Friday, April 21, 2023

Kerre Woodham: Is a capital gains tax simply an issue of fairness?

There's been quite a bit of chat around a report that's due to come out from the IRD that looks at 400 of the wealthiest families and individuals in New Zealand.

This morning there was a speculative piece in The Spinoff suggesting that that IRD report could be paving the way for an introduction of a capital gains tax. A tax that Jacinda Ardern promised would be ruled out as long as she was Prime Minister. But she's not the PM anymore.

Chris Hipkins is and he has made no such promises. He's also shown a readiness to tear up whatever legacy Jacinda Ardern was hoping to leave and creating his own form of leadership.

At the same time as the IRD releases its report, Treasury is releasing a related piece of analysis into the effective tax rate of New Zealanders across income and wealth distributions.

Now the Spinoff slant is that capital gains tax should be introduced. They say we're the only country in the OECD in which capital gains, a profit on the sale of investments, is not a significant part of the tax system.

So amongst the 38 wealthy member nations of the OECD, we are the only country without capital gains tax. And in this, we’re seen as an outlier in global tax cycle.

So it's a speculative piece, it's well written. It's well worth reading. The commentators they use are knowledgeable. And I think they make a case for a capital gains tax fairly clearly.

I always found it very odd that Ardern backed away from something that she had held as a lifelong principle, that there should be a capital gains tax.

And she gave it up very, very quickly and ruled it out as long as she was leader of the Labour Party.

Now is an opportunity for Chris Hipkins as Prime Minister, for David Parker, the revenue Minister who favours a CGT, to introduce one.

There is absolutely no reason to think that Chris Hipkins would honour a promise made by somebody else entirely.

It was purely personal for Jacinda Ardern to say under her watch, there would be no capital gains tax. He can do what he likes. Should he introduce a CGT?

Is it, as the commentators say, simply an issue of fairness?

Kerre McIvor, is a journalist, radio presenter, author and columnist. Currently hosts the Kerre Woodham mornings show on Newstalk ZB


kruger said...

With inflation running at 7% a CGT would be a financial windfall for the gummermint.
And a financial plague for those soon to be retireees that invested in capital in the hope of a comfortable retirement.

TJS said...

I think governments need to really look at ways that they could generate income for the country they work for instead of just wantonly spending taxpayers money. Most people don't get to have that much money. It's nice when by chance there's a windfall.

Now some people resort to stealing it or selling drugs or other kinds of organised crime. Others extort their clients who have no other options simply because they need their roof repaired. Others have really lucritive govt. paid jobs but yet we insist that it's only fair to tax you at 30% or more. Beats me.

Anonymous said...

The problem is that investors can get better returns overseas but have a tax incentive to invest in NZ. If investors move their money offshore in a significant way that will be problematic for the NZ economy.

Anonymous said...

if you want to move out of an old 'leaky home' to an 'approved' one, do you need to pay CGT on the first sale, despite having to add funds to complete the second one?

AlanG said...

What has always bothered me about CGT is that it doesn't take into account inflation. If you buy a $1 million dollar house that increases in capital value at 5% p.a. over a period of 5% average inflation then sell, have you actually made money? On paper maybe, but in reality of course not, your money has the same buying power that it had five years ago, no more, no less. So why should you be taxed on no actual gain? The more underlying inflation, the less you actually make.

Any CGT would only be fair if it took inflation into account.

DeeM said...

So you pay income tax on your hard-earned money. Then, if you're lucky, you have some left over to invest, at your OWN RISK.
You might lose money on that investment - does the government compensate you for say 30% of that loss? Of course not.
But if you are wise/lucky you get a return on your investment. And who's there putting out their hand for a slice? The bloody government.

Piss off! It's a tax on a tax. You're being hit twice with no risk being shared by the government.
I'm sure investors would love similar terms.