By Susan St John*
When Terry Baucher and I wrote the first draft of our forthcoming paper: Fair Economic Return (FER) v Land Tax, we assumed that after a 30-year plus history of bitter political squabbling, Capital Gains Tax (CGT) was permanently off the table. We saw FER and land tax as the only two remaining contenders that were capable in the near future, of raising regular and significant annual revenue to meet our nation’s very real challenges.
Let’s take a step back in time. In the late 1980s, New Zealand adopted a radical broad-base, low-rate approach to tax. Our tax system was lauded for years as one of the most neutral and efficient in the OECD. Today, we are no longer this poster child because the broad-base, low-rate requires all income to be taxed, and we have failed to include most capital gains especially in housing. In fairness to Roger Douglas, that was his original intention. In 1990, Labour produced a solid blueprint for a comprehensive CGT that included even the family home (with a modest exemption). By not implementing this plan, and then, losing the election, Labour paved the way for subsequent tax reviews to go the same way.
Thus the latest one, the 2019 Tax Working Group Report, illustrates the pattern. The detailed design of their proposed CGT included land, including improvements to land (other than the family home), shares (but not portfolio investment entities (PIEs) including KiwiSaver), intangible property, and business assets. The voluminous report and background papers illustrate the vast complexities of such a tax.
This comprehensive CGT was famously rejected by PM Jacinda Ardern in 2019. Then in 2023 Labour’s new leader, Chris Hipkins made the captain’s call to abandon a proposed wealth tax prior to the Budget. Clearly there would be no CGT or wealth tax on Labour’s watch. By 2024 National was in charge and CGT seemed truly dead and buried.
Oh how things can change. While the Coalition Government is adamantly opposed to any form of CGT and businesses are also unimpressed as they see enormous compliance and deadweight losses, Labour is now discussing CGT, wealth and a capital income tax. The Inland Revenue (IR) is asking whether New Zealand needs new types of tax, such as on capital gains and land and will invite public consultation on a new insights paper. The CEO of ANZ argues for CGT on the grounds of fairness. Max Rashbrooke writes for The Spinoff claiming there are two main contenders: a CGT and a wealth tax. The voices supporting a CGT grow louder. So even after all we have been through, CGT is well and truly back on the table.
Tiresomely, once again, we will revisit what the CGT should include: is it all capital gains or just those in housing? Issues such as the valuation process and date of start, realisation or accrual, whether the family home should be excluded, how to define a family home, concessions and exemptions, how to tax when a sale is made, over what time period, inflation adjustments, what costs of capital spending on the asset to allow will take years to resolve.
As Rashbrooke says, even if we could get a CGT up and running it would take a long time for it to yield meaningful income. He also sees issues of fairness because the tax applies only on sale of the asset.
Wealth taxes get their revenues from the wealthiest 1%. Under a CGT, by contrast, that 1% can afford not to sell their assets, and can then pass them on tax-free to their children. (To avoid that problem, a CGT would have to be buttressed, further down the line, with an inheritance tax.
My prediction that once the details of a comprehensive CGT are exposed there will be far less public and political support. If National is re-elected, once again it will not see the light of day.
Of the many tax reviews I have followed since the 1980s, the one that made the most impression on me as an economist, teaching public economics and tax for over 30 years, was the 2001 tax review under Robert McLeod. The issues paper and final report are elegantly argued within a clearly principled economics framework. Here is the important conclusion, important because 25 years later nothing has changed:
We do not consider that New Zealand should adopt a general realisations-based capital gains tax. We do not believe that such a tax would make our tax system fairer and more efficient, nor do we believe that it would lower tax avoidance or raise substantial revenue that could be used to reduce rates. Instead, such a tax would increase the complexity and costs of our system.
Using the accepted principles of tax (e.g. equity, efficiency and administrative simplicity) what did the McLeod review think should happen instead? Initially they favoured the risk-free return method (RFRM) to tax the net equity component of owner-occupied and rental houses.
The argument is that if you have money invested in housing you must be expecting a return above what you get in a low risk bond or term deposit. The imputed return should be taxable income. But sadly, they concluded:
… that approach met with such widespread opposition that no government is likely to implement it in the near future. Unfortunately, no more viable way of making this aspect of the tax system fairer and less distortionary has been identified.
