's quite likely I'll be able to fill it up by the end of the week again, that this will remain so through my lifetime. But who really knows what the future near and far holds?
Geez, I just deleted a whole lot more rambling right here about humans and their spot in the way of the blue planet, but it was really starting to get a bit philosophical. Not quite in fitting with the nature of this website. I think I've rambled enough already.
yes. there's about a KW falling on every sunlit sq/m, and it's more than we ever use. It's also fair to say that all energy we use, is solar in origin - whether it be decayed/cmpressed as in fossil, or as hydro, wind etc.
The problems are that much of the surface is water, or mountain, or alternatively used, that all capture methods have inefficiencies/losses, as does transmission.
That 'stone age ' quote isn't your mates.
It's also cynical horseshit - somewhat like Brash applying linearality to an exponential process. How many folk, consuming how many resources ant what rate per-head, were there at that point? A few hundred thousand, depending on how you define the 'age'.
How many folk now alive, consuming how much per-head, with expectations of?
And cu/m of 'stones' on the planet, compared to say, oil?
Sooner rather than later, exponential growth of consumption has to run into trouble, as it does so essentially half-way through the pile of whatever it is. You have to have reasonably established the replacement, before yo hit half-way-through the predecessor - if you don't want to powerdown.
We're too late now, to morph without serious dislocation. Sure, the sun is shining, but if you are competing with 9 billion people for 1 billion solar-panels, and a scarcity of conducting materials (and of the oil-based insulation?) will you be able to get one?
Don't worry, you'll have plenty of stones.
MANDALAY - it's not 'woe is the world'. It's 'woe is the world if it keeps on this trajectory'.
Some of us have a lot of the answers - but only about 10% of the population are savvy enough to be asking the question.
And so, the population of humans would be forced to reduce, yes? So what? Who really cares that in x years, the population will be forced to be y? Humans wouldn't be the only species on the planet that changes the environment to the detriment of other sperices. And they won't be the only species to avoid the simplicity of natural mathematics relating to competition for resources between species and amongst ourselves. To be quite blunt, I don't really care.
To try and get back on topic, JK is, as pointed out by other posters here, just talking it up in election year with the whole growth is going to save us thing. He doesn't have a clue.
You're right about JK, but his growth is the stuff you "don't really care" about.
I take it you don't have kids?
Because that x-to-y happens before 2050, and has started already. As a result of the JK type madness.
de Rothschild identified the cranial flaw - linear thinking.
It's the only reason these folk get voted for.
Yes the elites such as the name you mention have had all the best techniques to use against the masses , and have most likely been entertained at the level of success even rudimentary mind control has had. The sad part is that we will all have to live with the results of other people's lack of critical thought.
Marty same as yesterday hey , you seem to feel that because something has always appeared to exist that it should remain unchallenged forever. If people think that they are part of a long term plan then stick with the status quo , word of advice , nothing has changed in Nz politics & it's not going to. Read your history , understand who & what you're dealing with and prepare in a way that works best for you. People have the real power , somewhere the majority became apathetic and lazy , happy to abdicate their lives to the state. Well that's never going to end well , so you either wait to see what happens and hope the cool gang let you in , or you accept that change must happen very bloody soon , and you be prepared to go make change.
here ya go...for starters...
You should head off to red ice and listen to Adrian Sabuchi interview its free for two hours and this guy outlines very nicely many things expecially in regards Argentina! It is applicable to NZ.
http://secondrepublicproject.com/second-republic-electoral-machinery/
yep you have had a quick look about sums it up!
You havnt practiced any capitalism so you wouldnt know.
No one has! We practice varying forms of socialism manly the national socialst brand known as fascism these days, even China practices that doctrine.
listened to the interview eh? I doubt it.....
"population of humans would be forced to reduce"
Yes.
"Who really cares that in x years, the population will be forced to be y?" "I don't really care."
Well it depends on how old you are, and if you have any children and grandchildren or plan to have any.
Lets put some numbers on it, today there is 7billion...the sustainable populaltion of th eplanet is 1.5 to 2billion.....so 5 billion have to quietly die off"
Sound good so far?
Timescale, no more than 40 years, probably more like 10 to 15 years.
Now back to your age, and if you have children or grandchilden. If you are about 80, then its most likely you will be dead before the greatest impacts start....if 50 you will probbaly live long enough to see much of the decline.....your children certainly will and may not survive it, your grandchildren will live it most if not all of their shortened lives....throw in AGW and I dont even know if the next generation after that will make it.
While you dont really care, I have future generations I really do care about.
regards
Then you friend if he believes in the end of the stone/steam age while apply this time is remarkably ignorant....
