For and against a CGT and Michael Cullen interview on the Nation

Michael Cullen, ex finance minister and now chairman of the Tax Working Group, will be interviewed on Newshub Nation this morning at 9:30m am (repeated Sunday morning 10 am).

Following the release of the Tax Working Group’s interim report, Simon Shepherd sits down with its chairman Sir Michael Cullen to look at how tax changes could increase income equality and help the environment.

Future of Tax: Interim Report (PDF)

The contentious hobbled CGT should be a talking point.

Stuff:  Ministers issue fresh request to Tax Working Group to ‘consider inequality’

The Government has given the Tax Working Group a prod along after it stopped short of reaching a recommendation on the merits of a broad-based capital gains tax in its interim report.

It set out two models for what a broad-based tax on capital gains could look like in its interim report published on Thursday.

Chairman Sir Michael Cullen said “the key issue” it had looked at was tax on capital income, but said it was not a “no brainer”.

Finance Minister Grant Robertson and Revenue Minister Stuart Nash immediately released a letter they had sent to the TWG.

The letter asked the TWG to “consider a package or packages of measures which reduces inequality, so that New Zealand better reflects the OECD average whilst increasing both fairness across the tax system and housing affordability”.

The ministers also asked the TWG to examine which of two models for taxing capital gains that the TWG considered “would be best to ensure the tax system was … fair and balanced”.

A source close to the TWG said the letter sent “a strong signal” about the Government’s desire for a broader capital gains tax.

Max Rushbrooke for a CGT and pro-equality tax changes: Tax report highlights NZ’s inequality issues

Though it may not have settled on an answer yet, yesterday’s interim report by the Tax Working Group was crystal clear about the problem: we have a tax system that does very little to enhance fairness and reduce inequality.

The need to restore fairness runs like a silver thread throughout the working group’s analysis. Hence one of its preferred options is to tax nearly all the gains that people make from selling assets.

…it would also help reduce inequality, because these so-called capital gains will be largely the preserve of the very well-off. Indeed, many of these people have become adept at disguising their income as capital gains in order to avoid paying tax.

There are, of course, some downsides to introducing a thorough tax on capital gains. It creates more reporting requirements, and could encourage people to hold on to assets for longer. But these seem like minor problems when set against its major benefits.

Peter Dunne is against it: It’s time to bury the capital gains tax

The spectre of a capital gains tax on residential property sales and other substantial assets has loomed large over the New Zealand tax scene for about fifty years now.

Government is a little different, but the outcome seems likely to be the same. While this time the Government has left open the possibility of a capital gains tax, it is the Tax Working Party that looks likely to rule it out, saying the issue is ultimately a political one. And, given the Government’s commitment not to introduce such a tax before it gets a specific renewed electoral mandate, the prospects look as distant as ever. Very few governments win elections promising to introduce more taxes.

All of which raises the question as to why the capital gains issue keeps getting raised, especially since the arguments in favour from both a revenue gathering and efficiency perspective are not that strong.

Advice I received when Minister of Revenue was that it could be over a decade from the time of introducing a broader based capital gains tax until it produced any significant revenue gain for the Government.

Also, it has been long accepted that the family home would have to be exempted from any such regime, further diminishing its likely impact. Even in the rental sector, the impact would likely be negative for tenants, with landlords boosting rents to offset any negative tax impact when those properties are sold.

… the application of a capital gains tax to other substantial items would be just as fraught, as items will appreciate over time at different rates, while some will depreciate. The administration of such a tax will impose additional strains and complexities on an already struggling tax system for not much revenue gain.

When tax policy moves too far into the area of engineering income redistribution or social equity complicated issues invariably arise at the margins, which the tax system, by virtue of its blanket approach, is not well designed to cope with.

All of which means that the Government would do far better to focus its ongoing attention on ensuring that the greatest amount possible of all taxes currently levied is collected before embarking on the imposition of new or additional taxes.

For all these reasons it is time to bury the capital gains tax argument for good, and focus afresh on tax policy that works, rather than just feels good.

