..if landlords could get away with charging twice what they do now..
..the market sets those prices…
..as i said…it’s a bullshit-threat…
I see you have developed your spin, from a CGT focused on rental property is discriminatory and one applied on all assets is too complicated.
Now it’s a CGT on rental property would increase rents and house prices and a tax on shares and farms would adversely impact on the productive sector.
Of course neither is true, but as they say repeat a lie often enough and fool enough people … then democracy is not a threat to privilege (and when the economic/taxation system results in growing disparity in income and wealth there is privilege).
I hear you alright, you don’t like the work involved with accounting for inflation with a CGT, but also object to a CGT that does not require it.
Frankly the reasons for a CGT outweigh the inconvenience to investors. Just as the reasons for consumption tax outweighed the issues of tax collection.
The economic reasons alone lead the OECD, IMF, the Tax Working Group and Treasury all support a CGT. The social and political reasons – fairness in tax collection, and reduced income and wealth disparity add to the argument.
This country has a large component of foreign debt ties to mortgages on homes and farms – doubling and quadrupling over the past 10 years. That course is not sustainable.
“Bureaucrats throw ze weight around and zumetimes refuze to grant ze consentz on flimsy excuses. Ze RMA rules that require consultation with ze Maori, must be eradicated. Zat iz why we must have ze first past ze post system, or we will become overrun with ze underclasses who ve pay to breed.” said Don Brash at a recent vote for change rally.
The new Rainbow Warrior ship was floated last Monday. It’s the first time that Greenpeace has a purpose built ship which is environmental in design, set for sailing and perfect for the purpose of spreading the message of sustainability and peace to the world.
I’ve just set up a media news monitor, mainly to keep track of the stories I read. Check it out.
Yesterday, it took GeoNet over two hours before they even registered a 7.6 Magnitude earthquake on their website. The powerful earthquake hit off the Kermadec Islands at 7.03am NZT at a depth of 48.5km…
phil says “i see photonz is crying me that river…”
It’s not me that will get hit by it – I’ll just put my money into a nice big house and live in it.
You are the one who will feel it. First, you will get big increases in your rent (if you rent). You really think your landlord will just absorb CGT rather than pass the expense on?
Secondly, CGT pushes money away from the productive sector into houses, (without actually collecting much revenue) so in a slowing economy there will be less money for benefits.
IF (and that’s a big if) you were to have a CGT, you’d use it to push money TOWARDS the productive sector – not AWAY from it.
Despite the fact this is from an American right wing perspective, the issues discussed go directly to the issue at hand, and need to be satisfactorily addressed by any reasonable CGT arrangement.
bj chip says “:Fuck that mate. You had a list, it was a reasonable start.”
1/ You’d have to be on another planet to think it’s a good idea to make every stamp colllector, every person who has a peice of china or old funiture, old car, a collectable book in the family etc – to have to start keeping business books.
2/ We need to find ways to make house prices LOWER – not ramp them up.
Labours plan is to tax everything that produces for NZ – shares, businesses farms – but leave out housing except for a minority of rental houses. That’s going to shift a lot of money to housing and make it more expensive.
A tax “should” make rental housing cheaper, but that won’t happen. Because a house is a house. There’s no sign or rule saying this one has to be a rental house and this one isn’t.
And because the vast majority of houses will not be taxed, but all other investments will, that will shift money in the WRONG direction.
It will do the opposite of what we want. It makes investing in businees and the productivity sector LESS attractive, and funnels money to the only place to get capital gains without tax – your home.
So house prices will go up for two reasons. 1/ they become the best return for your investment money. 2/ because more money is channeled to houses, it creates more market demand, prices go up even further in a cycle.
With Labours CGT I get rewarded for investing in my house (which hurts the country), and penalised for investing in the productive sector (which helps the country).
SPC, As I’ve said above, but you don’t want to hear: I’ve done CGT, and its not easy, it is a complicated tax to administer at the individual level. And again, as I noted, despite having to calculate and fill out CGT information anually, I dont think I ever paid a penny in CGT.
And any tax that calls itself a “capital gains tax” but doesn’t allow for inflation isn’t a CGT at all, its a simple tax on inflation.
The Kiwi GST system is so much better than the British VAT system as there are so few exceptions. In Britland these days there are about five rates of VAT, two of which are 0% but are different, and have to be applied differently, and accounted for diferently (“zero rated” and “exempt”).
Not to mention the question of whether a Jaffa Cake really is for taxation purposes a cake or a biscuit (see Wikipedia article) but whatever they are they are lovely, and are now sometimes available from New World in Rangiora (plug!)
Exceptions in taxation are a pain.
i see photonz is crying me that river…
phils says “so..a person makes $100,000..and has to pay $15,000 in tax..?”
Not neccessarily – the way it works is if I buy a house, move in, do it up, and sell for $100,000 more two months later, I pay NOTHING, because I breifly lived in it.
If I buy a house, rent it for ten years, sell it for $100,000 more, I pay $15,000 even if the price rise is from inlflation only, and there is NO capital gain.
Even if you have a LOSS after inflation, you still get slammed by this tax.
If my job gets shifted and I have to move towns, and rent my house out un til it sells, I get slapped with $15,000 tax.
If I have a rental, but live in it for a few months while I sell, I pay nothing.
