Labour’s capital gains tax plans

Labour’s campaign plans for a Capital Gains Tax seems to be to say how bad a lack of a CGT is, but not admit the intention to introduce one once they are leading government.

Housing spokesperson Phil Twyford on The Nation:

Lisa Owen: So is it Labour’s goal to get it down to that – about four times?

Phil Twyford: We want to stabilise the housing market and stop these ridiculous, year on year, capital gains that have made housing unaffordable for a whole generation of young Kiwis.

Lisa Owen: But in essence, you’re going to drop the value of houses, if you want them to be four times the price of the average income.

Phil Twyford: Well, we’re going to build through KiwiBuild. We’re going to 100,000 affordable homes.

Lisa Owen: I want to come to KiwiBuild in a moment. I just want to talk to you about the price.

Phil Twyford: That will make housing affordable for young Kiwi families. That’s our policy.

Lisa Owen: Well, do you need a capital gains tax to get that threshold down to where you would want it to be?

Phil Twyford: Well, we are going to shift the goalposts by taxing speculators. So under our plan, if a speculator sells within five years—

Lisa Owen: Yeah, that’s the bright-line. I am asking you about capital gains – a bit of a sensitive issue for Labour.

Phil Twyford: Not a sensitive issue at all.

Lisa Owen: So do you think we need a capital gains—?

Phil Twyford: If a speculator sells a rental property within five years, they will pay income tax on the capital gain.

Twyford keeps referring to taxing speculators. He must know that speculators and property developers who by and sell property with the intention of making a capital gain are taxed now.

From Inland Revenue “If you’re selling a residential property and one of your intentions when you bought the property was to sell it, then you’ll have tax to pay on any profit you make from its resale.” – http://www.ird.govt.nz/property/property-selling/selling-property.html

The bright line test (currently two years, Labour say they will increase it to five years) just makes it easier for IRD to enforce taxing capital gains.

Lisa Owen: Yeah, we know about the bright-line. What we don’t know about is a capital gains tax. So do you think that you need a capital gains tax to get house prices down to the ratios that you think are right?

Phil Twyford: Well, we think comprehensive tax reform is overdue in this country, not only to tilt the playing field away from real estate speculation

Lisa Owen: Last chance – capital gains tax?

Amy Adams: Answer the question, Phil.

Phil Twyford: In the first three years, we’re going to do a tax working group that will redesign the entire tax system.

So Labour are campaigning on “redesign the entire tax system” but generally avoid saying whether their intention is to include a more comprehensive capital gains tax.

The lack of pre-election clarity on Labour’s CGT intentions continued on Q+A yesterday. Grant Robertson repeated how ‘transparent’ Labour has been, and said Labour “won’t shy away from hard decisions”, but refused to be transparent about their intended decisions on a CGT.

Grant Robertson: It’s also about cracking down on speculators. We have to make sure that if someone’s flipping their third or fourth property within five years of of buying it then they’ll pay tax on that.

I would be very surprised if that example wasn’t already covered by current tax law and  IRD now. See Property tax decision tree – Is your property sale taxable? “To work out if the property you are buying or selling is taxable”.

Grant Robertson: “We’re saying that we’ve got to take some action both in terms of cracking down on speculators, building more affordable homes, and we will get better balance in our housing market.

Corin Dann: A capital gains tax. You need to clear up for us what exactly is the position here, because it’s, what’s going? Is there going to be a capital gains tax within side the next three years if you’re elected.

Grant Robertson: So we’ve been absolutely clear. We’re going to this election with a policy that says that if you sell off an investment property, not your family home, within five years, you will pay tax on that. That’s building on a form of capital gains tax that Steven’s government’s introduced.

What we’ve then said, and I’ve been saying since 2015, is that we will have a working group that will look at getting a better balance into our tax system, between how we tax assets, and how we tax income.

Labour wants ‘a better balance’ – that is, a change.

