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.
149 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.
Well the secret to both a countries and an individuals prosperity, particularly financial prosperity is certainly not taxing oneself to prosperity. That's like telling on yourself & expecting some kind of reward as a result. Counterproductive. The secret to prosperity would involve incentivizing, not penalizing. You don't get a donkey through a corn field by whipping it. Both sides are so concerned with penalizing one for the sake of the other, that they miss the point entirely. We've had decades of penalizing. Time for a new approach. If the current lot of mps on both sides can't or won't do it, then they need to be told to step aside & let a new generation of leaders give it a go.
the secret to both a countries and an individuals prosperity, particularly financial prosperity is certainly not taxing oneself to prosperity.
The goal isn't to tax to prosperity, it is to allow those who succeed to still earn more, but not by orders of magnitude such has been the snowballing effect of leveraging equity in residential property. We used to have a 66% top tax rate and the country build massive infrastructure projects such as hospitals, roads, bridges, tunnels etc and there was still plenty of aspiring people becoming high paid professionals in medicine, engineering etc. We have slowly but surely pandered to the interests of the wealthy since the 50's, lead by America by removing the gold standard, creating financial crises then solving them with adding more debt, enter the derivatives market and QE. We have lowered tax rates across the lifespan of the baby boomer generation who are the largest and wealthiest generation, and now we are being told not to vote for the likes of a CGT which the rest of the OECD has, and other means of allowing the middle class a chance against those who have amassed untold wealth. Everyone can see the system is broken in so many ways, but lowering and lowering tax take forever doesn't fix the issue. We have to pay if we wish to have the living standards we so want.
So again how does taxing "the wealthy" further produce more productivity? Considering it's the wealthy that are the ones that help build such infrastructure.
You also do relize that considering just 6% of the country are property investors, and of that, 80% own just one rental property. So again, the extra tax take on such figures is likely to be fairly low & insignificant, & certainly not nearly enough to use the extra tax take to build & improve on massive infrastructure.
If having just 1 rental property makes someone "wealthy", particularly considering that 60% of investors still have mortgages on those rentals, then the bar has been set incredibly low for defining what "wealthy" is in this country. Shows just how far poverty has been allowed by successive governments to infiltrate.
It again does not explain how attempting to tax more less than 6% of the the population with mostly 1 rental property for a retirement booster will in any way improve our economy, & help to get more tenants into homes of their own. It is much more likely that this stems not from "the greater good of our country" to implement a CGT but yet another envy tax with unintended consequences.
If tax take is so important, than it should not be biased, it should tax all property, including the family home. Taxing everyone to financial prosperity in the name of "equality" is not a successful method. Advocating for a CGT does not answer the questio of how it helps more tenants into homes, which of course is the ultimate goal. Penalizing those who have, for the sake of those have haven't has been labours approach over the last 6 years, & just look at the damage it's caused. We are all worse off after their tampering.
Are the envious really that prepared to live a worse off lifestyle just to attempt to try punish less than 6% of the population with a rental, which a majority of those will of course be middle class mum and dad investors. Sounds much more like robbing Peter to pay Paul. Rather unproductive & unconvincing & ineffective. Taxing further "the greedy landlord" does not bring tenants closer to ownership, this has been proven over & over again over the Adern years. All it does is help temporarily make tenants feel like they have a little power by punishing those who have more, but does little to improve their own position.
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.
CGT is paid at your marginal rate right now, if you are in that tax bracket and you get caught by the bright line tax. The CGT being proposed by Labour and the TWG was at marginal rates. So that is where that comes from. CGT will not be implemented (most likely not at all) but never at marginal rates. So, as long as the left keeps talking like that. Notthing will ever happen.
39% is based on the highest tax take, which is generally exactly what the CGT advocates advocate for, the harshest tax penalty for the entities they deem to be making too much profit.
Currently the Brightline tax take stands at 33% for an individual & 28% tax for a business entity.
What did you understand the advocating CGT % rate to be at? Could I help you to understand this better? Or is advocating for a CGT for just property investment only your alarmist nonsense? Could you explain how taxing something makes it cheaper & brings tenants closer to home ownership?
