Labour’s new tax
July 6th, 2011 at 7:00 am by David FarrarNZPA report:
Labour will introduce a capital gains tax on investment properties if it wins the election, raising billions of dollars to pay for its spending promises.
I guess fiscal restraint was too much to hope for.
The party’s tax policy, to be released next week, is still under wraps but NZPA has confirmed a capital gains tax is one of its most important provisions.
It will not affect family homes, which would be political suicide, but will target people with one or more investment properties at a rate of 15 per cent on the profit made when they are sold.
One can have an economic debate on whether we should have a more comprehensive capital gains tax regime. Contrary to what many think, you do pay tax on capital gains if you are deemed investing for the purpose of a capital gain.
But why only investment properties? Why not also tax all capital gains such as on the sharemarket? If you invest in a property development company and their shares go up there is no capital gain, but if you buy a second house yourself and sell it some years later, you get pinged.
The property market was over-heated in the 2000s and before. National’s change last year to remove depreciation on investment properties has actually made a difference. I know as I had been looking at whether or not to sell my old apartment or rent it out as an investment property. before the depreciation change I would have kept it and rented it out. But the loss of the cashflow advantage from depreciation meant that I would have a net cash deficit every year, and it was not worth it unless I was confident of really really strong capital growth.
I doubt the tax will raise as much money as Labour thinks, as people will just hold onto their properties rather than sell them.
Tags: Labour. capital gains tax
July 6th, 2011 at 7:20 am
Has anyone explained to those retards that for a CGT to make any money there needs to be an over heated housing market.
Otherwise there is only professional landlords accumulating properties. They wont be selling them.
Tax and spend, but this tax will not raise any money, – another 15 years of National – wicked
Labour are so out of touch that they haven’t realised the housing bubble has burst
Vote:July 6th, 2011 at 7:28 am
I like the idea of any increase in net wealth via employment or investment should be taxed.
It is unjust that someone sitting on their butt makes 300k tax free profit by selling their house, while a labourer earning 40k per year will pay more tax.
That is a very unjust scenario.
However, if capital gains were introduced, I’d like to see a flat tax for everyone. The tax rate should be 21% for all, with the first few thousand dollars tax free.
Vote:July 6th, 2011 at 7:29 am
The best way to introduce a CGT tax or any brand new tax IMO would be to offset with tax cuts equal to the amount of tax you plan to collect (ie fiscal neutrality). But considering that it’s being looked at as a cash cow for Labour’s promises, I doubt that would happen.
Vote:July 6th, 2011 at 7:36 am
Well Wreck, I hope you and Phil have a happy life , mental giants.
Vote:July 6th, 2011 at 7:37 am
I guess we need to see the details of what is proposed, including an accurate forecast of what revenue might be derived from a CGT. I’m not so sure this tax would provide huge amounts of revenue, but it could be useful in broadening the tax base and directing investment towards other areas.
Vote:July 6th, 2011 at 7:47 am
@pauleastbay….. you must feel sad living in a world where no one gets you.
Vote:July 6th, 2011 at 7:51 am
My world consists of one where no one walkss around whining about ” unjust” and similar snivelling, get off your arse and do things.
Vote:July 6th, 2011 at 7:57 am
Might be a good way to ensure that Farmers pay their fair share of tax.
I have no issue with a CGT as long as it means lower personal PAYE tax rates, of course the problem with the corrupt Labour government is that they would use the extra income to grow the already bloated public service and to make sure that their people were given cushy jobs.
So while it is a good idea it seems that nothing will change, the middle class who do not have more kids than they can afford, who take personal responsibility, who ask their fellow tax payer for nothing are the same people who will continue to be financially raped by this government in the same way they were financially raped by the corrupt Labour government.
But…that’s OK if you are a moron and cheerleader like Adolf, just as long as your team are in power.
Vote:July 6th, 2011 at 7:58 am
I own a couple of properties in addition to the family home. We top up the mortgage out of hard earned tax paid income. The return on investment is rather sad. But we own it as a long term vehicle to help fund our retirement in 20 years. We have thought about the merit of buying another property at some point, and a CGT will have no impact on that decision. We simply will not sell. So in my lifetime Goff and the filthy money grabbing socialists and the scum who support them will not get their hands on any CGT. Goff also has to be careful. There is talk about such a tax raising $4.5b. Can someone explain how many investment properties will need to be sold over the course of a year to pay for that.
Also Goff is even more of a fool than I thought. until the policy release National can now get stuck in and trash this policy for the next week so that the support for it will be even lower that Goff’s preferred PM stakes.
Vote:July 6th, 2011 at 8:01 am
Why only to 2nd properties. Do shares not have tax free capital gains – Charlies being a perfect example.
And will they do roll over releif – without it a CGT is extremely unfair; with it, the tax take reduces significantly.
Vote:July 6th, 2011 at 8:04 am
“I doubt the tax will raise as much money as Labour thinks, as people will just hold onto their properties rather than sell them.”
Depends if the tax is on realised or unrealised gains – I dont think thats been announced yet.
Vote:July 6th, 2011 at 8:05 am
Labour is simply clueless. Their constant theme is to tax the hell out of anyone who gets off their arse and earns a few dollars, so the tax collected can be distributed to those who sit on their arse and do SFA.
Its the usual Labour politics of envy and all it will do is create a new industry for accountants and tax advisers whilst at the same time it will alienate Labour from even the small investors.
Good news for National.
Vote:July 6th, 2011 at 8:05 am
Any business structured to avoid tax and wait for capital gains at the end should be subject to a capital gains tax. Owners of rental housing commonly set themselves up to pay little or no tax, but take the gain when they sell later in life. Farms likewise.
I don’t see the need to apply a capital gains tax to businesses or individuals who earn a reasonable taxabable income from their efforts, though.
Telling the cases apart in deciding whether CG tax would apply would be the tricky bit, clearly.
Vote:July 6th, 2011 at 8:16 am
As it’s not going to effect their voter base so National should counteract it with something along the lines of….. hmmmmm…..
All unemployed must work a 20 hour week…. or…. all Maori/Pacific Islanders must stay in school until they have passed their exams.
I don’t know, but something shitty that doesn’t effect their voting base either.
Maybe tax hair dye so Phil will have to pay through the nose for it next time he makes a purchase.