Corin Dann: Would you seek a mandate for that capital gains tax?

Grant Robertson: Just as the working group that Steven had in 2010, didn’t go back to the election and then increased GST, which he’d campaigned against, we will look at the outcomes of that.

It seems clear that Labour has intentions to introduce a more comprehensive CGT if elected (if the working group they appoint recommends it), before the 2020 election.

Corin Dann: That’s a change from Andrew Little.

Grant Robertson: It is a change from Andrew Little.

A significant change. In 2015 Little told The Nation: “Well, we won’t introduce it in our first term, and we won’t introduce any change that significant to the tax system, any material change to the tax system, without going to the people first and getting a mandate to do so.”

Grant Robertson: Let me be absolutely clear about this. We have a housing crisis. We’re not going to sit on our hands for years, the first term of government and not do anything about that. I want the experts to talk to us about that.

Steven, is it right at the moment that someone who goes to work every day, pays tax on every cent of their income, that someone who flips a property after owning it for three years doesn’t tax on that property?

Steven Joyce: Well actually…that’s actually taxed now. So there’s the news for you Grant, if someone actually buys a house, gets an income…

Grant Robertson: Why did you put a bright line test on it then?

See Govt to tighten tax on capital gains (RNZ)  on the budget announced in May- “Capital gains on residential properties bought and sold within two years will soon be taxed by the Government. Unlike the current regime, the new test will not rely on proving a seller’s intent to make a capital gain.”

Steven Joyce: That’s the absolute minimum, under the New Zealand law right now if you’re buying and selling houses for profit you must pay tax.

You know that’s not happening…

Steven Joyce: Well actually it is happening now, that’s the truth, if you go and have a look at Inland Revenue that’s the case.

But coming back to your point. So you’re saying a capital gains tax, is that on unearned capital gains? So when the value of somebody’s business goes up, or somebody’s farm goes up, this us why you don’t want to talk about it…

Grant Robertson: This is why we’re doing a working group.

Steven Joyce: I get that. So that’s why you don’t want to talk about it.

Grant Robertson: This is why…because we’re not going to shy away from the tough challenges.

Steven Joyce: So it could be on the business.

Grant Robertson: We’ve been absolutely clear. If we ever put a capital gains tax on it would not apply to the family home, but right around the world people do this to stop speculators in the housing market.

Turning to Joyce.

Corin Dann: Is it an equity issue, is it a fairness issue? People have made an enormous amount on capital, and income earners, the vast bulk of the population who are earning wages are not seeing anywhere near the gains of capital.

Steven Joyce: In terms of capital gains tax the answer to that question is it depends on what it is. If it’s an unearned capital gain, which is actually what a comprehensive capital gains tax is, ie if your house price goes up in value the tax man sends you a bill, or if it’s your business goes up in value the Tax man sends you a bill, or if your farm goes up in value the tax man sends you, that’s what a capital gains tax is about, that you get taxed on capital gains.

Corin Dann: So how is it that the OECD, the IMF, Treasury, the Reserve Bank, just about every mainstream economic organisation you can think of says New Zealand has needed a capital gains tax for years.

Steven Joyce: Yeah but they want it on the family home. That’s what they want.These are the theoreticians saying tax the family home, and tax them on the unearned capital gain every year, so you should get a bill at the end of the year, if your house has gone up a hundred thousand dollars you should get a bill for thirty thousand dollars or whatever your tax rate is for that unearned capital gain.

That’s never going to fly, Grant’s acknowledged that, but what he isn’t telling people…

Grant Robertson: exactly because we’re not proposing that.

Even if Labour’s working group recommends it.

Steven Joyce: …he’s not telling people whether it would go on their business or on their farm or on their second house…

Corin Dann: Well lets clear that up because it will come up.

Grant Robertson: What we want to do is to address the fact that we’ve got a huge imbalance in our tax system between hardworking people who go to work every day and pay their taxes and people who are speculating in the property market who don’t. We’re going to get the experts in. We’ve been transparent about this…

Steven Joyce: Have you ruled out small businesses?

