One idea that continues to keep returning, like tinea, is a capital gains tax. We had a Working Group of the great and the good that advocated introducing one. Labour occasionally favours one when they are in opposition. Last week the chief of the ANZ bank, Antonia Watson, bravely deflected from the more than two billion profit by advocating for a tax on capital gains.
It isn’t clear what problem we are seeking to solve. The Crown takes in a third of GDP. This is a massive amount and other than our inability to constrain spending to within this massive haul; why does Wellington need the extra cash?
Proponents point to Australia and claim the sunburnt country has a capital gains tax, and they do all right.
These folks also remind us that Australia has a higher top rate of marginal tax, and somehow this is linked to their better performing economy.
Except. If you look beyond the headlines you will discover that the tax to GDP ratio in Australia is lower than here. Despite the higher nominal rate, and a tax on capital gains, Australia collects less in tax relative to the size of their economy.
Perhaps this is because they toss an eiderdown of exceptions over their tax laws and need a higher marginal rate to compensate.
Back on this side of the Tasman we’ve been toiling away at this for a while. In 2019 a collection of tax notables, headed by Sir Michael Cullen, the Tax Working Group, presented their report calling for a tax on capital gains.
Buried in the Working Group’s documents was a report by Professor Chris Evans; an Australian tax expert.
Professor Evans was tasked with looking at the compliance costs of the introduction of a capital gains tax in New Zealand and he writes that modern tax regimes impose three types of costs.
The taxes themselves, obviously. Then there is the ‘deadweight loss’, a fancy term for the economic output lost by confiscating a percentage of someone’s income. Taxes reduce the incentive to work and invest; so for every dollar collected in tax, there is, perhaps, twenty cents of lost economic output.
But finally there is the ‘operating costs of the tax system’; the cost of administering a tax regime, which ranges from IRD staff through to the time accountants spend calculating the amount of tax to remit to the Centre.
Evans notes: “Although there is relatively little empirical research available on the topic, Capital Gains Tax is generally regarded as being a form of taxation that leads to high tax compliance costs for those taxpayers affected. The Tax Working Group Interim Report suggests that the ‘extension of capital income taxation will significantly increase compliance and administration costs’.”
This is a topic Evans knows well. His recent book, Australian CGT Handbook 2023-24 retails for a gentle $228 and comes in at 1068 pages.
Evans then considers the human impact. “Beside these measurable costs, taxpayers may also experience psychological costs in the form of stress, anxiety and frustration arising from compliance with their obligations and dealing with tax authorities. Psychological costs, although not insignificant, are typically subjective and difficult to measure, and for this reason are excluded from the scope of this report.”
There will be a minority of angry old men like me shouting into the darkness but our efforts will be wasted. We will get this new tax and it will arrive sooner than you may expect and to understand why, consider the incentives behind those calling for it.
Antonia Watson obtained positive media coverage. She also got a Prime Ministerial rebuke, but in the stadium of public opinion this is a win.
Academics, commentators and opposition politicians will enhance their standing by calling for a tax on something we all expect other people will pay, while the costs of this idiotic policy will fall in the future and on someone else.
Explaining why it is a foolish policy comes with no rewards, will earn you no social credit and allows others to call you a foolish, greedy old man driven by self-interest and an outdated desire for good public policy.
We can, and we will, get a capital gains tax. Nothing will improve. We will then face calls for a wealth tax. Which we will get. Nothing will improve except capital flight. So someone will demand capital controls.
The cycle will continue to escalate until the system breaks.....The full article is published HERE
Damien Grant is an Auckland business owner, a member of the Taxpayers’ Union and a regular opinion contributor for Stuff, writing from a libertarian perspective
Proponents point to Australia and claim the sunburnt country has a capital gains tax, and they do all right.
These folks also remind us that Australia has a higher top rate of marginal tax, and somehow this is linked to their better performing economy.
