Ardern defends CGT and tax plan, Soper sulks

Stuff:  Jacinda Ardern notes ‘vast majority’ would be better off

Prime Minister Jacinda Ardern delivered a defence of the proposed capital gains tax plan today, noting the vast majority of Kiwis would be better off.

She also said the concerns of farmers and small business-owners were “top of mind”.

The tax working group, chaired by former Labour finance minister Sir Michael Cullen, recommended the Government introduce a new broad-based CGT on rental properties, land, businesses, and shares, paid at the income tax rate. The family home would be excluded.

This would raise roughly $8.3 billion over the next five years, but that could be ploughed back into the hands of taxpayers through a suggested income tax cut, and another tax break for KiwiSaver accounts. This would deliver a tax cut between $420 and $595 a year for almost all taxpayers.

Ardern said that because of this tax switch most Kiwis would come out financially ahead.

“The vast majority of New Zealanders would be better off. I think New Zealanders know this too: they are not ​looking at the proposals individually but as a potential package where they could receive income tax cuts or a boost to their KiwiSavers.”

“In Australia only 4.7 per cent of taxpayers paid capital gains tax in 2015. Over 95 per cent of Australians pay no capital gains tax in any given year,” Ardern said.

Ardern also sought to downplay the impact of the tax in general, saying it would only affect four per cent of the tax base when fully implemented in 10 years.

“It is far from an attack on the Kiwi way of life,” Ardern said.

She said the purpose of her statement was to make sure that the debate was based on facts, and declined again to endorse the actual plan.

Barry Soper’s take: Prime Minister Jacinda Ardern in state of shock at reaction to Capital Gains Tax plan

If you thought the Government (well more correctly the Labour Party) is hell-bent on committing political suicide you’d be wrong.

The Beehive is reeling and sitting in the top office of the ever diminishing building Jacinda Ardern’s in a state of shock at the reaction to the Taxation Working Group’s report.

Tax had been talked about so much they decided to hand it over to the Tax Working Group, led by Sir Michael Cullen, who knew better than to ever suggest a capital gains tax, correctly appreciating the political danger of it.

Ardern must have been having a nap during the two campaigns Labour fought and lost because of it.

Now she’s wide awake to the political damage it’s doing to Labour, spending the first six minutes of her post-Cabinet press conference yesterday giving us a lesson on how to report it accurately.

Ardern was at pains to ensure the students understood her lecture. The debate should be about a fairer and more balanced taxation system and is most certainly not an attack on the Kiwi way of life as some have claimed.

In her setpiece lecture she told us small business and farming are crucial to the economy and she wanted to be clear, she said referring to her notes on the lectern, that the effects on them will be at the top of her mind when the options are assessed.

Surely that, coming from the captain, leaves room for a sigh of relief.

As the lesson was drawing to a close she told us the bleedingly obvious: that the tax would be paid only when a capital gain is realised, or when an asset gets sold, so there won’t be an ongoing impost.

Until you’ve sold your next asset that is – and the capital gain on any asset won’t be assessed until after the law takes effect, most likely in April 2021. So the nest egg you’ve realised up until then won’t attract the captain’s call.

By and large, Ardern declared, the tax system was working well.

Yeah well if it ain’t broke – don’t fix it.

I wonder if Soper has a property nest egg or two he is worried about being taxed on.

It has been claimed that baby boomers will be hit the hardest by a CGT as many have invested in property aas a retirement fund. I have doubts about this.

If Labour get NZ First to agree to support CGT legislation, and if Labour get back into Government later next year, the CGT will only come into force in 2021. If Labour follows TWG advice and don’t make the tax retrospective, only capital gains from 1 April 2021 will be taxed.

So most of the capital gains scored by baby boomer investers, up until then, should be safe from tax. If they sell up soon they will be sweet.

It will be longer term property investors of the future who would pay the bulk of Cullen’s CGT, while baby boomers bask in their gains untaxed.