Steven Joyce: Are you going to rule out small businesses?

Grant Robertson: …we’ve been transparent about this from the very beginning. In 2015 I announced that we were going to be having this working group. What we’re not prepared to do is shy away from hard issues, and that’s what Steven and his Government have done for nine years.

Steven Joyce: Are you saying that you won’t be taxing small businesses on their capital gains?

Grant Robertson: We are focussed on the speculation in the housing market.

Steven Joyce: Is that saying you won’t…

Grant Robertson: We’re focussed…because I actually want to listen to the experts

Steven Joyce: …so you won’t do farms?

Grant Robertson: I don’t want to shy away from these tough issues…

Steven Joyce: …will you do capital gains on farms?

Grant Robertson: This is about speculation in the housing market.

Steven Joyce: No I don’t think it is, because he’s refusing to rule it out.

 

 

Robertson keeps pushing for tax on property speculation, which is already taxable, but keeps refusing to say whether they will widen tax to capital gains on businesses.

Despite Roberton’s assertions that Labour is being transparent and won’t shy away from ‘the hard issues they are very shy about saying what sort of capital gains tax they want to introduce next term if they are in government.

I expect this to keep coming up through the campaign. Jacinda Ardern will need to be well prepared on this or Bill English will hammer her and Labour on CGT.

 

19 Comments

  1. High Flying Duck

     /  August 21, 2017

    The “new” 2017 Labour Party – still peddling dishonest tax policy by boldly claiming to tax that which is already taxed and rigorously enforced by IRD (property speculation) while fudging the fact they will introduce a hugely unpopular and costly to implement and enforce CGT.
    What the commentators who quote IMF and overseas CGT miss is that these types of taxes are very expensive to run and enforce, impose significant compliance costs, stifle investment and risk taking, invariably create numerous loopholes and create significant market distortions.
    CGT’s are great in theory, but much like the “water tax” they are a minefield in the implementation.

    • Blazer

       /  August 21, 2017

      why has nearly every other western country adopted CGT ,if what you say is concrete?Just another National knows best…rant.Disregard the IMF,Treasury and respected papers from international authorities so the parasites of society can continue on their rapacious..way.The brightline is CGT…you know it.

      • PDB

         /  August 21, 2017

        Regardless – as you’ve been a constant critic of National raising GST without campaigning on it you’ll be demanding Labour come clean before the election on what tax proposals they are going to push through if in power, including a CGT?

        • Blazer

           /  August 21, 2017

          unlike you..I make no presumption they will become govt.As you are aware, the Natz introduced alot of legislation without prior consultation,sidestepped accepted protocol when it suited and in general had nothing but contempt for the will of the people .

          • PDB

             /  August 21, 2017

            Sounds like you are being……………..hypocritical.

          • Trevors_elbow

             /  August 21, 2017

            Avoiding the question much….

      • High Flying Duck

         /  August 21, 2017

        It is an accepted fact that CGT is a very cumbersome tax. I don’t think it is even a great revenue earner. There ends up being categories of capital, rollover relief, sometimes the tax is abated over time.
        NZ is very well regarded due to the simplicity and cleanness of its tax system.
        All the above does not mean the CGT should not come in – there are issues of fairness and equity that need considering as well as the market distortions that occur from lack of a CGT.
        But NZ sits at the top of “ease of doing business” rankings worldwide for a reason. Introduction of CGT would impact on that and have many wide ranging consequences which I do not think Labour has thought through.

        IRD, who are not known for turning down an opportunity to take money from people are also against it.

        The Tax Working Group in 2009 recommended against CGT for these reasons, saying a comprehensive land tax would be better:

        “The government’s Tax Working Group has released its latest update on its progress towards reform recommendations to the government, agreeing that it favoured a land tax over a capital gains tax because it would harder to avoid, less complicated and more efficient.”