(a pithy definition of nact…)
“..self-serving power elites who rely on the credulity of the majority to continue to control and exploit a situation for their own gain and self-importance…”
(pretty much sums it up…eh..?..)
Most New Zealanders oppose work testing parents of pre school children.
Also in the no surprise category, Don Nicholson ex Fed Farmers is to stand for the ACT Party “the real National Party of Don Brash”.
so..a person makes $100,000..and has to pay $15,000 in tax..?
cry me a fucken river….eh..?
can’t they console themselves with the $85,000 they have left…?
I think it is important to understand something here. People are far more accepting of ANY tax system if they perceive that it applies to everyone. If you expect voluntary compliance (which is the rule in most places), you get it by making the burden more fairly distributed rather than lighter.
Lets get real here. Yes. You are basically claiming that because it is too hard to do, we can’t actually tax the wealthiest people in NZ.
Fuck that mate. You had a list, it was a reasonable start.
As for the result in Australia, the situation there is different from here, as in countries that have and work with CG the methods and results are different because the implementations are different. You are telling us it can’t be done, and yet, basically, every other nation in the OECD does it.
There is no reason it cannot be done Photonz. There are a lot of ways to do it badly, and I would welcome your suggestions as to how it can be done better than in Oz or the USA, but there is no reason it cannot be done.
Now maybe you expect people to collect antique furniture and restore old cars to make extra money. My recollection of an old joke is pertinent. If you want to make a small fortune restoring antique cars… start with a large fortune.
Not many people could or would, and it requires a lot of skills and IT ADDS TO THE WEALTH OF THE NATION (well sorta – we collectively have one more car, but as a Green I have to reckon that that isn’t necessarily a good thing 🙂 ). Something that swapping houses for ever increasing mortgage debt has never done.
The rule is general… no form of income is “privileged”. Exceptions are hard to justify, and the exception for houses is especially hard to justify.
You want no tax because it is “too hard”, we want fairness across generations.
Our goals are not the same.
The notion that it is “too hard” to tax (in ANY form) the wealthy because they have so many tools to evade and avoid the tax, is a common meme here. We see it from every right-wing apologist for the ever increasing gap between wealthy and poor.
We don’t accept it. We will NEVER accept it.
SPC says “Most countries have CGT and manage the complexity of collection well enough..”
No – in most countries it’s a complicated mess that costs a fortune to administer, misses getting the people it should, hits the poeple it shouldn’t, and doesn’t collect much revenue.
Just like the gst exemption is a mess in Aussie – i.e. some pizzas have gst, some do not.
It’s a laugh that you say because of this they have higher economic growth – use that sort of simplistic nonsense in an economics essay and you’d get a big FAIL.
Lets get real here.
Capital gains tax is not to generate revenue, as it won’t get much for decades.
It’s not to bring house prices down, because it will do the opposite as it did in Aus.
The main reason for CGT is because Goff is desperate and he thinks it might steal him some votes from the far left.
An entirely expected response, it’s either too complicated in covering all appreciating assets, or otherwise it discriminates unfairly on any investor group included.
I raised that very point about your varying opposing tactics on this earlier.
In that it reminds me of GST – we “included” everything “but” property and finance and guess which sectors grew at the expense of the productive economy … . If anyone proposes other exceptions it is suddenly complicated as to what other qualifies. It’s as if the great symbiotoc relationship between internationally financed local bank loans to local speculators count as an exception to the rules applying on all others.
Most countries have CGT and manage the complexity of collection well enough and also they have exceptions to the universal rate GST for food (either zero or a lower rate) and they have higher economic growth than us.
As I said a floor value for inclusion limits the coverage to public interest in terms of tax collection viability, then it’s a matter of using past experience overseas to see what should be on the appreciating value list of assets.
SPC – So it you have a comprehensive CGT, you would require most of the country to start keeping accounts and bookwork on any of their assetts that may appreciate.
It’s difficult to think of any tax that would be so complicated, and require so much administration, for so little return.
How do I tell if my old sofa is an antique, or a piece of furniture. What about my nanas chinaware?
What about the pictures on my walls? And if I have two cars, and one goes up in value and one goes down, can I claim one against the other?
What about where capital gain is from improving something, like restoring an old car? Do you now have to become a limited company to do that so you can claim expenses? And how do you calculate the time put into the restoration? Or is that worth nothing?
The idea of a general CGT is a nightmare.
I would have thought saying that a comprehensive CGT was like an assets tax and would require a declarative statement to IRD of all assets owned was indicative.
I mentioned a threshold for the family home above which a CGT would apply.
As to clarify on other assets, there could be a level below which an asset did not count and also an advisory from IRD establishing what assets were seen as appreciating (and to which the should be listed) and those that were not appreciating (and need not be listed).
I would presume some research on overseas CGT regimes and their practices and experiences would be “salutative”.
The key principle is profit/income from all sources being taxed, though exceptions can always be made where there was no public interest/net public good.
SPC – you haven’t answered what items you would put capital gains on, and what you wouldn’t put it on.
If the IRD wanted to know that people were not (hiding their assets and) failing to declare their sales, they would be well advised to seek a declarative return (this could be matched to changes in ownership of the assets where this could be known).
Reports suggest that Labour is proposing a 15 cents rate that would apply regardless of the CPI. This in preference to a higher rate that would apply on the inflation adjusted figure. Australia simply has a CGT on half the CG – estimating half the gain to be infation sourced (something similar could be done for tax on interest income).
