Greens will push Labour to advance CGT

James Shaw has just said that the Greens would push Labour to bring forward a Capital Gains Tax in post-election coalition negotiations, in an interview on Q+A.

This came just after Jacinda Ardern reiterated her back-flip on pushing any possible CGT out until after the next election in 2020.

Shaw said that the CGT would be one of a couple priorities in coalition negotiations.

This won’t help alleviate uncertainties about what a Labour led government might do on tax next term.

This also highlights the uncertainties voters face when presented with individual party policies when what we end up getting is negotiated compromises – or small party policies are potentially used as an excuse to sneak in different policies.

In a following interview Winston Peters stated that CGT would be off the table as far as NZ First was concerned.

Labour’s ‘tax working group’

Labour have been saying for some time that in government they would set up a ‘tax working group of experts” to examine options for reforming our tax system.

Grant Robertson on 29 March 2017: Speech to launch the Budget Responsibility Rules

We recognise that the best taxation systems have three key characteristics – they are fair, simple, and collected. The current taxation system fails this test and needs reform. In government we propose to establish a tax working group of experts to examine how best to deliver tax changes that are positive for the economy and New Zealand taxpayers.

On 13 May 2013: Grant Robertson speech to Congress 2017

We need a fresh approach.   If we want a fair share of prosperity for all New Zealanders then we need a better, more balanced and fairer tax system. We are determined to get this right.

That is why we are establishing a tax working group in government.  It will not be the random and unfocused undertaking we saw from National.  It will have a mandate.   A mandate to develop a system that has the values of simplicity, fairness and collectability.  A system where multinationals pay their fair share, where income, assets and wealth are all treated fairly, and where the new and different world of work is recognised.

In advance of that review we have made some decisions that give a clear indication of our thinking.  We are cracking down on tax loopholes for property speculators, including through taxing anyone who flips an investment property within five years.  We are also saying that with the changing technology it will be possible to more accurately assess your tax obligations- and therefore we can get rid of secondary tax.

Labour have been criticised for not being up front on what they will do on tax if they get into government. Deferring to their proposed tax working group is seen as a way of avoiding saying what they intend to do, especially regarding Capital Gains Tax.

Under Jacinda Ardern’s leadership there have been more decisions made, so while they are using the tax working group as an excuse for not being clear about some plans there are a number of things that they have already specified

RNZ:  They were PREFU fighting, Dunne dusted & when minors attack

Labour’s standing by its decision to set up a tax working group should it become government and take advice from it on how to reform the tax system. Jacinda Ardern and Grant Robertson claim the current tax system isn’t fair, but won’t openly campaign on what they think a fair system looks like.

While it’s widely assumed Labour is inclined towards introducing a Capital Gains Tax (they campaigned on one in 2011 and 2014), Ardern insists she won’t make up her mind until she’s seen the tax group’s recommendations.

But Ardern has already made up her mind on a number of tax issues. And:

Yet as Guyon and Lisa point out in the podcast, she has confirmed that she and Robertson will appoint the members of the group, so can more or less ensure the result she wants.

Particularly if they have have already decided on many key aspects of tax.

Vernon Small in We were expecting lollies, but the surpluses refused to come to the party

Labour leader Jacinda Ardern and her finance spokesman Grant Robertson followed that up by scotching any plans for a personal tax increase, either now or as a result of the tax working group the party plans to set up after the election.

In fact the agenda for that working group – and the range of tax changes Labour may countenance – is shrinking faster than the forecast surplus.

Ardern on Wednesday also flipped any possible change to GST into the out tray.

So the list of things the working group will not countenance now includes a capital gains tax (CGT) on the family home, a tax on unrealised capital gains, any increase in income tax – including a new higher top rate – and GST.

Labour has already confirmed it would increase to five years the brightline test when capital gains tax is automatically levied on the sale of investment properties – although that could be part of the working group’s mix. It also has in train a royalty on irrigation and bottled water and an levy on tourists.