        Inland Revenue and Treasury presented a 62 page paper on the pros and cons of a capital gains tax, concluding the cons made a CGT very difficult.

        Inland Revenue concluded an accruals based CGT was not viable because it would encourage listed firms to delist. It said the only viable option was an accruals based system.

        Even then, Inland Revenue argued such a CGT would be unattractive and reduce economic efficiency. It said: “While there are some benefits in theory from a more comprehensive treatment of capital income, in practice, lock-in, ring fencing, and the treatment of losses are likely to mean that a CGT reduces rather than increases economic efficiency.”

        A CGT which exempted owner occupied housing would distort land use decisions, IRD said.
        If owner-occupied property is excluded it may trigger a shifting into this remaining tax-free area, IRD said.

        IRD concluded: “On balance, Inland Revenue argued that the advantages of a real-world CGT would not outweigh its disadvantages.”

        The Tax Working Group discussed the avoidance opportunities with a CGT. “These could include sheltering of income in companies, and loss manipulation.

        “Lock-in effects could be a problem – and some group members noted that this impact could be more severe given New Zealand’s high levels of investment in real estate,” the group said.
        A CGT would be highly progressive (ie hit the rich more than the poor), the group said. “However, given this, there may be mobility concerns with the introduction of a CGT, with higher income people having a potential incentive to leave New Zealand.”

        http://www.interest.co.nz/news/41324/tax-working-group-favours-land-tax-over-capital-gains-tax-update-5

      • High Flying Duck

         /  August 21, 2017

        Brightline is not CGT at all. Speculators are always taxed on buying and selling property. Due to the rules of “intent” that guide tax-ability, it has been hard for IRD to ensure one-off traders are taxed as no pattern exists. Brightline simply makes enforcement of existing laws easier.

        CGT is very different – and as Steven Joyce pointed out, affects a lot more people than just property owners.

        It is Labour’s (and apparently yours too) inability to make such fundamental distinctions that makes me doubt they could handle running the economy.

        • Blazer

           /  August 21, 2017

          Semantics and you know it….its arguments like this that I find amusing….’with higher income people having a potential incentive to leave New Zealand.”

          • High Flying Duck

             /  August 21, 2017

            So the evidence for is rock solid and cannot be ignored, while the evidence against is…semantics?
            It is your arguments I find amusing.

            • Blazer

               /  August 21, 2017

              so you and the NZ Govt know better than the majority of the rest of the civilised world!’—-It is Labour’s (and apparently yours too) inability to make such fundamental distinctions that makes me doubt they could handle running the economy.As an aside this Govt introduced GCSB legislation that the GCSB…couldn’t even understand.How amusing..is that?

            • High Flying Duck

               /  August 21, 2017

              Deflection Blaze.
              I was pointing out the views of the independent tax working group (that included your good mate Gareth Morgan) and the IRD (who are not the National Party – another distinction you should be able to make).

              I didn’t actually provide any National Party views on it at all.

  2. PDB

     /  August 21, 2017

    It looks like the nickname ‘Taxcinda’ is going to stick…….

  3. robertguyton

     /  August 21, 2017

    If it’s repeated ad nauseum by people who lower themselves to name-call. Oh, I see what you mean, PDB! It’ll be concrete on the Right wing blogs.

    • PDB

       /  August 21, 2017

      Of course left-wing blogs never changed the name of a certain ‘John Key’ to things far worse than ‘Taxcinda’ – you’ll be giving Blazer a run for hypocrite of the year soon.

      • Blazer

         /  August 21, 2017

        pants down brown…sure..stuck on…you.Bol.

        • PDB

           /  August 21, 2017

          Which is somewhat ironic considering you are caught with your pants down several times a day on here!

          • Blazer

             /  August 21, 2017

            only when some need a good…’mooning’.

            • Gezza

               /  August 21, 2017

              It’s not the best being one-eyed if it’s the brown-eye.