OECD doesn’t back LabourGreen CGT

New Zealand’s economic policies have been endorsed by the OECD.

The Organisation for Economic Co-operation and Development has confirmed New Zealand’s macroeconomic policies strike the right balance between supporting the recovery and ensuring sustainable medium-term growth, Finance Minister Bill English says.

In its Economic Survey of New Zealand for 2013, the OECD also notes the economy is gaining momentum, with post-earthquake reconstruction in Canterbury, and business investment and household spending gathering pace.

“The OECD confirms the Government’s economic plan is on the right track,” Mr English says. “In particular, it notes our work in improving productivity to support long-term growth, it confirms the banking system is in good shape and well supervised, and it supports our focus on getting back to surplus and reducing debt.

“It concludes that reducing government debt will establish a favourable starting position for confronting longer-term cost pressures from an ageing population. It will also tend to raise national saving rates and reduce New Zealand’s external vulnerabilities.

“This is a welcome endorsement of the Government’s economic programme from the OECD, coming just a few weeks after the International Monetary Fund also confirmed we have struck an appropriate balance with our programme.”

Mr English agrees with the OECD’s assessment that New Zealand’s high private debt levels, large external imbalances and an over-valued exchange rate are among the main risks to growth.

“That’s why the Government is taking a number of steps, such as through the Business Growth Agenda and the internationally-focused growth package in the Budget, to help businesses and exporters become more competitive and to sell more to the world.

“While the OECD’s modelling predicts relatively small growth impacts from achieving some of the specific Business Growth targets, taken as a package evidence suggests they could make a material difference to productivity and incomes,” Mr English says.

The OECD notes that New Zealand policymakers are increasingly attuned to social equity and welfare issues.

It says welfare reforms are attempting to reduce long-run benefit dependency by emphasising education and training for at-risk youth, placing more conditions on beneficiaries and requiring stronger accountability from public and private providers.

“I’m pleased with the OECD’s positive assessment of the main elements of the youth package within our welfare reforms, and other recent changes to increase educational achievement and reduce youth unemployment.

“We will carefully monitor progress to ensure we further improve the participation of young people in education and training.”

One area the OECD report differs from the government’s policies is a Capital Gains Tax.

Mr English says the Government does not agree with the OECD about the need for a comprehensive capital gains tax applying to all assets, including the family home.

“Two comprehensive, expert reviews of New Zealand’s tax system – the 2001 Tax Review and the 2009 Tax Working Group – did not recommend a widespread capital gains tax of the sort the OECD recommends.

“The Government significantly tightened the tax rules around property investment in Budget 2010, which is expected to raise an additional $3 billion in tax revenue over four years.

Labour and the Green Party policy is for a CPT and they’ve seized on the OECD report as vindication of their stance.

However, that conveniently overlooks the report’s recommendation that a CTG covers the family home and replaces other taxes.

The LabourGreen version would exclude the family home and those parties wouldn’t reduce other taxes.

Labour lost the argument over this in parliament on Wednesday:

Hon David Parker: Why does he continue to refuse to adopt a capital gains tax excluding the family home when it is clear it would reduce inequality, it is clear it would take the pressure off house prices, and it is clear some people would pay their fair share of tax, and, at the same time, it would improve the economy?

Hon BILL ENGLISH: If a capital gains tax had all those magical powers, then you would not see a whole lot of developed country economies on their knees because of excessive housing markets. We have not implemented it, for a couple of reasons. One is that we believe the other tax measures we have taken, which are collecting $3 billion in tax revenue over 4 years, are more effective, and, secondly, we believe that changing the planning laws to allow more supply of houses will have a much bigger impact on fixing wealth inequality than a capital gains tax.

Rt Hon John Key: Has he seen any reports about a period of time between 1999 and 2008 when there was a substantial increase in the housing market in New Zealand and when there was a major amount of work done, to extent that half of the work of the Department of the Prime Minister and Cabinet was about the housing market, and, by the way, was there a recommendation for a capital gains tax that was adopted in that period of time?

Hon BILL ENGLISH: It is funny you should mention that. Some of the things the last Labour Government did were sensible. In 2001 it commissioned a tax review—a comprehensive review of New Zealand’s tax system. That review concluded that a capital gains tax that exempted the family home would not be effective. Faced with the fastest-rising housing market in New Zealand’s history through the mid-2000s, the previous Labour Government, in which most of the Opposition’s current front bench served, did not implement a capital gains tax. . . 