Number8wired your assuming that being Woke is something in good faith? It's very well known that Woke agendas & companies eventually end up going broke. Considering this is a financial forum, & Wokism is the common theme in financial turmoil, I'd say it's completly relevant & safe to assume that anyone that speaks out against wokism has plenty of value to add "in good faith". The fact that one may not like the fact that wokism isn't supported by all is irrelevant. Anything else you would like help in understanding in good faith?
The more people realise that we are being manipulated by main stream media, that they are just paid actors and many so called ‘news articles’ are just paid for opinion pieces to try and move your opinion about a topic. This whole narrative about leveraged property investors we seem to be in the grip of, is BS, the country is leveraged, we live in a debt based system, what happens when you put money in a bank, it’s gone, the bank loans it and leverages it! And the return is less than inflation. The money is BROKEN, that’s the problem, so much so, we have to invest in risky investments like stocks/bonds to try and get a return above inflation. People invest in housing because it’s an asset that appreciates with inflation and is seen as a reasonably safe(though somewhat illiquid) investment. The narrative that all real estate investor own 50 houses and are feeding off the backs of everyone else is false most are just ordinary people trying to make a better life and increase/preserve their wealth in a legal way. Ultimately the government stepped away from providing housing(their social responsibility) when they sold off state housing and created the private landlord business which is fully supported by the banks who don’t want to take ricks so only loan to buy property. The problem is the system that has grown from the broken money. Please stop falling for this narrative that there is a bunch of evil people, Please read Broken Money Why Our Financial System Is Failing Us and How We Can Make It Better by Lyn Alden.
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
Incorrect. A CGT on all property including the family home is less distortionary as everything has the same CGT tax rate therefore if you wish to upgrade, you certainly could, it would simply mean you can't bank on your house going up by a large sum of value to fund it, you would have to raise the extra money from other means like work, investments etc, and as the house you aspire to buy will also have the same CGT applied, it is fair and reasonable in its entirety.
"A CGT on all property including the family home is less distortionary"
Inccorrect.A CGT on all property including the family home is certainly not biased and fair. Are we advocating for taxing profits, regardless of how it's made, as tax works that way, or for those that have more than others? Because if it's the later, that is not how tax takes work. That is called envy. One cannot claim to advocate for a fairer tax system by taxing investors only. It's either a claim come from pure envy with no backing, or it's a full support in taxing all forms of profit. Since most non investors would strongly disagree with their primary home being taxed, the CGT advocaters are showing they stand for Nimbyism, not equality. "Tax those people over there because they have more than me, as long as you don't tax me more". That is not equality, that is envy, pure & simple.
"it would simply mean you can't bank on your house going up by a large sum of value to fund it, you would have to raise the extra money from other means like work, investments ect"
Exactly. Applying a CGT heavily restricts peolles ability to use their equity position to upgrade or invest. Therefore supporting that a CGT applied to all homes including the family home is both fair & non biased, as the purpose of selling one home to upgrade is exactly that, home owners expect to use the additional capital gains to upgrade in their favour. Since this is profit, this must also be taxed. Again taxing each other out of envy does not assist more tenants into homes, nor solve inequality, poverty, housing issues or any other issue except a temporary "feel good" vibe from those who have less.
You have successfully explained why applying a CGT to all properties including family home would be fair, but it does not explain how taxing everybody more somehow helps those who have less?
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.
There's nothing about owning and renting out properties that makes the country wealthier. It's parasitic. I don't blame them, if you can't beat 'em join 'em. However when it comes to policy, this is the least productive and most incentivised investment strategy. It's an obvious low hanging fruit to improve productivity.
People who create and sell successful businesses (aka actual wealth creators) are taxed on the sale.
Number8Wire, rental income is already taxed yearly at the end of each financial year. This business model is already heavily taxed, yet your suggestion is to tax it further, and somehow this will make rents cheaper? Property Prices cheaper? More houses available or built?
Whats parasitic is expecting to be housed in a house that one does not own, for next to nothing, simply because one can't be bothered to do what's required to own a home of their own. Then expecting that it is the job and responsibility of the home owner to financially assist oneself.
Nearly 50% of the country rent, with 80% of those to private landlords. The last government tried and failed by historic margins to house more. Do the simple math. The gov cannot house half the country that rent, & not every tenant could get themselves to a financial position to buy a home themselves. It is not the landlords job to financially assist tenants into a home by heavily discounting their services. Thisnis a business, not a charity. If one fails to do what's required to own, one will forever pay someone else to do it for them. It's that simple.
