Labour’s is expected to announce its new capital gains tax (CGT) policy later this week, but it’s being discussed already with great vigour since news was leaked last week. Most people believe the leak was deliberate, following a tactic that’s been so successfully employed by National as a way of gauging public reaction before fine tuning.
If this is the case, then I guess I can put in my tuppence worth. I believe the bulk of tax should be levied at a moderate rate across all sectors and all methods of wealth creation, including wages, business profits, GST and capital gains. (The remainder of tax should be gained from social engineering efforts such as taxes on fags, alcohol and petrol.)
I recognise that initially there will be winners and losers if such a strategy is implemented. Winners would be the individuals and companies that already pay taxes and don’t have access to clever ways of avoiding it – they should gain some relief as the tax net widens. Losers would be the people who have relied on no tax on capital gains in order to become wealthier, often with little actual productive effort on their part.
The most obvious losers will be those who make money out of property investment, including many landlords. And you can see this is the case because the main opponents of a capital gains tax policy are the associations representing landlords and property investors. They say there’s nothing in the game for many of their members if they cannot make tax-free money from capital gains.
But I’m very confident that, although there will be some early negative impacts on the rental and housing markets, these will be ironed out within a year or two as everyone adjusts to a new, fairer reality. Market forces – supply and demand – will ultimately force this adjustment. Whatever price changes will be necessary in order for the rental market to continue to operate will bed in and landlords will adjust their calculations.
As a person who tries to express a generosity of spirit to all people, I nevertheless find it hard to extend that to tax freeloaders – those who use all the facilities that taxpayers are funding (and often demand more) while actively seeking ways to avoid paying their share of tax.
GST was introduced in the 1980s largely as a way of stopping people using their businesses to pay for all their living expenses, so paying little tax. Its introduction was accompanied by a drop in personal and business income taxes, so the tax burden was spread across a wider group of wealth accumulators and decreased from those who had no way of avoiding it. That was fairer.
But there are still large numbers of people who get into often non-productive activity (like house trading and renting) principally because they can write so much (often all) income off against losses but be confident they can make a heap of money in capital gain at sale time. Sure, it’s a great lark for them, and I’m not surprised that they would hate a CGT and campaign against it, but their arguments are not based on fairness.
The only other tax that’s talked about that I would like to be considered more seriously would be one on financial transactions. This would target the freeloaders who make money out of shifting money around, which surely must be one of the most parasitic of all never-get-your-hands-dirty occupations.
I don’t love being taxed. But I do enjoy and appreciate a country and society which provides so much that I could not afford myself – the roads, great hospitals, medical subsidies (yes, I’m getting on), good schools, parks, financial support for the elderly and unemployable …. the list goes on.
I see tax as a large-scale version of the membership fees I pay each year for my great local tennis club. It’s an expense I could do without, but when paid it provides me with a share of facilities which I can enjoy while playing my favourite social sport. Some of what my subs are used for does not directly benefit me – things like facilities for the juniors, or subsidies for some social events I don’t attend. But it’s all part of the package and, like my income tax, I would rather pay it than be a freeloader who wants to play at the courts without paying.
Furthermore, a tax level of 15%, which appears to have been suggested, would not be a serious dampener on most activities that accumulate wealth through capital gains. If you sell a property for $100,000 more than it cost you a few years earlier, then you would still come away with $85,000 of it – that’s not bad at all. It would hardly stop me from pursuing that line if that was my choice of income earning.
A few other comments on the CGT.
It’s been pointed out, and I agree, that we should be on same footing as our main trading partners, most of whom have such a tax. John Key sounded really pathetic when he thumped on about a CGT here forcing our producers to take their business to other countries like Australia. Duh! They have a CGT too! And they don’t find it too hard to administer. (But then they’re Aussies, John, much cleverer than us, eh.)
Secondly, I have to say good on Labour for showing some real guts in going down this line. After a clear policy on no state asset sales, this is now one other fundamental difference to stand against National policy. The more Labour can show the guts to come up with strong policies that are significantly different, the more likely I am to consider voting for them.
And of course, also good on Greens, who have advocated a CGT for years and are finally seeing it being advocated by a major party.
Posted by David Armstrong 
