Labour leader David Cunliffe says it’s ‘lunacy’ that property speculators get tax free capital gain.
But they don’t.
Buying and selling properties as a business, which is what speculators do, attracts a capital gains tax.
Hon BILL ENGLISH (Minister of Finance) : The Government already taxes capital gains on property speculation where property investment is for the purpose of trading. The member may not be aware of that. In addition to this, the Government’s 2010 tax changes on property disallowed deductions for building depreciation, and this raises around $700 million per year from property investors, a much larger number than any estimate we have seen for the foreseeable future for a further extension of the capital gains tax. Further extension of the current tax on capital gains is likely to have high compliance costs, and that is a conclusion that three tax inquiries and several Governments have come to over the last 20 years. If it excludes the family home, it will not raise much difference, it will not raise much revenue, and it becomes effectively a tax on successful businesses. In overseas jurisdictions, it has not improved housing affordability.
Hon David Parker: Why does he think the profits on the sale of investment property are of such critical importance to the economy that they should not be taxed but, instead, be cross-subsidised by every other taxpaying business and worker in New Zealand?
Hon BILL ENGLISH: I would point out two things, as I pointed out in the primary answer. First, where any property is bought for the purposes of selling, the gains on that are taxed at current income tax rates. It is called an income tax, but, actually, it is a capital gains tax on trading investment property. The member may have seen recent publicity about the scope of the Inland Revenue Department’s activities in ensuring that everyone who does trade in property pays full income tax rates, not the half-baked rate that he proposes in his proposition of 15c in the dollar. They are, actually, taxed at 33c currently. Secondly, the changes made in the 2010 tax package do collect $700 million per year from property investors, which is a much larger number than any revenue that he has posited as a result of his partial extension of the current capital gains tax.
Labour’s policy is built on the lie that we don’t have a CGT.
We do, at 33 cents in the dollar, more than twice the rate Labour is proposing – unless of course they’re going to tax it twice which is quite possible with them.
Jami-Lee Ross: In considering various tax options for New Zealand, what international evidence has the Minister seen on the effects of capital gains taxes on housing affordability?
Hon BILL ENGLISH: I have seen reports from Australia on the effects of a partial capital gains tax, limits on foreign investment, a so-called mansion tax, and compulsory savings. If these policies are meant to improve housing affordability, then they have not, because housing affordability is worse in Australia than in New Zealand. Just today there is a report being published showing that first-home buyers now make up the smallest proportion of the housing market ever in Australia. So the housing market in Australia now consists of fewer first-home buyers than ever, so we would be a bit careful about following that policy prescription.
Hon David Parker: What proportion of investment property sales pay tax as traders; is it closer to zero percent than 100 percent?
Hon BILL ENGLISH: I do not have that information to hand, but I can assure the member that the Inland Revenue Department is vigorously pursuing every investor who trades in property.
Jami-Lee Ross: What reports has the Minister received on the case for a new capital gains tax in New Zealand?
Hon BILL ENGLISH: I have received the report of a speech to the Wellington Property Investors Association in July 2005. It noted that the Government-appointed tax review in 2001 considered a new capital gains tax and concluded that the disadvantages of such a tax—its complexity and costs—outweighed the theoretical benefits, so it did not recommend such a tax. The speech also noted that the Government of the day agreed with that conclusion that the status quo was entirely adequate. The speech was delivered on behalf of the Minister of Finance Michael Cullen by his associate David Cunliffe. . . .
What’s changed since Cunliffe delivered that speech?
None of the facts, just the politics.