Vote:July 6th, 2011 at 8:18 am
Labour have invented a new tax… how refreshing.
Vote:July 6th, 2011 at 8:19 am
Elaycee
How the fuck is this “good news for National”?, and how is it good news for their brain dead supporters?
Unless they are farmers they are still being taxed at a rate that would make Chavez blush, they are still being forced to fund thousands of parasites and DPB slappers who do not want to work and they are still being forced to fund WFF and Interest free student loans.
Tell me how this is good for middle class NZ?
Vote:July 6th, 2011 at 8:21 am
Wow everyone how is a national supporter and everyone getting any form of government support is a parasitic slapper.
Sweeping generalisation much BB?
Vote:July 6th, 2011 at 8:23 am
@Pauleastbay (1,087) Says:
July 6th, 2011 at 7:20 am
“Has anyone explained to those retards that for a CGT to make any money there needs to be an over heated housing market.”
Whether or not a CGT generates any government revenue is beside the point. The idea behind the tax is to disincentivize housing as a macroeconomically fruitless investment. First bit of testicular fortitude Labour has shown in a while.
Vote:July 6th, 2011 at 8:38 am
DPF has indicated a typical landlord reaction – if taxation changes lopside the benefits of owning a rental property, some landlords will simply sell thus removing their properties from the rental market. A knock-on effect is fewer residential properties being developed thus placing pressure on buyers and prospective tenants. Tenants will ultimately bear the brunt in the form of increased rents. The tax would probably not produce enough revenue to meet extra state houses and accommodation supplements that would be needed.
So while Labour may have found a goose to pluck with the least amount of hissing, the goose will still indirectly peck it in the backside.
Vote:July 6th, 2011 at 8:42 am
It really pisses me off the Politician think there is a huge sack of cash still to be discovered that they can Tax.
The so called broadening of the tax tax
Well I got fucking news for you. THERE ISN”T
We are all paying shitloads of tax now
Vote:Stop spending it
July 6th, 2011 at 8:47 am
Bruv, forget about CGT being used to get farmers to pay their fair share. My understanding is that the CGT proposal will only apply to residential investment property.
KOTJ, that is not the rationale for the tax being trotted out by Labour. A CGT is intended as a means to fund its spending policies (assuming they have got their sums right). Not to rejig investment away from housing. On the contrary, Labour must be counting on continued investment in housing.
Ironically I note Goofy on Radio Left Wing this morning being quoted as saying that home ownership has diminished over the last decade through property speculation and a CGT would redress this problem. And which government increased the top marginal tax rate to 39% which encouraged people to set up LAQCs to buy investment properties and set the losses off against personal income tax liability? Labour? No, couldn’t have been.
Vote:July 6th, 2011 at 8:50 am
@big bruv says: “Unless they are farmers they are still being taxed at a rate that would make Chavez blush, they are still being forced to fund thousands of parasites and DPB slappers who do not want to work and they are still being forced to fund WFF and Interest free student loans. How the fuck is this “good news for National”?, and how is it good news for their brain dead supporters?”
National are the best option going! Labour will do their usual thing and attempt to bribe the electorate. But a CGT on Mum and Dad investors will not attract new voters to Labour. Quite the reverse.
Middle NZ will be able to decide whether they vote for National who supports the principle of someone getting off their arse and earning a dollar (of which some can be reinvested for retirement) compared to the envious lot who tax tax tax anyone earning north of 60k (‘rich pricks’) so they can fund handouts for the permanent bludgers. And so on…
My statement was based on the premise that National is a far better option all round.
Vote:July 6th, 2011 at 8:52 am
The Rent Trap
Vote:For the housing market’s winners, the gains have been spectacular.
Infometrics director Gareth Morgan calculates that between 1989 and 2005, the residential property market has provided investors – and owners – with a tax-free 319% gain.
http://www.catalyst2.co.nz/blog/news/the-rent-trap/
July 6th, 2011 at 8:53 am
DPF says;
“The property market was over-heated in the 2000s and before. National’s change last year to remove depreciation on investment properties has actually made a difference.”
I doubt this policy made much difference and it is far too soon to tell anyway. Property price has actually held up quite well in the main centres and is still over-valued. Without constraint, a new bubble will inevitably emerge.
Vote:July 6th, 2011 at 8:55 am
@Kingofthejuice – “The idea behind the tax is to disincentivize housing as a macroeconomically fruitless investment” Do you have evidence for this? All my reading indicates that it is Phil’s attempt to find $$ to fill in the enormous funding hole he has created with his rash spending promises. Prove me wrong.
@Michaels – “As it’s not going to effect their voter base ….. ” Check out the pecuniary interests register for this Parliament and the last one. I’ll warrant that more than a few current and past Labour MPs (and PMs) quietly liquidate their property investments the day that Labour get themselves in a position to deliver on this. Start with Cullen and Clark, move on to the ex-unionists with holiday homes and investment properties like Phil himself. How is the sale of the Wellington flat going Phil? Got the Goffice staff still running open homes?
The only good thing is that Phil is pissing into the wind and won’t get a chance to find out the benefits of this policy or otherwise as long as his ass points to the ground.
Vote:July 6th, 2011 at 8:56 am
National are not the best option going, they are least bad option. The difference between those ideas is huge.
John remains under the delusion that he was election, he was not, Clark was fired. World of difference.
Vote:July 6th, 2011 at 8:58 am
To Labour, AXE obviously stands for Another eXorbitant Excise. AXE the TAX.
Vote:July 6th, 2011 at 8:58 am
This comment says it all:
Vote:Paul (Auckland) The sky is falling! The sky is falling! Funny they told me that 2 years ago too and since then I’ve made hundreds of thousands of dollars in property. Yet James has the cheek to say we follow the herd? You’ve missed your opportunity and you’re bitter – thats understandable. Most property investors bought under value and now have huge equity buffer to support them through a crash. A crash will just reveal more bargains for us to snap. Get off your butt James, stop whinging and contribrute to society. Landlords are here to maintain and look after homes for those who do not wish to buy. Would you prefer Helen got rid of us and put you all in state houses? – probably! The next time you see me outside one of my rentals giving it a new lick of paint, insulating it or mowing lawns you can call me a greedy swine or maybe have ago at my tenant who is inside on his/her butt watching sky tv. Wish I had sky but it nots really affordable – maybe all these bludgers that have it have pushed up the demand and therefore the price. I hope they all suffer and that Sky TV crashes so one day I can afford it! Until then I’ll put my $90 a month in the bank and earn 9%.
