Two of the country’s most respected farm advisors, Andy Macfarlane and Pita Alexander, say a capital gains tax would hamper farm succession and lead to larger land holdings owned by fewer people.
The founder of Macfarlane Rural Business in Ashburton said a CGT would make succession very difficult and there would be fewer families able to pass on land to their children.
“We have seen that in the UK where intergenerational transfer has been extremely difficult. What families tend to do is hold onto the land until they are very old, but they stop farming it and you get big corporates farming land owned by multiple families.” . . .
It would also deter the next generation of farmers striving for farm ownership, Mr MacFarlane said. When retiring farmers sold their farm, the price they received would be the only superannuation they received and the price equivalent was often no better than a good super scheme.
Land values responded up and down to the availability and cost of credit, optimism to the future and investment that increases productivity.Those three things drove land prices and were more important than the tax impact on land as a storer of value, he said.
“The perception that putting a CGT on is suddenly going to make big behaviour changes, I don’t think is necessarily correct.”
A CTG hasn’t kept land prices down in other countries. If anything it has boosted them by making owners more reluctant to sell.
Labour’s policy would slow down farm succession, increase the price of land and encourage both absentee ownership and sale to foreigners who would be better able to pay.
It would help the rich pricks they despise and hurt younger, less wealthy people.
Well-known Canterbury farm accountant Pita Alexander said a CGT had been promoted as being easy to manage but it would not be.
“It will be complicated, slow to produce much real tax income for the Government and will increase incomes for all accountants and solicitors, probably indefinitely.”
New Zealand had three world class industries in dairying, tourism and sheep and beef farming. It was unfortunate that all three of those industries involved substantial land values in terms of a potential CGT, Mr Alexander said.
He doubted, based on worldwide evidence that a CGT would improve the distribution of capital so that it would improve productive investment for New Zealand as a whole.
He also doubted it would fix New Zealand’s farmland and housing shortage.
“Is a CGT going to fix these two key areas? Hard to see with one being a physical shortage and the other going to be exempt.”
The absence of a such a tax had not held down production on New Zealand farms, he said.
“New Zealand farmers’ production output has been affected by climate, prices received and costs. Lower interest costs which a CGT may bring about in time may improve profitability, but the production output is already high and still increasing gradually.”
Real care was required in ascertaining what effect a CGT would have on New Zealand’s land based export sector. Very few of other developed countries with a CGT would have this particular export and economy `mix’, he said.
New Zealand is the only developed country with such a reliance on primary production.
Anything which got in the way of productivity and made it more difficult for people to enter wouldn’t just be bad for the primary sector, it would have a negative impact on the whole economy.
Massey University professor Jacqueline Rowarth puts it simply: farms need more capital not more tax.
Hat tip: Tony Chaston