Labour’s fair not fair

Labour is trying to sell its proposal to impose a selective capital gains tax on us as an issue of fairness.

But as Trans Tasman argues it’s proposal isn’t so equitable:

It is difficult to understand why, if the fairness arguments are taken down the track Labour argues for, all gains are not taxed at the same rate. For example, why should the occupant of a substantial coastal lifestyle block escape this new tax when the person running a productive farm falls directly within it?

And why should art, gambling proceeds and  stamp collections be spared, when businesses aren’t?

Multimillionaires Sam Morgan and Selwyn Pellet have become Labour’s poster-boys to justify the CGT and new top rate. Both are said by Goff to have thought it unfair they did not pay tax on their huge gains. But Goff needs to be careful, Shewan says, not to overplay this hand. The public will quickly tire of extreme examples being rolled out to justify changes which will have a deeply pervasive effect on ordinary transactions much closer to home like the family farm or window cleaning business.

It is difficult to design a tax system which catches everyone but while Morgan and Pellet weren’t taxed on the proceeds of their sales they would have paid plenty of tax while running their businesses.

If a CTG is imposed, sales like this would be designed to avoid at least some of the tax by, for example, giving shares in lieu of cash.

But there are just extreme examples which Labour is using to stoke up envy and distract people from the impact their flawed proposal would have on many more people of very modest means.

Among them would be siblings who sell the family home after their parents die and couples who divest themselves of matrimonial property during a divorce settlement.

Retirement savings could also be eroded. The Shareholders Association warns that shareholdings in Kiwisaver would be hit by a CGT and that younger people would be most severely disadvantaged by this.