What he is describing is the ascent up an energy curve (which is expotentia)l and leads to better and better as we extract more and more at an ever increasing rate, until that fateful day we are at the top of the mountain and we cant get any more energy and in fact that energy extraction rate begins its decline.... we are at or about that now, and we have known this day was coming for at least 60 years....
regards
With regards this, I take the message to be that there may or may not be some unknown, better solution yet to be discovered. Not that exponential growth can continued uninhibited. Or in fact growth. At the end of the day, it's not really growth anyway is it? But you knew that already. It's simply not accepting a defined resource niche and moving into a neighbouring one by consuming that which something else has not yet.
Vote for any of them is a vote for Stautus Quo!
It is obvious
Cue Bono?
Then comes
PROBLEM - created by the ruling elite think GFC 2007
REACTION - Wait for the dumbed down masses to cry out "help us"
SOLUTION - Worded in such a way that sounds good but only ever furthers the AGENDA closer to the end goal with which the original problem was formulated on! The solution for the dumbed down consumer is never quite what the consumer envisioned and rightly so because consumer is another word for debt slave.
Greece is a trial run - Iceland didnt work out to well for the bankers and there elite ruling masters...
Walter for goodness sake you know very well any potential growth is dependent in the Asian demand so what else can Key say...he sees it as highly likely and you don't.
Now turn your attention to your region and the fact that somebody down your way has fenced off the lovely stream parking places and made it impossible for people to park up their camper for a cuppa...what the hell is it with Kaikoura....place is saying we don't want you stopping here..drive on through...and try finding a rubbish bin anywhere down the main drag....easier to find the road out of town!
hey if it gets him re-elected....of course it will be "oops the global economy melted and took NZ's economy with it, how could we have predicted that?" and of course Labour wont call them on it because Labour's policies are based on the same premis.....the key here (oops) is to be in power when the "hard" decisions have to be made so you can keep you and your mates slice of the pie the same even if the pie is getting smaller....which it will...
regards
So just sit back or bend over , accept that the situation is no good and without a whimper just take it. Is that really acceptable to people? You can't avoid forever , eventually everyone will be forced into action to some degree , how about people realize this before it is too late , which perhaps it already is.
Marty from your posts I take it you are aware that something in Nz is not well & has not been for decades. The ballot box is not the answer to anything other than misguided optimism & yet further disenfranchised kiwis. Revolution will come in some shape or form , it will have to.
I check up on this site from time to time to see if anything has progressed , it's the same names posting the same stuff , and I wonder when some of the capable brains here will mobilize somehow. I look at it this way , it will be up to Gen X to step up because if we don't then in my opinion , it will be game over.
Eyes & ears open Marty , things are happening.
Oh no, can this be true, milk prices and tumble in the same sentence?
The New Zealand dollar fell against the greenback after prices tumbled for the nation's biggest export at Fonterra's latest online auction of dairy products.
http://www.stuff.co.nz/business/market-data/currencies/5240332/Dollar-s…Four main advantages of a capital gains tax on property
1.A tax on profits from capital gains means we can pay down the deficit without having to sell assets like our power companies.
2. The government can use the money it gets from taxing profits on capital gains to reduce tax on income earned other ways.
3. People will begin to change their behaviour in ways we need as an economy. If someone has some extra cash to invest, they will ask themselves - should I buy a second house, or should I invest in a growing, exporting business? We need more investment going into productive business, instead of into housing speculation. Extra investment in business helps the economy to grow.
4. Young families trying to buy their first home won't have to compete in the market against speculators. That makes home ownership more affordable.
3. If I buy shares to invest in an exporting company and those shares rise in value by 100%, and I then sell them, that's a capital gain, right? So Labour will tax that too. So why should I take the risk of investing my money in an exporting business if all Labour is going to do is tax it if it turns out to be successful?
4. The US, the UK and Australia all have a capital gains tax. Their housing bubbles were worse than ours. A capital gains tax will not stop house prices from raising, property speculators or making houses more affordable for first home buyers.
I'm sorry Willy Foo Foo, but you're dreaming if you believe that any of what you wrote above will come to pass. Come on, dude, wake up.
Im not aware that covers shares....its non-home property only....and in terms of take a risk, you should be taxed on all income no matter what it is, so if depositors are taxed....I dont see why shares shouldnt be also...yes its a risk, but there is always risk.
From studies its pretty clear a CGT has a cooling effect on house prices, but just as importantly if not more so it stops ppl not paying tax every year by loading up debt and cashing out at the end tax free....so if its successful in stopping tax dodging behavoiur Im all for it.
regards
One assumes that you would have claimed those imrovements against taxable income and that will reflect as capital expenditure that is added to the purchase price, and hence CGT is charged on the net of Improved Price and Sale Price. ( improvments to a family home don't matter,as they are exempt).
What if you do work yourself? If you paint your house yourself do you have to send yourself a bill, pay it, pay tax on the income you got from yourself with money you'd already paid tax on in order to not get CG taxed when it's not actually a CG?
If I earn $100 at work and pay $40 tax and then paint my house in the weekend and pay myself the remaining $60 then pay another $24 tax - so for working hard in the week AND weekend I earn $100 of which the government takes $64 leaving me with $46 whereas if I didn't improve my house I'd have $60?