That seems to leave the working group with a wafer-thin agenda that includes residual issues around a CGT and perhaps the option of a land tax.

  • Labour won’t rule out a CGT (interpreted as wanting to impose one).
  • Any CGT would exclude family homes.
  • Won’t rule out CGT on businesses and farms.
  • No increase to the top PAYE tax rates.
  • Will scrap the currently planned PAYE tax cuts due 1 April 2018.
  • No increase to GST.
  • Will scrap secondary tax.
  • Will put a ‘royalty’ (tax) on bottled water and irrigation.
  • Will put a levy on tourists.

Are there any more to add to this list? This is already a significant number of significant limitations that Labour would supposedly impose on any tax working group of experts.

Ardern seems to have made up her mind about many taxes, but keeps using the ‘tax working group’ as an excuse for not campaigning on a Capital Gains Tax that, if they implement, would be badly hobbled by excluding  family homes, which involve over half property sales.

 

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.

 

Labour’s Clayton’s Capital Gains Tax policy

Labour have a Clayton’s Capital Gains Tax policy – the CGT policy you have when you don’t want one before an election.

And Jacinda Ardern can claim clarity and transparency all she likes, but that won’t make her sound clear and transparent.

Labour needs a way of funding additional spending signalled in their policies (and that’s before policy demands and costs from NZ First and Greens are taken into account).

For the last election they proposed a Capital Gains Tax. When he took over the leadership after the election Andrew Little ruled a CGT out, saying it was unpopular (that’s debatable, Labour leaders had been unpopular).

This campaign new leader Jacinda Ardern won’t rule out a CGT, saying one would be considered if their proposed Tax Working Group recommended one

“I think we’ve given a huge amount of clarity and transparency over this. We’ve made it very clear we’re not campaigning on a Capital Gains Tax, and we do not believe on Capital Gains tax or  anything similar applying to a family home.

“But at the same time we’ve also acknowledged that we don’t think there’s fairness in our taxation system. We’ve proposed a review which we hope to hold in government, which we will hold in government.

“I’m not pre-empting what that review will find, in the same way that the Government when they campaigned in 2008 did not pre-empt the work that their 2010 taxation report would find.

“But I am maintaining our right and ability to act on it’s findings and do the right thing when we’re in  government.”

So if Labour lead the next Government and appoint a taxation review group that recommends a Capital Gains Tax then they may act on that.

“We’re yet to know what that will be though.”

Not exactly clarity for now.

“I’ve been very, very transparent on this. We do not think that assets are treated fairly, relative to other forms of taxation in New Zealand. The fact that someone can go out and work a 40-hour week and pay tax on that, someone can own multiple homes, flick them off for capital gain and is often not treated in that same fair manner, is something that needs to be addressed.

“Most countries have. New Zealand sits on its own in that regard. But I’m not going to pre-determine what that working group will find, and how it suggests we resolve that.

She clearly supports a CGT. And makes it fairly clear what she wants the working group to recommend and not recommend.

Question “What if the working group finds that the capital gains tax should apply to the family home, haven’t you just pre-determined that?”

Ardern: “Oh we’ve set out some expectations, and any government would say that there are particular values and things that it holds important and dear, so it’s good that we be clear with that group before we go in what our expectations are.”

That’s waffle that can be taken to mean that Labour want a CGT to be recommended by a Tax Working Group, they want family homes exempt, but don’t want to campaign on implementing a CGT this election.

More from interest.co.nz: Labour leader Ardern maintains ‘right and ability’ to introduce Capital Gains Tax if working group suggests it next term; Would exempt ‘family home’

 

recent study by economist Andrew Coleman would indicate that not imposing a CGT on the family home would continue to encourage home-owners to invest in lifting the value of their property by renovating for value uplift and building larger homes, rather than potentially putting that money into other savings schemes that currently face greater tax hits than property.