In the 2019 review discussed above, three members abstained from the comprehensive CGT recommendation. A limited form of the RFRM was favoured by the prominent tax lawyer Robin Oliver, Joanne Hodge and Kirk Hope; see Minority Report of Tax Working Group, page 3.
…We agree that there is a strong case for extending the extent to which New Zealand taxes what are now untaxed capital gains. However, we consider that the costs of extending the tax rules in a comprehensive manner, as proposed in the Group’s Final Report, would outweigh the benefits. This is a judgment call and we recognise that it is possible to reach differing views when trading off revenue, fairness, integrity, efficiency, and compliance and administrative costs impacts. In our view a comprehensive approach would impose efficiency, compliance and administrative costs that would not be outweighed by the increased revenue, fairness perceptions, and possible integrity benefits of the broader approach.
In our view the case for taxing more gains from residential rental property is clearest. This is based on advice from officials that the taxable income from such properties is low when compared with total economic returns. Comparing taxable income returned from this asset class with a rate representing a risk-free return applied to the same asset class indicates owners are relying on tax-free gains to complement their taxable returns from that investment. …. If gains from residential property are to be more fully taxed, then this could be done with some modifications by extending current rules, including the bright-line tests… Alternatively, we consider that a simpler option could be to apply the risk-free return method, or something similar, to residential housing... Extending the tax base in this more limited way would generate much of the revenue expected from the comprehensive capital gains tax contained in Volume II. Officials estimate that some 39% of the total revenue from a capital gains tax would be from residential houses over a 10 year time period time.
In Jan 2021, Craig Elliffe, Professor of Tax Law and Policy, University of Auckland said encouragingly;
My view is that pulling the tax lever is worth considering again. Susan St John has rightly raised the logic of using the Risk-Free Return Method (RFRM) as a sensible alternative. The Government's Tax Working Group in 2018/2019 carefully considered RFRM as an alternative to a comprehensive capital gains tax. Papers prepared for the Tax Working Group discussion in October 2018 disclosed that at a risk-free return rate of 3.5 per cent the estimated revenue from introducing an RFRM (in addition to the existing rules such as the bright-line provisions) would be approximately $1 billion in year one. After 10 years, by 2031, this would increase to $2 billion a year. Some landlords would pay less tax (if they had meagre interest costs and high rental returns), but there would be extra deemed income across the sector.
Elliffe noted “numerous attractions include comparative ease of calculation and certainty of income stream for the government.”
If we can put CGT back on the table, surely we can put this RFRM idea back on the table and investigate it properly. This is what Terry Baucher and I have attempted in a series of articles that reinvent the RFRM for the 2020s. We call it the Fair Economic Return (FER).
We start by being very clear about what problem we are addressing. Untaxed accumulated capital gains in real estate have intensified the wealth divide, creating enormous chasms between the top and bottom of the wealth distribution. Far too many scarce land and building resources are sucked into high-end housing and are not available for more productive uses.
Basic housing is scarce and unaffordable. The outcome is socially divisive and economically corrosive with a two-tiered society of increasing poverty and misery at one end and obscene luxury at the other.
The market mechanism or ‘invisible hand’ beloved of neoliberals is paralysed. Consumption by the top tier of society is fuelled by compounding untaxed capital gains, and is unconstrained by price. They can buy whatever they like regardless of price and they can appropriate the low cost labour of others to provide their excessive consumption. The bottom end of town faces all the rigours of free market competition. For them every cent counts, and price rises mean they can’t afford to buy the basics of life. They pay the price for fighting inflation with low wages, job insecurity, and horrendous rent rises.
But if the wealth divide is the problem, a CGT can’t solve it. A CGT can apply to only future capital gains and cannot reduce the wealth gap. If the family home is exempt, and CGT applies only on realisation, little revenue will ensue, especially in the short term. Yes, a CGT might be better than doing nothing, but times call for a new more radical approach.
To overcome most of the failures and limitations of a CGT, the FER has been proposed by Terry Baucher and myself in the following publications:
♦ The Fair Economic Return: Restoring equity to the social fabric of New Zealand. RPRC working paper 2021-1 30th June.
♦ The housing crisis, taxation policy: restoring equity to the social fabric of New Zealand Wednesday, Auckland University of Technology, 28th April 2021.
♦ PIE Policy Report 2022-2: Fair Economic Return Revisited.
♦ Presentation at the housing affordability conference, EPC 9th Sept Auckland Business School, power point presentation, ppts FER 9th sept’.