July 6th, 2011 at 9:00 am
@pauleastbay – You only seem to abuse and vilify. Attacking the person and not the comments is a classic sign of someone with poor communication skills.
This is what you said about CGT….
“Has anyone explained to those retards that for a CGT to make any money there needs to be an over heated housing market.”
The housing market does not need to be overheated to make money from CGT. If house prices increase by 2% per year on average, the government will make money.
This is not an overheated housing market, yet the government will still collect CGT. So, you’re wrong on your main point.
And you also fail to recognise that labour are trying to discourage so much money pouring into the housing market.
I await your insults.
Vote:July 6th, 2011 at 9:01 am
It’d be nice to debate the merits of a CGT, but many comments on this thread seem to follow a premise of Labour proposal = bad idea.
Vote:July 6th, 2011 at 9:04 am
I’d have thought the housing busts of recent years would have done a more effective job in that regard. After all, if losing 40% or more of your investment is not a disincentive then 10-15% won’t count.
I’d also note that those developed countries that had even worse housing busts than NZ had CGT: it did not appear to make any difference.
In any case the real message here is the underlying one: the State is running out of money and is getting desperate for new revenue.
Vote:July 6th, 2011 at 9:05 am
God forbid NZers invested in anything productive.
We don’t want mining or oil exploration and foreigners investing in NZ are evil wicked and nasty.
This is an extremely rare event where I agree with something Goff is proposing. But as some have pointed out it is only so Labour can piss the revenue away on yet another useless socialist wet dream.
Vote:July 6th, 2011 at 9:09 am
mike – i can see how youd think that but the fact is 90% of what they propose is pure shite. the current mob are a bitter old bunch of socialists. i cant think of anything they have suggested that has made me think – fuck yeah! good idea.
its all about taxing the “rich” and politics of envy.
i did like the legal hooker act though
Vote:July 6th, 2011 at 9:20 am
We’ve had to drag out one of the 2005 billboards. The faces have changed, but the message remains the same…
http://keepingstock.blogspot.com/2011/07/2005-revisited.html
Vote:July 6th, 2011 at 9:20 am
dime
Ha ha, yeah they were good on ‘human rights’, but hopeless at spending our money. Calling them socialists though is a bit extreme, like saying National are the party of free markets.
Vote:July 6th, 2011 at 9:29 am
I am not a fan of singling out a particular asset class for capital gains tax.
Capital Gains Tax in itself is not an unfair tax but is is going to be difficult to administer. For example if the tax is not on shares but is on property what measures are then taken to stop putting investment property into company structures and selling the shares. Simple you say, just have look through provisions. Then you look at companies trading on the stock exchange and how much of their asset base has to be property before you start looking through their structures.
If there is to be a capital gains tax it should be across the board. it should form part of the overall tax pool and if there is money to be made from CGT it should be utilised to lower personal income tax.
Vote:July 6th, 2011 at 9:31 am
They tax just about every thing including your savings in the bank which is a real disincentive.
No problem with a CGT on 2nd house,it can’t be hard, most other jurisdictions do it. Get on with it.
Vote:July 6th, 2011 at 9:35 am
It’s about bl00dy time too! That Labour didn’t introduce one when in power is, IMO, disgraceful.
Those of you moaning about the idea, please explain this. Why should it be that if you work for your money then you get taxed, but if you happen to have money in the first place and make money from investing it, then you pay no tax?
Right now, NZ is a country where the wealthy need pay no tax at all, because it’s all paid by those who actually have to work. What a joke!
Vote:July 6th, 2011 at 9:35 am
As i recall Cunliffe and Goff did not have much positive to say about the Tax Working Group. Yet they are the ones acting their proposal! Ironic or what?
Vote:July 6th, 2011 at 9:35 am
If I read this right there is a suggestion that Labour will be able to raise $4.5 B as a result of introducing a CGT on sales of investment properties. I’ve had a quick look at that and reckon they’ll need to tax the sale of at least 400,000 homes per annum to get that – does NZ sell that many 2nd homes per annum? I get those numbers by taking a standard home worth $350K keeping it for 5 years and assume it appreciates by 3% per annum which gives you $417,918 as the sale price which means a taxable amount of $67,918 which at 15% would yield $10.187 as income to the IRD/Govt. I know this is simplistic but if you accept this as a very basic view then to reach $4.5 B NZ would need to see over 400,000 investment properties sold and I can’t see that happening.
Can someone challenge my rubber numbers as gut instinct tells me this policy idea isn’t sound financially
That’s before you consider how changes in tax and or costs change the markets behaviour.
Vote:July 6th, 2011 at 9:36 am
Labour should be concerned with who bears the cost of the tax as it applies to investment property. I can assure you that in a tight rental market it will be factored into rents and banked for the day the liability arises. Renters, usually lower income earners will bear the cost. That surely can’t be Labour’s plan?
Vote:July 6th, 2011 at 9:39 am
mike – maybe a touch harsh but there is certainly a socialist element in the labour party.
they always served their tax hikes with such venom too. horrible people.
Vote:July 6th, 2011 at 9:39 am
Will Capital loss be deductable? there are a few leaky homes here and there, and a few earthquake damaged ones where substantial capital losses could be envisaged. It seems that all those IRD staff made surplus to requirements recently will be voting Labour to meet the large staff increase needed to handle the extra tax.
Vote:July 6th, 2011 at 9:40 am
Mike said…
but hopeless at spending our money.
Uh-oh, but I thought that bureaucrats have unlimited permission from the likes of you to do whatever they like with our money. You said before, that rights is arbitrary, so it means that bureaucrats can bribe any group of voters with our money and you shouldn’t worry about it. Why concern about bureaucrats over-spending our money at the same time, it is a system that you openly support, ie, rights is arbitrary. Don’t you see a contradiction again there Mike? Or are you simply blind to reason?
Vote:July 6th, 2011 at 9:40 am
Can sombody explian to me the mechanism of how a capital gains tax will reduce property prices and reduce rents.
Vote:Phil Goff seems to think so.