Except. If you look beyond the headlines you will discover that the tax to GDP ratio in Australia is lower than here. Despite the higher nominal rate, and a tax on capital gains, Australia collects less in tax relative to the size of their economy.
Perhaps this is because they toss an eiderdown of exceptions over their tax laws and need a higher marginal rate to compensate.
Back on this side of the Tasman we’ve been toiling away at this for a while. In 2019 a collection of tax notables, headed by Sir Michael Cullen, the Tax Working Group, presented their report calling for a tax on capital gains.
Buried in the Working Group’s documents was a report by Professor Chris Evans; an Australian tax expert.
Professor Evans was tasked with looking at the compliance costs of the introduction of a capital gains tax in New Zealand and he writes that modern tax regimes impose three types of costs.
The taxes themselves, obviously. Then there is the ‘deadweight loss’, a fancy term for the economic output lost by confiscating a percentage of someone’s income. Taxes reduce the incentive to work and invest; so for every dollar collected in tax, there is, perhaps, twenty cents of lost economic output.
But finally there is the ‘operating costs of the tax system’; the cost of administering a tax regime, which ranges from IRD staff through to the time accountants spend calculating the amount of tax to remit to the Centre.
Evans notes: “Although there is relatively little empirical research available on the topic, Capital Gains Tax is generally regarded as being a form of taxation that leads to high tax compliance costs for those taxpayers affected. The Tax Working Group Interim Report suggests that the ‘extension of capital income taxation will significantly increase compliance and administration costs’.”
This is a topic Evans knows well. His recent book, Australian CGT Handbook 2023-24 retails for a gentle $228 and comes in at 1068 pages.
Evans then considers the human impact. “Beside these measurable costs, taxpayers may also experience psychological costs in the form of stress, anxiety and frustration arising from compliance with their obligations and dealing with tax authorities. Psychological costs, although not insignificant, are typically subjective and difficult to measure, and for this reason are excluded from the scope of this report.”
There will be a minority of angry old men like me shouting into the darkness but our efforts will be wasted. We will get this new tax and it will arrive sooner than you may expect and to understand why, consider the incentives behind those calling for it.
Antonia Watson obtained positive media coverage. She also got a Prime Ministerial rebuke, but in the stadium of public opinion this is a win.
Academics, commentators and opposition politicians will enhance their standing by calling for a tax on something we all expect other people will pay, while the costs of this idiotic policy will fall in the future and on someone else.
Explaining why it is a foolish policy comes with no rewards, will earn you no social credit and allows others to call you a foolish, greedy old man driven by self-interest and an outdated desire for good public policy.
We can, and we will, get a capital gains tax. Nothing will improve. We will then face calls for a wealth tax. Which we will get. Nothing will improve except capital flight. So someone will demand capital controls.
The cycle will continue to escalate until the system breaks.....The full article is published HERE
Damien Grant is an Auckland business owner, a member of the Taxpayers’ Union and a regular opinion contributor for Stuff, writing from a libertarian perspective
2 comments:
Grant is a self-confessed libertarian, and libertarians are well known for proclaiming all taxation is theft. So his comments need to be unpacked in the knowledge that it's not just CGT that pushes his buttons, it's taxation in general. The trouble with libertarians is that they never offer any alternatives.
"The trouble with libertarians is that they never offer any alternatives."
Labour wasted so much money under Ardern, Hipkins and Robertson on stupid ideological, pretentious, programmes.
Similarly, with their Communist ideology of complete centralised control, they introduced so many regulations that the cost of doing business soared by at least 50 percent -- just look at construction cost overruns due to inflation, as an example.
The government does not need more tax-take. They just need to cut wasteful spending and reduce unnecessary regulations. Hence Libertarians do not need to offer alternatives to more tax other than to propose responsible spending with minimum government interference in business. And that is what this government is doing.
Of course, disbanding Labour, Greens and the Maori Party would be a massive bonus for the country as a whole.
Address the two
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