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?
Surgeons (or anyone) that own investment real estate probably don't get much or ANY pension from the Aus government, regardless of whether they work or not in retirement. The reason is because anyone who has assets in Aus get a reduced pension on the basis of an 'asset test', or no pension at all if the value of assets (or the income they produce) are way above the threshold. Anyone, including surgeons, will find that NZ is actually a better place to retire (from the financial point of view), just because the pension here is not means tested.
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.
Yeah so we should lower their income tax, and business tax, reward their productive efforts. And disincentivise making money off the back of hard working kiwis. If a surgeon makes enough on property they may even give up surgery.
We need to incentivise contributions to society that improves the good of everyone. Making money on property investments, because it’s so easy to avoid any tax, makes it grow like a cancer, slowly killing off its host, sucking the life out of our economy by taking money that could be used for business investment. As a result wages are kept low and people find work overseas as a result.
One would hope that a surgeon does not get in to their profession for mostly the money. That's business, not medical care. I personally wouldn't want a surgeon anywhere near me that cares more about his money than he does myself as the patient. Plenty of professions where making top dollar is the priority, the medical profession is not one of them. Our entire health care system has been failing for years due to this very reason. If one wishes to male a lot of money, and that is their top priority, start or operate a business, don't work for someone else.
We 100% need property or CGT tax on property though, and need it properly done. Brightline was a joke, like a chain smoker dropping down from 3 packs a week to 2.
We apparently don't have CGT but we tax the capital gains on many assets, but not property. It's very corrupt.
Then we advocate to tax all property gains, including the primary family home. To leave this out would be just as selective and biased of a tax system as the one we currently have. How one can think that financial prosperity will be found in further taxing ones self is quite likely why a majority never make it to financial prosperity, as they simply dont understand it, nor do they understand what they ask for.
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?
Directing property investors to new builds is exactly what drove up rents under Labour.
Not really, rents fell significantly with the boarders being closed. They started rising when they opened again.
Supply and demand (demand in the form of new renters can arrive a lot faster off a plane than supply can). The older properties are made scarce by population growth.
I do agree rents for new houses are normally higher than an equivalent older house, but population growth is the key driver.
Population growth and poor government policy. There's a reason why rents rose over two and a half times faster under the last Labour governments 6 years than under 9 years of the last National government. There's a reason why rent rose to an all time 17year high of 60% increase in rents and over 548% increase in the government's emergancy social housing wait list during Labours 6 years tampering, restricting & penalizing the housing market. You don't get drastic increases like that in such a short space of time with just immigration alone. C'mon, hold our governments accountable.
There's a reason why rents rose
There is and it's called supply of houses compared with demand for houses.
You don't get drastic increases like that in such a short space of time with just immigration alone.
Yes, you can actually. Zero immigration and we would have never run into the housing shortages we have experienced (and I'm not just referring to the last 6 years, I'm referring to at least as far back as the 1990's). Obviously, immigration alone isn't to blame, but to pretend it's not the main driver of demand would to be willfully blind (as many are). For the waiting list, how you measure it (or just by bothering to) can have a much larger effect on the numbers. A bit like unemployment numbers...'lies, damn lies and statistics' comes to mind.
C'mon, hold our governments accountable.
Absolutely, but you must understand the problem/true cause to do that. I've been asking why we (NZ) were importing taxi drivers ever since I moved to Auckland in 1999 and advocating for a land tax longer than most.
So then the answer is simple - if immigration is the main driver to increased house prices, rents, inequality ect ect, & this dramatically improved when boarders were closed, then we close our boarders permanently to non residence and open them only to short term tourists. Let NZ be known it's occupancy is full, I is no longer available as a safe haven for immigraters.
Exactly what Trump advocates for, & one has to admit, although not a popular thing to say out loud, he has a point - if a country cannot build homes or have houses available at an above rate of immigration, then our housing crisis will only continue to get worse. Anotherwords let our country stop prioritizing immigrators over our own citizens, look afternourselces first. I could get behind that, but the woke community wouldn't. DEI - diversity, equity & inclusion comes before anything, & will end up crippling the country along with its ideology.