But sitting here with my pencil I can’t discover the exact senario that Phil sees.
July 6th, 2011 at 9:45 am
@spiritfree says: “but if you happen to have money in the first place and make money from investing it, then you pay no tax?”
Ever thought that the ‘money in the first place’ may have been ‘taxed in the first place’?
and spiritfree also says: “Right now, NZ is a country where the wealthy need pay no tax at all, because it’s all paid by those who actually have to work. What a joke!”
Vote:Where do you get these facts from? If true, you could be a better option than my tax accountant. Want a job?
July 6th, 2011 at 9:46 am
Falafulu
No contradiction there. Your statement lakes logic: just because rights are subjective and changeable, rather than objective, does not mean we shouldn’t be concerned about decisions of taxation and expenditure – that’s politics.
Vote:July 6th, 2011 at 9:49 am
Mike, what’s the moral justification for the existence of a government?
Vote:July 6th, 2011 at 9:51 am
Falafulu
I could take some time and set out my personal political philosophy. I don’t have that time right now, and Kiwiblog is better set up to argue issue by issue.
Why don’t you set out a brief argument for objective rights? Maybe move it to the GD, as this thread is about CGT?
Vote:July 6th, 2011 at 9:59 am
The point is, what fucking rights that the government (Labour’s policy in this case) has in taxing on individuals’ capital gains? It is none of their business. On what grounds? Besides, CGT is a disincentive to economic growth (dig further on Larry Summers and others in their work on this topic if you want to know more).
Vote:July 6th, 2011 at 10:03 am
The Labour Party, the obnoxious mob of faithful supporters of higher taxes for all and sundry.
Vote:The socialist’s election motto should be: “Taxing new Zealand on its way to mediocrity.“
July 6th, 2011 at 10:06 am
“Taxing New Zealand on its way to mediocrity.“
Vote:July 6th, 2011 at 10:10 am
“National are not the best option going, they are least bad option. The difference between those ideas is huge.
John remains under the delusion that he was election, he was not, Clark was fired. World of difference.”
Well said that man!
Vote:July 6th, 2011 at 10:13 am
Falafulu
I don’t know why you are commenting on CGT as your concerns seem much broader. I may be wrong, but do you hold all taxation to be immoral? If so, we’re into a completely different argument. If you want to make the case that CGT is really, really bad comparedwith other forms of taxation though, go ahead – I’m all ears.
Vote:July 6th, 2011 at 10:18 am
A Capital Gains Tax might help dampen the boom psychology but a land tax would be better perhaps?
……
What caused the boom in housing prices from 1997-2006 was what Shiller calls the “contagion of market psychology” or “boom thinking”. What this phenomenon entails is the constant circulation of positive stories from the media, business leaders, government bureaucrats and politicians, that reinforce the thinking that a boom in housing with spectacular returns is now a normal condition of the economy.
The Causes of Housing Price Bubbles: A Review of The Subprime Solution by Robert J. Shiller | http://www.suite101.com/content/the-causes-housing-price-bubbles-a218550#ixzz1RGunJLPj
Vote:July 6th, 2011 at 10:19 am
Yes. Before this the world had never heard of a CGT.
Vote:July 6th, 2011 at 10:27 am
Falafulu Fisi Says:
The point is, what fucking rights that the government (Labour’s policy in this case) has in taxing on individuals’ capital gains? It is none of their business. On what grounds?
……………….
Another means of silently lessening the inequality of [landed] property is to exempt all from taxation below a certain point, and to tax the higher portions or property in geometrical progression as they rise. — Thomas Jefferson
Ground rents are a species of revenue which the owner, in many cases, enjoys without any care or attention of his own. Ground rents are, therefore, perhaps a species of revenue which can best bear to have a peculiar tax imposed upon them. — Adam Smith
“When the sacredness of property is talked of, it should always be remembered that any such sacredness does not belong in the same degree to landed property. No man made the land: it is the inheritance of the whole species.”
“The land of Ireland, the land of every country, belongs to the people of that country.” JohnStuart Mill
http://www.interest.co.nz/rural-news/53668/opinion-land-crisis
Vote:July 6th, 2011 at 10:32 am
To find out how much it would raise you need to look at pg 50 of this report:
http://www.victoria.ac.nz/sacl/cagtr/twg/Publications/3-taxation-of-capital-gains-ird_treasury.pdf
At a 15% rate, it would only raise ~$2.1B per annum. It would also not be intant revenue as even if people did sell in the first year, that gain would only be small.
Vote:July 6th, 2011 at 10:33 am
House of the rising sum
By Pamela Stirling | Published on November 15, 2003 | Issue 3314
“The deal of the decade comes along once a week!” says de Roos. “If you believe that, you will find deal after deal after deal.” But you will only amass money, he says, when you come from an abundance consciousness instead of a poverty consciousness; when you tell yourself, “I am a magnet for money!”
Tonight, a pumped de Roos tells his audience that he wants people to invest in property and write to him 12 months down the track and tell him they’ve “made one million or three million, or you’ve got 16 properties, or we’re taking six months off because our cash flow now exceeds our outflow!” He says, “I don’t know any other activity where the rewards are so huge. If you want to invest a million dollars in the sharemarket, you need a million dollars. If you want to invest a million in real estate, you only need $100,000.”
You can buy one property, get it revalued, use the equity to buy another property and then buy another and another. “And you do it all with OPM. Other people’s money. OPM. It’s like being high on drugs!” What’s more, the wonder of depreciation claims on the building and contents means “the government subsidises your investment! It’s delightful!”
Vote:http://www.listener.co.nz/uncategorized/house-of-the-rising-sum/
July 6th, 2011 at 10:48 am
HJ, where is the concept of rights, in the quotes you’ve posted above?
Vote:July 6th, 2011 at 11:05 am
Where is the benefit for any investor in property when the cost of the investment (mortgage interest + rates and Insurance) cannot be deducted from the profit realised upon sale? The net effect after the application of a capital gains tax could be less than leaving your money in the bank…
Vote:July 6th, 2011 at 11:06 am
Official result for the Te Tai Tokerau by-election:
Harawira 6,065 (49.3%)
Vote:Davis 4948 (40.2%)
Tipene 1087 (8.8%)
Herbert 135 (1.1%)
Alp 72 (0.6%)
July 6th, 2011 at 11:08 am
I love it, someone else turn to be the social leper. Goofy and his gang of green eyed socialists thugs have another section of the community to despise. It’s time all you evil slum owning landlords got yours, it was us poor farmers turn last week, why should we have all the fun. This of course will be played as the haves screwing the arses off the have nots and the class envy game will be the order of the day. It will be some other poor bastard’s, who dares to make a dollar, turn next week. Fuck I hate these socialist scum.