 

UPDATE:


Audrey Young: Capital gains tax defining issue for Labour, NZ First

Tax could make or break Government at the next election. Illustration / Guy Body

One thing is clear after this week’s tax report – tax could make or break the Government at the next election, and a capital gains tax (CGT) will be a defining issue for the relationship between Labour and New Zealand First.

The tax blunder last time taught Jacinda Ardern and then finance spokesman Grant Robertson that the “how” of progressing a policy is as important as the “what”.

Capital gains tax has been an integral part of the post-Clark Labour story. In a sense, Robertson owes his job as Finance Minister to it.

It may be that New Zealand First sees CGT as such a defining issue for Labour that it is obliged to support it as an article of good faith.

Both parties will also be mindful of the integrating effect of the policy on the Coalition.

Because the capital gains tax would not take effect until after the election, it would bind the Coalition partners, Labour and New Zealand First, closer together and require Peters and Ardern to campaign jointly under their tax policy.

That will fundamentally change the dynamics of the next election, whatever the merits and disadvantages of a capital gains tax itself.

 

 

Leave a comment

19 Comments

  1. Simon Louisson at The Standard: Tax Working Group report depressing reading

    It’s hard to go past the rant of Newsroom’s Managing Editor Bernard Hickey about how depressing is the interim report of the Tax Working Group.

    The die was essentially cast when Sir Michael Cullen was appointed chair. For nine years as Finance Minister in the Clark Labour government he steadfastly rejected tax reform, labelling capital gains tax as political suicide.

    Even when Labour was elected for its terminal third term and he had the opportunity to close the chasm of unfairness in our tax system, he baulked.

    The prospect of introducing full fairness was also prohibited by the Tax Working Group’s (TWG) terms of reference that proscribed such things as a CGT on family homes, even those valued at over $1 million, inheritance tax, or higher income tax.

    https://thestandard.org.nz/tax-working-group-report-depressing-reading/

    I’m not sure about Louisson who “reported for The Wall Street Journal, AP Dow Jones Newswires” – in a recent post he said “Gross Domestic Product in the June quarter rose 1.0%… an annualised growth rate of 4.0%” (that’s a nonsense equation) and confused a GDP announcement of past economic performance with economic confidence outlooks (in the future of course).

    https://thestandard.org.nz/gdp-figures-expose-business-confidence-survey-nonsense/

    Reply
  2. Pink David

     /  September 22, 2018

    I was looking forward to Labour introducing a capital gains tax just as house prices started to fall. Then all those speculators would be claiming losses and getting tax credits, much to my amusement.

    Reply
  3. Reply
  4. It is incredible that no one seems to see our lack of capital gains tax as an asset and positive contributor in accumulating the wealth needed for future national growth and ongoing mutual welfare. The fact that “everyone else has one” isn’t reason enough to implement GGT here. Sometimes being different can be worked to advantage.

    instead of bewailing the fact that we fall short on productivity and therefore need taxpayer funded R&D to encourage innovation, why not play up our enviable lifestyle, first world resources, and NO CAPITAL GAINS TAX, to attract and incentivise the kind of people capable of generating truly original marketable products and services. Instead we worry that someone may be gaining “unfair” advantage over their neighbor by reaping the financial rewards of their talent, effort, and frugality, and then want to slap them with an “equalizing” tax to even the score.

    We are lacking truly visionary thinking at the top.

    Reply
    • PartisanZ

       /  September 22, 2018

      Go ya one better …

      ” … why not play up our enviable lifestyle, first world resources, and NO CAPITAL GAINS TAX, to attract and incentivize the kind of people capable of generating wealth from NO CAPITAL GAINS TAX … or in other words from speculating in property … ”

      Visionary …

      Reply
      • Well PZ, you clearly have a pessimistic view and I suspect little distinction in your mind between speculation and investment. Some people do try to make a fast buck and there are some controls in place to make that more difficult for them, but most Kiwi’s own residential and/or commercial property as an investment which, yes, they hope will make them a profit over time usually with the help of their own labour in the form of management and physical improvements. It is a form of saving which adds to the housing stock and supports the rental market.

        I submit that you are overly concerned about the few who might take home an easy profit and miss the fact most are conducting what is a very natural and constructive enterprise.