…this would require all taxpayers to make an assets owned return
Not necessarily; the taxpayer would need to declare any assets sold, their increase in value, and when they were purchased. The taxpayer also needs to consult the tables that the IRD would publish of what the value gain due to inflation between the two dates is. You then determine if your gain has been greater than the book gain, and if so then there is tax to be paid.
Having lived in a country with CGT, I can say with some conviction that it is a right royal pain in the ass; it takes a lot of working out. And I don’t think I ever paid a penny in CGT, but had to do a lot of calculating.
The one agency opposed to a CGT is IRD, they have moved away from annual tax returns for personal income tax payers and this would require all taxpayers to make an assets owned return.
Then each year notify IRD if there had been any change, new assets owned or assets sold in the year. Police however will love this and eventually IRD will grow to love the new capacity this will give them to target those avoiding (better compliance regimes) or evading tax (prosecution).
As for the home, a threshold over which the family home is not exempt can be established.
Back in 1983 Douglas proposed major economic reform, the one declared intent not followed through with was an assets tax that would have required this sort of compliance (it would also be used for a comprehensive CGT). The lack of an assets tax and CGT is one reason for our relative economic under-performance and high foreign loan financed house and farm debt.
Democracy relies on transparency and truly representing the diversity of views held within any community. Southlanders have been contemplating how best this can be achieved in light of recent events.
After John Key’s grandstanding and before he walked out of Parliament yesterday without a prior arrangement, the Prime Minster was given a few good slaps in the face by the Leader of the opposition Phil Goff concerning asset sales. John Key’s answers were pathetic at best, being completely discredited by all the relevant data as well as previous experience, which shows privatisation has been a complete disaster for New Zealand…
SPC – so what do you want capital gains tax on?
– rentals only
– all houses
– all property
– classsic cars
photonz, that sounds about right, critics complain that if they grow their foreign share porfolio value from say 100 to $200,000 (via CG) they then have to pay the 5% on the higher amount so effectively a CGT regime.
The 2.25pm post should have been clearer
The tax arrangements for super schemes have nothing to do with CGT on private share trading. Those businesses or professionals whose job is to trade for profit always pay tax on their income unless subject to other regimes as super funds can be.
SPC – tax is paid in NZ on Aussie dividends – but not on capital gains.
It’s the same for non-Aus international shares for holdings less than $50,000 ($100,000 for a couple). If you are over the threshold, 5% of the value of your holdings becomes taxable annually.
If you have to resort to dubious claims to legitimise your oppositon to a CGT you are on very weak ground. The IMF and OECD and Treasury support the left on having one. It has to be the most bi-partisan tax in the world.
Countries that have one have lower housing costs than us, more savings and investment and more of that in the productive sector and in R and D and thus higher growth.
You first object to the tax just on housing (and only on rental housing and not homes), then object to the compliance costs of inclusing other assets. It’s all over the place, nice to know that Labour has the right on the run over this.
The purpose of the asset sales was to provide an alternative to rental property investment so why does the right oppose a CGT on rental property investment? Because it might include the CG profits from buying shares in the SOE’s and flicking them on to foreign buyers? Because those who see a way to make more untaxed CG don’t want to pay their fair share in tax, not on rental property and not on shares.
Photonz – do you declare the dividends you receive on your foriegn shares and pay tax on that income or is there some other means of assessing your tax liability on foreign share ownership – and if so how do you know that the presumed fixed rate of return is not to cover dividend and share gain (as many critics claim).
The tax arrangements for super schemes have nothing to do with CGT on private share trading. Those who trade for profit always pay tax on their profits unless subject to other regimes as super funds can be.
SPC says “…the point is fairness…”
Very funny. It hits the people who don’t deserve it (and people who rent), and the people it should hit most can avoid it.
For the benefit of NZ, we need –
– lower priced houses (Captital Gains Tax does the opposite)
– lower rents (Captital Gains Tax does the opposite)
– more rental housing available (Captital Gains Tax does the opposite)
– for people to be able to move in and out of assetts as easily as possible (Captital Gains Tax does the opposite)
– more savings and investment (Captital Gains Tax does the opposite)
– more business growth (Captital Gains Tax does the opposite)
– a more efficient tax system (Captital Gains Tax does the opposite)
– less complianace costs for business (Captital Gains Tax does the opposite) (with a comprehensive CGT hunderds of thousands of kiwis like stamp collectors will have to start keepinjg accounts like a business)
Time some anomalies were removed also.
A builder who does up a house for sale is taxed, but the many owner occupiers who do the same thing are not.
Someone deemed to be a share trader is taxed on CG, but someone else who gains CG income from shares is not.
PAYE payers are taxed on all income while someone who gains income from selling antique cars or shares is often not.
Part of the reason why half of the wealthiest people in NZ do not pay taxes.
For reasons of fairness, broadness of the tax base, investment direction and efficiency of the tax system all income should be treated equally.
SPC says “photonz, you do realise that whether the tax you pay on your foreign share portfolio is called CG or not there is a tax that you are paying right?”
Theres tax on dividends, but not capital gains.
SPC asks “And how would a CGT negatively impact on Super and Kiwi Saver…”
Anyone with a Kiwisaver or super fund that includes shares would get a lower return when they retired. To quote from my scheme
“No tax on gains in New Zealand shares and certain Australian shares”
Kerry, the idea that a CGT should only be introduced when it impacts on all homeowners is designed to prevent there ever being one.