Vote:July 6th, 2011 at 11:10 am
HJ, where is the concept of rights, in the quotes you’ve posted above?
Vote:…………
Rights are arbitrary human constructions, however, in the context of land tax the thinking is that no one made land but by occupying it you exclude someone else and this is a fair basis of taxation while gathering the gains from new infrastructure and development all about. Henry George (the main proponent) was against taxing labour.
July 6th, 2011 at 11:14 am
Or they will sell the family home and move into the rental as a family home, then sell that after a couple of years and pay no CGT. If they have more than one rental this process may continue.
There will be dozens of ways around this. No legislator is smarter than a room full of accountants and lawyers.
Vote:July 6th, 2011 at 11:17 am
Is Goff also promising a tax refund if the asset decreases in value?
Vote:July 6th, 2011 at 11:19 am
I don’t see how this can raise anywhere near $4.5 billion per annum.
Some facts:
Total number of residential sales for 2010 =56,000 (incl. sections).
Total value of residential sales for 2010 = $19.8 billion (incl. sections).
Proportion of housing that are investment properties = 35%.
Assuming similar ratio of sales, total number of residential investment properties sold in 2010 = 19,600 (i.e. to raise 4.5 billion = $230,000 tax paid per property = “Tell ‘im he’s dreaming”).
If the purported rate is to be 15% on the realized gain:
Average residential hold time = 7 years.
Average house price Dec 2010 = $352,000, Dec 2003 = $259,000, average capital gain = $93,000 over seven years = 36% increase (over arguably the greatest boom increase in residential property prices in our history, the historical long term average over 100 years has been 2.5% PA = 18% over 7 years would be more normal and I believe probably optimistic for the next 10 years).
Therefore the total capital gain on investment properties sold for 2010 would generally = 1.8 billion, @ 15% = $270 million raised for 2010.
$270 million PA is more likely and I believe that is hugely optimistic due to:
1) Unprecedented and never to be repeated capital gains over the last decade.
2) No accounting for improvements, chattels, new construction, subdivision, multi-unit dwellings, multi dwelling allotments, etc (YAY more paperwork and tax bureaucracy).
3) Capital losses (definitely on the cards now days).
4) Most investment properties are low-end, i.e. their average sales price will be well below the total average plus the capital gain on the low end housing has been much lower (I remember something like 25% less for sub $300K properties to start of 2010).
5) Destruction of the new house build market already on its knees (lowest number of new residential consents since 1972).
6) Internal churn nett zeroes (Housing Corp, TPK, Education, NZDF, Landcorp, Local authorities, social housing, etc are all included in the total residential sales and will cop it).
7) Cost of extra bureaucracy (tax, register of owner occupied and investment properties, determination of values, subdivision and multi dwelling titles, transfer of losses, etc).
.8) Government transfer payments to cover the rise in cost of rentals and new construction.
etc
All up if it makes NETT $120 million PA I’ll be surprised. Yip, big revenue raiser there idiots. Seriously who does their economic analysis or do they just pull it out of their arses?
Vote:July 6th, 2011 at 11:27 am
$4 billion per year sounds like a lot. If this tax is raising that amount then I would support it in favour of significant income tax reductions. But my understanding is that the tax would raise very little.
Vote:July 6th, 2011 at 11:29 am
My prediction is that National will be reelected and so there will be no change, but in perhaps the 2014 or 2017 pre-election periods if Labour are leading in the polls, you may get a lot of landlords start to sell to avoid the CGT, before Labour introduce it. As a result we may see a mini or major housing price collapse just as Labour next get elected.
Vote:July 6th, 2011 at 11:38 am
Yesterday Phil Goff had this to say regarding the C.G.T:
“It’s going to be about producing a real step change in the economy”
Goff didn’t elaborate on which direction this step change would take, however with a depressed property market, the only direction immediately probable would be ; Backwards.
Vote:Next week Labour will roll out it’s economic blueprint for stimulating the economy, and early indications are that it will consist mainly of tax changes and tweaks.
This tells us that Labour has nothing to offer under the leadership of Phil Goff, it’s a return to the old style of socialist rhetoric, tax the rich. ( whoever that is ).
A capital gains tax will force up the price of any property by the amount of the tax. Investors as well as mum and dad investors will not want to see their hard earned capital gain dissappear down the tax black hole, and will pass on any tax into the sale price. This will impact detrimentally on first home buyers who will have to pay for that.
July 6th, 2011 at 11:39 am
So long as other taxes were cut, so overall tax revenue does not increase, I think the time is right to now take a serious look at capital gains tax
David Farrar, June 2010
Vote:July 6th, 2011 at 11:44 am
The devil will be in the detail, which means lawyers and accountants will put their thinking caps on and create structures that pick their way through the CGT minefield.
Vote:For a start the CGT will not, we are told be retrospective. That means any investment property bought before the date the tax is implemented will not be subject to CGT. Those properties will still be subject to depreciation recovery if sold, and any profit booked on their sale may be assesable as income in the sellers hands at the appropriate rate.
Secondly any properties purchased after implementation are unlikely to be sold at a profit the next day.
Most owners of investment properties take a long term view of their properties and hold for periods longer than 5 years. So my feeling is that there will be little if any tax paid on CGT for anything up to 5 years from implementation.
Merely because a tax is imposed doesn’t mean tax revenue immediatley begins to flow. How Labor propose to deal with the lag will be interesting.
July 6th, 2011 at 11:45 am
IMF recommends to govt to broaden capital gains tax base and introduce a land tax.
Vote:http://www.interest.co.nz/news/52737/imf-recommends-govt-broaden-capital-gains-tax-base-and-introduce-land-tax-your-view
July 6th, 2011 at 11:46 am
@ alex
I think the same. There could be a lag of even up to ten years under which time the National government could be the one getting the CGT tax intake first up.
