Prime Minister John Key says the right is smarter than the left.
Well of course they are, if the left was smarter they’d be right wouldn’t they?
More seriously he also explains that Capital Gains Tax could work and why it doesn’t:
A capital gains tax on ‘absolutely everything’ would work in a perfect world, although no politician has the guts to introduce one in New Zealand, Prime Minister John Key says. . .
If government was prepared to do with a capital gains tax what had been done with GST – put it on “virtually absolutely everything with no exceptions – they work well.”
“Because, in theory, if you earn NZ$100,000 from going out there and having a job, and you pay tax on it, well fair enough. If you earn NZ$100,000 from buying a property, well you probably should pay tax on that – fair enough,” Key said.
“But this is where the problem comes along, and that is, that no politician has the guts to do that. Because they go, ‘well that’s a vote-loser.’ They turn around and say, ‘OK, we’re going to have exemptions – the exemptions are all private housing,'” he said about Labour’s and the Greens’ policies.
That is why a CGT wouldn’t earn much and if existing property was exempt it would be a very long time until it returned anything at all.
The fact that three-quarters of housing was owner-occupied, and would therefore be exempt under those proposals, meant their argument that a CGT would discourage investment in housing was “nonsense.”
“The theory is they’re going to sock it to rich guys who live in Parnell – so they’re going to really nail them. But actually, those rich guys in Parnell are way smarter than the left, because they’ve already worked out to buy a big house in Parnell [which] would be exempt,” Key, himself a wealthy Parnell resident, said.
“So [those house prices will] go up faster, not go up slower.”
“It encourages people to go into housing; it doesn’t discourage them,” he said.
Countries which have CGT had a housing bubble just like we did here. The tax was no deterrent and might even have inflated prices by reducing the number of properties for sale and incentivising those who did sell to seek more for them.
Key reiterated his argument during the election campaign that New Zealand already had a capital gains tax on housing if a property was bought and sold with the primary intention of making a profit.
“And by the way, IRD are hiring people, at Bill English’s request – it’s always his fault – and they are trawling through these returns, getting lots and lots of money from people who are doing just that and not paying their taxes,” he said. . . .
He also said that a CGT would apply to other investments including productive ones like farms and other businesses. Then people don’t sell so they don’t have to pay the tax and eventually they pass the assets on when they die so there’d have to be a gift duty.
One new complicated tax leads to another. Gift duty was canned here a couple of years ago for the very good reason that the costs of administering it didn’t justify the amount collected.
Argentina has a CGT and it encourages people to hold on to farms rather than selling them. That’s led to a lot of land being leased from absentee owners. Reducing the supply of land for sale increases the price.
I’m reluctant to say any tax is good, but simple taxes are better. Any CGT that has been proposed for New Zealand has been complicated by exemptions which add to costs and incentivise avoidance.
If politicians don’t have the courage to apply a CGT to almost everything, as GST is, they’re better not to apply it at all.