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83 Comments

  1. Another take on CGT from Anna Rawhiti-Connell:

    Despite reading more than is healthy on it, I am left feeling indifferent about the old CGT. It’s odd because the debate has blown up into polemic warfare, emblematic of something much bigger than a tax. It’s become a prism – splitting people like light, into different personal, political, socio-economic and generational polarisations. You could reverse engineer people’s opinions on it into a Myers Briggs test for values and affiliations. That’s usually a rich vein for me to tap into.

    I’ve spent the weekend examining my apathy about it.

    A CGT has become so loaded with political mythology that it has become political suicide to enact despite not being a particularly progressive or radical bit of policy. The Government’s tentative response to the TWG’s report is politically cautious. They can take the recommendations, par them back a bit and create something easier to digest. Many predict the CGT won’t make the cut.

    I hope the CGT stays if only to signal that Labour isn’t crippled by short-termism and that working groups can effect change. Because we have a lot of them and while I applaud rigorous thinking in decision-making, at some point we’re going to need to see some transformation from this Government. They have already spooned out a lot of transformative rhetoric and backed working groups to do a lot of the heavy lifting for them. It does, for want of less crude phrase, feel like a ‘crap or get off the pot’ issue for the Government.

    Finally, if it goes, may we resolve never to speak of it again and move onto talking other ways to tackle the large challenges we face. I don’t want us to still be talking about a CGT when I’m carried from my rental property in a box, having carked it because I couldn’t afford to access healthcare after we did nothing to address the challenges of an ageing population, a lower income tax take, rising costs and the increased strain on the government purse.

    https://www.newsroom.co.nz/2019/02/24/460394/connell-capital-gains-tax-should-we-care

    Reply
  2. Reply
    • Gerrit

       /  26th February 2019

      That is what the report says, true.

      But what will the legislation say?

      We have a home office (15% of the house) and claim expenses for that office for the company. However it is a minute amount per year (approximately $3000 in expenses divided by the company tax rate and 15% GST content.) in actual accrual.

      Most will forgo the expense claims I would say, and not be subject to a CGT.

      Problem for Labour is the perception being sown that a multi million mansion will not be liable to CGT but a half million lifestyle block with a few pukako’s on it will.

      Ardern is also back pedaling fast in regards CGT on farms and businesses.

      Perception again in that the report is more of a problem than a help.

      Now when we start arguing later about the water tax that is also in the report, the proverbial will really hit the fan.

      Reply
      • High Flying Duck

         /  26th February 2019

        And there is still little commentary about the huge added complexity the tax brings in, the need to hire professionals to work out whether tax liability exists and dead hand oif compliance costs.
        Here’s a few worked examples based on Cullen’s report:

        “John is a supermarket manager and Alice has a small business as an in-home childcare provider.

        They deduct part of their mortgage interest and outgoings from her taxable income, which helps them make ends meet.

        Because they do this, however, they will have to pay Cullen’s tax when they sell their home.

        Justin and Dana also have a house and children. Dana has a well-paying job as a dentist, which enables Justin to be a stay-at-home dad.

        They have no need to use any part of their home for business purposes so will reap capital gains on their home untouched by the Cullen’s tax.

        Terry is an IT contractor who worked hard to get on the property ladder.

        Because house prices are expensive, he needs rent paying flatmates. He dutifully includes the rent in his tax return and claims a deduction for expenses.

        When he decides to move he will become liable to pay Cullen’s tax on part of the sale proceeds.

        Nick has a master of fine arts degree. It hasn’t led to a well paying job, but he is lucky to be supported by a family trust fund.

        This has enabled him to buy a house and a number of paintings, some of which have become valuable in their own right. Nick decides he wants to travel the world on a voyage of self-discovery. He sells his property and art and incurs no liability to pay Cullen’s tax.

        Tom and Alex have a starter home and buy a section planning to build their dream home.