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
Labour already tried their luck to tamper with the existing Brightline Tax extension out to 10years to capture almost all property owners, as well as constant housing restrictions that saw 94% price increases on property in half the time of the previous National government, & rents that were rising over 2.5x faster than the previous National government up over 60% under their 6 years. This is exactly what caused then the election. Labour couldn't deliver what they promised, to fix the housing crisis with a series of cheesy "Let's do this" slogans, and the majority finally woke up & held them accountable.
Labours best chance of getting back in would be to not announce any further extreme & unrealistic policies they can't deliver on, and to just play it safe. If they really are better at governing than National, then National will eventually undo themselves, much like Labour did last election. National was practically handed the election with the amount of damage Labour caused. That & the fact that labour got power hungary & started coming after people's personal freedoms. A big no no. Labours best strategy is to play it safe. If they come in with their typical let's Tax everybody to financial prosperity, they will almost certainly lose again. Labours fall from grace last election was spectacular. The media & their decieved boterbase still can't believe it.
public opinion on CGT has changed
I fear this is true with the likes of banks now advocating for it. The least effective solution is being offered up to quell the rightful discontent surrounding the cost of shelter so that an effective solution such as a land tax/FER/RFRM is not implemented. Imagine being a bank with a shrinking loan book...anything is better than that - CGT it is!
My preference remains a land tax due to it discouraging debt and simplicity. FER and RFRM encourage leverage as they apply on equity only.
Spoken like a true Labour supporter. Unfortunately far from reality. Labour spent most of their 6years villyfying, taxing, badgering, private landlords, despite 80% owning just 1 rental property. This again created the largest increase in both property prices, rents, homeless & devide in this countries history. They said no CGT before being elected then extended Brightline Tax out to 10years. The Brightline was introduced by National to capture short term ownership via way of flipping & speculating, not extended out to those private landlords that provide over 80% of the countries rentals to those who cannot buy.
How many homes the PM has or how expensive it is is irrelevant. Plenty of Labour mps have multiple houses & multi million dollar mc mansions too, but labour supporters ignore that. No one would vote for a 50yo tenant to run a country, as it speaks volumes of just how they deal & manage their own personal finances. We don't want the country run full of the entitled waiting for their handouts. We had 6 years of that under Labour already.
Ardern sealed her own fate when she went too far & attacked individuals freedom, speaking like a true dictator that freedom of speech was an act of terrsism. Exactly why over 75% of last voted did not vote for Labour. Lanour have a long long way to go to improve before they would be voted in again. Expect National for at least the next 2 terms, minimum.
This again created the largest increase in both property prices, rents, homeless & devide in this countries history.
Correlation is not causation. Look at interest rates for price rises and population change (immigration) for rent changes. The rule changes for landlords were not the primary driver.
It actually says nothing at all in the Bible about wealthy being a bad thing. It's just that poor people would like to think that it is so. Bible also never mentions a CGT but does mention analogies of investing & sowing seeds for later. You don't have to be poor to be a Christian. In fact the great thing about Christianity is that your financial position has nothing to do with it at all.
2 Corinthians 9:6
The point is this: whoever sows sparingly will also reap sparingly, and whoever sows bountifully will also reap bountifully
Leviticus 19:23-25
When you come into the land and plant any kind of tree for food, then you shall regard its fruit as forbidden. Three years it shall be forbidden to you; it must not be eaten. And in the fourth year all its fruit shall be holy, an offering of praise to the Lord. But in the fifth year you may eat of its fruit, to increase its yield for you: I am the Lord your God
1 Timothy 6:17
As for the rich in this present age, charge them not to be haughty, nor to set their hopes on the uncertainty of riches, but on God, who richly provides us with everything to enjoy
It's pretty obvious that in these analogies it's not about the tree, or fruit, these are metaphors.
Again, no where in the Bible does it talk or even mention the socialists mantras & agenda of taxing ourselves & our peers to financial prosperity. It does however talk about sowing seeds to reap for later, & looking after ones family.
1 Timothy 5:8 - But if anyone does not provide for his relatives, and especially for members of his household, he has denied the faith and is worse than an unbeliever.
One could argue that landlording provides multiple families with homes they can't elsewise provide for themselves.