A CGT exempting family homes is also a tad Claytons – the CGT you have without having a comprehensive CGT.

 

Tax is likely to be a key election issue

There have been major distractions in politics over the last two weeks, with the fall of Andrew Little followed by the euphoric rise of Jacinda Ardern, plus the self destruction of the Greens which included the end of two MPs and the effective end of Metiria Turei’s political career.

Amongst that earlier this week there were two polls that showed a shrink in support for the greens and NZ First, and the likely return of a head to head battle between National and Labour.

And in a debate on The Nation yesterday between Steven Joyce and Grant Robertson the battle lines were drawn.

Robertson: So, under Labour’s package, every family earning $62,000 or less will be better off than under National’s package. What I don’t want is for Steven and me to get a $1000 tax cut when we’ve got families living in cars and garages, when we’ve got a health system that’s not coping. What we’re saying is we’ll get the money to the families in need, but we’ll get the money that Steven wants to give to us as tax cuts – to wealthy people like us – we’ll get that money, and we’ll make sure it’s invested in public services that have been run down.

Joyce: Well, it’s not actually about me – or about Grant, actually. It’s about those people who are on the median wage who are currently facing a 30-cent-in-the-dollar tax rate, and we have to change that. And the only way we change that is shifting the thresholds. Now, Grant’s allergic to actually reducing taxes and allergic to adjusting thresholds. He’s about increasing taxes.

Labour have pushed the anti-tax cut for rich people since National’s tax cut package was announced in the budget in May.

But it doesn’t just reduce tax or ‘rich people’, it reduces tax for all workers who pay PAYE:

Increases the $14,000 income tax threshold to $22,000, and the $48,000 threshold to $52,000. This provides a tax reduction of $11 a week to people earning $22,000 or more rising to $20 per week for anyone earning $52,000 or more.

https://www.budget.govt.nz/budget/2017/family-incomes-package/index.htm

That’s $1,000 less tax per year for everyone earning over $52,000 (affecting ‘rich people’ of course but also the majority in wage earners).

Of all the polices announced this one directly affects me the most. Labour would scrap it, and that has to be a significant factor in deciding who to vote for.

More on possible tax changes;

Lisa Owen: Capital gains tax — are you ruling it out in the first term absolutely, if you’re in in the first term?

Robertson: We’ve got a tax working group. I can’t pre-empt what they’re going to come back and decide.

Lisa Owen: So you can’t rule it out? Could come in the first term?

Robertson: I can’t pre-empt what that group says, but here’s the important point — right now today we have something called the bright-line test that the National Party brought in. It says that if you sell a house that’s not your family home within two years, you’ll pay tax on it. Steven has a form of capital gains tax.

Lisa Owen: I’ll give you the chance to talk about your policy, Mr Robertson. So a capital gains tax is still on the table? You’re not taking it off?

Robertson: What we’re going to the election with is a commitment that if you sell a property that is not your family home within five years, you’ll be taxed for that.

Robertson clearly avoiding stating a position on a Capital Gains tax, something he has favoured in the past but Little took off the table. It appears to be under consideration again.

Joyce: I think there’s a problem there for the Labour Party, because they’re dodgy on tax. They’re refusing to say about the capital gains, they’ve mentioned a water tax last week, but they won’t tell us how much it is, and then, of course, they’ve got a regional fuel tax they won’t talk about where it goes beyond Auckland.

Expect National to hammer the uncertainty over what additional taxes a Labour government could implement.

Labour are trying to avoid details by deferring to a future tax working group (on CGT) and an ‘expert panel’ (on water taxes).

Lisa Owen: So top tax rate — can you rule out lining yourselves up with the Greens and having 40 cents over 150 grand? Are you going to go for that?

Robertson: No, I don’t think we will be going for that, but what we will do…

Lisa Owen: …but you are not ruling out raising that tax rate.

Robertson: I’m not ruling it in; I’m not ruling it out.