        Then Alex gets sick and they have to defer construction for a few years.

        Because they didn’t build quickly enough, they become liable for Cullen’s tax.

        Their finances have been strained by the illness and they have to hire an accountant to work out exactly it is they owe.”

        https://www.stuff.co.nz/manawatu-standard/opinion/110832441/how-the-capital-gains-tax-affects-the-average-new-zealander

        Reply
        • Blazer

           /  26th February 2019

          ‘John and Alice’!

          What ever happened to Paul and Karen…

          and Bob and Carol…and Ted and Alice…bloody…John.

          Reply
          • High Flying Duck

             /  26th February 2019

            What about the…bloody examples.
            Oh, no argument there, so let’s talk about the names he chose?

            Reply
            • Blazer

               /  26th February 2019

              the examples are not a good reflection of hardworking Kiwis.

              a handful of predictable strawman scenarios .

            • Alan Wilkinson

               /  26th February 2019

              Lefties like B are always willing to sacrifice a few individuals for their own greater good.

            • High Flying Duck

               /  26th February 2019

              There are plenty of homes with a home office, or a rented room, or with space used for Air BnB. Generally, these are the homes owned by lower-income families who need help to pay the mortgage off. They will be stung disproportionately under the proposed law.
              The biggest issue though is that it entrenches all the tax free gains made by the boomer generation and imposes taxes on later generations which will in part be used to pay increased amounts to the boomers in retirement.

          • unitedtribes2

             /  26th February 2019

            Or Bill and Ted

            Reply
            • Kitty Catkin

               /  26th February 2019

              In your real life case, Gerrit, imagine some unlucky person having to spend time working that out…it might well cost more than it brings in.

              I knew a man who worked for IRD and he said that IRD would spend more getting the tax on a small, one-off job than they would gain.

  3. Corky

     /  26th February 2019

    The worry here is Kiwis will accept a watered down version of the CGT suggested by the working party, mainly because they have no assets to attract such a tax.

    That’s dumb thinking..they are guaranteed to pay something, some way, indirectly.

    Reply
  4. Corky

     /  26th February 2019

    Hmmm..what will Maori get out of a CGT…or should that be…what won’t Maori be liable for that the rest of us will.?

    This is Labour..surely Maori must receive special privileges… maybe something to do with water generation down the line?

    Reply
    • Kitty Catkin

       /  26th February 2019

      You claim to be half-Maori, which means that de facto you are Maori; why are you talking about ‘the rest of us’ ?

      Reply
      • Blazer

         /  26th February 2019

        perfect platform for Rodney’s views.=Magic…

        only Corky and Lurch listen to the…’magic’.

        Reply
        • Corky

           /  26th February 2019

          Never listened…not once. It’s on my to-do list. Only fools don’t listen to talkback…that’s why political parties monitor TB stations. They know talkback is the heart of a nation.

          Reply
          • Gezza

             /  26th February 2019

            Talkback is the haunt of whingers.

            Reply
            • Corky

               /  26th February 2019

              It can be. Like I said, it’s the heart of the nation like TV, National Socialist Radio and blogs can never be.

              Talking of NSR…Johnny is looking better for being out in the sun. Getting out with the only damage being horn rimmed specs, is a light let off indeed.

            • Gezza

               /  26th February 2019

              It’s not the heart of the nation, really Corks. My dear departed dad-in-law used to carry his radio around with him and listen to ZB talkback if we were working together at their or our house or out doing footings or whatever on our property & I used to say to him “For Christ’s sake, dad. Can’t you turn that bloody thing off? People only ever ring that bloody station up to moan – about bloody everything. After listening to an hour of that I’m surprised you’re not bloody suicidal.”

  5. Pink David

     /  26th February 2019

    ““In Australia only 4.7 per cent of taxpayers paid capital gains tax in 2015. Over 95 per cent of Australians pay no capital gains tax in any given year,” Ardern said.”