However other countries have determined that a CGT, even without coverage of the home, is a good idea. Their CGT is broader than investment property and includes shares etc. They have more structurally balanced economies than we do – more affordable housing, greater investment in shares, and mroe re-investmnt of company profit. Funny that.
No wonder the OECD/IMF have come to conclude that a more equal in income and wealth a society the better its economic prospects.
You claim that house prices will increase because money will shift to investing in their own homes for untaxed CG. You claim this happened in Oz. If that was true then why are house prices more affordable in Oz per wage than they are here?
In reality some investors will invest big in a higher end value property as they did in Oz – they finance a new and bigger home by selling a few investment properties. This will increase the average price of a home – so are you right. No. Because the investment properties sold will reduce demand and lower prices for the existing housing – thus they will be sold at a lower price to first home buyers – so while the average price of all housing will go up (because of the new and bigger homes built by investors), there is still a lower house price per wage in Oz (excluding the investor in their mansion).
So a CGT will encourage new home building at the top of the market and more affordable first homes for others. This means economic growth from home building and more disposable income for first home buyers, also stimulating economic growth.
A CGT does make the tax system fairer. Your examples in the earlier post are only a case for including all properties within the tax or otherwise finding ways to manage inconsistencies in tax treatment for the exemption of the family home. And some have been suggested here already.
A CGT does raise revenue, whether you call it large or small amounts, the point is fairness, to tax all income and prevent economic distortion arising from different tax treatment.
“In addition with GCT people simply don’t sell, so you’ll get a trickle of revenue in 10-20 years.”‘
Baby boomers will sell during retirement and they are starting to retire now. Most investors are older people.
“No – It does the opposite. Because peoples own homes are exampt, people shift money to get tax free capital gains so house prces go UP – not down (this happened in Aus)”.
That is the reason why it should apply to all speculative assets equally.
Unfortunately it is probably impossible to introduce a CGT on the family home without a political backlash.
But. Exempting it adds too many opportunities for rorting the system.
JK has already been instructing people on tax evasion, in parliament.
photonz, you do realise that whether the tax you pay on your foreign share portfolio is called CG or not there is a tax that you are paying right?
Countries that have CGT on shareholders asset value profits have higher rates of re-investment of profit/R and D etc than we do. Probably because they also have CGT on other assets and the tax is normalised and across the board – and allows lower company tax rates etc.
And how would a CGT negatively impact on Super and Kiwi Saver they already pay tax, if anything a CGT on private individual share investments only equalises tax treatment – might encourage more people to invest through such vehicles.
Supposedly, capital gains tax will
– make things fairer
No – It does the opposite . See my post of 1.25 yearsday (fifth post from the top_ to see how UNfair and random it is.
– generate lots of tax revenue.
No – It does the opposite. Australia has a much more comprehensive CGT which doesn’t generate a lot of revenue. With such a complicated tax, there have to be an enormous number of loopholes to avoid beuing unfair.
In addition with GCT people simply don’t sell, so you’ll get a trickle of revenue in 10-20 years.
– makes house prices lower.
No – It does the opposite. Because peoples own homes are exampt, people shift money to get tax free capital gains so house prces go UP – not down (this happened in Aus).
SPC says “Do you really think there is no local tax on foreign share CG?
Mine aren’t taxed for CG, and I’ve got foreign shares in a number of international markets.
SPC asks “photonz – companies are taxed on their profits, so how does a CGT impact on them to the negative?”
Currently shareholders and owners are taxed on what they take out of the company, but not on capital gains from growing the company.
So currently there is an incentive to put more money put into growing businesses. CGT on shares and businesses would disincentivise growth.
It would penalise business growth, savings investment, superannuation, and kiwisaver.
It would INCENTIVISE people spending instead of saving, and putting more money into their own homes.
Everything it incentivises does the opposite of what we want.
Some countries, like Germany, have tax credits for re-investment and retention of capital in companies. A better method of encouraging productive growth than trying to fiddle around the edges of a CGT.
We had something similar with R and D credits.
A CGT rewards those who keep a business going for long term yields rather than short term owners who buy and strip. Another advantage.
photonz – the problem with your theory that a 15% tax on share CG would have investors seeking dividend payout rather than re-investment of profits in company growth is that countries that have CGT have much greater investment in shares than we do. And their companies are more likely to invest in R and D than we do etc etc. It has no real world evidence to back it up.
Photo. I said keep the CGT universal, to avoid loopholes, and help growth business in more specific ways. Also. Taxing investment in land should encourage more capital into business IPO’s, for instance. Isn’t that what we want.
Lack of CGT encourages businesses to be in the real business of buying and selling fixed assets rather than growth.
photonz – companies are taxed on their profits, so how does a CGT impact on them to the negative? Broadening the tax base allows lower rates over time and this has to be to the long term benefit of both businesses and personal tax payers and probably savers as well.
As has happened elsewhere. CGT may not recover much, but the net tax take has increased because tax payers no longer have a loophole they can use to avoid tax..
If some investors sell shares because of a 15% tax on CG, then share prices either return to their dividend return value or other investors prepared to take a 15% CGT on their share profits bid up the value (pick up the bargains).