On a water tax:

Lisa Owen: What about your water levy? What’s that going to be?

Robertson: The water levy? Look, what we’ve said there is for every thousand litres of water that’s used in irrigation, perhaps one or two cents.

Lisa Owen: One or two cents. There you go, Mr Joyce. That’s not going to make a huge difference, is it?

Joyce: This is the problem is that he’s not telling.

Robertson: One or two cents, Steven. How big a difference?

Joyce: Well, hang on. Don’t ask me; ask the farmers, because I’ve seen some figures that even at those levels, you’re talking about 50,000 a year per farm. So I think it’s beholden on the Labour Party to actually come a bit more clean on their tax stuff, because they’re being very dodgy.

Robertson: We’ve been completely upfront.

Joyce: You haven’t, actually. So you’ve got a water tax that you won’t tell anybody—

On the Panel discussion on The Nation:

Patrick Gower: I actually think that Grant Robertson probably got in a few more jabs in…however in terms of actual overall damage I think some of the talk about tax there that Steven Joyce, in terms of long term damage beyond the debate, in terms of that capital gains tax is back on the table.

The capital games tax is back baby. Labour were going to go to the next election with that, but that could come in next term.

Lisa Owen: Jane, are they doing themselves a disservice by not putting numbers on stuff now.

Jane Clifton: Absolutely. They’re their own worst enemy. This week alone with the water tax issue, because finally we’ve got a figure for irrigators and wineries and so on of one to two cents, although David Parker said three.

…but yeah, just get your ducks in a row, announce them all, don’t leave room for speculation about $18 cabbages and $70 on a bottle of wine…

The Newshub video cut Gower off at the end, but he pointed out a significant power shift in Labour. When Andrew little took over the leadership in 2014 he put a number of Labour policies on ice, including the CGT.

But with Little dropping to the ranks and Ardern taking over the leadership Gower said that this meant also a significant rise in influence of Robertson – he and Ardern have been close allies for a long time. We are already seeing glimpses of what that may change in Labours tax policies.

Gower followed up on Twitter:

So expect tax to be a prominent issue in the election.

It may have a significant effect on the outcome of the election. Labour will need to be much better prepared for the inevitable attacks from National.

Ardern will need to be well prepared for the leaders’ debates with Bill English. She will likely have a ready response to a ‘show me the money’ type line (Key used that to devastating effect against Phil Goff in 2011), but she is likely to get challenged over and over if she remains vague of what taxes a Labour government may impose or increase.

And tax could also have a significant impact on the outcome of coalition negotiations. Both Labour and National will have to try and find enough partners to support their tax (and spending) plans.

Personally a water tax or a CGT or a fuel tax in Auckland won’t affect me.

But I will be seriously taking into account whether National’s income tax cuts might be reversed or not when I decide who I will vote for.

A Capital Gains tweak

NZ Herald reports PM makes major move on housing profits and foreign buyers. Is it a major move?

A capital gains tax on residential property sold within two years of buying it is being seen as a step in the right direction, but not far enough, with few expecting the new tax to have a big effect on Auckland property prices.

Prime Minister John Key announced the plan this morning as part of the Budget package.

The exemptions to this new bright-line test will be if the property sold is the seller’s main home, if it is part of a deceased estate or inherited, and or if it is transferred as part of a relationship settlement.

The tax will be on the seller’s normal income tax rate.

Is it a major move? Or will it little more than symbolic in practice?

Labour leader Andrew Little said this afternoon the moves were “weak measures to rein in the astronomical profits property speculators.”

Little thinks it’s a weak move. It’s debatable whether a major increase in capital gains criteria would do much to alter the property market anyway, as property markets that have more stringent capital gains taxing have similar price surges to Auckland.

IRD have already been tightening up on taxing capital gains on property speculation see Improving tax compliance on capital gains.

This change may be little more than a tool to help IRD more clearly define what property sales should be subject to tax. But that may be a good thing.