♦ NZ’s housing-market drives-inequality why not just tax houses like any other income. The Conversation, 21st June 2023, also Stuff, interest.co.nz.
♦ Republished in : A year of consequence—Essays that got the world talking, 2023 The Conversation, editors Grattan, M and Bergman J, Thames and Hudson, Australia.
♦ FER v Land Tax forthcoming October 2024.
*Susan St John is Honorary Associate Professor, Economic Policy Centre, Auckland Business School, at the University of Auckland.
71 Comments
Max Rashbrooke, as an academic from the far Left, has been pushing for a wealth tax for some years, totally oblivious to the consequences if this were enacted. He needs to read up on why so many countries that had a wealth tax eliminated them. But of course, there may be a desire to make NZ a third-world country. by increasing the size of the government and eliminating private investment.
I think that is absolutely the plan of the Left. If you drive all the wealthy and aspiring-to-be-wealthy people to Australia or Singapore, then all you are left with is the low income, beneficiary-dependent, and too-thick-to-know-better voters, and voila, "inequality" is solved overnight. And the bonus - you have guaranteed yourself political power for ever.
The medical system would collapse. Recent analysis of the Australian negative gearing tax claimants shows that 42% of surgeons own investment properties, half of which are negatively geared. Might go someway to already explaining why we cant get surgeons to want to immigrate to NZ. Govt policies have consequences - not all of them obvious at first sight.
I'm a centre right property investor and even I can see our tax system is broken and not fit for purpose.
We charge GST on food essentials yet allow property investors tax free capital gains on residential real estate. It's wrong, it's unfair, inequitable and a stain on our social fabric. I find it disgusting to be honest, so argue all you want against a wealth or capital gains tax. You're wrong.
Wealth taxes come in many forms, speaking of sweeping statements.
Wealthy Kiwi's leaving may even be a good thing because, let's be honest, us property investors are unimaginative and entrepreneurially stunted. In Australia there is stamp duty, annual land tax and CGT - of which we have none. Even tucked into SMSF, there are costs and restrictions.
Can't be a very up to date property investor. NZ already has a capital gains tax called The Brightline tax. It's been around since 2015. Keep up. Taxing something neither makes it more abundant nor cheaper. Cannot tax ones self to wealth. That's more of a left wing socialist labour approach, than right wing basic economics.
One would also be much less vocal & in favour of A CGT if it were to be backdated for all historic rentals as well. The only right wing investors in favour of taxing the he'll out of property are those who've invested for decades & simply do not wish the next up & coming investor generation to catch up & compete. Advocating for a 39% self tax of ones assets is essentially cutting off ones nose to spite the face. This doesn't sound like a right wing approach at all, but more a left wing envy tax advocate.
Where did I say I advocated for 39% CGT? For all intents and purposes the Brightline test is gone, which leaves us the only Western economy without a CGT on residential property investment. It's not right v left, it's getting a fair tax system in place so that struggling families aren't paying tax on food basics while property investors get a free ride.
39% CGT would be the taxed rate should it be implemented.
The Brightline still target speculators & flippers with its two year period, exactly as it should. Most flippers understand this & factor it in the costing. The purpose of holding properties longer are for eventual cash flow through rental income or to sell for retirement funds.
A fair & non biased tax system as you say, taxes either all forms of profit, or no forms at all. Because unlike opinions, both profit & taxes are not biased as to who makes profit & how.
So to implement a true fair & non biased tax system, all primary family homes would be heavily taxed upon sale, preventing many households from upgrading in future, all kiwisavers heavily taxed, preventing plenty of would be FHBs from being able to buy, & eventually being able to retire & live off the KS funds, all generational farms heavily taxed when past down from generation to generation, preventing future generations from being able to build on & improve the efforts of the previous generation, all inheritance heavily taxed, preventing many from using this often large fund towards a hone deposit or to pay off a mortgage.
Nobody wants a true fair & non biased tax system. The very tax system you advocate is again one of envy tax, by where the idea is to tax those who have, & hopefully it will trickle down to positively effect those who have not. The trickle down theory does not work. One cannot Rob Peter to pay Paul, & expect that it creates equal outcomes & fairness. That's leftist labour gibberish. Again, one cannot tax onesself to financial prosperity. The last 6 years under Labour attempting to do just that should be evident enough of this.