Vote:July 6th, 2011 at 11:47 am
HJ said…
Rights are arbitrary human constructions
I have pointed that out to Mikenmild a few times even if it is human constructions. Lets say, that it is, then at what point do you tolerate others to run your life (or violate your rights)? You shouldn’t be complained about anything that bureaucrats do, since it is human constructions after all, but that’s not what you & others are doing. You wholeheartedly agree that it is subjective, but then moan when you don’t like anything bureaucrats do. Aren’t bureaucrats supposed to be given free hand in running your life if it is human constructions after all? Why complain then?
Vote:July 6th, 2011 at 11:49 am
Joseph C @ 11:19.
Good post and analysis
Economic analysis is not a labor strong point. They use scatolgical bases as a starting point.
Vote:July 6th, 2011 at 11:52 am
Falafulu
You are running away with that argument. Holding that rights are subjective and changeable does not amount to giving the state free reign over my life. I think you are ignoring political contraints, ie the mechanisms by which rights are determined (and protected).
Joseph/Alex -good posts (on topic too!)
Vote:July 6th, 2011 at 11:57 am
@Falafulu Fisi (1,058) Says:
July 6th, 2011 at 11:47 am
The Government, by whatever means, has attained the power to make law. The police are their henchmen. Disobey them at your own peril. The fundamental tenet? Might Is Right. Before you start pontificating about First Principles, prove your own existence.
Vote:July 6th, 2011 at 12:11 pm
What are the mechanisms of “political constraints” in NZ where majority power is concerned?
Vote:July 6th, 2011 at 12:14 pm
tom
Principally elections. These are held every three years and provide the opportunity to select representatives to exercise powe ron our behalf.
Vote:July 6th, 2011 at 12:25 pm
Golly, that John Pagani is a lightweight Three-good-reasons-to-tax-capital-gains
So much for some decent in-depth analysis.
I find it amusing that he usually gets his ass handed to him on a plate in the comments section by people who actually sound like they know what they’re talking about.
I’m surprised Stuff actually pay him for his drivel.
Vote:July 6th, 2011 at 12:31 pm
I now see that the $4.5 billion PA tax take figure came from the Tax Working Group (2009-10). BUT their $4.5 billion figure is based on:
- 30% tax rate on capital gains.
- Capital gain will apply to EVERYTHING – property, family home, shares, business, farms, cars, wine, stamps, gold, 1975 2000AD Jude Dredd comics, etc.
- Capital losses CAN’T be realized.
- The inflation/discounting rate to be set to ZERO (something I missed out above, in reality if over 10 years you made a 40% capital gain but inflation was 50% over the same period you have actually gone backwards not even allowing for depreciation. Another complication).
- The tax was to be levied ANNUALLY on UNREALIZED gains set by Government mandated category value gains with the underpayment/overpayment to be made good in your tax return when you finally realized the selling loss/gain after paying the tax for 15 years on your home (imagine the bureaucracy and record keeping required, mind boggling).
The whole concept being that for equity reasons their should be no discrimination. Also that the extra revenue raised from this CGT was to allow a minimum tax free income threshold of $50,000 PA rising/indexed to inflation.
This is totally different to the kite that Labour is flying. I blame the MSM for the absolute stupidity of putting this figure out there and I now see it’s been widely accepted and all the greedy green-eyes are already calling for the $4.5bil to be spent on them. PLUS RENTS TO BE REGULATED TO STOP LANDLORDS RAISING THEM (even though the socialists all say CGT won’t affect rents or housing availability, truly the double-think required to be a pinko is beyond me).
In fact the Tax Working Group also said if it was applied @ 30% on realized investment residential property gains only it might raise $700 million PA in FIFTEEN YEARS time (based on the most optimistic growth scenario of 3% PA for 15 years straight) which is most similar to Goff’s brain fart.
The question is: were the MSM (TVNZ & TV3 in particular) complete idiots? or venal dishonest propangandists carrying water for the Labour party? Because it can only be one of the two here (or maybe both).
Vote:July 6th, 2011 at 12:33 pm
Did anyone hear Coddington and Trotter debating this on radio?
Vote:July 6th, 2011 at 12:40 pm
Gees there is a lot of crap about properties here.
Property is a market. It will find and does find its own equilibiam.
It is driven by demand and matched by supply. It is fucked around by politicians, bankers.
It is influenced by wages, rents and supply is determined by the cost to build.
End of story.
The more that it gets fucked around with by politicans both local and National the worse the situation.
The last housing boom was driven by too high an interest rate, as was the one before. High interest rates send a message that building costs are going up and so people buy houses encourraging the market to expand.
Vote:House prices fall when interst rates fall and remain subdued as long as rates remain sundued.
So as Rodney Dickens has pointed out in his well researched aticles available from his website, it the Reserve Bank that creates the wrong conditions on the wrong presumption that raising interest rates cools inflation. It does no such thing, never has and never will. Its just the price you have to pay for the commodity, money. Building requires large amounts of the commodity, money. Too much building pushes up prices and then when prices are rising money costs more.
July 6th, 2011 at 12:44 pm
I may be missing a lot of stuff here, but could someone explain to me how this is going to cause people to invest in so-called “productive” companies and build the economy as Phil Goff and all the sheep over at the Standard claim?
1. It will cause property prices to go higher as less people will sell – hence, less people will be able to own their own properties.
Vote:2. Rents will increase as landlords start charging the true value for their properties (just go to Europe and see how much rent costs over there).
3. People will still avoid investing in NZ companies like the plague, because , frankly they are shite – helped along by Cullen himself.
July 6th, 2011 at 1:25 pm
Fuck Labour you have got this wrong, this will effect me, you are supposed to go after all those rich pricks otherwise known as Nat and ACT voters.
Vote:July 6th, 2011 at 1:34 pm
Prime example of the illiterate masses that populate our country, who vote along racial and envy lines.
Vote:His deplorable nickname could not be more approriate, either.
July 6th, 2011 at 1:34 pm
The assertion that money will flow into ‘productive business’ is interesting, and is complete bollocks in my opinion.
If I take some cash that I have, and buy shares in MainFreight, or Goodman Fielder, or any other publicly listed company, how is that making the country more productive?
