Labour is trying to sell its proposal to impose a selective capital gains tax on us as an issue of fairness.
But as Trans Tasman argues it’s proposal isn’t so equitable:
It is difficult to understand why, if the fairness arguments are taken down the track Labour argues for, all gains are not taxed at the same rate. For example, why should the occupant of a substantial coastal lifestyle block escape this new tax when the person running a productive farm falls directly within it?
And why should art, gambling proceeds and stamp collections be spared, when businesses aren’t?
Multimillionaires Sam Morgan and Selwyn Pellet have become Labour’s poster-boys to justify the CGT and new top rate. Both are said by Goff to have thought it unfair they did not pay tax on their huge gains. But Goff needs to be careful, Shewan says, not to overplay this hand. The public will quickly tire of extreme examples being rolled out to justify changes which will have a deeply pervasive effect on ordinary transactions much closer to home like the family farm or window cleaning business.
It is difficult to design a tax system which catches everyone but while Morgan and Pellet weren’t taxed on the proceeds of their sales they would have paid plenty of tax while running their businesses.
If a CTG is imposed, sales like this would be designed to avoid at least some of the tax by, for example, giving shares in lieu of cash.
But there are just extreme examples which Labour is using to stoke up envy and distract people from the impact their flawed proposal would have on many more people of very modest means.
Among them would be siblings who sell the family home after their parents die and couples who divest themselves of matrimonial property during a divorce settlement.
Retirement savings could also be eroded. The Shareholders Association warns that shareholdings in Kiwisaver would be hit by a CGT and that younger people would be most severely disadvantaged by this.
Homepaddock 
Sam Morgan and others make a lot of noise about not having to pay tax on their capital gains. But there is nothing stopping them making a voluntary contribution to the IRD. But they haven’t and won’t.
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Funny business tax – we talk a lot about how the Government can raise revenue but not so much about what they spend it on.
Another funny thing about tax is that once a levy is imposed it never seems to go away.
Exhibit: It was recently revealed that a levy imposed by the State of Alabama on taxpayers in the aftermath of the civil war to pay pensions to those maimed in that war is still being collected.
I think we can safely assume that the liability imposed on the State of Alabama for supporting disabled civil war veterans is not that great in 2011 given that war ended in 1865
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There will be a vast sum somewhere in a bank as they wouldn’t have diverted it to something else, would they?
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And why should art, gambling proceeds and stamp collections be spared, when businesses aren’t?
Art and stamp collections,etc, IMHO should be subject to CGT. Gambling proceeds should not as the tax is taken when the entry price is paid. Every gambler pays tax with every bet they place, whereas there is no similar tax levied when a business, a share or a painting is purchased.
…couples who divest themselves of matrimonial property during a divorce settlement.
Not correct, as it would still be exempt under the family home provision.
Among them would be siblings who sell the family home after their parents die
Not sure this applies either,as the siblings werenot the beneficialowners of the home until the will is executed. Therefore the CV at the time of execution of the will and the CV at the time of sale is likely to be the same, therefore no CG so no CGT.
while Morgan and Pellet weren’t taxed on the proceeds of their sales they would have paid plenty of tax while running their businesses.
Irrelevant. Tax would be paid on profit made, the CG upon sale is simply another form of profit, so why should it be exempt from tax?
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IMO the argument is the wrong way round. Labour and others want a CGT to enable them to spend more of our money on *their* pet projects, not ours.
There should be absolutely no further taxes or increases until such time as we have gotten the Govt books in order, eg, in 2000 the Govt was spending $34 billion.. now its $70 billion. They can come back to us when they have gotten the figure back down to $34 billion.. plus inflation.
JC
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Well, a good way to start would be to reverse Hone Key’s tax cut to his rich prick mates, a tax cut that is being funded by borrowing.
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@ JC you imply that the 34 billion was justified, my business instincts question the validity of that basis.
Support your POV though
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Does anyone on this post understand the link between our poor investment decisions based around property / tax harbors, our volatile exchange rates, our declining export sector, our growing Net Foreign Investment (OD), risk premiums on our international borrowings, disposable income / savings ability. We need to divert our limited capital into diversified exports, with higher margins, creating higher wages within New Zealand. That creates a rich country that everyone benefits from. What property speculators don’t seem to understand is the damage they are doing to export economy by bidding up property prices with borrowed foreign capital. That lifts interest rates, that lifts the exchange rate (carry trade) and that kills our exporters. It’s time we looked at the entire economy not just one aspect. If we want to talk about the average mum and dad, ask the average mum and dad if they would vote for their mortgages to be half their current size, interest rates cheaper and their incomes substantially higher. That’s the positive effects of a productive rather than speculative economy.
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Selwyn, I understand what you are suggesting very well. The really sick thing is that Labour’s ill conceived, envy inspired proposed CGT will have precisely the opposite effect to what you suggest – it will stifle investment, lead to a massive waste of productive effort as those affected try to mitigate the effects, and yet again wack the productive parts of the economy.
Its a great message to the productive parts of the economy isn’t it – ‘work your butt off – so thieving socialists can nick yet more of your hard earned money’
I have just been reading the July 21st-29th Economist whist flying back to NZ after a week working in Australia. The Lexington article (P32) discusses in part why Texas is doing so well in comparison to the other American States. To quote the article – ‘By comparison with the rest of America, which continues to languish in the doldrums, Texas is thriving. It is already the second most populous state after California, and is growing fast. Newcomers are attracted by the absence of state income and capital-gains taxes, cheap housing and, compared with most other parts of America, as steady stream of jobs. The Texas Governor, whom the article is about also stated – ‘To the extent that Texans have prospered, he says “thats what happens when you free up citizens to compete”.
Well isn’t that refreshing – and the complete opposite to the pig-swill that Labour are peddling here in NZ.
I firmly agree with you Selwyn, we need to see the positive effects of a productive rather than speculative economy.
I fundamentally disagree that imposing a narrow envy based CGT to rip more money out of the productive sector without any other sweeping tax changes to rebalance the economy will work.
What Labour and its supporters seem too intellectually challenged to work out is that the areas of the economy the proposed CGT will cause the most damage in are the farming and small business sectors – the cornerstones of our future economic growth, and the drivers of employment growth.
It is my sincere hope that Labour do not get the chance to form a government in New Zealand for a very long time – as they will surely completely bugger the country if they do. They seem to have absolutely no comprehension of the laws of cause and effect.
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I’ve gone back to the economist after a bit of hiatus.
Good reading and well written.
It is a pity that some who would govern do not read it.
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