In the end, nobody gets a free ride, most particularly those at the bottom just starting out. Labourdecieved many into believing handouts & envy taxes were the way forward, yet has put us backwards. Tenants must learn to pay their way just like everyone else. That means paying adequate rent. It is not the job nor the responsibility of a private landlord to financially educate a tenant, nor is it their responsibility to heavily discount their services out of charity so that tenants may have an easier time to buy a property. That responsibility lands on each individual. In most cases, private landlords first started out as tenants, then becoming home owners. They did all this without handouts & envy taxes. If they can do it, so can other tenants. Blame, denial, deflection & deception causes tenants to remain stagnant. Always someone else's fault why they can't get ahead. Their greedy boses fault for not paying them enough, their greedy landlords fault for charging too much rent. The success starts when the complaining stops & the personal individual accountability starts. One things for certain, a true fair & non biased 39% tax system would put tenants even further back than they are now, likely for life. Shifting both blame & taxes off one entity to another is not the solution.
It might be inequitable but it may also be necessary. NZ is a poor cousin to other countries (particularly Australia), our standard of living is much lower. We need to incentivise successful people not just to come to NZ, but to want to stay here. Otherwise our standard of living falls even faster as we make do without surgeons, CEOs, entrepreneurs, and other talented people who are monetarily rewarded for their endeavours. It seems you would be happy for the country to be poorer, so long as its fairer? Everyone wallowing in equal poverty? I on the other hand would prefer the country to be richer, and those who made it so, to be compensated for doing it.
Are you saying we'll have an influx of surgeons from Australia now that National are restoring landlord's dignity?
Maybe we should allow Surgeons to buy shares in hospital equipment too, wonder what the rent would be to a 6 year old on a dialysis machine? All to keep them in the country am I right?
Maybe. All I know is that half of Australia's medical workforce are internationally born (56% of GPs, 47% of Specialists)
Australia has no problem attracting skilled surgeons to their hospitals, despite a 45% tax rate on their million dollar salaries (which explains why so many surgeons negatively gear). While NZ can't. It was probably also the threat of the Labour Govts wealth tax (and the invasive IRD investigation into wealthy people's asset holdings) that have put off people like surgeons from moving here, as evidenced by the collapse in people seeking an investment visa. My point is that many things go into the consideration of where to move to when looking to relocate - and the short sightedness of the Left to just "tax everything" will have outcomes that they are currently not foreseeing.
There's many things Australia has no problem with. Their surgeons cannot claim Government Super if they reach retirement age and still employed. How much stamp duty did their surgeons pay for each house they buy? You're right on the tax too, 45% versus our "abhorrent" 39% top rate.
So what you're saying, is rather than live in NZ and own rental property in Australia, Surgeons are moving their whole lives to Australia because of....*checks notes*...mortgage interest deductibility changes?
This might have helped to hang onto a few.
https://www.rnz.co.nz/news/national/473245/pressures-profits-and-patien…
What's the failing health system that National inherited off Labours last 6 years of governing got any relevance or connection to the rightful restoring & reversing of Labours implemented taxing, palenalzing housing policies which saw the greatest increase of both rents & property prices by the fastest rate in our country's history?
Every generation has a "brain drain" to other countries, this is no exception. It's conveniant timing this time that plenty are leaving right at the end of the mess Labour has created & now National have to figure out how to indo before they redo. If Labour had have done such a great job as their decieved voterbase claim, far less would be leaving.
Max Rashbrooke is an academic from the far Left who has always advocated a wealth tax. He is oblivious to the consequences of wealth taxes, which numerous countries have eliminated after having them for a number of years. https://urldefense.com/v3/__https:/www.google.com/url?sa=t&source=web&r…$
There was considerable asset price inflation during the 2000s and 2010s, which didn't trickle down into the CPI. This was caused directly by state actions - QE, low rates, etc.
Hence there is something of a moral hazard attached to a capital gains tax..
And, taxing asset price increases caused by monetary easing is a tax on capital not capital gains.
Could also be that land being removed from the CPI in 99 was the main cause - when economics became financial investment rather than producing goods and services.
Monetary policy and QE etc is all about keeping the debt system going, keeping the wealth extraction into Wall Street etc. The inflation/deflation argument is simply to keep the masses inline.
When central banks can manipulate aggregate demand, there is no free market.
That we're still arguing income/capital gains 30 something years later highlights how clueless and ignorant - or is just entitled - we really are.
In the meantime let's keep choosing to repeat the same thinking that keeps getting us into these financial dilemmas.