First, there is a fixed quantity of shares. If I buy 1000 of them, then someone else has sold 1000 of them, and they now have the cash – which is no longer being productive.
Second, my buying shares in that company will not make one iota of difference to the productivity, profit, direction or management of that company. So how is it adding to ‘production’ or ‘productivity’?
Third, even if everyone sold their investment properties and bought shares anyway, the only thing that would happen would be the share price being driven up – temporarily. This might value the company as more valuable, but it still does not increase production, productivity or anything else. It simply gives the directors the ability to make a nice profit from their share options. Again, that is not adding to productivity.
The only way that my putting my money into business rather than property will add to productivity for the country is if I invest in a new business.
First, there is no way I am going to be an angel investor for someone else to try and start a business. Most fail, and the money is lost. That is not productive, and I don’t have so much I can afford to lose it.
Second, I do not have the ‘killer idea’ that would encourage me to start my own business. Otherwise I would have done it already.
So can one of you bright Labour sparks please tell me exactly where the money should be invested to increase the productivity of NZ Inc while also making me money at the same time, which is the whole point of investing.
Vote:July 6th, 2011 at 1:56 pm
I have to admit that it was somewhat of a rhetorical question, placed in the hope of seeing what lay behind the philosophy of light, airy, shiny, happiness that is voting in NZ.
But I realise now that phrases such as Tyranny of the majority, elected dictatorships and so forth, is just more of that “construction” that humans indulge in. As long as one votes, what problems could possibly arise?
Vote:July 6th, 2011 at 1:59 pm
Joseph C @ 11:19.
Vote:Recommended post. Along with some others.
So good to see somebody get the pencil out and try and get some factual basis to the issue.
July 6th, 2011 at 1:59 pm
Joseph C – thanks for your comprehensive analyses above. It’s good to have some facts presented to us that counter an apparent tide of misinformation surrounding the latest CGT proposal.
There’s a classic msm story on Labour’s proposed CGT that can be found at http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10736641. The Herald’s online version heads the story “Capital gains tax could raise $4b”. Probably to nobody’s great surprise, there is only a fairly vague (but superficially convincing) comment within the body of the story that supports the substance of the headline. It reads: “A recent Tax Working Group report indicated a capital gains tax of the sort Labour is proposing would raise more than $4 billion a year.”
We now know thanks to your post that the Tax Working Group proposed nothing like “a capital gains tax of the sort Labour is proposing”. There are vast differences between the two proposals that are great enough to invalidate any realistic comparison in fiscal terms.
Vote:July 6th, 2011 at 2:02 pm
tom
I said ‘principally’ elections. There are other checks of course, but none so decisive as the ability to remove from office those who exercise power on our behalf. We have many other checks – I’m sure you could name some.
Vote:July 6th, 2011 at 2:02 pm
@Viking2 (4,318) Says:
July 6th, 2011 at 12:40 pm
“The last housing boom was driven by too high an interest rate, as was the one before. High interest rates send a message that building costs are going up and so people buy houses encourraging the market to expand.
House prices fall when interst rates fall and remain subdued as long as rates remain sundued.”
Yeah right! Brought to you by the same school of thought who are in denial about anthropogenic global warming.
Vote:July 6th, 2011 at 2:16 pm
@rouppe
Economics not your strong point?
Money is raised by (existing) companies for new acquisitions or expansions though a number of means including share issues and such.
This is a big topic worth a little research before you blather on with such drivel.
Get off your own arse and do a little research on the best places to invest. Who the fuck is going to do the work to let you benefit?
Vote:Plus the fact that anyone who thinks investing in property is not better than the productive sector is not automatically a far left loonie. Unless Don Brash and co are far left loonies?
July 6th, 2011 at 2:33 pm
I think a capital gains tax will be the final straw that will tip our Inland Revenue Department over the top.
Vote:They are struggling with that plethora of social tasks that have placed upon them. Things like child support, student loans and working for families.
The tax department will have the devil’s own job trying to educate a huge number of barely literate wages clerks about the complexities of the Employer Superannuation Contribution Tax that will become mandatory from 1st July 2012. If all of your employees are on a salary in excess of $80,000 this tax is a doozie. If they aren’t, then the complexities are mind numbing.
July 6th, 2011 at 2:42 pm
Tauhei Notts (905) Says:
July 6th, 2011 at 2:33 pm
I think a capital gains tax will be the final straw that will tip our Inland Revenue Department over the top.
They are struggling with that plethora of social tasks that have placed upon them. Things like child support, student loans and working for families.
The tax department will have the devil’s own job trying to educate a huge number of barely literate wages clerks about the complexities of the Employer Superannuation Contribution Tax that will become mandatory from 1st July 2012. If all of your employees are on a salary in excess of $80,000 this tax is a doozie. If they aren’t, then the complexities are mind numbing.
Tauhui given the amount of unpaid work I do for the IRD collecting GST, PAYE, Student Loan Monies etc it is a struggle to see that they would have much difficulty taking on a bit of work themselves.
Vote:July 6th, 2011 at 3:21 pm
@Lance
What, do you think companies issue shares every week or something… Share issues are relatively rare. The number of significant bond issues this year can also be counted on fingers and toes, the return on which is very average.
Acquisitions or expansions are more often than not funded (by successful companies) from profits and cashflow.
If you consider the matter in the terms of driving everyone out of property investment, do you seriously think there will be sufficient companies bringing out (expensive and time consuming) share issues just for the hell of it? Moron
And you still trot out the slogans without backing them up. Give me one example of an ‘investment in productive assets’ that the average retail inverstor can make in existing businesses that actually improves productivity of that investment. Anything that a punter can walk up to any day of the week and put money into
Vote:July 6th, 2011 at 3:26 pm
You know, the one thing is sure that we already have a capital gains tax for housing.
If you intend on making a profit on the purchase/sale of a house, the IRD requires you to pay tax on it.
Just about everyone intends on making money when they buy a house, or they would not buy. So, why doesn’t the IRD enforce the rules already in place?
Vote:July 6th, 2011 at 4:01 pm
It will be interesting to see details of the proposal.
Next week.
If we could tax unfounded speculation I suspect the budget would be well and truly in the black!
Vote:July 6th, 2011 at 4:40 pm
is the axe the tax bus available to hire .. National may use it as a laugh
Vote:July 6th, 2011 at 4:50 pm
wreck, not a lot of people know that, which is something labor is banking on.