Anyone driven offshore by a 15% CGT on their local share profits (and please note all those people selling rentals to first home buyers will have to be investing their money in banks or shares or …) will have reason to remember the curse of Cullen/his tax regime on foreign portfolios still exists. Do you really think there is no local tax on foreign share CG?
PS Those on the right who oppose this should realise that giving property investors a reason to capitalise and invest in the sharemarket is the stated reason for thr government’s policy to sell shares in public assets. And the CGT is also about reducing our foreign debt exposure via foreign financed home mortgages by reducing local property values.
Kerry says “Helping growth business …”
But taxing a business on its growth does the exact opposite.
It discourages growth.
It encourages paying out dividends instead of company growth.
Kerry says “You are already taxed on investment income whether capital gains or interest.”
Wrong – capital gains on shares are not taxed unless you are a regular trader.
Kerry says “Overseas countries, mostly, already tax CG on investments and shares.”
Wrong – none of my overseas shares are taxed on capitals gains. They may be for some local owners, but not for foreign owners.
You’ll end up with a capital gains tax on everything we should be investing more in, but NOT on the vast majority of homes.
That would do the exact opposite of what’s intended.
But it’s OK for Labour to say they would introduce a CGT, because thyey are not going to get elected anyway.
So now the country has a choice of one party that’s going to sell off the jewels to make people richer(*), and another who are going to tax everyone. Who would you vote for? Who will New Zealand vote for??
(*)Yeah, I know it’s utter tosh, but the same people whop thought tax cuts were a good idea will think this is a good idea too!
Photo. You are already taxed on investment income whether capital gains or interest.
Tax on Interest/share income is not adjusted for inflation.
Overseas countries, mostly, already tax CG on investments and shares.
Why would taxing it in NZ shift investment to another country with the same or higher CGT.
The old threat. If you tax me more I will shift investment offshore. Then you end up with the Irish situation. The companies go to the lowest tax regime, but they end up losing the country more money than it gains because they do not pay enough tax to cover their use of infrastructure.
It has already been proved that racing to be the bottom is counterproductive. Successful economies are not low wage low tax.
Like the port companies underbidding each other to get one big lines custom.
Then end up losing money and more reliable customers servicing the one line.
For reasons of fairness, encouraging productive investment and integrity of the tax system why force investment from land, to gold, stamps or antique cars. They are no more productive than housing speculation.
A CGT needs to be universal.
Helping growth business and people on lower incomes into housing would be better achieved by other means.
From my own business a capital gains tax would have hurt a lot less than the excessive business interests rates and high dollar driven by the reserve bank act.
I do not mind paying lots of tax when it means I am making lots of money.
SPC says “..allowing the CGT to generate revenue first …”
There’s a problem. With slow turnover of rental properties (most people I know have never sold any) which will become even slower with GCT, the estimates for how much revenue it may generate are not expected for 1-2 decades.
Kerry says “I actually cannot see why there should be exemptions for any appreciating assets.”
CGT on businesses would discourage investment in businesses. In shares it would shift investment from growth companies (which is what the country needs) to yeild companies.
And if I get taxed on capital gains on NZ investments, I’ll just invest overseas instead.
And if you want CGT on everything, we’ll need laws
on the difference between an old furniture and antiques, and old car and a classic car, a toy doll and a collectable doll, an art work and a oollectable art work. At what point do you put CGT on stamps?
The loophole in CG tax that a home residence exemption provides would exacerbate the current situation where people doing up homes for on-sale (often involving sub-division) live in them and don’t declare themselves to be in the property development business. This is a tax evasion (not avoidance) problem that IRD needs the resources to deal with.
However while the option of rental property landlords moving into one of their rentals (and renting out their former residence) before selling it, because the home residence is exempt from CGT, is there on paper, it does not require much thought to develop legislation that would prevent this.
Kerry, I agree that the CGT should be retrospective.
While this generally an exception to the rule not to do this, in this case there is a clear windfall profit that has been made and this means the tax system has been unfair and vast wealth disparity has resulted. And then there is also our budget predicament and the need for all to help out in this – not just those losing their public sector jobs and those receiving cuts in services.
So I posted this on here yesterday.
I would backdate to the historic purchase price and require asset holders to pay interest on the existing untaxed CG (on the amount of the difference to the current price). And then repeat this process every ten years so that there was on-going revenue regardless of the CG being realised in cash form.
There are reasons for excluding the family home.
Everyone needs a place to live in and it’s not really possible to make a CG on the sale of the home residence because all the profit will go in buying a new home in the inflated value market. This occurs whether this is the first home or fifth home a person has lived in.
However there is the real possibility that investors looking for house price CG might move from rentals to more expensive personal housing, this can be mitigated by placing a cap on the exemption of the home residence from CG exemption (note that there will be rates imposition based on the value of the home). This is another reason to look at reducing taxes on interest income and R and D tax credits etc to provide incentives to take up other savings/investment choices.
Doesn’t have to be as complex as Australia’s.
Have a look at the South African one.
Other forms of taxation do not allow a rebate for inflation, but it is not that complicated. Allow the CPI rise to be a deduction if compensation for inflation is required.
I actually cannot see why there should be exemptions for any appreciating assets.
It just makes it overly complicated. Whenever there are exemptions it makes for holes a tax accountant can drive a truck through. There are other ways to compensate which do not distort the tax base.
I feel the same way about GST off food. It would be better to keep GST universal, even add financial transactions, and compensate low income earners in other ways. Like a $10 000 tax threshold.
