NZ Herald
  • Home
  • Latest news
  • Herald NOW
  • Video
  • New Zealand
  • Sport
  • World
  • Business
  • Entertainment
  • Podcasts
  • Quizzes
  • Opinion
  • Lifestyle
  • Travel
  • Viva
  • Weather

Subscriptions

  • Herald Premium
  • Viva Premium
  • The Listener
  • BusinessDesk

Sections

  • Latest news
  • New Zealand
    • All New Zealand
    • Crime
    • Politics
    • Education
    • Open Justice
    • Scam Update
  • Herald NOW
  • On The Up
  • World
    • All World
    • Australia
    • Asia
    • UK
    • United States
    • Middle East
    • Europe
    • Pacific
  • Business
    • All Business
    • MarketsSharesCurrencyCommoditiesStock TakesCrypto
    • Markets with Madison
    • Media Insider
    • Business analysis
    • Personal financeKiwiSaverInterest ratesTaxInvestment
    • EconomyInflationGDPOfficial cash rateEmployment
    • Small business
    • Business reportsMood of the BoardroomProject AucklandSustainable business and financeCapital markets reportAgribusiness reportInfrastructure reportDynamic business
    • Deloitte Top 200 Awards
    • CompaniesAged CareAgribusinessAirlinesBanking and financeConstructionEnergyFreight and logisticsHealthcareManufacturingMedia and MarketingRetailTelecommunicationsTourism
  • Opinion
    • All Opinion
    • Analysis
    • Editorials
    • Business analysis
    • Premium opinion
    • Letters to the editor
  • Politics
  • Sport
    • All Sport
    • OlympicsParalympics
    • RugbySuper RugbyNPCAll BlacksBlack FernsRugby sevensSchool rugby
    • CricketBlack CapsWhite Ferns
    • Racing
    • NetballSilver Ferns
    • LeagueWarriorsNRL
    • FootballWellington PhoenixAuckland FCAll WhitesFootball FernsEnglish Premier League
    • GolfNZ Open
    • MotorsportFormula 1
    • Boxing
    • UFC
    • BasketballNBABreakersTall BlacksTall Ferns
    • Tennis
    • Cycling
    • Athletics
    • SailingAmerica's CupSailGP
    • Rowing
  • Lifestyle
    • All Lifestyle
    • Viva - Food, fashion & beauty
    • Society Insider
    • Royals
    • Sex & relationships
    • Food & drinkRecipesRecipe collectionsRestaurant reviewsRestaurant bookings
    • Health & wellbeing
    • Fashion & beauty
    • Pets & animals
    • The Selection - Shop the trendsShop fashionShop beautyShop entertainmentShop giftsShop home & living
    • Milford's Investing Place
  • Entertainment
    • All Entertainment
    • TV
    • MoviesMovie reviews
    • MusicMusic reviews
    • BooksBook reviews
    • Culture
    • ReviewsBook reviewsMovie reviewsMusic reviewsRestaurant reviews
  • Travel
    • All Travel
    • News
    • New ZealandNorthlandAucklandWellingtonCanterburyOtago / QueenstownNelson-TasmanBest NZ beaches
    • International travelAustraliaPacific IslandsEuropeUKUSAAfricaAsia
    • Rail holidays
    • Cruise holidays
    • Ski holidays
    • Luxury travel
    • Adventure travel
  • Kāhu Māori news
  • Environment
    • All Environment
    • Our Green Future
  • Talanoa Pacific news
  • Property
    • All Property
    • Property Insider
    • Interest rates tracker
    • Residential property listings
    • Commercial property listings
  • Health
  • Technology
    • All Technology
    • AI
    • Social media
  • Rural
    • All Rural
    • Dairy farming
    • Sheep & beef farming
    • Horticulture
    • Animal health
    • Rural business
    • Rural life
    • Rural technology
    • Opinion
    • Audio & podcasts
  • Weather forecasts
    • All Weather forecasts
    • Kaitaia
    • Whangārei
    • Dargaville
    • Auckland
    • Thames
    • Tauranga
    • Hamilton
    • Whakatāne
    • Rotorua
    • Tokoroa
    • Te Kuiti
    • Taumaranui
    • Taupō
    • Gisborne
    • New Plymouth
    • Napier
    • Hastings
    • Dannevirke
    • Whanganui
    • Palmerston North
    • Levin
    • Paraparaumu
    • Masterton
    • Wellington
    • Motueka
    • Nelson
    • Blenheim
    • Westport
    • Reefton
    • Kaikōura
    • Greymouth
    • Hokitika
    • Christchurch
    • Ashburton
    • Timaru
    • Wānaka
    • Oamaru
    • Queenstown
    • Dunedin
    • Gore
    • Invercargill
  • Meet the journalists
  • Promotions & competitions
  • OneRoof property listings
  • Driven car news

