It needs to be explained by the left wing of politics why it is so wrong to be able to sell your main asset untaxed after a lifetime of work and retire with some discretionary spending. It is very clear the advocates of more and more tax believe that a CGT is needed to off-set what they see to be the original sin of being productive and successful. At a time when productivity is so desperately needed in NZ, nearly 50% of our Parliamentary representatives want to further tax the already productive - even more. The impact of a CGT on the elderly will be profound as the government takes another 30% of their retirement income; but it is the young and their future that a CGT will ultimately destroy. The young will all be eligible for CGT on their assets at the end of their working life. Their asset such as land or a building in 50 years’ time will be worth a few thousand percent more than its value today due to Government inspired inflation, so a 3-million-dollar home will be commonplace. Your assets value will not be indexed to inflation, as it should be.
One particularly false belief is that all capital gain is unearned income. Not so. So many small businesses owners (70% of NZ businesses) invest in their enterprise to grow its base and resilience rather than pay themselves an income commensurate with the hours of work, the dollars invested, not to mention the risk involved. Surviving the vagaries of exchange rates, product price volatilities, cost increases along with the inevitable changes to legislation - is an absolute priority and is the same with every small business, whether rural or urban. Paying staff, GST, rates, insurance and income tax etc takes first call on company expenditure as does the task of ensuring the business stays afloat. If a lifetime of work is to be taxed on the sale of the business, why bother to grow the asset, employ staff, pay GST, ACC levies and all manner of costs associated with business development? The hope for a comfortable retirement is rendered inert by a CGT imposed on those who risk everything, by those who risk nothing.
The much-vaunted Tax Working Group led by the late Sir Michael Cullen didn’t appear to fully understand the social upheaval a CGT will impose. Despite the vast number of reports promoting this tax , it is rare to read of the inevitable capital losses or how the benefit of more tax and spend by Government, stimulates the economy. Once this tax is invoked on the (very) wealthy – the less wealthy will also then be in line for promotion into the upper echelons of defined wealth and so on down the line - due to inflation.
A capital gains tax therefore will ultimately destroy the incentive to work, take risk and grow assets. The family farm or the urban family business face a very similar situation. So many families farmed their land or ran their business for little financial reward, drawing basic living expenses in order to grow the business - so why bother when a CGT is the major beneficiary of your years of hard work.
A capital gains tax will also ensure corporate farming replaces the family ownership of the business and highlights an inherent fault within our social structures - that of how to achieve an equitable succession within a family which is difficult enough without a CGT. Any gain in the capital value of their business is currently available to either borrow more and/or distribute to the family if the property or business is sold.
Perversely, the rise in value of a property is due to government policy of entrenching and enriching inflation as they reap more tax, more GST. All Governments are delighted to see an increase in tax due to the inflation they created. A capital gains tax therefore is a racecourse certainty as soon as ‘the tax and spend gallery of the envious’ get voted back in. Few, if any members of the left wing of politics have ever owned and run a business so simply don’t understand the implications of extra taxation on small businesses. Even if the spending power of the government is enhanced, the opportunity and advancement of the less well-off is not. Why is that? Socialism inherently wants success to fail and independence to become dependent - on the state. It’s about power and control.
It is incomprehensible that so many who contribute to society, are likely to watch the things they gave their life to – lost to excessive taxation. They won’t. Society functions due to two things - incentive and sanction. Incentives actually shape the future. In the end we remember, not the words of our political enemies but the silence of our supposed political friends. Political silence over this issue can be taken as tacit approval of a CGT and its numerous close relatives -the land tax, the wealth tax, asset tax, inheritance tax which all hover over those who choose to take a risk to benefit themselves and their family. And that is why we all - but especially the young face a very bleak future under the politics of envy.
Gerry Eckhoff is a former councillor on the Otago Regional Council and MP.
10 comments:
The various tax working groups have factored in race based exemptions so only some of us will be up for it.
Essential reading for all age groups scrambling to survive in the envy-driven cultural marxist "faux paradise" known as Aotearoa.
A CGT will increase the cost of house ownership as the tax is passed on to the buyer. There will also be upward pressure on rents.
What the lefties don't understand is that taxing the 'wealthy' - property owners, business owners, landlords - simply means that the burden gets passed on down the socioeconomic class line. It's the 'poor' who end up paying it - consumers, tenants, etc. This is especially bad news in the context of putting a roof over one's family's head which is already breaking many NZ families whether through barely sustainable mortgages or extortionate rents.
A jealousy tax to make the Lefties, Greenies feel better.
A quick Capital Gains Tax at every casino, TAB, race track !
Not different to any one else gambling on a business being successful.
Also add Lotto winnings to the list of taxable gains
Indeed, Gary. Makes a cushy Govt job even better, especially one where Parliamentary perks are involved.
As for anon@10.59, yes, but if you pay tax on CG's shouldn't you be able to write-off the losses? Gamblers would predominantly be losers (they are anyway) and certainly no winner for the tax man.
Eckhoff trots out the time-worn argument that the capital gains tax (CGT) is a bad tax because it taxes the property of hard-working Kiwi business folk. A capital gains tax will ultimately destroy the incentive to work, take risk and grow assets he says.
As the violins quietly played I reflected on how far removed from commercial reality Eckhoff seems to be. May I suggest that a comfortable retirement while living off an untaxed retirement nest-egg, is generally the last thing on an entrepreneur's mind when they go into business.
There's a constant procession of business start-ups, sales, mergers, takeovers and failures in our economy, And if an investor can flick on their equity at a profit, that's part of the game, because after all, any profit on the sale is tax-free. If they eventually retire with a nest-egg that's a bonus. Its certainly not exclusively the result of the blood sweat and tears the owners allegedly poured into the business along the way.
But what they are doing along the way is gaming the tax rules to ensure they convert taxable revenue into tax-free capital gains. Because that's the way things are done in New Zealand. Some clever folk actually pay no income tax at all and live comfortably off their capital gains, before and after retirement. But Eckhoff reduces it all to a rose-coloured vision of a bunch of hard-working Kiwis working for forty years to build a retirement fund only to have it snatched away by a heartless Government. Economic fairy-land stuff really.
And by the way, to assert that land tax, wealth tax, asset tax, and inheritance tax are "close relatives" of CGT is simply wrong. Eckhoff seems to have no understanding that CGT is an INCOME tax. It is payable on profits realised on sale. No profit, no tax. Those other things are CAPITAL taxes that demand payment regardless of whether or not cash is being generated by the asset. Paying those taxes, particularly inheritance tax, can therefore be destructive of the very asset being taxed. Capital taxes are easy to avoid and expensive to collect. Often the only people who benefit are the valuers. So, there is no comparison with the CGT that assesses tax on objectively verifiable commercial transactions, while allowing the asset to remain intact.
So please Mr Eckhoff, don't use bad capital taxes to denigrate the CGT. It's a straw-man argument as anyone with a little tax technical knowledge would understand. And equally, don't use an emotive fantasy about demotivation. Every other country in the OECD has a CGT of some form or another, even the Aussies, and their entrepreneurs don't seem to have lost their motivation to accumulate wealth. So what makes our business owners any different
All income is taxed. A business owner mechanic easily pays 50% of his gross income as gst (even on wages he invoices for), income tax, rates, ACC levies.
A farmer may be worth millions on paper for land, livestock, machinery and buildings. A dentist or opthalmist might have three million dollars in fancy machines plus his house.
CGT and wealth taxes are deliberately intended to destroy "rich pricks" (anyone above average) and buy votes.
Jones Boy well done. A reasoned response to a lot of uneducated contributors
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