Tweaks are often the best may to change things, incrementally rather than monumentally.

Major tax changes can create as many problems as they solve, especially if they cause major market shifts.

Improving tax compliance on capital gains

In the past Labour MPs have repeatedly claimed and implied that property speculators don’t have to pay tax on capital gains. A year ago then leader David Cunliffe and finance spokesperson David Parker both pushed this fallacy. From Cunliffe and Parker repeat claims on property speculation:

David Cunliffe in a speech to Young Labour:

We have too many children who are getting sick because they live in cold, damp, cramped houses with black mould growing up the walls. Sometimes owned by speculators who just push the rent up while getting rich on tax-free capital gains.

David Parker on The Nation:

“You need to tax the speculators….capital gains tax”
“Loan to valuation ratios would not be needed if they were taxing speculators and building affordable homes.”
“National Party, despite the fact that we had 40 percent house inflation, they’re not doing anything about it. Not taxing speculators…”

Presuming they must have known that IRD does pursue compliance on taxing the capital gains of speculators this looked dishonest.

It’s good to see that Andrew Little seems to be either more informed or more honest. He recently suggesting that the Reserve Bank target speculators as reported in Focus on spec buyers: Little

 Mr Little said the Government must take action on property speculators who were damaging the housing market.

Mr Little is known to not favour the introduction of a capital gains tax, something Labour had campaigned on in the last two elections and lost.

Mr Little said there were several options the Government could take to prevent property speculators building up large housing portfolios and pushing up house prices.

First home buyers, or those who wanted a rental property for retirement, were being shut out of the market by lending restrictions that should be targeted at property speculators who sometimes owned 10 to 20 houses and sat on them, he said.

”The solution needs to focus on Auckland. There is no point in a family trying to buy a house in Wanganui, where prices are dropping, being subject to lending restrictions designed to lower house price inflation.”

Another solution could be those buying multiple properties needing a higher level of equity for subsequent purchases, he said.

But the most important action was to build more houses to increase supply.

He’s on the same page as National in seeing the need to increase the supply of houses. And I’d expect him to agree with Bill English in his approach in IRD to clamp down on speculators.

Finance Minister Bill English yesterday rejected calls by the Reserve Bank to remove tax incentives for investment housing, which the bank has blamed for rising house prices in Auckland. But he said there was an ongoing discussion about whether the Inland Revenue Department could be doing more to enforce existing rules on property trading.

Mr English said there was already a tax in place for people who bought property with the aim of reselling it.

And with real estate agents and buyers reporting high levels of trading activity in Auckland, “there is a question of whether that should give rise to further enforcement activity”.

Speculators are already taxed, when the IRD can determine that they have been speculating.

At present, speculators have to declare that they are buying a house with the intention of reselling it. They are then taxed on the sale.

The IRD scrutinises property transaction records to make sure people are complying with this rule. In particular, it looks at how quickly a house is sold and the number of houses a person is selling.

Figures released by the IRD showed that $52.4 million was collected in 2013/2014 from speculators or traders – either from one-off speculative transactions or patterns of dealing. This figure is expected to increase in 2014/15. The IRD has already collected $63.2 million.

So IRD are addressing speculation and their tax take is increasing.

Any potential changes to the IRD’s resources would be announced as part of the Budget on May 15.

That suggests that the rules are seen as sufficient but that more resources may be provided to improve compliance with tax on capital gains when speculating.

Hickey’s housing slant

The official description of ‘Bernard Hickey’s Opinion’ column says that  ‘Bernard is an economics columnist for the NZ Herald’.

In his column today, Use that power, renters, Hickey has strong words about Auckland’s housing problems

Finally, Auckland’s Generation Rent has found someone who is talking about the elephant in the room – rampant speculative demand for housing by landlords.

Everyone worried about Auckland’s astonishing house prices should read Reserve Bank deputy governor Grant Spencer’s speech.