Puzzles & Quizzes

  • Puzzles
    • All Puzzles
    • Sudoku
    • Code Cracker
    • Crosswords
    • Cryptic crossword
    • Wordsearch
  • Quizzes
    • All Quizzes
    • Morning quiz
    • Afternoon quiz
    • Sports quiz

Regions

  • Northland
    • All Northland
    • Far North
    • Kaitaia
    • Kerikeri
    • Kaikohe
    • Bay of Islands
    • Whangarei
    • Dargaville
    • Kaipara
    • Mangawhai
  • Auckland
  • Waikato
    • All Waikato
    • Hamilton
    • Coromandel & Hauraki
    • Matamata & Piako
    • Cambridge
    • Te Awamutu
    • Tokoroa & South Waikato
    • Taupō & Tūrangi
  • Bay of Plenty
    • All Bay of Plenty
    • Katikati
    • Tauranga
    • Mount Maunganui
    • Pāpāmoa
    • Te Puke
    • Whakatāne
  • Rotorua
  • Hawke's Bay
    • All Hawke's Bay
    • Napier
    • Hastings
    • Havelock North
    • Central Hawke's Bay
    • Wairoa
  • Taranaki
    • All Taranaki
    • Stratford
    • New Plymouth
    • Hāwera
  • Manawatū - Whanganui
    • All Manawatū - Whanganui
    • Whanganui
    • Palmerston North
    • Manawatū
    • Tararua
    • Horowhenua
  • Wellington
    • All Wellington
    • Kapiti
    • Wairarapa
    • Upper Hutt
    • Lower Hutt
  • Nelson & Tasman
    • All Nelson & Tasman
    • Motueka
    • Nelson
    • Tasman
  • Marlborough
  • West Coast
  • Canterbury
    • All Canterbury
    • Kaikōura
    • Christchurch
    • Ashburton
    • Timaru
  • Otago
    • All Otago
    • Oamaru
    • Dunedin
    • Balclutha
    • Alexandra
    • Queenstown
    • Wanaka
  • Southland
    • All Southland
    • Invercargill
    • Gore
    • Stewart Island
  • Gisborne

Media

  • Video
    • All Video
    • NZ news video
    • Herald NOW
    • Business news video
    • Politics news video
    • Sport video
    • World news video
    • Lifestyle video
    • Entertainment video
    • Travel video
    • Markets with Madison
    • Kea Kids news
  • Podcasts
    • All Podcasts
    • The Front Page
    • On the Tiles
    • Ask me Anything
    • The Little Things
  • Cartoons
  • Photo galleries
  • Today's Paper - E-editions
  • Photo sales
  • Classifieds

NZME Network

  • Advertise with NZME
  • OneRoof
  • Driven Car Guide
  • BusinessDesk
  • Newstalk ZB
  • Sunlive
  • ZM
  • The Hits
  • Coast
  • Radio Hauraki
  • The Alternative Commentary Collective
  • Gold
  • Flava
  • iHeart Radio
  • Hokonui
  • Radio Wanaka
  • iHeartCountry New Zealand
  • Restaurant Hub
  • NZME Events

SubscribeSign In
Advertisement
Advertise with NZME.
Home / Business

Patrick Flannery: Do we really need a capital gains tax?