    This is very misleading. This is the number who actually pay the tax, which will usually be a very significant sum, yet there are many, many more who have a CGT liability and need to account for it every year.

    Reply
  6. The Consultant

     /  26th February 2019

    She also said the concerns of farmers and small business-owners were “top of mind”
    “Farmers”:
    That increasingly means corporate farmers, or large-scale anyway. At best the “family” aspect may mean a huge family trust that owns several farms and may morph into a corporate at some stage anyway. Maori Trusts are increasingly a big deal as a way of melding traditional tribal land ownership with the modern world of loans and collateral. The bigger they are the less they’ll pay – although their legal and accounting fees will increase.

    “Small business”:
    Come on, they’re already burdened by countless regulations and paperwork that, for larger companies, amounts to merely hiring one more person in HR or Legal.

    “It will affect 4% of the population”:
    Well the 4% it effects won’t be the likes of John Key, even though he’s No.1 in Cullens mind. And it won’t be Cullen. It’ll be the Sort-Of-A-Rich-Prick: rich enough to yield some money, but not so rich they can avoid it. Rather like the rest of the tax system.

    “having carked it because I couldn’t afford to access healthcare after we did nothing to address the challenges of an ageing population, a lower income tax take, rising costs and the increased strain on the government purse”.:
    Uh huh. Seen the groups own figures? The amount of money this will generate is not going to save those systems. Only reform of them rather than the tax system, will do that, but I doubt that’s what you have in mind. Higher spending, that’s the ticket.

    Green-Labour will win in 2020 because National is no-mates, not even PM’s as popular as Clark in 2002 or Key in 2014 have hit 50% of the vote, and there are enough people who own nothing and earn little who will vote Labour.

    So this is going to happen in some watered-down form. What will happen later is that it will be increased in it’s rate, like GST has been, and unlike GST, it will be extended beyond the initial boundaries.

    And it will do nothing to improve either NZ’s economy or the Health, Education and Welfare systems that rest on that economy.

    But for your average Lefty that doesn’t matter: a new tax was locked in place and the rest will take care of itself.

    Reply
    • Kitty Catkin

       /  26th February 2019

      ‘top of mind’ doesn’t make sense.

      Reply
      • Gezza

         /  26th February 2019

        Yes it does. Most people will know she means uppermost in her mind.

        Reply
        • Corky

           /  26th February 2019

          🙄…most people..definitely not all.

          Reply
          • Gezza

             /  26th February 2019

            Sorry, Corks. You’re right. I should have said “Anybody with a few clues” 😐

            Reply
            • Corky

               /  26th February 2019

              Doesn’t worry me how you word it.

            • Gezza

               /  26th February 2019

              To be fair, sometimes Ardern-speak, like Bridges-speak, does require a little internal re-referencing.

        • Kitty Catkin

           /  27th February 2019

          It’s a blimmin clumsy way of expressing it; a very odd way, too, really, Who would say that ?

          Reply
          • Gezza

             /  27th February 2019

            Well, I think Mike Hosking did this morning. Although he might have said “Topmost in her mind”. I reckon just let her off with a warning & let this one go though, Kitty.

            Reply
  7. Patzcuaro

     /  26th February 2019

    Reply
    • Corky

       /  26th February 2019

      Lol… great song. Mixed reviews on release..went on to become one the greatest tunes ever recorded.

      Reply
    • artcroft

       /  26th February 2019

      Emerson: The tune remains the same: Labour good, national bad. Repeat on loop.

      Reply
    • adamsmith1922

       /  26th February 2019

      Great cartoon, just because it ridicules National doesn’t detract.
      In fact it suggests National’s message resonates with people

      Reply
      • Kitty Catkin

         /  26th February 2019

        It didn’t BECOME one of the greatest songs ever recorded, it always was that.