The IRD isn't interested in what you do with your 'free time'. If you choose to paint your renter, that's up to you. They won't pay for the labour, but you can claim the paint! But if you employ a painter ( that's part of the reason for this; get empolyment up and people earning wages) you claim it properly.
Good questions re improvements. I think they will be treated as per the depreciation rules i.e. added to capital value but not a deductible expense for tax purposes. R&M fully deductible.
Alternatively why not have the CGT apply to the land component only. The old depreciation rules required that building value was seperate from land value so there is certainly a precedent and it does away with the complications highlighted above.
In any case;isn't this just an additional tax on the falling value of our money? The Government, private banks and RB are operating a system that has destroyed over 90% of the value of our money since it was introduced in 1967. Try and protect yourself from this theft and you get a special new tax. Our must expand or die, debt based, ponzi fiat money system is the real problem.
So if you put effort into improving your renter by painting it or insulating it to improve it for the tenants you would run the risk of increasing the value of house and becoming liable for tax on an improvement not a CG.
You'd need a receipt for all work done or it wouldn't be worth doing it. Discouraging improvments to NZ's crappy housing is a great idea. A few years you wouldn't think twice about doing a weekends work and buying stuff to make the renter warmer and drier. With depreciation gone and CGT on it's way all incentive to improve is gone.
And I agree with you David B ! A Land Tax is a much better way of dealing with the need to raise both more money, to repay our national debts; dampen speculation; release Land Banks and provide a stable, fairer, way of levying taxation. But we will get, what we vote for....
I guess it comes into the cost of carry calculations :) If you get that large parcel of land at a cheap enough price, then the Land Tax just becomes part of the reason for continuing to hold it, for whatever reason. May land will go back to alternative use cost, the productive capcity of the land versus whatever you want to do with it? "Use it, or lose it" comes to mind....
Bob, painting a property is just maintenance and is fully deductable as an operating expense. Insulating a home would probably considered to be an improvement (although there are subsidies available) and not deductible. Same as an extension.
Bob "all incentive to improve is gone"
I think the incentive is in better rent and happier tenants. I have done extensive upgrades on my commercial properties and,in one case, was able to achieve triple the previous rent.These improvments were not tax deductble although you can claim the GST and any R&M aspect of the job.
I sometimes think we get hung up on tax issues to our detriment.
A very good Q, I would think you pay zero CGT.
This is where I assume documentation and an accountant are needed.
So say I buy a farm for $1M in 2000, in 2005 I spend that $100k.....so in 2010 its worth $1.5mil...so the tax you would pay would be on <$400K....if you loose the documentation then you pay tax on $500k...
The other problem is what happens if you sell for say $900k....I assume you are liable for zero tax and cant claim for losses.
regards
Lots of assumptions there, Steven. And you feel comfortable supporting a major change to the taxation laws of New Zealand based on assumptions? Geez, dude. What do they say about fools rush in where angels fear to tread? I only hope for your sake your 'assumptions' are right.
The people quietly cheering the Labour Party on in this CGT folly (and proposed GST exceptions) are the Tax accountants and lawyers who have been sitting waiting for their iPhones to ring, since the top tax rates were lowered. This is mana from heaven for them. If it goes through the tax collections from it will be much lower than predicted. They look wildly optimistic. And anyone with a few dollars who does happen to make a capital gain will get their accountants and lawyers to drive trucks through the loopholes.
Labour would be better in putting more resources into collecting tax leakage of current taxes. The grey economy is a big drain on taxes and some industries are rife with it.
I disagree Steven. I look at it this way. Politicians & their cronies are going go be hit by any CGT , they will do what they can to limit their exposure. How will this happen , the same way it always does in Nz , badly for the majority. Further taxes are not the answer, government expansion is not the answer. Trim fat , attack inefficiency and cut govt spending where possible & let's see some austerity for our elected & unelected servants. No to more taxes and unecessary work for parasitic legal & accounting firms
Labour has to come out with some big ideas as it will be the only thing that will keep them in the race. Now on top of this ,if they annouce the first $5k of salary as tax free, paid for by CGT, and then they will up the top tax rate...they may claw back some voters. After all there will be more lower/middle income voters than higher income voters..these are the ones who they will target. Key really only as the growth path to go on about now..the tax cuts were more than offset by the GST rise, wages/salary have not moved much since he got in and we are no where near closer to Aussie, so he is fast running out of tricks.(lets be honest people at the end of the day will only care what is in it for them(election), they won't give a cr*p about ther neighbour)
It is suggested that Labour will go for a 15% CGT - pretty modest by overseas comparisons - eg often about 18% - but quite a reasonable level. Greens going for 30% is probably unreasonably high, when you allow for the way inflation will have eaten into capital gains.
