The Labour led Government has gone into the Easter break chickening out of a Capital Gains Tax in any form. Obviously they are hoping that people will get stuck into their chocolate eggs and forget about it all over the break.
But Kiwis won't be able to forget about the crippling cost of living, which is almost entirely a product of house prices and rents rising faster than incomes. Nor will younger generations be able to forget the fact that they will never be able to afford their own home. Nor will businesses be able to forget about our economy limping along from lack of investment because all of our money is tied up in housing speculation.
Federated Farmers were right to call a Capital Gains Tax a mangy dog, and in the end it had to be put down. The Labour led Government excluded the family home from the outset. This meant any tax wouldn't have much impact on house prices, which was supposed to be the point. Businesses rightly squealed about their inclusion when the problem was so clearly the housing market. New Zealand First were no doubt going to make sure that farmers were exempt. So that would have left... investment property. Such a tiny proportion of our economy that it would barely have been worth the administration costs. And ultimately the poorest people in our society would have ended up bearing the brunt in higher rents.
New Zealand desperately needs tax reform, but not the proposal from the Tax Working Group. The tax reform we need would deal with our growing inequality, housing crisis and poor productivity. To do that housing needs to be taxed in the same way we tax other assets.
The Opportunities Party's tax reform is the best practice way to achieve exactly that. But there are other ways to achieve a similar goal, such as the ideas suggested by Andrew Coleman. The Tax Working Group, largely because of its restrictive Terms of Reference, wasn't really able to consider either of these ideas.
Capitalism can work, but only if it is a level playing field. Right now we have the opposite of a level playing field. We have a game that is rigged in the favour of a few. We have neoliberalism.
The Government has failed to be a leader on tax and New Zealand’s housing crisis. By sheltering New Zealanders from a conversation about how we tax all assets, including the family home, they ultimately sowed the seeds of this proposal's demise.
Now watch house prices and rents return to their inevitable upward march. Watch renters - half of Kiwis - continue to get screwed because they miss out on the biggest tax break this country has; owning their own home. Watch hard working Kiwi families get squeezed even harder. Watch young people walk away from their dreams of owning their own home. And watch our businesses continue to struggle for the capital they need to grow.
Incredibly the Prime Minister has also ruled out putting a price (some call it a tax, we call it a price) on water. The total cost of the Tax Working Group will likely come in under $2m, but with all these big ticket items off the table you have to wonder why we bothered at all. The result has been some very minor tinkering with a broken system.
The lesson is simple. If we are going to bother getting experts involved, don't hamstring them from the outset with loopholes designed to make them politically palatable.
We need to get real with the public, and let them make an informed choice.
66 Comments
Geoff, the free market is what we should be aiming for. The philosophically convoluted tax interventions that you advocate for are deeply anti-capitalistic. Taxing capital based on the imaginary income it is earning will do nothing but discourage risk-taking and entrepreneurship, while encouraging capital flight.
Indeed BLSH, I am getting so tired of this nonsense. Ardern has absolutely made the right call with CGT because it represents the will of the majority of New Zealanders. The great majority of us are actually pretty happy with the status quo and international surveys concerning NZ, it's well being and the economy reveal that our happiness is not unfounded.
The great majority of us are actually pretty happy with the status quo and international surveys concerning NZ, it's well being and the economy reveal that our happiness is not unfounded.
Well yes, there's much smugness and salf satisfaction among many NZers about the status quo, particularly among the older generation. But complacency and lazy thinking will not improve the situation and secure the country's economic wellbeing. History shows that bubble paradigms ultimately cave in on themselves.
She has made the wrong call, she may be able to shelve it because she is riding a wave of support at the moment for other reasons, but by the end of her term/terms she will be remembered as a ineffectual prime minister who didn't fight for her perceived beliefs held prior to the election .Can you put forth a sound argument as to why property investors should not pay tax on gains realised at the time it is sold for profit at any time ?. How can you say that a majority of New Zealanders don't want investment property gains taxed. Who do you speak for, under what mandate?.
I think that conflating peoples happiness with the fact that there is no CGT is an absurdity
It's obvious that proposed changes to CGT are an election killer. It was in the past as it is now and this is the reason why Labour are not going to run with it. Labour have no doubt run the numbers on this and those numbers must be compelling. Of course they would run with it if they thought the changes would give them the mandate to rule alone. Instead the numbers show that they wont rule at all. The implication is that the majority of NZers do not want it. Why don't they want it? Because it would make them unhappy.