All the asset inflation and wealth creation of the last 30 years, and where exactly has it got us? Monetary policy is literally an experiment, hence the first ever engineered recession.
Good article. But at the end of the day, NZ urgently needs a few things:
- A hefty CGT applied to all home and residential land transactions. Excluding the family home. OR
- Only allowing property investment in new builds. With no exceptions.
- Not allowing use of family home equity to buy property.
- Reduce the lending/leverage available to property investors, to give FHB a significant advantage.
- Banning investment purchase of homes that are below the median home value in a suburb.
- Banning short term rentals except in bach/holiday locations.
It is. But at the end of the day homes need to be removed as the main investment vehicle for NZ. Homes should be for people to live in, otherwise all young people will continue to leave for overseas. Unaffordable housing has massive negative implications to society as a whole. Case in point; emergency housing.
To accompany this transition, to an affordable and sustainable housing market, tax should not be applied to kiwisaver assets, dividends or gains. And employee contributions should be made tax free, to incentivise everyone to save for their retirement, at minimal/no cost to the govt. Employers need to fund retirements again so follow Australia's lead and force employers to contribute a minimum of 5% into KiwiSaver.
KiwiSaver hardship withdrawals prior to 60 should be taxed as income.
Kiwisaver first home withdrawals should be capped at 5% of the purchase price.
Those policies are all just playing distraction. Fix the underlying reasons for why housing is such a headwind to our nation.
-Free up land supply, and planning laws. Up and out. We have heaps of land.. its criminal how much a section costs on the outskirts of Auckland. Work is being done on this but its not fast enough.
-Reduce build costs through whatever means necessary
-Drastically reduce immigration targets/quotas (the economy is doing that for us at the moment but it will swing back)
More houses, built cheaper, for less ppl. Over decades this will change investment behaviour massively.. it will no longer the no brainer investment that it currently is. Also.. if you are going to tax capital gains.. tax it all. The family home needs to be included as its too big an exemption. And only if total tax take doesnt change (ie lower income/corporate taxes at the same time)
Directing property investors to new builds is exactly what drove up rents under Labour. New builds cost a lot more money than existing properties to buy, therefore landlords need to get a much higher rent for them, so low income tenants are rapidly driven into social housing due to increasing rents and scarcity of older rental properties. And when new builds stop getting built at all (like now) then where do all the new tenants live then? Labour oversaw a 500% increase in the number of families on the public housing waitlist - do we really want a repeat of that until all but the richest of tenants are living in homes funded by the taxpayer?
1. Why exclude the family home? Tax & profit unlike opinions is not envious or biased as to who makes it & how. What you advocate for is no more biased than the current tax system we currently have. Now a fair tax system would either tax all forms of profit, or none at all, regardless of how it's made. This means a hefty tax on primary family.homes, kiwisaver, generational farms, inheritance, stocks & bonds & cryptocurrency. This would be a fair tax system, but of course since the have nots only want the haves to be taxed until they have as little as them, this fair & non biased tax system would hardly be welcomed & which ever government voted it in would quickly be removed come next election. Hence even labour was too timid to try implement.
We also already have a hefty CGT on non primary homes, called the brightline tax, which has been in place since 2015. Keep up.
2. Expecting private landlords to supply further housing is not thier job. That is the government's job, something labour failed to do be historic margins, & national know not to re attempt to suffer the same fate. If private landlords are only welcome to invest in new builds, & new builds are.horrendously expensive, then of course the rent will need to actively reflect this as well. Private landlords don't rent homes to those who can't buy out of charity, it is a business, so there needs to be profitability out of private landlording, from either capital gain, or cashflow. One cannot take both away & still expect that a rental market will still exist out of charitable nature. Considering 80% of the rental market is held by private landlords, not government, the government requires private landlords to continue to house nearly half the country that they themselves cannot house in emmergancy social housing.
3. How else are Kiwis suppost to save for their retirement if they are not able to put their equity to good use? NZ Stats shows the average 50yo NZr has just $2,300 saved towards retirement & at age 65yo 90% cannot get.their hands on more than $10,000. Stocks, bonds, crypto much too volatile & risky for most. One cannot save ones self to wealthy or rely heavily on gov assistance come retirement, as pensions alone are not nearly enough to survive on let alone thrive come retirement as a thanks for working 45yrs of one's life away. The ability to use one's equity at very least on the primary residence only is now the primary reason keeping most retirees out of a state of poverty. I'm in full support of this method continuing for the greater good of our country.