There is only talk of 2nd homes, rentals etc. CGT should include other property, including farms. That would infuriate the Feds, who would talk about the Red revolution & the collapse of civilisation as we know it. But needs to be done, especially since farming is such a huge part of the NZ mini-economy.
Cheers to all.
It's just populist politics of envy. Facts:
Australia has had a cap gains tax - did that stop the housing bubble there? Of course not!
Housing speculators already pay income tax on profits. If they don't, then the IRD is not doing its job.
Income tax on profits is much higher than the proposed 15% cgt that's been talked about. So who will the cgt target..?
Evil landlords accumulate properties for the long term and run a rental business. I’m guessing they would prefer lower prices and better yields. They ain’t selling, so they ain’t paying tax.
A cgt may make it more likely that anyone considering selling will hold for the longer term, making housing supply more restricted and thus more expensive for the 1st time buyer.
The bubble was due to demographic influences and lax lending, etc This has come to an end.
Just because you want to fix the problems by inventing a mythical bucket of gold, won’t suddenly make the gold appear. You have to make stuff and sell it if you want to balance the books. How about selling powercos?
L
Bill Bonner
As regular readers of this Daily Reckoning know, It is a problem with the funding of the modern social welfare state...and the 'social contract' itself. The bargain is this:
The people give up 20% to 50% of their output...and sometimes, their lives...to their government.
In return, the government promises to make their lives better than they would be otherwise.
But how can the feds make the common citizen's life better? If it gives them back in services only as much as they've paid in taxes, what's the point? In fact, the government can't even do that. It is a poor capital allocator. And there's a huge amount of inefficiency and friction in the system. So, the government spends money unwisely. It gets a poor return. If people get half of what they pay for it will be a miracle.
When the system was first invented, in the 19th century, it worked well enough. GDP growth rates were high. Old people, regulations and government-provided services were few.
But as the system matured, over 150 years, it became zombified. That is, the friction, misallocation of resources, fixed costs, old people and parasites increased. The feds spent more and more. People got less and less for it. They didn't want to raise taxes...because the voters would feel they weren't getting their money's worth. But the voters still wanted more and more 'services.' So, from approximately the end of the "30 glorious years" following WWII...in about 1980...to the present, the government was only able to expand services by borrowing.
Gummy Bear Hero has got a good plan re. CGT and land tax, you tell em' Roger. Anyway this is useful:
http://www.realeconomy.co.nz/144-capital_gains_tax_pros_and_con.aspx
"Craig Elliffe and Chye-Ching Huang from the University of Auckland Business School have written a series of articles for the Herald on the merits of a Capital Gains Tax in New Zealand. The first article looks at whether the tax changes introduced this year were wide ranging enough, the second discusses the benefits of a Capital Gains Tax and the third examines the most common reasons for the rejection of a Capital Gains Tax with reference to South Africa which has recently introduced the tax."
Why support economic apartheid?
Cheers, Les.
Thankyou for that kind introduction , Mr Rudd : The results from our unpaid Group Advising Government ( the GAG paper , 2011 ) are as follows :
1 : Introduce a land tax ( Beaker Hickey )
2 : Don't introduce a CGT ( GBH )
3 : Scrap WFF & rental assistance supplements ( Wolly )
....... whew , we balanced the government's accounts , and just in time for lunch .....
Yipppppeeee !
Almost there Roger:
4) To facilitate one uniform tax rate for paye, corp, trust, gains taxation around the low to mid-20's; and given the 'Intent Rule' is abolished and property/land based assets exempt gains taxation, because they get land taxed; and given tax free thresholds are applied across the board, but specifically to support those on lower incomes; all without pissing-off those higher paye'rs who are buying more of the round anyway!!!
But sadly Roger, this is about politics, not policy.
Cheers,Les.
Anyone seeing the problem here yet ? Lots of hot air and self congratulatory musings , yet I can't recall one idea floated via this site being acted on by the govt. Some smart people here who surely must get curious about why the G are trying to kill off this country. For me I wonder why the people sit back and allow it to happen, hoping that their vote may one day actually mean something.
Labour will have to stop the gifting regime about to be introduced as families will gift around proerties to each family member for their principal residence.
By the way, USA have had a nightmare with CGT with exemptions for this and that, accountants and lawyers working around regulations etc. But they retain it because the legal/accountancy fraternity press for it's retention, surprise, surprise.
How many young are in the top brackets? few I suspect....
Also why does earning a lot = bright? doesnt IMHO....jobs that fairly young bright ppl could be doing to put them in the top bracket thats I can think of are lawyers, accountants, which to be honest I think we have too many of, so shipping them off shore seems a great idea....ditto the 40 somethings who also earn and are probably mostly in these brackets...but again just because someone earns the top salary does not make then a NET value to NZ....