Correct. There were a lot of people who were quite uncomfortable or "unhappy" in 1984 when the govt was forced to radically change the structure of the economy. Most people didn't want change. In many ways, change was good and was essentially the catalyst for central bank policy among the Anglo-Saxon countries. Some would say a monster has been created that cannot be tamed.
They may also fairly question, just how long it will be before the carrot is grabbed back. For example GST compensated income tax by the Lange/Douglas government, and then the Clark/Cullen lot, under the flag of Anderton of course, just ratcheted income tax right back up again. And obviously on top of that anyway, there is the dreaded tax bracket creep, that nobody wants to think about.
I’m a bit too old to remember but I think under Muldoon the top income tax rate was in excess of 60%, maybe 66%? In terms of subsequent history that now seems rather ironic. But you can only imagine a miniscule percentage of PAYE participants actually paid that level. But Anderton used that to turn it around by claiming GST had become a tax on the poor, a tax which the rich could afford to pay anyway, easily enough at their previous level. Same sort of cynical argument as Cullen’s. If you can afford private health insurance in the first place, then you don’t need a tax rebate for it.
Call GST whatever you like but he and Clark were part of a government that brought it in. And then they were part of a government that wiped out the relative compensation to PAYE. So as far as I was concerned, as say a middle classer at the time, I ended up still paying GST and then more PAYE than before GST had been introduced. It was an outrageous tax grab, so much so that Peter Dunne couldn’t stomach it and left. Whether or not it was Labour policy, Anderton subsequently fronted it and spent more time on camera about it than anyone in Labour.
The trouble is I cannot believe CGT being equal to 3% of incometax. It might if the family home is included. Maybe they expect plenty from sales of businesses and farms - I've no expertise on either but does it make sense to tax the basis of our countries production? If there is a recession then prices go down so CGT raises nothing just when we need more tax revenue for unemployment benefits.
If you can design a cheap to administer wealth tax I will support it. How about a simple stamp duty on all sales of property? Set it to hit posh houses. What about 5% for everything over $500,000? That would cost me about $30,000 if I sell my house.
I cant see business and farm sales creating a huge take. Most small business is not worth that much, the worth is in what you can make out of it and turning the business into a managed income stream in retirement. Most small business in nz is just not scalable to dizzying capital gains if it ever gets sold...
Is production in a factory or on a farm different from production in a council office? Does a consenting officer just adding restrictions to a consent increase productivity? My instinct is farms and businesses create the wealth the rest of us enjoy - that assertion does not mean the capital has to be owned by wealthy individuals - can be cooperatives or state owned or owned by Kiwisaver. Given that proviso then I agree with you since the only alternative is selling non-renewable resources and selling citizenship.
But we don't have a free market. The value of currency itself is not free market, it is decided by central banks or dictated like any other dictatorship. Central banks dictated the value of houses around the world, their actions have caused the greatest mis-allocation of capital the world has ever seen which is anti-capitalistic at its core. A tax on a gain earned at the point of sale on an investment property held for any length of time would be a very small but just action that central government could have taken to off set the anti-capitalistic actions of central banks. Remember it would have been just a tax on a gain. People get taxed on their labour yet they still go to work, companies get taxed on revenue yet companies still have incentive to exist. Tax revenue is what pays for the teachers that teach our children and the police that protect you and your investment properties in that time of need.
Yes, we need tax, it is a necessary evil. We need a social safety net and there are instances of market failure that make it necessary for the state to intervene. But we should aim for a free market as much as possible. But TOP's proposal is completely different to a capital gains tax. TOP want to tax all major assets on an ongoing basis whether they are earning income or not. So, for example, you would be taxed year after year on your fancy recreational boat based on the imaginary (imputed) income you are earning from it. I'm sorry, but I think that is just nuts.
Agreed paper gains shouldn't be taxed, I mean people may not even have the cash to pay the tax on a paper gain. The tax working groups proposal around investment properties was more common sense. I can't see why tax shouldn't be paid if a property brought for the purposes of investment is sold for profit. Most investments are held for longer than five years anyway with the intent of renters paying of a mortgage over its full term.