Other
17 Aug, 2014 10:15 PM5 mins to read

Subscribe to listen

Access to Herald Premium articles require a Premium subscription. Subscribe now to listen.
Already a subscriber?  Sign in here

Listening to articles is free for open-access content—explore other articles or learn more about text-to-speech.
‌
Save

    Share this article

Will a capital gains tax fix the 'housing crisis'? Housing shortages and speculation are features of many major cities. Photo / Doug Sherring

Will a capital gains tax fix the 'housing crisis'? Housing shortages and speculation are features of many major cities. Photo / Doug Sherring

Opinion
Lawyer and lecturer Patrick Flannery busts what he sees as some of the myths around a capital gains tax

If Labour wins the election next month it plans to introduce a capital gains tax. Even if enacted in a partial form with exemptions, this would amount to the biggest expansion to the tax base since the introduction of GST in 1986, and warrants some serious debate.

Unfortunately statements by the parties in favour of the proposed tax have so far been quite simplistic and based on broad assumptions about the perceived need for the tax and the revenue it will generate.

While there may be tax policy arguments in favour of a general capital gains tax, the claim that such a tax is now needed in New Zealand requires more scrutiny. Even allowing for a measure of electioneering hoop-la, it seems a capital gains tax is being touted as a panacea for a range of problems - from solving the 'housing crisis', to achieving a greater degree of fairness in the tax system and providing the revenue to fund social policy objectives. But would it actually achieve any of these aims?

Let's separate the fact from the fiction.

Advertisement
Advertise with NZME.
Advertisement
Advertise with NZME.

Myth 1: The effect of the tax would be limited

Even a partial capital gains tax, which is what Labour is advocating, would potentially affect a considerable portion of the population. Just how large depends on the number of exemptions allowed. Australia's capital gains tax regime is also a partial regime and provides for numerous exemptions, most of them on policy grounds in order to narrow the scope and reach of the tax. Presumably any tax regime introduced here would have similar exemptions, and for similar reasons.

A range of operational issues will need to be addressed. For example how is a gain to be measured - from a specific valuation date or from the original date of acquisition? How is inflation to be factored into asset valuations, what allowance will be made for capital losses, and so on?

A capital gains tax would also have to be compatible with our existing tax system, which already contains plenty of complex legislation. Compliance costs for taxpayers, particularly arising from the need to obtain valuations, could be high.

Myth 2: It's a big revenue generator

In addition to implementation and administration issues, the claims surrounding how much revenue a capital gains tax would generate should raise some eyebrows.

Discover more

New Zealand|politics

NZ First borrows 'game changers'

20 Jul 04:03 AM
Opinion

Brian Gaynor: Private equity plays back in the spotlight

25 Jul 05:00 PM
New Zealand|politics

The election 'Porkometer' returns

27 Jul 05:00 PM
Tax

Start taxing property gains properly, says economist

31 Jul 05:00 PM

Capital gains tax regimes have typically been nowhere near as lucrative as income taxes or value-added taxes such as GST. For example, in the last decade in Australia the Federal Government has, on average, generated less than five per cent of its annual tax revenue from its capital gains tax.

The relatively low revenue derived from the tax is largely because capital gains tax regimes operate on a transactional or realised basis, which requires some form of 'event' in order to trigger a liability for the tax. An ideal system would operate on an unrealised or accrual basis that taxed movements in the value of assets without any need for an 'event', whether deemed or actual.

Advertisement
Advertise with NZME.

But this would give rise to a range of problems in practice, not least of which would be the cash-flow implications of being taxed on unrealised gains. In reality no capital gains tax regime operates on an unrealised basis, and the revenue raised from these regimes is relatively minor. It was largely these concerns that led the Victoria University Tax Working Group to decide against recommending the implementation of a capital gains tax in 2010.