From a personal prespective, if you think its NET better to be in say OZ, then it makes sense to move....simple....
regards
Interesting observation.. So if we shipped all accountants and lawyers out what left in NZ.. factory workers.. umm what factories - are there any left in NZ? Don't wish for anything that you don't want to see... NZ will be like Albania of Europe!
I am already in OZ working IT field, and yes I am in the top bracket, my job came to an end in NZ and I found nothing in NZ. There are simply more opportunities here.. soon NZ will be full of smalll minded people!
Moa
you hit the nail on the head
As much as Steven might despise highly paid "rich pricks" - accountants, lawyers etc - keep losing them and our tax base continues to get eroded, and a lot of the tax funded benefits which Steven appears so fond of will have even less chance of surviving
not really very clever
Not true. Fewer taxes does NOT in any way limit the government's ability to provide serivces - government spending is NOT financed by taxes nor the issue of securities. Your thinking is entirely incorrect.
In a similar way, part of the reason why the NZ economy underperforms is because of immigrants who don't work. The mainstream view is that they bring their "money", and thus improve the economy. This is an incorrect line of thought, as "money" is never in any limited supply. Immigrants who don't work (such as parents of Chinese/Korean kids) are merely additional mouths to feed. They are not productive, yet are consuming resources.
Economics is not about "money". It's about resources. "Money" is merely the method of keeping score.
Of course, and I agree.
But if you understood reserve accounting and monetary operations, you would know that all spending is financed by "money printing", and then taxes are used to offset this. You would also know that deficits matched by the issue of securities (what currently occurs) are actually LESS inflationary that deficits that are unmatched (where no securities are issued).
Ha! Very good identiification!
The purpose of issuing securities is to drain reserves in order to hit an overnight rate target. If excess reserves were not drained (by swapping cash for Treasury's), banks would offer their reserves on the overnight market but find no takers, driving the interbank rate to zero (or the rate of interest which the central bank pays on excess reserves). Similary, not enough reserves in the banking system will drive interbank lending rate higher. By draining specific quantities of excess reserves via repos and the issue of securities, the overnight rate target can be hit.
The answer to your question has to do with he following few things:
- extra bank reserves does not enable more bank lending, as banks are never reserve constrained in the first place. More reserves will not enable more bank lending leading to an increase in the money supply, because banks already have the ability to source reserves from the central bank anyways. And in fact, the accounting method of measuring required reserves means that banks essentially lend and find any required reserves after (which the central bank must always provide if necessary).
- the net financial asset balance of the private sector remains unchanged regardless of whether or not Treasury securities are issued
- Treasury securities are the most liquid investment in the world, and are almost the same as cash.
- In reality, Treasury securities do not restrict consumer spending. This is because anyone who has a Treasury and wants cash to spend can very easily trade it, and those that buy securities are not going to be spending anyway. Most Treasury securities are owned by banks, insurance companies and pension funs - if their Treasury's were cash instead, they wouldn't spend anymore than they currently do.
- The less inflationary bit is a technical point, and refers to the fact that securities are higher yielding than reserves, so government spending will be greater when Treasury's are held by the private sector. In other words, the issue of securities raises the deficit by a slight amount.
Hope that helps!
"Fewer taxes does NOT in any way limit the government's ability to provide services - government spending is NOT financed by taxes nor the issue of securities. "
OK....an "interesting" view.....
please tell me how govt spending is financed then, if govt is not relying on revenue from tax...
then I can correct my unenlightened understanding
Government spending is financed in the same way football stadiums add points to the scoreboard - shifting numbers up and down. The government spends by crediting commerical bank's reserve accounts at the RBNZ. All government spending is financed by "money printing" - taxes and the issue of securities are reserve drains (though each have very different effects) that follow the spending. It is not possible for it to occur any other way.
Taxes and the issue of securities both drain reserves (cash) from the banking system. In order to do this, the government must have provided the private sector with the dollar reserves first, or else they couldn't take them away. Therefore before any taxes are paid or any bonds are issued, the government must have spent or the RBNZ provided a loan to the private sector, or else either of the reserve drain operations couldn't occur. In other words, the colsolidated government (treasury + central bank) must "hand out" cash before it can suck it back in.
Intinuitively this makes perfect sense, and it can be proved with reserve accounting.
Is your above explanation how you view the current way our system operates?
What you have just outlined is Iain Parkers ideal, sort of what the Social Credit party stood for back in the 80's. A system that could work really well if given the chance, and if the powers that be could refrain themselves from spending/taxing too much.
The current system is actually a lot worse. Money isn't "printed into existence" it is borrowed into existence through the purchase of bonds, along with the exponentially growing compounding interest.
That is how I understand it works anyway.
cheers
Fiat currencies are not backed by anything, labor, gold or anything else, governments just say you must use them by fiat (decree). It is only a collective confidence in them that gives them value otherwise they are worthless. There are several types of fiat money;
Public credit (Iain's little baby)
http://en.wikipedia.org/wiki/Social_Credit
Debt backed like our current system
http://www.youtube.com/user/ChrisMartensondotcom#p/c/7E8A774DA8435EEB/0…
The non centralised bit coin is very exciting, only about 6 months old.
bitcoin.org/
There was another system in Austria I think that worked well too before it was shut down, and I think a few others too.