You are right that the lower 15% rate is used because then the inflation component can be ignored – the alternative is to tax at 28%/company tax rate and only tax the after inflation adjusted income gain.
However if this principle is accepted it has implications for tax of interest income.
Interest income can be taxed after inflation adjustment or taxed at a lower rate in lieu of this.
In fact if the introduction of a CGT was looked at as part of a tax reform package, then the revenue derived would be used to reduce tax on interest income to encourage saving.
Personally I would look at introducing a CGT with a proviso of introducing a lower tax regime on interest income within “x” number of years (allowing the CGT to generate revenue first and allowing some reduction of budget pressure and then later with economic recovery we encourage saving to reduce inflation pressures and deal with long term lack of saving).
Kerry – the 15% used is because it’s too difficult to calculate for inflation, and in the long term roughly half of house price increases are due to inflation, so 15% is used instead of 30/33%.
In Australia, CGT has lead to INCREASES in house prices as more money gets diverted from properties that get taxed, to those that don’t.
It also means rents go up to cover the cost, and also because less people buy rentals as they can make better (tax free) capital gains on their main house.
Effectively CGT is a “living in a house tax”, but only for those who can’t afford their own home.
It’s so complex that there are many loopholes (there are guidleines in Australia on how to own rentals and legally not have to pay CGT), so canny landlords will increase rents to cover CGT, but never have to pay it anyway.
At last Labour are showing some signs of offering real visionary alternatives.
Good on them.
The reaction shows that sensible people have been waiting for alternatives from the present voodoo economics.
CGT should be universal on any appreciating asset.
Without a CGT, PAYE payers are subsidising speculators .
It expands the tax base in a way that also discourages unproductive speculation and borrowing.
Capital gains income should be treated the same as any other personal income for tax purposes.
Why should you pay up to 33% on your work income and a speculator or someone who does up a house for sale pay only 15%.
It has to be retrospective to have any real affect.
The family home will probably have to be exempt to make the policy politically palatable, but I see no real reason to complicate CGT by doing so.
Like GST, I believe tax systems are much harder to rort if they are kept simple.
I can see a lot of single children of wealthy people suddenly acquiring a family home.
If it is there are several ways to make it less distortionate. )Suggestions only. There are more).
1 The family home could be exempt up to say, twice the mean price.
2 First homes only could be exempt from CGT.
3 More State housing both to rent or buy keeps prices within reach of ordinary people and puts a further downward pressure on house prices.
4 Only charge CGT on the gap between selling a house and buying the next one.
5 Allow for inflation and normal maintenance.
Now we need to look at the bonanza for banks and speculators and nightmare for manufacturers and workers. The reserve bank act.
Russell Norman wasn’t pulling any punches yesterday in Parliament, attacking National on their negative housing policies and opposition to helping Kiwi’s into home ownership. Bill English admitted to his poor memory and the fact that the National Party still believes in trickle down economics. What trickle down ideology really means is that National is pissing all over the rest of us in a blatant disregard for the welfare of New Zealanders…
“…The server it is on is being cleaned..”
they’ll need some serious industrial-strength solvents for that one…
..imagine the slime-buildup after all those years…?
i really hope the thumbs-downs on the first comment of this thread are for me…
..and not for the great man..
(need a laff…?…go on..!..y’know y’need a laff…!..)
“…Everything we do is for the purpose of altering consciousness.
We form friendships so that we can feel certain emotions, like love, and avoid others, like loneliness.
We eat specific foods to enjoy their fleeting presence on our tongues.
We read for the pleasure of thinking another person’s thoughts.
Every waking moment–and even in our dreams–we struggle to direct the flow of sensation, emotion, and cognition – toward states of consciousness that we value.
Drugs are another means toward this end. Some are illegal; some are stigmatized; some are dangerous–though, perversely, these sets only partially intersect.
There are drugs of extraordinary power and utility, like psilocybin (the active compound in “magic mushrooms”) and lysergic acid diethylamide (LSD), which pose no apparent risk of addiction and are physically well-tolerated –
– and yet one can still be sent to prison for their use–while drugs like tobacco and alcohol, which have ruined countless lives – are enjoyed ad libitum in almost every society on earth.
There are other points on this continuum–3,4-methylenedioxymethamphetamine (MDMA or “Ecstasy”) has remarkable therapeutic potential – but it is also susceptible to abuse, and it appears to be neurotoxic.
One of the great responsibilities we have as a society is to educate ourselves, along with the next generation, about which substances are worth ingesting, and for what purpose, and which are not.
The problem, however, is that we refer to all biologically active compounds by a single term–”drugs”–
– and this makes it nearly impossible to have an intelligent discussion about the psychological, medical, ethical, and legal issues surrounding their use.
The poverty of our language has been only slightly eased by the introduction of terms like “psychedelics” to differentiate certain visionary compounds – which can produce extraordinary states of ecstasy and insight …
… from “narcotics” and other classic agents of stupefaction and abuse…”
“Kiwiblog will be off air this Sunday between 6 am and midday approx. The server it is on is being cleaned and moved”
Ha ha ha ha ha ha ha ha ha ha ha ha!
Oh, please, take me now!
Best Farrar post ever!
BJ – have a look at my post of 1.25pm (fifth from the top) with different scenarios for capital gains.
The tax misses those it should hit.