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 ...
Competition? I was at the DHB when the head of MoH wanted to bring in a tranche of funding that would go to DHBs that were hitting some targets. I'm not sure how that fits when local taxpayers send their tax dollars off to Wellington then some other DHB gets them due to winning some KPIs.
And locally we had 2 after hour medical centers and now have just 1. We'll that and the groaning ED.
Shouldn't a public service be more about collaboration and sharing the process of success than cutting each other's throats?
The issue with the health system here is that your quality of healthcare and access to it, is dictated by where you live. GP's have to drive from Christchurch and Nelson to the West Coast regularly to see patients as they don't have enough there. Same for surgeons, and most who need an operation have to go to Christchurch. then look at Southland and Otago catchment areas, the prevalence of BOP referring patients to Waikato hospital due to lack of specialists in specific areas there, Wellington for Plastics where people have to be referred there from all over, the list goes on and on.
So your solution is to remove the financial subsidies that allow these businesses to function? Basic economics shows an increases cost & risk to operate increases the cost of the service & product.
So could you explain how removing interest free student loans somehow incentivizes more people to study? We have a health crisis already, an average student loan for a nurse is 60k, the average for a Dr is 150k. If people are suddenly told they are now to pay interest on that, please explain how you feel more people will be incentivized to study well needed professions?
I agree on cutting back on government expenditures though.
Could you also explain how removing Winter Energy Payments would somehow put more money into the pockets of already struggling families?
Could you also explain how removing the accomodation supplement for some tenants who require this to pay rent would somehow improve our housing crisis & get tenants closer towards home ownership? Currently home ownership is at its lowest in over 70 years.
Remove the accom supp & see the emergancy social housing waiting list rise even further than the 548% in 6yrs under labour? Without this tenants that require this in to pay rent will have no other option. Removing the accom supp condemns many tenants to homelessness. This is a tenant subsidy, not a landlord one. Plenty of tenants do not require this supplememt to pay rent, the ones that do would only be able to turn to the gov to house them, with the private sector then be known to only rent to elite tenants, who can pay rent without any gov financial assistance. To take away the accomodation supplement is to create further homelessness, further tenants from home ownership, yet you advocate for this?
Labour had 6years to remove this, they didnt, as they also recognize this is needed for tenants to pay rent so further records dont become homeless.
Again the claim that removing the accomodation supplement will somehow improve our situation comes only out of envy. Those who advocate for it cannot justify why increasing the cost to operate & why further increases to rent would somehow improve a tenants financial position to gain them any closer to home ownership.
We've tried 6 years of penalizing those who have for those who haven't, & life got much tougher for all. Tenants are now further away from ownership than they've ever been in our countries history. Time for a much needed different approach.
In general terms, the argument to remove the various subsidies is they act like a price floor which everyone must pay (regardless of if received) and just flow to landlords anyway.
I always thought I was paying twice the rent I should have in Auckland at $600pw when the accommodation supplement was running at over $300pw. If removed, the same houses exist and the same people exist, so the rents would fall to meet what the market could now afford once subsidies removed.
That would mean lower prices for houses since the rental yield would be lower (the price fall would be from the land value). Removal need not result in more homelessness although there would be some teething pain for sure. Homelessness will increase with fast population growth which we seem determined to have for reasons I cannot fathom.
Could you also explain how removing the accomodation supplement for some tenants who require this to pay rent would somehow improve our housing crisis & get tenants closer towards home ownership?
Accommodation supp goes straight from the government to the landlord via the tenant as a proxy. If they didn't have this option available, then rents would adjust accordingly as the landlords would not be able to find tenants at the rent they wish, and the market would adjust accordingly. It would be a tumultuous time initially with many being threatened to be turfed out, but on masse it would lead to lowering of rents as there would be too many empty houses otherwise.
"Accommodation supp goes straight from the government to the landlord via the tenant as a proxy. If they didn't have this option available, then rents would adjust accordingly as the landlords would not be able to find tenants at the rent they wish"
Incorrect. One is assuming that most tenants are beneficeries which heavily rely on tax payers government funded assistance in order to financially facilitate or supplement their accomodation needs, when this is at best a massive speculative guess based on no evidence at all. This claim or assumption is false. Some tenants require this accomodation supplement to pay rent, but not all, and certainly not most. One cannot be working in order to recieve such a benefit, so it assumes again that most tenants are also jobless or at best earn part time wages.