A social credit system could work ok, just it needs sound checks and balances otherwise it would likely evolve into a socialist system, like an independent issuer of money like a reserve bank or constitution or something. Could work ok and has in history.
Social credit is nothing like the Greek situation, the Greek situation illustrates what happens in a debt back system ultimately. Collectively the interest cam not be paid off like a game of musical chairs there will be losers.
It is simple but shows how the system works, and the inevitable outcome, and that no amount of fiscal or monetary twiddling can stay off an end to it all. Its the system that is flawed.
Bitcoin has no debt attached to it. It will not collapse from debt as there is none. Just needs agreement that it has value like any currency. Currently it is worth $US17.00 per coin.
We use Fiat currency because that is the only way we can pay our taxes.
"Money isn't "printed into existence" it is borrowed into existence through the purchase of bonds, along with the exponentially growing compounding interest."
No, it is the other way around. Reserves are printed into existence and then drained via taxes and the issue of securities.
No I dont despise highly paid "rich pricks" I dislike those who can exploit others due to their position. Also as a typical answer from an extremist you draw the conclusion that its a black or white situation. This is incorrect, its not "no lawyers", or "no accountants" its a shade of grey where there are enough. There is also a dubious connection with being a high earner and being of value to NZ, the CEO of Westpac is on 6million odd, while he screws his staff down, he can leave anytime he chooses as far as I am concerned...
In terms of leaving I think you'll find that in the future "the rich" are in the same boat where ever they go, taxes will rise....
tax funded benefits I'm fond of, how about you stop putting words in my mouth....they are a choice a society makes, they should be (and are) barely adequate and nothing more, want a better lifestyle get out and get a job, simple.
regards
I understand your point, but the fact of the matter is that lawyers and accountants are NOT productive by themselves. They merely help to regulate and control the economy, and providing there is a sufficient amount of them to do this, the less, the better!
New Zealand's needs bigger projects, and shouldn't let regulations and the green party get in the way of them. That's it.
accountants / lawyers was just an example
I'd suggest we wouldn't want to see too many doctors, teachers, nurses etc keep going to Aus
I have two doctor friends who have both gone to Aus permanently in the last 2 years - MUCH higher pay
But of course some of our socialist friends don't seem to have a problem with us losing key workers in the social service sectors.....funny that
Yes, I understood the general idea, but accountants and lawyers are bad examples.
As I have always said, there are 5 billion or so people who would more than happily immigrate to New Zealand. And there are millions of highly skilled workers in India, China, Korea, Eastern Europe/Soviet states, the Middle East and so on that earn much less in their respective home countries than New Zealand.
If all our young graduates and Maoris go to Australia, who gives a f*ck? Just allow more immigration, and in huge numbers. Honestly, why don't we allow 100,000 immigrants per year (providing a good proportion are reasonably skilled) if we are so concerned about a "skills" shortage? Oh, and apparently there might be a labour shortage in Christchurch. Well 5,000 African immigrants who currently walk 20km a day for dirty water will be just perfect - and you can be damn sure they want to come.
In short, if your worried about people leaving, just open the f*cking border. Far more will come in than are leaving.
Justifying a CGT by the gains the Govt. would make in revenue is crazy. Goff and co. are just saying that the tax will not really stop the over inflation in house prices and over investment because the gains will continue and the Govt. will gain from it. Completely illogical.
Introducing it at the right time ( the start of the next up turn ) and not with the aim of increasing Govt. revenues might make sense.
Jk must be laughing the lid off the Beehive over this Labour cockup. Oops mustn't use that term with Labour...tisk tisk...They haven't even announced what they said they would and already it looks so full of holes to be a dead issue. Who dreamed it up...oh cunny of course that brilliant economist with the three piece suits.
"We will tax the rich pricks and if you vote for us you get more handouts"...yep it was cunny.
John Key promised tax cuts. You could say that was a handout he and National dangled as a way to buy the election.
Now that the tax take has gone way down as a result of such tax cuts, he claims that a CGT won't help, even as he and his rorting and retarded little 'minister of finance' borrow hundreds of millions of dollars every week to cover the cost of his tax cuts for the "rich pricks" Wolly sycophantically idolises.
Aharrrhahahaaaa...alen is pissed off the socialists got booted out....bad news alen...they will not be back for many a decade if ever. Us 'rich pricks' stick together alen.....we make up a very select club...I'm due a tax rebate this year ...just like last year...and the one before that...and I aint worked an hour for nearly a decade...and I've a way to go before you will be paying my pension...how you like them apples!
So instead of implementing something guaranteed to boost the coffers (CGT), you're saying we should let overseas consortiums rip up NZ's environment in the HOPE that they will find something valuable, AND that they will share some morsel or token with NZ?