GGT has some fairness merits worth debating. But just to clarify, TOP don't want to tax paper gains either. Under their proposal, if you have an asset that isn't going up in value at all, and isn't earning any money at all, like a fancy recreational boat, family home or machinery, you would still be taxed a portion of its value year after year. It is a "wealth tax".
Unless capitalism can provide the means for some to get ludicrously rich, for companies and corporates to get ever larger, then it isn't capitalism anymore. As its name implies, capitalism is the acquisition and accumulation of capital, which inevitably leads, as we see, to vast inequities.
When your basic food is controlled by large foreign corporates, you can't even park your car or deal with your waste without a foreign corporation, then you have to have, at the very least, an inkling that it is time to tear it all down.
Tearing it all down, will be how we can thrive without growth, capitalism (and most of the other isms) require growth, as they all rely on the great ponzi scheme.
We are better than this (well, I hope we are)
We need to take economics-speak out of the debate.
The end aim of a tax is to do something on a civic scale for the greater good. The problem is the temporary fungibility (oops, there goes the econospeak!) of capital which everyone assumes is permanent. Actually, libraries and stadiums and roads and sewers take fossil fuels and resource feed-stocks. Real parts of the planet. The old 'funding for depreciation' (of LGNZ) is a classic example of this problem, which incidentally shows up the fatal flaw of 'economic' thinking. There had to be an earmarking of the energy and fuel resources, physically. Unfortunately, economic-speak doesn't address 'ultimate depletion', this happens when you use a one-page dictionary.
Until economics addresses the finite nature of planet earth, contents thereof, talk of tax is pointless. Totally a deckchair debate on an increasingly-sloping deck. Simmons is in a position to do some leading in this regard - the position is wide open due to nobody occupying it - but that final cognitive leap seems to be one move too far, as yet.
Or maybe he's hamstrung by having to speak in a way the conditioned, propaganda-ised, advertised-to, neoliberal language-speaking mass understand. Quite a trick, articulating a truth in the midst of a false narrative.
Yes. neoliberalism favours the few at the expense of the many. But there too many combined, to get everyone 'rich', even with 100% egalitarianism.
'Putting a price' on water (or any other resource, including carbon as a negative resource) won't solve anything - indeed it just opens up a mechanism for the rich to out-bid the poor - as we can see with water all around the planet. The only way to deal with resources is to cap-and-trade, and to then reduce the cap level until you reach a physically-sustainable equilibrium. If you want to distribute the resource under the cap equitably, fine - that's a human construct, it just has to fit in with physics and ecological maintainability.
And 'capital they need to grow'? Spare me. This fellow wrote 'Hook, Line and Blinkers', didn't he? Apparently it's not just neoliberals who don't get the Limits to Growth..... We are so grossly overshot now, that we need to be discussing the elimination of interest/usury, and a rapid co-ordinated physical de-growth. Yes, we can discuss how to distribute (including tax or an equivalent) during that process, but without addressing it we're wasting our time.
It's self explanatory. Interest, when charged, expects to purchase 'stuff'. More stuff than if it hadn't been charged. And it's exponential. So to reduce 'growth' to zero and below, that growth-demanding portion has to be eliminated. Then only 'capital' can be loaned. Many societies (currently all the ones where there is only sand and you can own a tent, two teapots and a camel type of thing) have outlawed interest-charging, for long portions of history. They do so because exponential anything is a ponzi within finite parameters. The usual alternative is the charging of a flat fee up-front, which automatically eliminates the 'exponential' potential.
But if you do de-growth with the banks still doing their thing, someone else is getting 'poorer'. Most of them won't realise that is the problem - too busy surviving within the system to put their heads up, going right on getting fleeced. It's not just banks either - all 'financial services' are essentially parasitic and are displacing something else, a problem which becomes compounded in a permanent-recession scenario.
I still don't see how that would have your desired effect. Given that the global reserve was taken off the gold standard in 1971, there is nothing finite underpinning all currencies. The extra consumption is fulled by banks ability to lend and create bank credit, thus expanding the currency supply at an exponential rate. Over 90% of money/debt is created by retail banks. These incredibly low interest rates have encouraged people to consume beyond their means by going into debt and has caused asset bubbles like the world has never seen. I would have though increasing interest rates would discourage consumption causing de-growth. Zero interest just ensures more temporary taking from the future and reckless and thoughtless investments favouring some at the expense of others.
