CTG very bad idea

Act leader Jamie Whyte is not impressed by Labour’s proposal to introduce a Capital Gains Tax:

On TV1’s Q&A programme, David Cunliffe boasted that his proposed new capital gains tax would collect an extra $5 billion a year. That is the biggest tax hike in the history of New Zealand. Which is saying something.

This isn’t replacing other taxes, it’s in addition to them.

It is a dreadful boast. Taxes are always paid by people, whatever the taxes are levied on. Income taxes, corporate taxes, property taxes, GST: they are all the same in this respect. They are all paid by people.

Nor are the people who bear the cost necessarily the people who write the cheques to the government. For example, if a capital gains tax means that landlords get a lower return on the capital appreciation of their properties, it will increase the rents they charge their tenants. Or landlords may sell their properties to owner-occupants. The supply of rental properties will then fall and, again, tenants will end up paying more.

Actions have consequences. If the cost of property rises or the return on investment falls, landlords will put up rents or sell and invest elsewhere.

This won’t just affect domestic rentals, it will affect commercial properties too which will add to the costs of businesses.

Where the cost of a capital gains tax will fall is a complex matter and extraordinarily difficult to predict. All Cunliffe knows is that the $5 billion will somehow be extracted from the people of New Zealand so that it can be spent in ways that he figures will buy him the most votes.

At least, that is what Cunliffe thinks he knows. In fact, he has almost certainly over-estimated the amount he will be able to squeeze out of tenants, consumers and entrepreneurs because taxes can be avoided.

Our observation of CGT in Argentina is that it prompts people to hold on to property, especially farms, rather than selling them.

This has led to a lot of absentee ownership, boosted the price of land and made it harder for people to get into farming.

When it comes to income tax, people can divert their activities from highly taxed activities, such as working in productive jobs, to low taxed activities, such as playing golf. When it comes to a capital gains tax, they can divert their investments from rental properties to bigger homes for themselves (which will not incur capital gains tax at sale). They can invest overseas rather than in New Zealand. They can delay selling assets to avoid realising a gain and paying the tax. And they can spend money on accountants and tax lawyers to devise all sorts of other ingenious schemes

Such avoidance activities will reduce the loot Cunliffe can get his hands on. That’s good. But they will also reduce the growth of the New Zealand economy. Resources will not flow to their most valuable uses. They will instead flow to the uses that are farthest from Cunliffe’s grasp.

A capital gains tax is a very bad idea.

I’m not opposed to a CGT per se.

There could be merit in it if it was comprehensive and replaced other taxes so it was cost-neutral.

Labour’s is neither of those and is, as Whyte says a very bad idea.

8 Responses to CTG very bad idea

  1. Quintin Hogg says:

    a, Labour get in, and:
    b. CGT is implemented,
    My profession will be very busy. Sadly.


  2. Gravedodger says:

    Nearly all the rich pricks this proposed envy tax targets will avoid most of it while the less advantaged financially will pay it.

    Death Duties will be next and the same will apply.

    If Nations could become wealthy by taxation, socialism would prevail today but Maggie had it dead to rights, eventually socialism runs out of people to finance their plans.

    Was it Churchill with a similar view;
    “For a nation to try to tax itself into prosperity is like a man standing in a bucket trying to lift himself up by the handle.”

    I detect in these more enlightened times, more and more voters have acquired a bullshit meter and know how to use it.


  3. Allan says:

    I really hope that you are right as far as the bullshit meter is concerned Grave Dodger. The entire future of this wonderful country is dependent upon the people re electing John Key and his Government. To have the Coalition of Labour,Greens, Mana, Internet and NZ First ie the Hopeless and Envious in power would be an absolute disaster for not only the people who are working and contributing in the form of taxes but also for those who are dependent upon welfare to survive. You only have to look at History to see that Socialism or, in its more extreme form Communism simply does not work and only drives the country into bankruptcy and despair. Venezuela is a classic example of this and it had the benefit of large oil reserves however this did not stop the country sliding into the economic chaos that currently reigns there purely and simply because of the largess of Socialism that Chavez and his cronies practised. One can only hope that the voters of NZ are intelligent enough to see through all of the false promises and bribes that are being offered by the opposition parties at present and reject them outright.


  4. farmerbraun says:

    Do we have a single politician in NZ who could deliver the following speech without a word of a lie?



  5. Pink Batts are “a waste of time”?


  6. Gravedodger says:

    Green Batts???


  7. Roger Barton says:

    Woollen batts..and if they are fitted to your own home they won’t attract CGT but elsewhere watch out.


  8. I have wool-batts installed in the loft – did it myself, covered them with cotton (duck?) and held them in place with staves of hazel that I grew (and coppiced) myself. The whole thing looks very cosy.


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