Wow, how could your plan possibly fail?
It's worked in Waihi. Gold mining there has meant it now has the cheapest houses and greatest unemplyment in the Waikato, as well as a nice hole, nice toxic sludge lakes, unexpected holes plus constant vibvration, dust and noise. Also the warm glow of knowing that some Canadians or Australians have gotten really rich off it.
So destroying a town and leaving a mess is ok if the shares are publically traded?
I hear Newport are also planning open cast mining, oil drilling and toxic/nuclear waste dumps throughout the Malborough region - I assume you fully support that then as long as shares are publically traded on the Hong Kong Exchange?
Ah no, leaving a mess is not ok. proper regs would prevent the cost of cleanups landing on the taxpayer or locals. Poor govt!.
There is no oil in the marlborough region Bob...there is some gas reaching the surface but mums the word on where. We do have the remains of Uranium drilling between here and the Coast though most do not know where and drive past in a flash. (pardon the pun)
I made a bundle on a copper mine in Asia and I am investing it in Marlborough...creating work..shall we stop all mining Bob or just the bits you don't like?
Think about that next time you fill your tank Bob.
"guaranteed to boost the coffers (CGT)"...rubbish....if after many years it resulted in the state collecting a few hundred million dollars, that would be capital which would go to buy the socialists more votes instead of being invested in productive entities that earn foreign exchange and create real employment.
Your mindset is locked into the sale of 49% of assets to raise funds, but you refuse to see it would not be necessary had that useless bunch of socialists not messed up for nine years.
Time for alen to accept the truth about how bad Clark's regime really was.
Point out where I said overseas consortiums should rip up anything....you can't...because I haven't. Foreign investment started when Europeans came here and built the infrastructure from scratch.
exactly
And if Labour had actually done something meaningful in the early 2000s then at least the severity of the debt fuelled binge could have been reduced (not suggesting they could have realistically stopped it)
their policy of high immigration, excessive housing regulation, and housing-favourable tax regimes was a disaster. Funny, you would have thought the Labour party would stand for housing affordability, rather than inflating house prices beyond the reach of the common man
Your average Joe will get thrown off by landlords saying that it will just cost them more money because it "has to be passed on". This is simply not the case. Ever heard of a rent freeze? I have. PI's are shaking in their boots. They like to think that they will be passing this on to tenants, but realistically, tenants won't have a bar of it. The market will sort it out thankfully, its just too bad that the majority of landlords these days are incredibly greedy. I'm not a greedy landlord at all, and won't be passing this on to my tenants. All but high end property is a middle class game, and for a lot of people its the only way they can try to make good amounts of capital. PI's need to learn to think outside of the box. Your dream is coming to an end for you PI's.
Landlords have nothing to pass-on if they don't sell. If they do have a liability, they must have made a profit, anyway, so again, what's to pass on? Those that are negatively geared will be most at risk, and when they sell-up, for economic reasons, it will be at a lower price, that will flow through to a lower break-even price for the rents. So tenants look like they have a good set of deals coming their way( if whoever gets in does somthing to change the status quo). I guess unlike an annual Land Tax, it's not realised until sale time. So where are the costs to be passed on?
The Pope and Phil Goof are on the same stage at the new Mt Eden Park in front of a huge crowd.
The Pope leans towards Phil and says, "Do you know that with one little wave of my hand I can make every person in this crowd go wild with joy? This joy will not be a momentary display, but will go deep into their hearts and they'll forever speak of this day and rejoice!"
Phil replies, "I seriously doubt that. One little wave of your hand? Prove it !"
The Pope slaps him across the face
Definetly, the horse has bolted, house prices dropping, now borrow money to impliment a tax that will not produce more than it costs. Usual knee jerk reaction to avoid looking at productivity. Blame the tax system or the rich or whomever is a minority or something else. Good case has been made that it was wrong not to have it in place but that has changed now
Spirk , good point , in fact what Goofy Goff has factored into this silly idea is that in order to Tax the Gains , they will be obliged to allow wrtieoffs for any Capital Losses.
Look at any CG tax system , it taxes the gains but you can claim the losses .
Right now the Government would be in a loss given falling property prices
Lets get to the nub of the CGT debate .
1) Its expensive to set up and administer
2) It takes years to get a return
3) It stifles growth . EG Your business is growing so you sell your factory building to buy a bigger building and you have to pay tax on the sale of the old building. This is the real disadvantage with CGT.
4) Like any tax , it is ultimatley passed on to the consumer or end user .
Boatman - "it stifles growth'.
Bollocks.
Growth - if it's based on anything real, stifles itself.
Anything growing exponentially withing a finite sphere of operations always does - no exceptions.
We've had that debate. Three doubling-times from 1/8th of whatever your potential total was, to 'all gone'.