It is interesting how inequality and equality are dovetailed if you were to consider, for instance, your civic rates as being a tax. Those in Mt Eden pay vastly more than those in say Mangere, for the same services and probably a smaller area of land. Ditto for Fendalton vs Aranui, Maori Hill vs Pine Hill and so on. If you work to improve your home and consequently lift its value, you will pay more than your neighbour who does the opposite. Is it fair to say that taxation naturally inclines, involuntarily if you like, to target where the wealth is, because it is easy, just like iron filings to a magnet? Think a perusal of the Labour Party manifestos over the years would confirm exactly that. Except of course the innovative Lange/Douglas government. Now what on earth were they trying to do?
Although check out the nice new footpaths in Mt Eden, the flash street lights in the shopping area, the double decker buses every 3 minutes in their own lane, the upgraded playgrounds, the much better accessibility to the majority of council sponsored events in the city and Eden park, etc. then go check out Mangere. I wouldn’t be surprised if Mt Eden residents are getting more for their $ to be honest.
Yes fair point when you look at it down at ground level. Can add to it too. During the Canterbury EQs it was scandalous I suggest, that the more favoured western suburbs were having small pot holes attended to in streets, by equipment that might just have helped, those using buckets and shovels, to clear liquefaction so that they might be able to drive down their street(s) in the poorer eastern suburbs.
Lol seems a bit unequal doesn't it.
Actually you'll only get those figures by deducting social spending from the 50%s tax paid. Stop the need for that social spend,WFF, accom supplement etc, surprise surprise things become more equal both in tax paid and society in general.
Yvil - interesting post. Interesting that you had to divert the conversation, and interesting that you were 'offended'.
It's nothing to do with religion (although economics closely resembles religion, requiring faith in large measure) but it's guaranteed to create unease in the rentier cohort. Pardon me for drawing the obvious conclusion.
Over 50% of the working age population pays no net tax. Tell me again how the system is unbalanced? It's a small minority who are paying most of the tax, and lets not forget that, tax is money they actually earned, they aren't the ones getting a free hand out. Being able to keep what you have worked for, isn't getting a hand out. Getting a hand out it is when you get stuff you didn't earn, just so government can buy votes.
The real issue is that most people aren't intelligent and hard working enough, to be able to earn and save enough money to buy a house. We need to encourage those in society who do well and are productive, set them up as an example for everyone to follow.
Yes but compare me who pays probably about 30% tax overall compared to some multi property investor that made millions over the last decade and didn’t pay a cent. Hardly fair is it? It’s not about the haves and have nots, it’s about the income earners vs the capital earners.
Where the wealth is:
https://www.stats.govt.nz/news/wealth-of-top-20-percent-rises-by-394000
Let’s go back a bit. The Kirk government Property Speculation Tax 1973 arose from perceived profiteering from house sales at that time. The tax could take 9O% of the profit for a sale within 6 months of purchase, 60% for within 2-3 years. That lasted six years. Needless to say it was unpopular but nevertheless Muldoon let it run on for most of his first turn before repealing it. So there it is. We once had,in modern times, more or less an effective, even draconian if you like, form of a CGT.
The bottom 40% don't increase their wealth because they don't save/invest. Put $300/month into the stock market at age 19, and even you stop at 27 you will have invested 38,000 but at historical rates by the time you retire it will be worth 1.8 million.
Just over 1 minute of watching, you can change your life https://www.youtube.com/watch?v=Xim3jZj79DY Tony Robbins
Skudiv - the winners in every system, always make comments like yours. The nonsense is that not everyone can milk the percentage, and there is bidding for the opportunity to do so.
And there is every reason to think that the stock-market is grossly overinflated due to all the QE floating around, indeed that the market is due a 'correction' followed by a long, undulating decline.
Because the 1% own the guns, via ownership of corrupt 'leadership'. This ownership is either by electoral funding (the US) or electoral gifting (almost everywhere in South America, Africa...). That corrupt leadership acquires resources on behalf of the corporates, who pretend to be 'citizens' but who hide behind 'tax havens'.
ISIS is a classic example of a displaced, under-resourced, stolen-from 90%, who chose to fight back. They probably knew they'd lose, but had no choice. First-World corporates (funded by us at the pump) had taken their ownership of their one saleable resource, using an army under control of? Corporate insiders, their election funded by? The corporations.. And that corrupt leadership fudged a story about WMD.