4. FHBs already have significant leverage lending abilities and advantages over investors when they only require 10% deposits. Investors still require 30% deposits, thats 3x less money FHBs require. All debt is considered before being approved & investors will have far more debt than a would be FHB. The significant leverage and lending favourbility is tipped about as far as it can go towards the favour of a FHB.
Also, when one is just starting out, one can't expect that one has the same advantages & opportunities available to them as someone who has already a proven track record. That's like expecting that a janitor should get paid as much as the CEO of the company, to "retirement the balance", otherwise it's unfair. Who said life was fair? Cannot expect to have it all when first starting out. That's entitlement, not fairness.
5. Banning? Have we not learnt over the last 6 years under Labour what happens when we villyfy those who have, for the sake of those who have not. It always ends up worse off for the have nots. Instead, try.incentivize, not penalize.
6. Short term rentals are nor nearly the problem here.
It already did. To most people this conversation doesn't exist, and never will. It only seems to exist in forums like this and the occasional article on stuff. Otherwise people don't discuss it and don't care. If this does become an issue in public again (such as Labour or the Greens promoting the theft of peoples assets), then whatever party that does that, is unelectable. Simple. Sure, some people would like the rich to be taxed more....but when those people also find that you want to tax them if they sell their family home, then the support goes poof, and the issue is buried. You may as well be discussing the imminent arrival of aliens.
Maybe, just maybe, this is why the PM has so decisively reiterated that "There will be no Capital Gains Tax in New Zealand!" - becasue he will consider the sense of the Fair Economic Return Model ("That's' not CGT!" he will be able to claim) and that will get implemented in due course, to address the crux of the problem, "Untaxed accumulated capital gains in real estate" ? Let's hope so.
It's coming now. It will be a decisive election topic where labour will claim the fatcat landlords are paying no tax whilst the poor and middle class have to make up the difference.
7houseluxon just became 5 house luxon and soon to be 1 house luxon. If he was so sure of the property market surely he would be trying to be 10 house luxon...
No brainer. Labour back in da house on the back of CGT.
Historically that was the case. public opinion on CGT has changed - along wil affordable housing its now acceptable and may even be a priority for swing voters.
Kiwis are leaving, tax takes are too low.... grey power, middle class and the ext gen of voters have vastly different priorities now
for luxon cgt is a worry - for labour its a opportunity
Firstly , we ought to strip away some unnecessary and costly government expenditures : WFF , winter energy payments , accommodation supplements , interest free student loans , etc ...
.... secondly , remove the charities tax free status ... a nation of 5 million people ought not have 28000 registered charities , who annually receive $ 16 billion tax free ...
Finally : introduce both a LVT & a stamp duty on property transactions .... sorted ! Off to the boozer for a pie & a pint ...
I'm still not convinced that the Singapore system would scale geographically. From what I've read, it seems like a good system for them, but how would it work in less densely populated areas, such as rural regions and smaller towns. Situations that basically don't exist in Singapore.
And Singapore has a significant number of workers commuting from Malaysia for low-wage jobs. How does their medical care compare? It's likely many of those commuting every day from Malaysia will be using medical services in Malaysia rather than Singapore which would take a massive load of Singapore's health system, it looks like they are taking some small steps to change this but it doesn't remove that "advantage" Singapore has that allows a health system like theirs to work so effectively for their citizens.
Our healthcare would likely be more affordable if we had an entire class of workers who we took very little responsibility for, but that's hardly replicable here in New Zealand.
I'd prefer that we took some steps towards adding competition and innovation into our health system , rather than just shifting the deckchairs as the current government is , or totally centralising all control into a Wellington mega bureaucracy as the previous government attempted ...
We keep hearing these taxes will solve our wealth inequality, while ignoring the fact that other countries that implemented similar schemes still see the same (or worse) levels of inequality. It would appear they struggle for public buy-in, because they are pitching a solution without showing how it will fixes the problem they seek to address.
If we do what others else has done, we will end up with more of the same. We need some unique ideas (which will need to come from people much smarter than I as unfortunately I don't have an answer either).
VK yep because it's the capital between the ears that is the most important. Notice no matter what govt do or how bad things are there is always people in any situation making money and people who are dirt poor always has been always will be. That 6 inches between the ears is the most important un taxed investment you have
Yet another example of the Post hoc ergo propter hoc fallacy. Pub-economics at it's finest.
If you want a tax that will increase the size of the state*
This seems to be about the only thing we can accomplish with extra tax revenue. The Crown collected tens of billions more tax in the last five years than it was previously and could still only muster margin-of-error movements in poverty stats.
The only thing an iheritance tax does to close the gap is drag the top towards the bottom. If that's all you're aiming to do then job done. Actually improving life for those at the bottom appears to be too hard.
Then you need to consider the implications of how much asset prices need to constantly inflate to raise enough money to offset income taxes with constant, arguably even increasing CGT revenue.
We've been down this road with housing and seen the laws unintended of consequences in action when it came to our ridiculously low top tax rate threshold (39c over $60K in the Cullen era).
Not if you have a land tax (on top of rates) and reduce PAYE by the same amount. Crude example (I'm not suggesting we replace PAYE with LT), take the NZ urban area of roughly 5000 km2. In 2022, the Govt collected $38b in income taxes.
If you wanted to recover that just from the 5000 km2 of urban, then you'd charge $7.60 per m2. My household with a 1080m2 section would pay $8.2k p.a. in land taxes, instead of about $70k in PAYE. Works even better if you're in an apartment. Land tax divided by number of apartments. Sucks for renters though, because while their landlords would start paying tax, they'd have to jack up the rent.
My advice ...
- 95 cents of every dollar collected must be used to offset another tax, e.g. GST on food, the first $20k of income, etc.
- rates are set very low to start with
- use nominal amounts (i.e. no adjustments for inflation, indexation, etc.)
- no allowances, e.g. the first $100k is never exempt
- no exceptions (i.e. the family home is included)
- taxes are paid at any type of full or partial ownership transferal (i.e. death, gifting, partial sales, etc.)
- taxes due can be paid by installment over a maximum of 10 years with the RF interest rate applied
- a percentage of capital losses may be used to offset future tax
- similar taxes are scrapped, e.g. the bright line b.s.
... and the finale? ...
- Rates are progressive in the same way PAYE is. (See what I did there? Probably not. This is a fun one.)
Oh. And the tax starts at the year 1900, i.e. it's retrospective, in the interests of intergenerational fairness.
The accountants and tax planners are already the winners because of the absence of CGT. They've already devoted vast quantities to avoiding income tax, hence partly the reason we're in this predicament now.
An Income Tax law that imposes tax more on productive labour than unproductive investment.
We wouldn't be having this problem if we just said all income is taxed. Then it's simply at what rate. If the unearned, unproductive, socially harmful gains were taxed 100%, maybe the accountants and tax planners could apply their skills to more productive endeavours, rather than complex tax/trust/corporate structures.
Now we have a history of these perceived capital entitlements that is hindering us from making any real changes. Everyone's become a Gollum, "my precious gains".
Fact is the horse has truly bolted never to be seen again, and we still have a wide open barn, the doors barely hanging on their hinges.
At the end of the day NZ is competing with Australia for capital and talent. Any Australian wanting to invest in property or shares or a business is able to utilise the Self Managed Superannuation Fund set up. Where income tax is a max of 15% and capital gains tax is a max of 10% for assets held longer than a year. And the kicker - the tax rate becomes zero on income or CGT once you turn 60.
What will NZ do to stop people running off to Australia and investing over there instead of NZ? SMSF are not complicated, they're now designed for the average person thanks to new tech platforms that support them, and there is no minimum asset value required to set one up - so you don't need to be Fay Richwhite with holding companies in Panama to avoid paying tax on your investments.
"Basic housing is scarce and unaffordable. The outcome is socially divisive and economically corrosive with a two-tiered society of increasing poverty and misery at one end and obscene luxury at the other."
Oh the wonders of massive population growth and previous GDP growth. I thought this promised a low tax, high income utopia? It didn't? Never mind, the next round of mass immigration and GDP growth will fix all issues caused by the previous round of the same.
Economic inequality is not all that fashionable among our government agencies. Current trends are to instead tackle structural inequalities of gender, race, religion, sexuality, climate and so on. This is done by providing resource to leaders and allies who will act in the interest of their community. The recipients of this funding are politically well connected and wealthy.
This poses a big problem for the whole FER concept in that it is designed to tackle economic inequality by producing revenue for redistribution and/or social investment by our government. Then our government redistributes it to wealthy people to tackle structural inequality instead.
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