The reality is that some tenants require this benefit, but most likely less than 50%. By removing this tenant financial assistance, those tenants that require this to pay rent will be moved onto the government's emergancy housing wait list as their only option of housing. This list increased by over 548% in just 6 years under labour, to just under 25,000 families now waiting an average of 5 years to be housed by government. Not exactly an emergancy responce when an entire family has to be crammed into small motel rooms, couch surf, in cars while they wait for the government to house them.
This conveinantly happened around the time Labour introduced no clause terminations, causing many landlords to feel at ease with not being able to evict troublesome tenants with ease. Tenants & labour called the mass eviction a bluff, but the reality was it went ahead, & government could not cope with the infkux of homeless. No clause termination was a flop. No landlord would want to evict a good tenant who pays on time, causes no damage & respects the peace of neigbours. No clause termination was not needed, caused no good, was designed to penalize those who had, but ended up hurting those who had not the most, & will likely produce similar results of that of a biased CGT by where only those that have more are taxed, and not all.
The private rental market will then be known to rent to only the working class tenant, those can afford rent without government assistance, & there's plenty of those out there. Removing this supplement for tenants would absolutely increase rapidly the homeless rate as evidence under the last 6 years of labour with their government wait list for housing. Proves once again the government cannot house those that cannot house themselves, so once again it is left up to private landlords to do the job and responsibility of both government & individuals.
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.
CGT doesn't exist in NZ (and spare me the bright-line b.s.), ergo the fallacy can't exist either in this context.
You'll need to find another fallacy because an Post hoc ergo propter hoc it is not.
Logic not your strong point? Some great papers at Uni to address that.
“CGT doesn’t exist”. Your argument ends there. CGT has been in the Income Tax Act for decades. Just because you don’t like the way it is written, doesn’t mean it is not there. And you didn’t address my comment. Perhaps moving on from reading University papers to the real world might broaden your view?
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.
Sucks for renters though, because while their landlords would start paying tax, they'd have to jack up the rent.
Rents are set at what the market can bear, not the landlords costs. They may jack up rents if they can, but the price of the apartments would be less (land taxes reduce property prices despite the opposite being stated by some commenters - possibly the only tax that lowers the cost of the item?). So more affordable to buy for renters and less incentive to accumulate for investors (likely lower yields as rents already tapped out).
While true, it's much easier for landlords to jack rents up as high as they can if there's a universal pricing signal to the market. Also in the scenario I used with a complete swap from Income Tax to Land Tax, the tenants will effectively pay zero income tax and the rent should go up between $80 - $120 per week depending on land size.
And I love your example of offsetting income tax with the land tax raised. It could pan out as you say and agree some would use any excuse to 'justify' rent increases.
However, I wouldn't underestimate the multiple benefits a land tax brings medium to long term to houseing affordability. Provided we don't blow out immigration (the main shifter of rents), then medium to long term I cannot see how rents would increase by the amount of the PAYE reduction - given a land tax would also act to reduce property (land) values as new owners need less rent to get the same yield or better yet renters buy the houses themselves.
So people who could never afford to buy a house, but may be able to inherit in the future, will never be able to get a house. Why should the government get their hands on family wealth? A lot of families are multi generational and work together to gain that wealth, including many family businesses.
Hit the nail on the head VancouverKiwi.
The ones that advocate for all these taxes cannot justify or explain how taxing people more makes them wealthier somehow, that taxing further businesses and services somehow makes them cheaper to use and buy. They can't explain it coherently because it's a falsehood mantra they throw out buzz words out of envy. "Tax further the wealthy Landlord" they say, yet ignore that the average landlord in NZ makes just 14k per year off their property, that over 80% of landlords in NZ own just 1 rental property, & over 60% of those still have mortgages on them. If that's wealthy, then the bar has been set very low, far too low.
They cannot justify that further taxes brings tenants closer to ownership, which is the ultimate goal, because this fabrication does not work, but the envious at least feel better about themselves by saying it, but they know not what they say nor why they it.
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.