Vote:July 6th, 2011 at 5:17 pm
Care to share with the rest of us this “proposal” of Labours?
Vote:July 6th, 2011 at 5:53 pm
kingofthejuice (43) Says:
July 6th, 2011 at 2:02 pm
@Viking2 (4,318) Says:
July 6th, 2011 at 12:40 pm
“The last housing boom was driven by too high an interest rate, as was the one before. High interest rates send a message that building costs are going up and so people buy houses encourraging the market to expand.
House prices fall when interst rates fall and remain subdued as long as rates remain sundued.”
Yeah right! Brought to you by the same school of thought who are in denial about anthropogenic global warming.
Well KOJ, when your nanny has finished wiping that yellow stuff out ya nappies and you have grown old enough to have been through a few cycles you can do the research and see for yourself.
Global Warming is officially discredited as it always has been a nonsense so that kinda determines how much you observe of what goes on around you.
Till then be a good little child and “be seen and not heard.”
Vote:July 6th, 2011 at 5:58 pm
http://www.sra.co.nz/pdf/MonetaryPolicyMediaRelease3.pdf
The best monetary policy research in NZ.
Vote:July 6th, 2011 at 6:12 pm
good news for me as a tax practitioner but a complete fuck up in all other respects.
Difficult to administer, more costs on the average new zealand taxpayer, less opportunity for young kiwis buying their first home as everyone is hanging on to them, more avoidance/loopholes/general complications to the tax system…. the list goes on
Vote:July 6th, 2011 at 6:29 pm
Good analysis too Joseph. Is there a bigger fuckwit in NZ politics then Phill Goff?
What a shame he will be rolled some time in November 2011, never to be heard from again.
Vote:July 6th, 2011 at 7:31 pm
Luc, ya shoulda gone to the flotilla. They didn’t even get out of the Greek port.
You would have been as safe as houses and had a story to give you some cred.
Vote:July 6th, 2011 at 7:32 pm
Quote from Bruce Sheppard
Vote:“The quantum of property gains derived by NZ taxpayers that potentially have a tax consequence and are never reported would reach quite exceptional proportions. If tracked down they would have the potential to transfer to the rest of us via the IRD much of the wealth of some middle class baby boomers and others.”
http://www.stuff.co.nz/business/blogs/stirring-the-pot/3263551/What-working-for-IRD-taught-me
July 6th, 2011 at 7:48 pm
questlove @ 5.17pm: “Care to share with the rest of us this “proposal” of Labours?”
You should read the article yourself at http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10736641 as you were invited to do. If you do that you will find that the comment you are querying came not from me but from the NZPA contributor, a person by the name of Susie Nordqvist.
But to help you further, let me quote directly from Susie’s article: “A recent Tax Working Group report indicated a capital gains tax of the sort Labour is proposing would raise more than $4 billion a year.”
You’ll have to ask Susie herself for verification of her persuasive statement. Just remember that Joseph C. above has demonstrated convincingly that her categorical assertion should be treated with considerable scepticism.
Vote:July 6th, 2011 at 7:57 pm
Has Helen Clark approved this policy? She has a lot to lose if this becomes legislation.
Vote:July 6th, 2011 at 8:35 pm
The following should be a good reading for economists (including commentators) who are engaging in the discussion here. I’ve seen a few similar publications on the topic of capital gains taxes (including one from Andrew Coleman – Motu Research/Victoria University), but this one is quite recent (April 2011).
Dividend and Capital Gains Taxation under Incomplete Markets
Vote:July 6th, 2011 at 9:04 pm
kingofthejuice (44) Says:
July 6th, 2011 at 8:23 am
@Pauleastbay (1,087) Says:
July 6th, 2011 at 7:20 am
“Has anyone explained to those retards that for a CGT to make any money there needs to be an over heated housing market.”
Whether or not a CGT generates any government revenue is beside the point. The idea behind the tax is to disincentivize housing as a macroeconomically fruitless investment. First bit of testicular fortitude Labour has shown in a while.
- The idea of Labours policy is to try and wrestle with the Greens for the slightly more intelligent Labour voter and to give the finger to the Nats as it’s quite probable that the Nats are going to release a restructured tax system post 2011 and that could include CGT.
Vote:July 7th, 2011 at 9:02 am
@ rouppe
The whole fucking point here is every man and their dog in NZ has borrowed a shit load of money from foreigners to finance (multiple) property investments that relies heavy on ridiculous tax breaks and no capital gains tax.
Unlike the business that I started and now is now a successful exporter but I have been taxed, and taxed again and am now paying yet more tax in advance of potential capital gains (I shit you not).
Then I see an endless procession of whiners moaning about losing their tax breaks for property investments they couldn’t afford in the first place on assets that do NOTHING but put the country as a whole into debt.
So it might actually be hard but there are opportunities beyond the leading share market companies where your mind seems fixated.
Oh and as for calling me a moron for suggesting there is an alternative to property investment but you say there is little to choose from. WELL BIG FUCKING SURPRISE there are fuck all productive companies left in NZ now after being rogered good and hard while property investors screwed over the tax system. I say fuck you and the horse that brought you to town.
There is a reason we have a similar debt to Greece
Vote:July 7th, 2011 at 5:59 pm
Stop lying Lance, there are no taxes on ANY capital gains in NZ. Property business have NO tax breaks over any other business or investment – in fact it is now (from 1 April 2011) at a significant disadvantage to any other business because buildings can no longer be depreciated unlike any other asset. Thats right buildings remain perfect and up to date forever in theory, this is particularly severe on specialist industrial manufacturer businesses (you know the ones we want the most) because they tend to own their properties and not lease them (and of course all commercial leases will be ratcheted up in the future to cover this ultimately). Thus we get stupid situations like a sawmill which depreciates it’s new plant at 50%DV P.A. but the new purpose built building to house that same plant is zeroed/totally sunk. This is one of the big reasons we have severely declining manufacturing and you would know this IF you are indeed a manufacturing exporter.
Vote:July 8th, 2011 at 9:26 pm
# kingofthejuice (49) Says:
July 6th, 2011 at 2:02 pm
Is there anyone out there still naive enough to believe in that AGW crock?
Vote: