We asked Labour's Jacinda Ardern and National's Nikki Kaye: Should NZ have a capital gains tax?
Last Thursday afternoon, I was at the Westpac stadium for what was perhaps the worst-kept, but by far the most important, secret announcement of the year: the release of Labour's tax policy.
Regardless of whether people felt like they knew what was coming, they turned out en masse: economists; journalists; business groups; unions; corporates - they were all there. And not for the sandwiches (egg and ham for those interested), but because this was announcement was bold, brave and, for me, the right thing to do.
It has been said that introducing a capital gains tax is political suicide. I take a different view. Standing by and doing nothing while the country's economy becomes a housing market with a few extras added on and we sink into more and more debt and rising unemployment - that is the real threat.
The government has presented to us its view of how to get out of this hole we're in: sell our assets (or our ladder, as it were). Our assets are, after all, the very thing that's actually producing revenue for us right now.
And then there's Labour's plan, which includes keeping our assets and introducing a capital gains tax (CGT). Under our plan, a CGT would be set at 15%, exclude the family home, and would apply to the sale of shares, investment properties, and companies, but only on gains made AFTER the law is passed. That does mean that it will take time for the true impact of a capital gains tax to set in ($78 million in year one) but, over time, it will have a dramatic impact ($26 billion in total over 15 years). Not only will it allow us to keep our assets and get us out of debt at the same time as the governments own projections, it will lead to a much needed shift in our economy away from the housing market and towards the productive economy by creating a more even playing field for all forms of investment.
There's an added bonus for people in the Auckland housing market in particular. The general consensus is that a CGT would remove the tax bias towards property investment, easing up on demand and making buying a first home just a little bit easier
What gets me in all of this though is that I truly believe that there are a pretty significant group of people in the national party who agree with this policy. I would include the Finance Minister Bill English in that. And how could he not? The Treasury, tax working group, IMF, and the world bank all believe we need one. In fact of all the OECD nation, New Zealand, Switzerland and Turkey are the only counties without one. Anyone who says that we wouldn't be able to administer a CGT effectively is not only ignoring that ours would be extremely simple, they're also saying that we're not as clever as all the many, many other countries who have already done it, including Australia.
It's time we owned up to the fact that unless we're bold; unless we're willing to make some big calls, not only will we be stuck in an economic rut, we will be leaving the next generation without any hope for ever climbing out.
Big calls aren't easy, but I will proudly campaign on this policy. Not only is it the right thing to do; it's our ladder.
Labour's tax proposals would be a massive step backwards in terms of having a simple and fair tax system in New Zealand. Under Labour's scheme New Zealand would go from four to six different rates of income tax; have a GST that applies to some food and not others; a massive 11 cent gap between the company rate and the top personal rate that will encourage greater tax avoidance; and an exemption riddled capital gains tax that raises virtually no revenue in the first few years.
The last couple of years have been a hard slog for many small businesses and New Zealanders. We have focussed on trying to build a stronger economic base for growth while also protecting our most vulnerable in what has been the biggest recession in a generation.
When National was elected, we were one of only a few countries which had already been in recession for nine months with exports flattening out and Government spending out of control. The Treasury's books showed long term budget deficits and spiralling Government debt. I think it shows how far we have come with the latest economic data showing economic growth much higher than expected despite the Christchurch earthquakes.
At a time when the economy is starting to pick up I believe the last thing that we need as a country are more taxes and more debt. While I am generally supportive of policies that broaden the tax system and shift investment out of property, I don't believe Labour's proposals achieve this and it's being promoted at a time that would be harmful to New Zealand.
One of the things that I find from talking to people, is that there is little awareness that we actually currently have a form of capital gains tax in New Zealand. If you buy and sell shares or buy and sell an investment property and you do it with the intention of buying or selling, then you're subject to capital gains tax and you could be caught by the IRD. Last year we also took additional steps to shift investment out of property by tightening up property tax rules including eliminating depreciation, tightening LAQC rules and increasing IRD audit and compliance funding.
At a time when the debt crisis is enveloping countries around the world, the last thing New Zealand needs is to borrow more in the short term. Unfortunately, that is what Labour's policies advocate.
The tax proposal is riddled with exemptions and is light on detail. I believe that any policy that needs an expert panel of policy experts to work out how to interpret and implement it is going to be an absolute minefield for your everyday New Zealander to work out how to pay their tax.
The complicated nature of administering capital gains taxes is one of the reasons why two tax working groups - in 2001 under Labour and in 2009 under this Government - have on balance ruled out capital gains taxes as being too complicated and difficult to administer.
New Zealand would need a huge number of tax accountants to administer Labours system. It is also clear that most of the exemptions Labour have developed covering assets like boats and jewellery are not economically motivated but political in nature. There are a number of commentators pointing out that unless you have a comprehensive capital gains tax the benefits are significantly reduced and the disadvantages are amplified.
I am not sure what the rationale is to exempt gambling but any system that is designed to double tax businesses which create jobs but exempts gambling is sending the wrong message to Kiwis. Auckland Central has 7500 business people who are self-employed or employers; many people work partially from home and may be distressed to find out that their family home could be partially liable for capital gains tax under Labours scheme. The many thousands of people renting in Auckland may also be concerned at any proposals that threaten to force rents up even higher.
Labour's package does not have fiscal credibility as it does not adequately deal with our debt problem nor does it explain funding for all the extra spending promises. Labour's tax theories would leave a big hole in our accounts
We need a strong economy that provides more opportunities, better wages, and high-quality public services. We have spent the last couple of years building a stronger base for economic growth while also protecting our most vulnerable in what has been the biggest recession in a generation. National has made changes to the tax system to better reward hard work and savings. After tax wages went up 7.1 per cent in the past year. The Government has reduced regulations and invested significantly in infrastructure; including rail, roads, broadband and schools.
The Government's books are on track to be in surplus by 2014/15. Earlier surpluses give future Governments more choices. On top of this, the Budget forecasts 170,000 new jobs and 3 per cent average annual growth over the next four years.
Despite the devastating Canterbury earthquakes, the economy is now much stronger than it was three years ago. Complicated new taxes and increased borrowing would be a step backward for New Zealand.
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