What’s fair about this?

A comprehensive capital gains tax that was inflation indexed and set at a modest rate could be okay.

The CGT proposed by the Tax Working Group fails on all three points.

One of the motivations for contemplating a CGT at all is fairness.

But Liam Hehir gives some examples that show how what’s proposed is anything but fair:

John is a supermarket manager and Alice has a small business as an in-home childcare provider.

They deduct part of their mortgage interest and outgoings from her taxable income, which helps them make ends meet.

Because they do this, however, they will have to pay Cullen’s tax when they sell their home.

Justin and Dana also have a house and children. Dana has a well-paying job as a dentist, which enables Justin to be a stay-at-home dad.

They have no need to use any part of their home for business purposes so will reap capital gains on their home untouched by the Cullen’s tax.

Terry is an IT contractor who worked hard to get on the property ladder.

Because house prices are expensive, he needs rent paying flatmates. He dutifully includes the rent in his tax return and claims a deduction for expenses.

When he decides to move he will become liable to pay Cullen’s tax on part of the sale proceeds.

Nick has a master of fine arts degree. It hasn’t led to a well paying job, but he is lucky to be supported by a family trust fund.

This has enabled him to buy a house and a number of paintings, some of which have become valuable in their own right. Nick decides he wants to travel the world on a voyage of self-discovery. He sells his property and art and incurs no liability to pay Cullen’s tax. . .

He gives several other examples which show how arbitrary and unfair the CGT proposal is.

There are plenty more, for example: Sue and Sam are lower order sharemilkers who save enough to buy a block of land on which they graze young stock. They get the opportunity to go 50-50 sharemilking, would have to sell the land to buy cows. Having 33% taken off them for CGT wouldn’t leave them enough to buy the stock without taking out a sizeable loan.

Pam and Pete are lower order sharemilkers on her parents’ farm. They save enough to buy a small block of land on which they graze young stock. Her parents give them the opportunity to go 50-50 sharemilking and gift them the money to do it.

It’s not hard to think of many more examples where the CGT will stop people getting ahead and it would also be far-reaching.

Contrary to the Prime Minister’s assertion that a CGT would affect very few people it will hit a lot and David Farrar lists those who will have to pay.

The list of 20 is only those who will pay directly. It doesn’t include everyone who will be affected indirectly, which will be everyone who buys goods or services from any business i.e. everyone.

There would be small tax cuts but they wouldn’t go far once costs start rising because of the CGT.

Whether you call it fairness or politics of envy, the motivation behind the CGT is to reduce inequality but it won’t do that.

The wealthy will find ways to avoid it and even if they don’t would still have plenty left.

Middle income people will have a third of their modest savings and investments eaten by the tax and they, like the poor will be hurt further by rising prices.

The CGT as proposed will not reduce inequality. It will provide a perverse incentive to over-invest in owner-occupied homes and it will apply a hand brake to the risk taking, innovation and investment which promote economic growth which creates jobs and – the government’s new word of the moment – wellbeing.

 

One Response to What’s fair about this?

  1. adamsmith1922 says:

    Reblogged this on The Inquiring Mind.

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