Only mantra-chanters think (?) otherwise at this point. Those limits are why they had to eye-off public assets, from the mid-80's. Those limits are why we are drilling deep offshore, chopping into the last 20% of the Bluefin Tuna, grasping desperately at aquaculture, looking at lignite, wanting to remove the RMA, and to hamstring DoC.
None of which will produce even one more doubling-time.
"while on the other hand, the great body of the people mentally incapable of comprehending the tremendous advantage that capital derives from the system, will bear it's burden without complaint, and perhaps without even suspecting that the system is inimicable to their interests" Baron de Rothschild, 1867.
Same goes for those who can't see the limits to growth. Same cranial incapacity.
1) Even if that is true which i doubt (proof?), lots of other countries do it....not heard any particular complaint that its un-duely expensive.
2) Its not so much the return as the actions it stops...ie farmers spend a few decades loading up their frams with debt to avoid paying tax per year....when they retire, they cash out tax free...that is stopped or at least finally taxed..
3) this isnt a dsadvantage, all profit / income should be taxed....if you have made a profit on the building because it has appreciated, you should pay tax on the profit.
4) If you dont tax it sure is passed onto the consumer.
regards
What about the tomatoes? Prices are outrageous this winter. Why can't the government increase the tax on fruit and vegetables to make them cheaper?
I propose a 50% CGT tax on tomatoes to get them back down to $5/kg from this ludicrous $12/kg.
If it works on houses it should work on tomatoes.
Can someone clarify something for me,
If I was to become a rental investor, buy a house for $100,000.00. Then inflation crept up (lets say 7.2%) and in 10 years the nominal value of my house increased to $200,000.00 but in real terms the value of the house stayed the same, am I expected to pay tax on the inflation?
All keen for some sort of tax on proprty, as part of an overall tax restructure. But a CGT in this for seems overly complex messy and ripe for unintended distortions of the economy.
Inflation has nothing to do with it. If you sell the property for $200,000, a simple CGT means you will pay tax on the $100,000.
The current situation is because of the unintended consequences of previous tax/fiscal/monetary policies implemented by both central and local government.
Right, so this tax works as a counter-incentive play on keeping inflation in check.
A government that is able to generate inflation is able to gather "free tax" through taxing it with CGT and bracket creap on income. More spending and pretenting
Sounds like a scoclist party's dream meams of wealth redistribution to me.
The minor league ruling elites here NZ have got you all perplexed this way that way upside down rightside up backwards downside left to the consensus of no consensus.
One only has to read the posts here that the way the elite works in regard division
East vrs west - north vrs south - fascism vrs communism - labour vrs national is one of the oldest most obvious and effective diversions ever employed.
I salute the ruling elite! Their tactics, strategy and battle plan run with almost perfect prescision .
Of coarse PSYCHOPATHS work like this and are very good at it!
are you listening John Key!
GCT is a massive divider of opinion in NZ and labour has clearly chosen its weapon.
162 comments on The Herald Poll this morning (never seen it that high) and over a ton here.
Phil G may be a flop, but thousands of kiwis feel angry that landlords are getting an easy ride under Key. This election just got interesting.
John Key is hoping that our agricultural export to Asia will save us. But, China and India combined has the largest amount of arable land. Once they get into scientific farming and effective distribution systems we can say good bye to high prices. We should be looking at value added exports.
If the forecasters are correct in property price staying flat for 3-5 years. Labour will not be able to collect as much in CGT.
And If I was a property investor, I would on sell my investment properties to a look through company ahead of the CGT becoming laws to reduce my profit.
JP ....what planet you on? .... China and India combined have the largest amount of arable land'..and once they get into scientific farming...hahaha
They havent got any water ....understand this..you need water for ALL agriculture
The only scientific and smart farmers are the NZ rs.
No No we are alot better off to supply them with completed ag products...value added is where the money is...
Look at Australia...in deep doodoos now.....not allowed to send Live Stock to Indoneisia, a huge market for them......just gone and the Indos are not happy
JP ....what planet you on? .... China and India combined have the largest amount of arable land'..and once they get into scientific farming...hahaha
They havent got any water ....understand this..you need water for ALL agriculture
The only scientific and smart farmers are the NZ rs.
No No we are alot better off to supply them with completed ag products...value added is where the money is...
Look at Australia...in deep doodoos now.....not allowed to send Live Stock to Indoneisia, a huge market for them......just gone and the Indos are not happy
How much additional output can we get from agricultural production?
Not much more land to bring in
Water scarce in some areas
Science can increase but only with attendant degradation of environment.
Unfettered immigration and breeding will cause us to consume some of the extra output.
It ain't like software where there are no boundaries to expansion.
Key is dreaming.
Key talks a lot, but does very little, for all their talk about rebalancing people away from property, and into saving, they have provided no incentive at all.
We will go on being an over consumptive nation, in debt, going backwards, paying the interest on oversized mortgages to overseas lenders.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.