Thursday, May 24, 2012

Mike Butler: Russel Norman on CGT (LOL)

Russel Norman seems to have sucked in a few unthinking reporters and sub-editors working for Fairfax, or so it would seem, because he was given space to write the pre-Budget opinion piece in today’s Dominion Post normally reserved for the leader of the opposition.

In that op-ed piece, Norman talks up a “smart green Budget” that “would position our nation to be a world leader in tomorrow's green economy”, and waffles on about “a plan that would take our national debt seriously”, “structural reforms aimed at rebalancing our economy”

How would he fund it? “A capital gains tax, excluding the family home”, to drive “capital from speculative property into productive enterprises that create more jobs and wealth.” He claims that his capital gains tax (CGT) “would eventually raise up to $4.5-billion a year”.

Remember the former Labour Party leader promoted a CGT that would exclude the family home which was estimated to raise $78-million in the first year rising to $2.27-billion by year 10. Norman ignores the tax rate and throws in the $4.5-billion a year figure.

In the absence of any specifics from Norman, I worked out how Norman could try to get $4.5-billion a year out of current residential property sales.

A total of 59,473 houses sold during the October 1 to December 31 quarter last year. If 240,000 properties sold per year, to achieve a figure of $4.5-billion, the amount of tax paid on each property would have to be $18,750. If the CGT rate was 15 percent, and if $18,750 represented 15 percent of the average capital gain, that average capital gain would have to be $124,999.

BUT, under Norman’s CGT, the family home is excluded. The 2006 census revealed that 66.9 percent of homes were owner-occupied.

THEREFORE, if two thirds of those sales were owner-occupied, Norman would have to get $4.5-billion out of the sales of 80,000 homes, or tax of $56, 250 per sale, which, assuming a 15 percent tax, a capital gain of $374,999 per property.

HANG ON, that’s about the median value of a residential property in New Zealand. Property price movements over the past year are anything between minus 7.3 percent to plus 13 percent. With those price movements, it would take a very long time to get the increase in values to bring in that amount of tax. Norman’s figures don’t stand scrutiny.

And here’s the thing about Russel Norman. He has the honorific “Dr” in front of his name, but his expertise is in the politics of a small socialist political party, the Alliance, not in finance or economics.

He either knows what he says is twaddle and is doing politics, or, more worrying, he doesn’t know that what he is talking about is twaddle.

Here’s another thing about Norman. He waffles on about a plan that would take our national debt seriously, but all he, and the sanctimonious Green Party, have ever done over the past four years is oppose every spending cut or restraint, and call for more spending and more taxation. Here’s a few of Norman’s spending policies, courtesy of blogger David Farrar:
Increase schools operations grant by 10 percent
Maximum class sizes no greater than 20
Increased teacher-child ratios in early childhood services
More funding for Maori language
Support pay parity for early childhood, primary and secondary educators
Write off student loan debt on a year for year basis if they stay in NZ
Establishing a universal student allowance
Cap and then progressively reduce student fees
Increase Community Organisations Grants Scheme (COGS) funding to $34m per annum
Establish a special fund of $150 million to mitigate the impact of ending pub pokie grants to community and voluntary sector organizations
Support TVNZ’s channel one becoming a commercial free, New Zealand focussed channel.
Increase acquisition and building of state housing units by at least 3000 units a year for the next 3 years.
Provide funding to third sector housing organisations for a minimum of 1000 units a year for the next 3 years
A Universal Child Benefit of $18.40 per week per child for the first child, $13.00 for subsequent children
Protect all benefit levels by linking rates to a fixed percentage of the average wage (like superannuation).
Remove discrimination from tax credit regimes such as the In Work Payment component of Working for Families.
Increase funding to promote health and prevent illness and injury to 10% of the health budget.
Introduce a free annual wellness check for all New Zealanders.
Extend the healthcare subsidies available to superannuitants to cover people on sickness and invalid’s benefits.
Provide free fruit to all primary schools.
Significantly increase funding for the aged and disability care sector.
Abolish asset testing for residential care.

New Zealand is in serious trouble if Norman gets anywhere near the treasury benches. Some wag quipped that if you want to see what NZ would be like in 20 years under current policies, look at Greece. Norman would get us there much faster.

Note: For any reader who may be confused about "LOL", it simply means "laugh out loud".


Anonymous said...

The estimate comes from the Govt appointed Tax Working Group report from 2009. Yes they may be wrong and it could be updated but it is probably still the most authoritative source. Try dealing with the arguments rather than engaging in personal insults.

Mike Butler said...

If the CGT estimate comes from the Tax Working Group, as Anonymous claims, it is very interesting to see how flawed that august body's calculations were. Thankfully, anybody can do the sums to verify or disprove tax working group figures, which I just did. Anonymous can do the same, or maybe he or she cannot.

Allen said...

Well Mike once again an excellent article, it looked to me if you were dealing with the facts, even on a second reading I have trouble finding the personal insults alluded to by Anonymous. Why aren't the media, those supposed bastions of truth, highlighting these facts instead of pushing the leftwing bandwagon.