And it hits those it should miss (including people renting).
Your fairness of taxation is a valid point, but a CGT would make things even MORE unfair – not less.
The best way to address the problem is to find a way that keeps a lid on house prices so they increase at the rate of inflation, or the rate of wage increases (which they pretty much do long term anyway).
That way, if people don’t make any capital gain (after inflation), then there’s no need to tax them anyway.
bj – historically house prices go up faster under Labour than National. And shares go up faster under National then Labour.
This is the first govt in decades that’s done anything to address high house prices – Labour did nothing in nine years.
If CGT is brought in, there will be a transfer of money from the rental sector to owner/occupier houses, and prices will go UP – not down.
If people get taxed for capital gains on rentals, people will do everything they can to get more of a capital gain on their own houses.
They’ll spend money on doing them up, and buy more expensive houses, to get the biggest tax free capital gain possible.
And those who have spent big bucks on a rental will want a reasonable return, so they’ll just put the rents up.
1. I see no reason why some forms of income should be “privileged”. Art objects or houses or horses that win races.
2. The list of countries with taxes of some sort on Capital Gains is quite long.
3. The list of countries espousing this privileged status for Capital Gains is quite short.
4. For the past 8 years I have been telling the government in power that it should do a CG tax. Cullen said “no” and English has yet to do the courtesy of replying. Both Labour and National have been intransigently opposed to ANY form of CG tax.
5. YOU have repeatedly described particular flaws in some hypothetical versions of a CG tax which bear no relevance to anything but your own unwillingness to work out how something would apply here.
6. The point to the tax is NOT to “raise a lot of new revenue”. The point is to remove a market distortion that leaves some forms of income privileged and others not.
Right – so you think a $16 billion deficit was caused by $1.5b in tax cuts – less than 10% of that amount
Photonz, the magick of leverage is at work here. The incentives applied to have people buying houses and mortgaging their butts off, to fund a speculative bubble with NO additional value added to the housing stock.
National put our money where its funding fathers told it to put money… in their pockets. They then put it in property investments or leveraged it somewhere else because it isn’t like they needed it for groceries.
Instead of a CG and an evening of the load, this government opted to make the load more uneven, and there is whacking little to show for all that lucre being pumped to foreign investors.
This is in the end, ALL about having no idea what money really is, and Labour is as clueless as National in that respect. Ignorance that makes insolvency inevitable. As happens with every Fiat currency in time…
This government is as blindingly stupid and pig-headed as any I have seen, and I have Cheney-Bush, Saint Ronald and Lyndon Baines Johnson as negative examples.
bj asks “Can Photonz explain why Capital Gains should not be taxed like any other income?”
Do you mean just capital gains on rental houses, or capital gains on all houses, commercial property, farms, art, gold, shares, bonds, collectables, antiques, stamps, classic cars, vintage motorbikes, memorabilia, books etc?
Can Photonz explain why Capital Gains should not be taxed like any other income?
“Russel Norman said the lack of it [capital gains tax] was a main reason why house prices rose as much as they did between 2001 and 2007, putting them beyond the reach of many young people.” (from NZ Herald)
Can Russel then explain why Australian house prices outside Sydney doubled in the last seven years, when they have GC Tax?
When CGT is put on rentals, this shifts money to owner occupied houses, and guess what – the prices go UP – not down.
And people are going to want to get the same return on their rental that they’ve paid so much for, so if you add CGT, it just forces the rents up.
So who really pays the CGT – landlords, or renters?
I agree with the AIM of CGT, if that’s to keep house prices down.
It’s just such a complex tax with so many loopholes, that many of the people you should be hitting hardest don’t pay anything, and people who shouldn’t be paying anything, get hit for tens of thousands, and it means rent rises.
We need to use other methods to keep house prices low.
Kerry says “Duh. Unnecessary and unjustified tax cuts.”
Right – so you think a $16 billion deficit was caused by $1.5b in tax cuts – less than 10% of that amount.
That’s meant to be disrepute.
You want to justify the decision in one case against another Alwyn. Very rarely is this used unless it’s a precedent.
Here’s the Hughes case to date:
Over three months after the original incident, on 8 June, the Police announced that they did not have enough evidence to press charges against Hughes. They also revealed that an anonymous letter containing allegations against Hughes had been sent to “some media outlets”. They had investigated these allegations but “there were no matters which arose that required police attention”.
Look’s like a smear campaign to me. Who might benefit from such a thing I wonder? Contrast that with David Garrett:
There is current controversy over whether or not Mr Garrett disclosed information about his earlier assault conviction in the Kingdom of Tonga in 2002 to avoid imprisonment for his earlier falsification of a dead infant’s biographical details in the context of the passport incident.
The contrast is that the Police said they did not have enough evidence to prosecute Hughes, while they have not given a proper explanation of why Garrett avoids prosecution.
It’s either a case of Garrett making a deal with the Judge that puts into repute the judicial system or him not informing the court of his prior conviction. In either case, it’s not acceptable that the Police either chose to protect the judge or Garrett’s contempt of court. Your comparison is a very weak argument.
Can you point me to your complaint when the Police chose not to prosecute Darren Hughes?
I find it very difficult to see any real difference.