        Reply
        • PartisanZ

           /  September 23, 2018

          … “most are conducting what is a very natural and constructive enterprise” and not paying fair tax on it …

          Reply
          • Gerrit

             /  September 23, 2018

            Proven or just in your mind “truth” that bears no semblance to actual facts?

            Reply
          • My original point was that there might be a usefully different point of view, Why then would it be considered “fair” to exclude those lucky (or industrious) enough to afford owning a family home? No tax on my home but do tax me for tying up my capital maintaining a home for someone else. It’s a pretty fine differentiation of what is “fair”.

            Reply
  5. David

     /  September 23, 2018

    CGTs are notoriously difficult to administer, never generate the revenue expected and make no difference to asset prices. You would send our brilliant tax system back to a situation where nearly everyone would have to file a tax return.
    Property developers seem to be the target of this envy tax and as someone who pays 28% tax plus 15% on every transaction I would welcome a UK, Aus or US CGT with all their deductions and exemptions.
    My last GST return handily just covered the cost of not employing Derek Handley so maybe this government could get their shit together before lifting more money out of us.

    Reply
    • Blazer

       /  September 23, 2018

      your last return wouldn’t have covered the cost of Mr Bridges swanning around the provinces in a limo or even the cost of revealing a leaker ,whose identity is known to everyone it seems except…Mr Bridges.

      Reply
      • David

         /  September 23, 2018

        At least Bridges was actually working and meeting voters/taxpayers Handley is a multi millionaire whose only qualification seemed to be he was mates with Ardern.
        And to tbh I am livid that he is taking the money and then donated it, just decline the payment if you dont want it.

        Reply
        • Blazer

           /  September 23, 2018

          they usually donate it to trusts they influence.

          Derek has had at least 2 monumental flops with investors dime…one too many according to Brian Gaynor.

          Handley sticks to Branson like a limpet mine.

          Reply
      • Trevors_Elbow

         /  September 23, 2018

        God you’re pathetic…. ‘swanning around the provinces’.. ffs… like Little and every other new LOTO has done since time immemorial… what did Key do to you? Did he use you as a footstool or something? So much bitter, its a surprise you can digest food as your stomach must be close to expiring trying to contain all your acid and bile..

        Reply
  6. Reply
    • David

       /  September 23, 2018

      I dont buy that all older voters only think about themselves. The older I get the less government policies effect me personally and when you have lived through so many changes and none of them have killed you so you get to the stage where you can afford to vote for policies that would be good for your children and grandchildren, folk become less selfish perhaps.

      Reply
    • As for the Bernard Hickey article, Bernard has always had a few threads stripped, but in this case the whole screw has come adrift. He seems to be saying the young must seize power with their vote…but fails to explain what they would need to do next. Presumably set everything right through the tax system.

      I should live so long.

      Reply
  7. Zedd

     /  September 23, 2018

    All the fearmongering from the Tory-Right about a CGT.. just confirms that a majority of them are making income from property speculation.. that they think should be TAX-FREE !

    If you actually cut through the B-S you can see that the fairest Tax system is when ALL people pay their Fair share.. not just PAYE & GST.

    The wealthiest folks, just hire accountants to find a way to AVOID paying their tax commitment. (write it off as a company expense etc.)

    I seem to remember a Natl MP saying (paraphrased) ‘there is a difference between Tax Evasion & Tax avoidance’.. this came in light of the ‘Panama papers’ & reports that Aotearoa/NZ has become an Intl tax haven for such dodgy activity (under Natl)

    ..one Natl MP, boasted that her family own 7 properties & she had no concern with increasing homelessness or the constant denial of a ‘housing crisis’
    go figure… :/

    Reply
    • Trevors_Elbow

       /  September 23, 2018

      Zedd – property speculation is already taxable. Simple. Developers are taxed. Buying to sell i.e. speculation is taxable.

      The only people who will be hit by a CGT will be the stupid, the incautious and of course the middle class buying a rental to supplement their retirement income (they do it because our Share market and finance company markets are inhabited by sharks and charlatans. if the governments of either hue want to address over investment in the property asset class they should sort the regulation and oversight of other asset class markets so they are safer for joe and jill middle class to invest in…)

      Reply

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