        Reply
  8. duperez

     /  26th February 2019

    Ardern is in the John Key position. There are things to do, there are things which need to be done. We want vision and boldness and creativity to forge the base for now and the future. Big issues need to be addressed.

    But really, it’s best to do nothing because we don’t really want change. People will be upset. Political reality.

    The Government can commission all sorts of reviews and reports which give the impression that vision and boldness and creativity something new, better ways, are the approach. Reports will come out and the cries will come from one side “Communism!” or “Gutless, doesn’t go far enough!” So some middling nothing will be done and life will go on.

    Reminds me of the song when I was a kid. This version of it:

    Reply
  9. The Consultant

     /  26th February 2019

    Emmerson is funny sometimes….

    Reply
  10. High Flying Duck

     /  26th February 2019

    Reply
    • Alan Wilkinson

       /  26th February 2019

      It would be interesting to compare the fraction of the billionaire’s income that they spend on themselves compared with that of their critics.

      Reply
      • Gezza

         /  26th February 2019

        The fraction of a billionaire’s income spent on themselves over a year compared to what an average working stiff spent on themselves would be interesting.

        Reply
        • Alan Wilkinson

           /  26th February 2019

          Why?

          Reply
          • Gezza

             /  26th February 2019

            I’d be interested to know.

            Reply
            • Alan Wilkinson

               /  26th February 2019

              Better ask Graeme Hart then. Mind you the average working stiff doesn’t have to commute between multiple countries so probably won’t need a private Bombardier.

  11. Finbaar Rustle

     /  26th February 2019

    Labours tax review is a platform for robust debate.
    Everything will work out fine.
    In Jacinda and Labour we all trust

    Reply
  12. unitedtribes2

     /  26th February 2019

    “So most of the capital gains scored by baby boomer investers”
    So the property owned by baby boomers remains their property and not stolen and redistributed to dropkicks who have no intention of contributing to this country.

    Reply
    • Blazer

       /  26th February 2019

      flipping property makes no positive contribution.

      Reply
      • unitedtribes2

         /  26th February 2019

        Maybe not but the contribution to the economy in earning the money to invest in the property did

        Reply
        • Blazer

           /  26th February 2019

          depends on how it is financed…leverage,negative gearing,interest only…Capital accumulation through real labour is near impossible.

          Reply
      • High Flying Duck

         /  26th February 2019

        Buying property, renovating it and improving it and selling on for a profit does. Flipping is of course taxed under Income Tax rules, so your comment has nothing to do with the CGT post…

        Reply
  13. alloytoo

     /  26th February 2019

    “Ardern said that because of this tax switch most Kiwis would come out financially ahead.”

    This may be technically true, assuming there’s something to redistribution after implementation and compliance costs.

    It also means that the minority paying the bulk of the income tax will be squeezed for more.

    But that’s fair hey.

    Reply
  14. Alan Wilkinson

     /  26th February 2019

    Labour might have had some chance of introducing a fair tax if they hadn’t set up a tax working group stuffed full of Lefties.

    Reply
  15. Patzcuaro

     /  26th February 2019

    Reply
  16. David

     /  26th February 2019

    “Housing and Urban Development Ministry officials concede that the Govt’s new ‘Healthy Homes’ initiative will drive up rents, see rental stock taken off the market and may increase demand for public and emergency housing”

    No need to panic Twyford is building 100,000 houses rapidly so it wont be an issue exasperated by slapping a swingeing CGT on residential landlords and driving more of them away.

    Reply
    • Blazer

       /  26th February 2019

      been out cherry picking today….David!

      Reply
    • Fight4NZ

       /  27th February 2019

      Less property put on market by investors, drives down house prices, more owner occupancy, less renters, no hike of rent. Good work the CGT that would provide that market correction.
      So why kill it, or any govt who enacted the full twg proposal. Since when did anyone want CGT that discourages investment in or building productivity, by penalising success???
      I am really hard pressed to think of a more moronic proposal in any term of govt in decades.

      Reply

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