Treasury and IRD on a capital gains tax

Both the Treasury and IRD have been advising the National Government on the benefits of a capital gains tax.

Documents released to the Green Party under an Official Information Act request show that John Key has been selective with the facts about the advice he’s received on a capital gains tax. IRD produced advice for the National Government on a capital gains tax on February 4, 2014, and the Treasury recommended a ten year “bright line” test for a capital gains tax in 2011.

Treasury has consistently supported a capital gains tax saying that it would be a “beneficial reform” for New Zealand.

Treasury and the IRD say a capital gains tax would:

  1. Reduce house prices, increasing housing affordability;
  2. Increase domestic savings;
  3. Reduce foreign borrowing;
  4. Lead to an improvement in GDP;
  5. Increase the progressivity of the tax system if family homes are exempted. The current tax system favours the wealthy;
  6. Increase the revenue integrity of the tax system, closing one of the last remaining major tax loopholes;
  7. Increase the equity of the tax system, meaning all income is treated the same for tax purposes;
  8. Raise about $2.5 billion per annum after 10 years which can be used to bridge the ‘fiscal gap’ emerging over time as our population ages;
  9. Improves tax efficiency allowing tax rates generally to be lower;
  10. Addresses the incentive for businesses to pursue untaxed capital gains rather than produce (taxable) profits;

The drawbacks?

  1. Rental prices could increase as landlords try to pass on costs;
  2. Added complexity and compliance costs;
  3. Potential to ‘lock in’ asset ownership;
  4. Would require an upgrade to IRD’s computer and additional staffing resources to implement and monitor.

For the record, the Green Party has and will consistently champion a comprehensive tax on capital gains (excluding the family home) and we’re sticking to our guns on this one. The IMF, the OECD, and the even the Government’s own Savings Working Group all support our position.

When Trade Me founder Sam Morgan sold his company for $700 million, he later confessed: “I pay basically no tax. And that’s not right, but what am I supposed to do?” A comprehensive tax on capital gains would change all that.