I agree with it all, however the prospect of retrospective back to 1900 would get it thrown out by means of the population having benefitted from capital gains in residential property, and those due to inherit it also. The government of the day govt will simply say no on the basis that many have planned their retirements around it (yes some wealthy but some with only the home they have to sell and downsize in the later years). Pragmatism is always difficult when housing is so intergenerationally ingrained. Keep up the ideas though, sounds reasonable.
Land is only one small part of the capital in the system. I.e. a land tax on its own castes a tiny net.
It also worth pointing out that all countries and states that have land tax actually raise very little from them because rates are extremely low for political reasons.
Not sure land is a small part of our capital. It is a critical part of our housing affordability issues though which I'd rate about number one on the list of things we do poorly in NZ.
How much is collected is obviously related to the rate of tax set and any exclusions that apply. Political reasons may change if renters decide to down tools and do nothing until they're given a pathway to ownership...seems some way off alright and a CGT will be a nice distraction when the time nears.
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.
I do agree in part with you Meh that all Income & profitable gains should be taxed, or none at all. That would be the most fair & non biased tax system we could implement. Problem is this would also include the primary family homes capital gains, inheritance, kiwisaver, stocks, bonds, crypto, generational farms as well. Because it is after all profitable gains.
Now the ones heavily advocating for a CGT advocate it towards landlords only, making it exactly the same tax system we currently have now, biased & envious. Tax those people over there who have more, as long as you don't tax me anymore. This is not a fair & non biased tax system at all, & most people would not want a true fair & non biased tax system to be implemented at all, because in the end it means that almost everyone will end up paying much more tax in different forms. Taxing something does not make it cheaper.
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.
Is it the approach, or is it that these wealthy people are educated and intelligent enough to learn how to apply for funding, and influence where necessary to best achieve this? An age old question if is it the system or is it the average punter doesn't take the time and effort to go out and try get some grants etc to achieve the community goals.
It is far better advice to listen & take on board the financial advice of those who have done well financially, than from those who have no track record of their own personal financial success. So yes, generally speaking wealthier people would tend to have a much better track record of being financially intelligent than those around them that criticize them heavily, yet have no opposing financial results to show a better pathway.
The poor socialists persons approach is to tax everyone to financial prosperity. It is also interesting to note that while both tax & debt help to make the poor poorer, it also helps to make the rich richer. Anotherwords it's money management that is the key. Giving more money to someone who has poor money management won't solve personal money issues.
Comprehensive CGT + gift tax + inheritance tax is the only way to go and is the only way to capture the vast majority of “income flows” so as to avoid leakage and most distortions and to level the playing field across assets.
Almost all OECD countries have CGT so I don’t agree with the argument that it imposes too much dead weight cost as a reason not to pursue it.
CGT would have to be on a realised basis to keep it simple. I don’t care that it won’t raise much tax in the short term, nor do I care that it shouldn’t apply to family homes - they are a place to live in, in the first instance.
If we want to raise revenue/ reduce costs in the shorter term then the age of eligibility for super can be increased to 67 like Australia and then tied to life expectancy. If t Aussie cant afford 65 what makes NZ think it can. (Keep at 65 for those medically unable to work).
"I don’t care that it won’t raise much tax in the short term"
I care. I care a lot.
I want to get PAYE lowered and GST off basic foods ASAP !!!. And I want, in fact WE MUST HAVE, a balanced tax system ASAP.
We can raise CGT revenue immediately ... so we can reduce other taxes by the same amount immediately ... if CGT is made retrospective.
I've suggested the year 1900. Other years work too.
Almost all retrospective taxes are considered absolute no-nos.
But CGT has very good reasons for being an exception.
It's all about intergenerational fairness.
Are we taxing income, or taxing profits, or both? Is both then a comprehensive CGT as you put would tax all forms of profits, primary home included, inheritance, kiwisaver, stocks, bonds, generational farms, crypto ect. Whilst that would be a fair & non biased tax system, I fail to see how taxing everybody someone makes us wealthier & improves societies general living? I don't believe any finance book advocates to dob oneself in & pay as much tax on as many things as possible, that's much more of a socialists approach, to which even they only advocate to tax everybody else but themselves.
I do however agree with your second part to raise the retirement age instead to 67, as a way to assist.