It's always been about enclosure of the commons, to the advantage of the few. Most commentators here are a result of such a move, a very few generations ago. We choose to tell ourselves a more reassuring story - but that story is not true, and is getting us all into existential trouble. Funny old world....
Hilary Clinton out spent Trump 2 to 1. So ownership is not by electoral funding although it obviously does have an effect. Similarly labour is frequently in power in UK, NZ and Australia but left to the machinations of big business and aristocratic wealth they never would gain power.
The Clintons represent the neolib/elite echelon much more than Trump. Bill repealed the Glass Seagall Act - a move exactly aligned with the cartoon message. The established elite just lost that one because so many folk were frustrated, and someone pandered to them. Alle same Germany in the 20's and 30's.
The mainstream media missed that - attacking Trump for his obvious social shortcomings while avoiding the reasons for the angst. And some of them were so adrift they though it would have been good to 'have a woman in power'. It was a general western journalism failure
https://kunstler.com/clusterfuck-nation/an-empire-of-bullshit/
And the writer is no right-wing nutter.......
Agreed. And Trump won not Hilary and he spent less. So money may help but it is not sufficient. Einstein said much the same about Truman's victory. If you and I actually thought reasoned argument had no effect and only money counted we woud not be having this exchange.
If you want an easy and rightful win, don't focus on CGT for now. Go for 'Empty Homes Tax'! Every other responsible Western nation has already tackled this issue for major cities. And yes the RE's and Trust Funds managers will bleat in opposition but you know what. It's a very justifiable and easy tax, don't let them pull the wool over your eyes, just do it.
Isn't our 2018 census results out soon....?
Better dwelling article - London: Transparency International: Only 1 in 5 London Homes Are Sold To Locals
https://betterdwelling.com/city/london/transparency-international-only-…
Article - Paris: Vacant Homes Are A Global Epidemic, And Paris Is Fighting It With A 60% Tax
https://betterdwelling.com/vacant-homes-global-epidemic-paris-fighting-…
Article - Vancouver: Here’s Where Metro Vancouver’s 66,719 Unoccupied Homes Are [Interactive]
https://betterdwelling.com/city/vancouver/heres-metro-vancouvers-66719-…
Good stuff everyone. I like PDK's point of the moment in time (now I think she means) that economics as a study is or should be, replaced by environomics. What little is left to extract needs to managed very carefully is her point. I don't think, however, that the Chinese are listening to this conversation, just using our discussions of it to try & catch up to our standard of living. Which from a lot of sources these days, is heading backwards for many at this moment in time. Perhaps success needs to be redefined to include values other than money, which, if I understand it correctly, is what the well-being budget is supposed to be about. However, the hard reality of life remains, that there are some who will do well & there are others who will do okay, & there are still others that will not do so well, for whatever reason.
Those who do well are then taxed huge amounts for being financially successful, & thereby try to conceal some of their incomes to reduce their tax burden, to the orchestrated (read media) fury of the masses who feel cheated of their measly lot in life.
For me it comes down to choice. I, like everyone in this country, am not forced to do anything I don't want to do. Including work, it seems. Everyone who lives on these islands in the South Pacific has a choice of what they will do today. This includes getting drunk & getting pregnant at 16. This includes not attending school. This includes choosing to be angry with others when things don't go your way. This is life. The real shame of it is that the poor people living in these lands will never know how lucky they really are.
Geoff Simmons, I bet that you wish the same for political party funding. That it were level funded by taxpayers so that politics would then work better for smaller parties like yours now that (captain) morgan has left you high and dry. But it isn't a level playing field. It is the way it has always been. So better get used to it. I would say the same for up and coming investors to learn what works within the rules that we have and make the most of every opportunity.
Its not just housing that is so expensive in NZ, its food. Easy 20-40% dearer than Europe, because of the cosy duopoly between Foodstuffs and Progressives: https://www.numbeo.com/cost-of-living/compare_cities.jsp?country1=Austr…
Well it simply tells me that this country can't lead itself for trying. Exceptionally bad governments of both colours one after the other, decade upon grinding decade while all our saleable assets go on the block. Yes neoliberalism is the current paradigm but its the leadership thats creating the problems by not addressing the obvious symptoms in the first instance. This isn't about tax or too much or the wrong kind, its about the fact we still after 40 years of trying have not been able to create an economy that is easily accessible and sufficiently wealthy for all of us to benefit from. Until thats adressed the staus quo will remain.
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