The Labour Party is trying to lay the foundation for capital and asset taxes in NZ. To build their case, in cahoots with their mates in the Main Stream Media, they're trying to make the likes of PM Chris Luxon look bad for making money by selling off houses & making capital gains. So lets have a proper debate on capital taxes, rather than the drivel our biased Main Stream Media "economics expert journalists" (none of whom have ever studied economics) pour out every other day.
One of the strongest arguments in favor of capital gains taxes is that Kiwis (& other nationalities) pour too much of their life savings into housing, rather than investing in more economically productive assets. Much of the wealth that the typical Kiwi has historically built up comes from the appreciation in the value of their own home. Most also have a mortgage on that asset. I remember once attending a presentation by Yale Nobel Laureate Bob Shiller who observed that buying up one asset so that it comprises almost your entire portfolio and, in addition, borrowing / leveraging up to buy that one class of asset, goes against nearly every (diversification) principle in finance.
To try avoiding this sort of scenario, many nations do have capital taxes, including in the United States. In America that tax includes your own home. There's an exclusion letting homeowners who meet specific requirements to exclude up to around $250,000 of capital gains from the sale of their primary residence.
To try avoiding this sort of scenario, many nations do have capital taxes, including in the United States. In America that tax includes your own home. There's an exclusion letting homeowners who meet specific requirements to exclude up to around $250,000 of capital gains from the sale of their primary residence.
Lets see how those numbers would affect NZ's Labour and Green Party Members of Parliament who want capital taxes. Most own their house, and most have made more than $250,000 in capital gains on it. Opposition Leader Hipkins owns his house in Upper Hutt; Willie Jackson owns "family homes" in both Auckland & Rotorua (why he calls them all "family homes" in his Declaration of Interest, and doesn't call one of them an Investment Property is beyond me). Capital gains tax supporter Green MP Swarbrick owns her own apartment in Auckland. And the list goes on and on.
So lets give Labour Party's caucus what it wants - a capital gains tax. And lets make sure its the real deal - one that has integrity - one that ensures there will no longer be an incentive to hold a biased portfolio that heaps most of one's life savings into one's own house. It will catch Chris Hipkins. It will catch Chloe Swarbrick and Willie Jackson and nearly every Labour Party MP. Oh, but it turns out that is not what the Labour caucus want. They want capital taxes, but one that excludes their own family home - that is, excludes their own assets, but catches everyone who has more than them. They define anyone who owns more than them as having an "unfair" amount of wealth.
So lets give Labour Party's caucus what it wants - a capital gains tax. And lets make sure its the real deal - one that has integrity - one that ensures there will no longer be an incentive to hold a biased portfolio that heaps most of one's life savings into one's own house. It will catch Chris Hipkins. It will catch Chloe Swarbrick and Willie Jackson and nearly every Labour Party MP. Oh, but it turns out that is not what the Labour caucus want. They want capital taxes, but one that excludes their own family home - that is, excludes their own assets, but catches everyone who has more than them. They define anyone who owns more than them as having an "unfair" amount of wealth.
So the truth is the Labour caucus hates capital taxes as much as the National caucus. Labour MPs want capital taxes but only provided their own assets are exempt. They have no interest in economic efficiency, but just a simple desire to soak people they call "the rich". The Labour caucus should stop being such darn hypocrites and attacking PM Luxon when they are the biggest wanna-be tax dodgers in the country.
Professor Robert MacCulloch holds the Matthew S. Abel Chair of Macroeconomics at Auckland University. He has previously worked at the Reserve Bank, Oxford University, and the London School of Economics. He runs the blog Down to Earth Kiwi from where this article was sourced.
3 comments:
Had just assumed that exempting the family home would make the policy more popular. It's exempted in Australia under most circumstances.
I always scan for, and read, Robert's articles first. Robert is writing what he sees as the bleedingly obvious. The rest of NZ will benefit from reading his intellectual insights and learning from them.
The expression "tax dodgers" is emotive language and inappropriate for use in a technical debate. And taxation is about as technical as it gets. RIghtly or wrongly, exclusion of the family home is likely to be the trade-off necessary for public acceptance of any future CGT. Compliance with any such exemption is "dodging" nothing. It's like accusing Luxon of tax dodging because he chose not to sell his investment property inside the brightline test period. It's like saying I'm dodging a speeding ticket by driving at the speed limit. No - I am simply obeying the law. So strip away the emotion Professor and try addressing the real issues. If you think the CGT should include the family home, say so, and why you think that way. Ad hominem attacks on democratically elected parliamentarians will not do.
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