“I bought this property with money I earned, money already taxed when I made it and again when I spent it. And now you want to tax me simply because I have it? Bugger off.”
That reaction may sound blunt, but it captures a deep truth. Taxing capital gains feels like double taxation – a punishment for prudence.
We save because we crave security. We’re like squirrels, quietly stashing away our nuts against the winter. We hate inflation nibbling at our savings. And as we grow older, we worry about how to look after ourselves when work stops.
Psychologically, there’s a huge difference between a Government saying, “as you earn, we’ll take a share”, or “as you spend, we’ll take a share”, and a Government saying, “nice property you’ve got there. Now pay up.”
For many New Zealanders, property isn’t a luxury. It’s the only realistic savings plan. So a tax on property value feels like a tax on thrift on what’s been carefully set aside, or meant to be passed on to the next generation.
When we buy that investment property, we’ve already accepted that the Government takes half through income tax and GST. Those personal taxes are part of a democratic contract by which voters pay for government. But taxing the property itself, the product of those savings, strikes at something more personal. It feels confiscatory. It cuts across our psychological and deep-rooted longing for security and provision against future uncertainties.
That’s why no party in New Zealand has ever been elected promising a full capital gains tax.
Of course, there are also economic reasons. Capital is the seed corn of prosperity. Tax it too heavily, and people stop planting. Investment drops. Productivity lags. Wages stagnate.
Not all gains are real, either. Inflation can lift asset prices without creating any actual wealth, meaning a capital gains tax can erode purchasing power and leave investors worse off.
Then there’s the distortion it creates. People hang on to assets they should sell because the tax hit wipes out the benefit of doing so. Why sell your bach to invest in a business if the Government clips 28% off the top?
It’s the same with rental properties. Tax them harder and fewer people invest, driving rents up and reducing housing choice.
People and businesses respond to incentives. Change the incentives, and you change behaviour. It’s not ideology; it’s the reality that people, especially the rich, can change how much work they do, where they earn money, how they earn money and when they earn money. I see this all the time in my legal practice. New Zealanders will climb Mt Everest and create tax avoidance structures as complex as Gaza tunnels in order to avoid paying an extra $1 in tax. If there are loopholes to find, my fellow professionals will beam in on those ambiguities and squeeze through that gap, pulling their clients behind them.
And make no mistake: this tax would be complex, expensive to administer, and of limited fiscal benefit. Even Labour admits it won’t meaningfully reduce the deficit.
That’s why many successful economies – Switzerland, Singapore, Hong Kong – don’t have capital gains taxes. They attract capital. We repel it.
The idea of “squeezing the rich” might be politically attractive, but in the end, a capital gains tax doesn’t just hit the wealthy. It hits the psyche. It tells ordinary New Zealanders that saving, investing, and taking risk will be punished.
And that’s the problem.
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