Hon David Parker: Is the truth of the matter not that Mr English and his colleagues stopped the Savings Working Group and others looking at a capital gains tax by putting it out of their ambit, and is it not the reality that National’s refusal to introduce a capital gains tax is because it does not suit the vested interests of its backers?

Hon BILL ENGLISH: Well, with, I think, 47 percent of New Zealanders voting for the National Government in the last election, we are very pleased to represent a very broad range of backers—in fact, a much broader range of New Zealanders than the Opposition Labour Party, which claims to represent everybody. No, the reason we have not implemented a capital gains tax is that when you exempt most of the housing market, it becomes a tax purely on successful, profitable businesses, and that would be bad for growth. We are addressing the problem of rising house prices by addressing the real issue of the lack of supply, particularly in Auckland.

How typical – LabourGreen have a policy which wouldn’t address Auckland’s housing affordability and would be a tax on successful, profitable businesses which would be bad for growth.

Offsetting Behaviour also argues against a CGT:

 

 

 

 

 

9 Responses to OECD doesn’t back LabourGreen CGT

  1. Dave Kennedy says:

    The OECD made a number of recommendations that aren’t supported by the National led Government but are supported by the Greens. You have mentioned the CGT but there was also a recommendation not to give tax breaks for oil exploration and that there should be a bank deposit insurance. It was also recommended that there be more support for poor working families.

    A CGT is desperately needed when we have housing prices again sky rocketing and making New Zealand one of the worst in the world for housing affordability. There is still a lack of investment in the productive sector and we are now one of the very few countries in the world that hasn’t got a CGT.

    If you look at the NBR rich list you will see that most have part or much of their earnings derived from property investment and much of this is untaxed. Billions of dollars are being invested in this non productive area which is actually having a detrimental effect on our economy.

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  2. homepaddock says:

    How will a CTG that excludes the family home help when it’s demand for family homes which is the major contributer to high prices?

    Property investors feature on the rich list because it’s reasonably easy to trace them. As I told you last time you made that point, I know several people who could be on the list but aren’t because their wealth is more difficult to calculate. As to not paying tax – National has closed several loopholes that reduced tax for property investors, including no longer allowing them to claim depreciation.

    A friend who is a property investor said that’s led to a significant increase in the tax he pays.

    Like

  3. Andrei says:

    A CGT is desperately needed when we have housing prices again sky rocketing and making New Zealand one of the worst in the world for housing affordability. There is still a lack of investment in the productive sector and we are now one of the very few countries in the world that hasn’t got a CGT.

    LOL the hysteria, New Zealands home ownership rate is far higher than Germany’s, Austria’s or France’s – all countries where they tax the hell out of everything.

    Tax isn’t the magical panacea for the worlds woes.

    Tell me this if we have a CGT and you sell something at a loss are the Government going to make that loss good?

    Like

  4. Dave Kennedy says:

    Ele I think you will find that there are many people who are investing in more than one house because it is so profitable to do so. As I have already stated here, many of my friends own multiple properties and the income generated from investing in this area often supports their prime business. When people talk about a significant increase in tax we are talking about an increase from almost nil. http://www.interest.co.nz/property/64391/qv-figures-show-houses-prices-increased-13-past-three-months-and-71-over-past-year

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  5. Dave Kennedy says:

    Andrei, New Zealand is under populated compare to many other countries, therefore the pressure on land availability etc isn’t as great. Our home ownership percentage has dropped from 75% ten years ago to 63% now. On average new Zealanders spend 26% of their income on housing, considerably greater than the OECD average of 21%.

    Tax isn’t a panacea but a CGT provides a useful incentive to shift investment into more useful productive areas.

    I’m not sure of your point regarding selling at a loss.

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  6. JC says:

    “How will a CTG that excludes the family home help when it’s demand for family homes which is the major contributer to high prices?”

    According to the OECD the top four most overvalued house prices are 1 Belgium, 2 Norway, 3 Canada, 4 NZ.

    None of these places have a CGT on the family home.

    The four most undervalued houses by country are 1 Japan, 2 Germany, 3 Sth Korea, 4 Ireland.

    Only Japan has a CGT on the family home.

    So basically there’s no real evidence that a CGT has much to do with the value of a home because, as the economists keep telling us there are other factors at work in the economy that determine price.

    JC

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  7. Dave Kennedy says:

    You are correct, JC, that there are many elements at play that add to over inflation of house values. A CGT is just one tool and there are many versions of it. However the reason that the majority of countries do use it is because it generally does provide some control over housing bubbles and it also ensures that there is a fair system of taxation.

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  8. TraceyS says:

    Well said Andrei.

    Like

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