I hate how Capital Gains Tax and a Wealth tax are being lumped together . The PM did the same thing when questioned about not paying tax on his property capital gains . They are totally different taxes. Most countries have a CGT.... most do not have a wealth tax. It is almost like they want to sneak in a wealth tax with a CGT. If they did you can bet that it won't be inflation adjusted to match income tax.
They could start by taxing these massive overseas companies that operate in NZ, but hardly end up paying any tax at all. Until they do this, I don't believe in any new taxes, apart from a CGT, and a higher rate for very high income earners. Plus perhaps stamp duty.
Agreed.
Many overseas companies aren't paying their share. But NZ can't go after them on it's own. It's a collective and joint effort that's being done (slowly) with many countries involved and working together.
I see absolutely no reason why any rebalancing of NZ's tax system should be scheduled behind these efforts.
If the efforts to get offshore companies like FB, X, Google, etc. are successful, then we can have tax cuts all around ... at that time.
What is disconcerting that the discussion of tax has no accompanying discussion of building national prosperity by improving productivity, adding value, creating employment, making it easier to get things done rather than harder, and all that other active, nation-building stuff that's been ignored for far too long, while kludgeocratic expediency reigns.
It's apparently too hard: is what we've got, and the narrow policy niches being discussed, seriously the best policy we can create?
It looks like the discussion is stuck in an adversarial, ideological rut that the state is to be the agency to use tax to redistribute wealth, rather than creating policy that is far broader and more cohesive than isolated tax measures, to support intelligent, collaborative choices to more equitably grow the pie for everyone.
We do need to change the way tax is levied as the property market (among other behaviours) has distorted the way the country runs and has crippled business investment (among other activities). But is applying fair return, rather than on realisation, the best way to do it?
Will the quest for policy purity, around things like exempting a family home, to capture small parts of the tax base, cripple both public acceptability and practical implementation? Perfection is looking a lot like the enemy of the good.
There are damn-all numbers in the debate. How much land is being banked and driving up prices? How many houses are sitting vacant to hoover up the capital gains? How many many owners own how many houses? What are periods of ownership looking like?
Yeah we should lower other taxes if we increase another. It seems ridiculous to me to suggest adding a tax without reducing another, parties want to be voted in after all.
Why the big parties are not talking about this as a system of tax reform, where we reward people’s economic efforts is beyond me :/
When Susan St John aligns herself with Max Rashbrooke, she reveals herself to be yet another extreme left-wing idealogue. Reading further I see this:
"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."
For her to call this 'comprehensive' show she doesn't know the meaning of the word.
The reason 'the voices supporting a CGT grow louder' is because they are being enabled by left-wing idealogues who believe utopia can be achieved by stoking envy to gain support for increasing and collecting more tax for redistribution instead of growing wealth.
Parker's underhand, even devious, work last year to introduce a (wealth) tax on unrealised gains is impractical but is also revealing of where they want to take us, even though it doesnt work.
Did Susan St John align her CGT design with Max Rashbrooke CGT design? Are we reading the same article?
In any event, this article has many references taken out of context that make no sense when taken in isolation of the CGT design the reference was referring too.
Case in point being the various references about the failings in a CGT design without the design being described in full.
Such articles don't help when so many Kiwis think they understand what NZ's CGT will look like when so many CGT designs have been proposed and while so many different CGT implementations exist offshore.
But basically, NZ doesn't have a firm CGT in front of us.
And to date - every single CGT proposal put forward has been a non-starter!
Why have they been a non-starter? Because rich people ensure they are.
Understandably there is a lot of emotion in these threads.
However, before any new or changed taxes are considered, the government needs to ensure it is managing its current tax income and expenditure efficiently. We have heard of significant government money being lost on failed projects, projects running hundreds or billions of dollars over budget, and ineffective programmes delivering no economic returns. It needs to do better, much much better. The previous six years government performance has been disastrous which will probably take a decade or more to repair.
Government revenue has risen significantly over recent years (some from natural, albeit meagre, growth) as has government spending and borrowing, so it is pleasing to see the coalition government trying hard to get this under control, and finding ways to grow the economy quickly. I would like to see better fiscal and financial performance reporting from government to prove to taxpayers the country is returning to a more sustainable position rather than introduce CGT or a wealth tax to perpetuate and hide poor performance.
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