He spelt out in the plainest language yet that property investors are taking advantage of tax incentives to use cheap debt to buy as many houses as they can.

The Reserve Bank has exhausted its toolkit, having put up interest rates and set limits on high loan-to-value ratio (LVR) lending. It is looking to increase capital requirements for landlords’ mortgages, but it knows it’s not enough.

Exasperated, the Reserve Bank has asked for help to control the risks to New Zealand’s banking system, which relies on house values to back 60 per cent of its loans.

Spencer called for the Government to revisit the tax incentives for landlords.

Fair enough listening to and quoting the Reserve Bank Governor.

The Government’s top economic adviser has said landlords’ tax incentives should be reduced and central Auckland apartments should be built in defiance of the Nimbys controlling Auckland politics.

Council and Government politicians are refusing to take that advice.

What I find interesting about this is the apparent one-sidedness of Hickey’s column. It seems that he has used the Reserve Bank Governor to support a hobby horse.

Now this column may have been written before yesterday morning.

But at 9 am yesterday Hickey participated on a Twitter discussion for The Nation about their interview with Treasury Secretary Gabriel Makhlouf who has different views on housing than the Reserve Bank Governor.

Join our Twitter panel and at now!

Those alternatives weren’t mentioned at all in Hickey’s column – and he should have been well aware of them before listening to the Makhlouf interview.

On the panel Hickey displayed what looked like a pre-decided slant. He has a clear preference to Reserve Bank advice to Treasury Advice.

Here’s another view on China for ‘s Gabs Makhlouf to read after

He tries to educate Makhlouf on his angle.

Big gap there between @nztreasury & @ReserveBankofNZ. Gabs Makhlouf sceptical about CGT just 3 days after bank called for debate.

But Hickey doesn’t seem \want debate, he wants to promote his views which happen to side with the Reserve Bank advice.

Got a feeling the @ReserveBankofNZ would have liked a bit more support from @nztreasury on housing taxation than that.

Ok, he has ‘a feeling’ he and the reserve Bank are right.

In Muldoon era it was the @nztreasury offering the freest and frankest and most critical advice. Now it’s the @ReserveBankofNZ

Is that because it’s the freest and frankest? Or because it’s ‘most critical advice’ that happens to fit his opinion?

For #nationTV3 viewers wanting an alternative housing view, here’s the speech from @ReserveBankofNZ’s Grant Spencer http://www.rbnz.govt.nz/research_and_publications/speeches/2015/action-needed-to-reduce-housing-imbalances.html … …

Diverting viewers to something he prefers to the Nation interview.

Another example here of how NZ’s leaders today are pushing the costs of current consumption onto their kids/grandkids http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11433784

He’s not discussing the Makhlouf interview at all, he dismissed it and is linking to alternatives he agrees with.

Counter-factual for a CGT is what happened to Auckland house prices post-election after buyers realised no CGT. Up 20%

Has Hickey got any evidence supporting that ‘counter-factual ‘? House prices almost certainly didn’t go up 20% solely because the election result meant no wider Capital Gains Tax. Did it have any effect at all?

Unless Hickey can produce facts I will remain very dubious about that claim.

And I’m very disappointed he simply dismissed Makhlouf  and made no attempt to lead any discussion. In his The Nation panel tweets and in his Herald column he looks more like an economic activist than a balanced economic columnist.

Treasury Secretary – Capital Gains Tax won’t help Auckland

The Treasury Secretary Gabriel Makhlouf was interviewed on The Nation yesterday and said he doubted a capital gains tax would help the escalation in property prices in Auckland.

A CGT isn’t a quick fix and it won’t address the current problems.

Well, just this week the Deputy Reserve Bank Governor, Grant Spencer, is calling for a capital gains tax, or some kind of tax on investment. What do you make of that?