Myth 3: It will "fix the housing crisis"

The other big question that needs to be asked is what evidence is there that a capital gains tax would encourage investment in 'productive' assets as opposed to a 'non-productive' over-investment in property? Related to this is the claim that our lack of a capital gains tax is contributing to a crisis in over-priced housing in the main centres, most notably in Auckland.

Two matters arise here. First, expensive housing, housing speculation and housing shortages are features of many major cities, including those in countries which have a capital gains tax. Melbourne and Sydney spring to mind as examples close to home.

Second, there are several provisions in the Income Tax Act that currently impose tax on gains from real property sales in a range of circumstances, including what would otherwise be capital gains. Evidence suggests that these rules may require more comprehensive enforcement to be fully effective in taxing gains from sales of 'investment' properties that were purchased with a view to a future sale.

The apparent anomaly that a person can purchase a rental property, obtain tax deductions for any interest expense incurred in funding the purchase (and possibly other deductible expenditure as well), but still claim that any gain resulting on a sale of the property is on capital account, could be addressed by further targeted reform in this area. This could include ring-fencing of the tax losses or a clawback mechanism on sale. It is not necessary to introduce a capital gains tax to deal with the issue.

Advertisement
Advertise with NZME.

So, for something that would potentially affect many New Zealanders and not achieve any of its stated objectives, there has been very little useful discussion of whether we really need a capital gains tax - and there needs to be. To adapt a saying: be careful what you vote for.

Patrick Flannery is a lawyer with over 20 years experience in the taxation field and a lecturer in taxation at Massey University.

Debate on this article is now closed.

Save

    Share this article

Latest from Business

Premium
Shares

Market close: IkeGPS continues run, up 8.6%

Premium
New Zealand

'Bringing the community together': Young new owner's plans for Hastings cinema

Premium
Retail

HelloFresh pleads guilty after ‘subscription traps’ tricked customers


Sponsored

Tired of missing out on getting to global summits to help grow your business?

Advertisement
Advertise with NZME.

Latest from Business

Premium
Premium
Market close: IkeGPS continues run, up 8.6%
Shares

Market close: IkeGPS continues run, up 8.6%

Gentrack dipped 4.23% after two large trades, one analyst said.

14 Jul 05:57 AM
Premium
Premium
'Bringing the community together': Young new owner's plans for Hastings cinema
New Zealand

'Bringing the community together': Young new owner's plans for Hastings cinema

14 Jul 04:29 AM
Premium
Premium
HelloFresh pleads guilty after ‘subscription traps’ tricked customers
Retail

HelloFresh pleads guilty after ‘subscription traps’ tricked customers

14 Jul 03:51 AM


Tired of missing out on getting to global summits to help grow your business?
Sponsored

Tired of missing out on getting to global summits to help grow your business?

14 Jul 04:48 AM
NZ Herald
  • About NZ Herald
  • Meet the journalists
  • Newsletters
  • Classifieds
  • Help & support
  • Contact us
  • House rules
  • Privacy Policy
  • Terms of use
  • Competition terms & conditions
  • Our use of AI
Subscriber Services
  • NZ Herald e-editions
  • Daily puzzles & quizzes
  • Manage your digital subscription
  • Manage your print subscription
  • Subscribe to the NZ Herald newspaper
  • Subscribe to Herald Premium
  • Gift a subscription
  • Subscriber FAQs
  • Subscription terms & conditions
  • Promotions and subscriber benefits
NZME Network
  • The New Zealand Herald
  • The Northland Age
  • The Northern Advocate
  • Waikato Herald
  • Bay of Plenty Times
  • Rotorua Daily Post
  • Hawke's Bay Today
  • Whanganui Chronicle
  • Viva
  • NZ Listener
  • Newstalk ZB
  • BusinessDesk
  • OneRoof
  • Driven Car Guide
  • iHeart Radio
  • Restaurant Hub
NZME
  • About NZME
  • NZME careers
  • Advertise with NZME
  • Digital self-service advertising
  • Book your classified ad
  • Photo sales
  • NZME Events
  • © Copyright 2025 NZME Publishing Limited
TOP