Yesterday it was reported that an investigation into what David Garrett told the courts in 2005 when he appeared on a charge of stealing the identity of a dead baby to obtain a passport, found no criminal offending and Garrett would not be charged with perjury. What a farce! The Sensible Sentencing Trust member and former Act Party MP on law and order came under increasing pressure in Sept 2010 when it was revealed that he’d created a false identity…
kERRY SAYS “From a surplus to 16 billion in the hole in 3 years”
Duh – GFC !.
Nationals economic management. From a surplus to 16 billion in the hole in 3 years.
“The record deficit is now expected to be $700m less than forecast – but it will still top $16b next year”.
@SPC yes you are right provided to homes bought/sold have different values. But then the cost of the new home is deductible isn’t it? The point is to stop the ever increasing price on housing isn’t it and shift investment into productive ventures and away from speculative.
Us Kiwis are just so addicted to the tax free capital gain escalator.
The adjustment would involve some pain, but once the system is bedded in it would all settle down to a steady state wouldn’t it? Immigration aside.
I thought AGW was no longer happening. The US republicans legislated against it.
There is no reason why different types of income should be taxed differently.
If you are worried about unfairness.
I do a $6000 certificate upgrade course as an employee I pay tax and GST on it. If I do it while independently contracting in the same position it is tax and GST delectable.
PAYE wage earners on moderate incomes seem to be the only ones who really pay taxes.
We need to get rid of a lot of dodges. Simplifying the system and removing legal tax evasion, such as trusts and overseas transfer payments, would be a good start.
Republican Senator and leading climate denier Jim Inhofe had to cancel his keynote address yesterday at the Heartland climate denial conference because he felt “under the weather.” The ironic thing is his sickness was due to a toxic algal bloom in the Oklahoma Grand Lake where he has a home. Inhofe had swam in the lake last Monday morning, which resulted in a severe upper respiratory illness.
Just tax capital gains on property the same as any other income.
I believe South Africa has a workable system, but they also have exchange controls on exported capital.
menstruation-man has gone..been fired…
photonz, if people are operating a property development business (involving doing up houses and on-selling etc), then their company tax on profits would be unchanged from now.
There are those operating in that area now and not paying company tax, they do so by claiming their current project is their place of residence or they were intending to rent the place out and not on-sell. A CGT would catch the latter and they would now pay some CG taxation.
As for the former, if this is not dealt with then rental landlords intending to sell down their portfolio could move from property to property and claim each was the home residence at the time of sale.
The problem with capital gains tax, is that it can be completely unfair. If the rate is 15%, then look at the following examples all with $100g gain.
Buy house $300g, rent out, sell for $400g two months later – $15,0000 tax
Buy house $300g, live in it, sell for $400g two months later – ZERO tax
Buy house $300g, rent out, sell for $400g TEN years later – $15,0000 tax (despite having lost money due to inflation)
Buy house $300g, rent out, sell for $400g two years later, but live in is for the last six months – ZERO tax
Buy house $300g, live in it, job gets transfered, rent out for a few months before selling it for $400g – $15,0000 tax
Buy house $300g, rent out, do major upgrades yourself with a total of labour and materials of $150g, sell at a loss for $400g – $15,0000 tax
There are so many situations where people have to pay vastly different amounts of tax – some who don’t deserve it (or even make a loss) get hit the full amount, and others who do deserve to be taxed, pay nothing.
And those who buy to speculate and sell quickly, will only be taxed at HALF the rate they currently are (currently if you buy and sell within two years the capital gain is taxed as company profit).
So the people we really want to hit will pay LESS.
samiam if you include the family home, then every time there was a home move a CG tax would be made and this would reduce their equity when buying a replacement home – increase their mortgage liability (have consequences for labour mobility).
I’m opposed to capital gains tax as I don’t think there is such a thing as capital gain. If I buy a mars bar for $1 and sell it for $2 it’s called income and I pay income tax.
If I buy a farm for $1m and sell for $2m that is somehow not considered income?? What’s the difference?
But, OK, we have a CGT now we need to make it comprehensive, universal and unavoidable so as to keep all the shenanigans off the table. Yes that includes the ‘family home’.
A CGT is in the news.
My preference would be a comprehensive tax that included shares and gold, farmland and rental property.
Some way to prevent the continuing practice of people buying a house, “to live in” (inclduing doer ups) and sub-dividing the section to sell as 2 properties – to avoid tax on profit income made should also be part of changes made.
Personally I would backdate to the historic purchase price and require asset holders to pay interest on the existing untaxed CG (on the amount of the difference to the current price). And then repeat this process every ten years so that there was on-going revenue regardless of the CG being realised in cash form.
“…George Bernard Shaw will be exposed, stripped bare as never before, when the contents of cupboards and drawers, albums and boxes crammed into his last home go on display for the first time –
– the thousands of photographs that were the Nobel laureate’s other great passion in life.
An exhibition of original prints will open at the National Trust’s Fox Talbot Museum in Lacock, Wiltshire, on Thursday – while the guardian of Shaw’s photographic archive, the London School of Economics, has mounted an online exhibition as well.
Both have astonishing images, including several of Shaw naked, apart from his whiskers.
From 10,000 images, mostly printed by Shaw, Roger Watson, curator of the Lacock exhibition, has chosen a startling self-portrait of the playwright lying on a sofa, lit by a single overhead lamp, naked apart from a strategically placed book.
Shaw’s long, skinny body could be a medieval tomb carving, apart from the hints in the shadows of a 20th-century background…”