Well, I think what Grant Spencer was talking about was the need for us to address the housing issues in Auckland, and at the heart of the housing issue in Auckland is that we’re not building enough houses, and the Productivity Commission said a few years ago when it looked at this issue that building more houses is the answer. Looking really carefully at our planning regulations is the single biggest thing that will make a difference to how we build— how many houses we build in Auckland.

So you don’t think a capital gains tax or a tax like that is part of the solution?

I’m quite sceptical. If the issue that people are talking about is house prices, London and Sydney have got capital gains taxes and they’ve got similar issues as us. This is a phenomenon that’s actually playing out in large urban areas which are successful, right? And New Zealand is successful, Auckland is successful, so one of the consequences of that, as in Sydney and London and in Vancouver, is the current phenomenon, house prices. But we need to build more houses to actually meet the needs that we’ve got.

So in your view, it’s a supply side problem, then?

That’s the principal issue, is the supply side problem. And it’s not just my view; it’s the Productivity Commission’s view as well.

A Capital Gains Tax would do little or nothing to address the soaring property prices in Auckland.

A CGT (as proposed by Labour last term):

  • It would phase in very gradually so would have little immediate impact
  • It would not tax capital gains already realised
  • It would affect the whole country, not just Auckland
  • It has proven to not limit property inflation in other countries

So it’s a solution to a different problem, the broadening of the tax take. That’s a different debate with varying views on it’s worth.

Capital gains are already taxed on property speculation – where property is bought and sold with the aim of capital gain (according to IRD rules). Capital gains on share trading is also taxable.

Makhlouf is correct saying “building more houses is the answer” – building more houses in Auckland where the biggest demand is. For this to happen more land must be made available more easily. It’s land inflation that’s the problem, and that’s happening due to a shortage of supply and too many restrictions on higher density use.

Video: Interview: Treasury Secretary Gabriel Makhlouf

Full transcript (Scoop): Lisa Owen interviews Treasury Secretary Gabriel Makhlouf

Capital Gains Tax versus Land Tax

A guest post at Kiwiblog suggests a land tax would be more effective than a capital gains tax

However, a capital gains tax would do little to discourage the middle class from continuing to invest in rental properties. A capital gains tax is not payable until way into the future, if ever, in their minds so would cause them little immediate concern. Furthermore, with Labour’s version the CGT rate would only be 15%.

I think Labour’s reason for setting it at 15% was to allow for capital gain due to inflation.

A more effective way to make residential property less attractive and raise revenue would be to impose a tax that immediately hits the pocket and is impossible to avoid.

A land tax set at a small percentage of the value of land owned, payable annually or maybe quarterly, would do this. A tax free threshold of around $200,000 could exempt the land occupied by the average family home while discouraging the pouring of more money into low yielding property.

A land tax would be better at reducing inequality and do less to discourage productive activity than a CGT or raising income tax.

Other taxes on the stock of capital such as inheritance and gift taxes have similar advantages. Such taxes were used in the past to break up big estates and reduce inequality. Any party serious about reducing inequality needs to consider using them.

A land tax is an interesting alternative. If it has a simple threshold it would be far simpler than Labour’s exemption laden Capital Gains Tax.

Local Body rates are already calculated off property values. It wouldn’t be difficult to use a similar system for gathering a land tax.

Despite persistent claims by Labour that a Capital Gains Tax would “fairly” clamp down on property speculators we already have a tax on capital gain for speculators. The difficulty is in ensuring it is not unfairly or illegally avoided. Inland Revenue has been working on improving compliance.

From Wikipedia:

Capital Gains Tax

The most common capital gains are realized from the sale of stocks, bonds, precious metals and property. Not all countries implement a capital gains tax and most have different rates of taxation for individuals and corporations.

Land Value Tax

There are several practical issues involved in the implementation of a land value tax. Most notably, it needs to be:

  • Calculated fairly and accurately,
  • High enough to raise sufficient revenue without causing land abandonment, and
  • Billed to the correct person or business entity.