Labour to increase taxation by $5 billion a year

July 8th, 2014 at 4:00 pm by David Farrar

On Q+A, David Cunliffe said:

By the way, a which at full running is going to bring in 5 billion dollars a year, close to, 4 to 5 billion is the single biggest change to New Zealand tax policy in decades and it’s one that I’ve personally championed for years.

That’s appalling. That’s an extra $5 billion a year ripped out of NZ families and businesses, to be spent by Government.

There is a case for a capital gains tax. I support a broad base tax system. However I’m sick of new taxes being added on, with no compensating reduction in income and company taxes.

If ’s capital gains tax was really about changing investment incentives, then they’d commit to reducing income and company tax by the same amount of revenue their CGT would bring in.

But in reality, their CGT is just about increase the tax burden on New Zealanders by $5 billion a year.

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52 Responses to “Labour to increase taxation by $5 billion a year”

  1. Cunningham (836 comments) says:

    But that’s OK though because it is from evil people with too much money. They need to be bought down to everyone elses level for the cause.

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  2. unpcnzcougar (52 comments) says:

    I keep banging on about this to anyone who will listen – what most people don’t realise is that the Family Home Exemption only applies while the home owner is living. Once the property is inherited it is subject to CGT. So all of you out there with kids with massive student loans or big mortgages who think that once you have passed on it will be great for them – to pay down mortgages or get a deposit for a home – don’t forget the home WILL be subject to CGT. So having spent 30 years paying your mortgage with after tax money you are unable to help your kids out without being taxed. Shame, shame, shame. What I don’t get is why journalists aren’t hammering them about this when it is in the policy document. This will affect Labour voters more than anyone else.

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  3. redqueen (544 comments) says:

    Most new taxes tend to be about raising additional revenue, rather than broadening the tax base (with appropriate reliefs in other areas). Hardly surprising Labour are trying to sell this, just another way of taxing us ‘rich pricks’ (oh wait, I’m not rich or even ‘middle of the road’, as I don’t have a $500,000 family income and a $2m house). In practice, this was always about providing another tit to suck off.

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  4. dime (9,774 comments) says:

    5 billion a year?? I call bullshit and then endorse what the cougar said

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  5. Manolo (13,517 comments) says:

    There is an even stronger case for a flat tax, but no pinko National or red Labour government will ever pay any attention.

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  6. 103PapPap (131 comments) says:

    Well, for $5 Billion revenue you would have collected (say) about $6 Billion before administration costs.

    Given that CGT is 15% of qualifying sales, that means that this $6 billion income comes from about $40 billion of qualifying sales.

    That seems to be one hell of a lot of real estate sales.

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  7. All_on_Red (1,527 comments) says:

    There is absolutely no justification for a Capital Gains Tax. It doesn’t stop house prices rising and we pay enough tax already.
    If you want to tax speculators, well the law is there. Enforce it.

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  8. OTGO (531 comments) says:

    I just love the way he says, “4 to 5 billion”. It’s like he’s trying to minimise the impact of the upper range by mentioning the number 4. Yeah I’m with the cougar too.

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  9. Manolo (13,517 comments) says:

    NZ’s economy will be deeply hurt if this socialist mob and league of thieves win political power.

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  10. wreck1080 (3,839 comments) says:

    DPF, i’m in 100% agreement.

    New taxes should be fiscally neutral.

    Labour are going one step even worse though . Not only are they introducing the CGT, they are increasing the top personal tax rate at the same time.

    The tax avoidance industry is about to become far more lucrative if labour win.

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  11. kowtow (8,082 comments) says:

    ‘There is a case for CGT”

    The only case for CGT is that it closes one of the last untaxed areas around…….property speculation.

    But instead of introducing a new tax (and it will be complex) ,we should be looking at dropping taxes. No tax on savings in the bank, etc and eventually a very small on income!

    This can be achieved easily. But the size of government and its subsidising everything must end. Simple.

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  12. Adolf Fiinkensein (2,855 comments) says:

    103papap

    Two billion dollars is only 100 dairy farms at $20mil each. How many dairy farms are there? 12,000 or so? Then throw in the capital stock (cows) at, oh I dunno, say 1,000 @2k each – I’m a bit out of touch – and you’ve got another 200 mil.

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  13. Pete George (23,413 comments) says:

    Oddly Labour don’t list Capital Gains Tax in their announced policies.

    It is mentioned in Monetary Policy:

    Another step to encourage NZ savings, and investment in the export and import substituting real economy, would be to remove the tax bias which currently favours investment in land based investments by introducing a tax on capital gains from property, excluding the family home.

    The current tax bias is unusual in western countries and contributes to underinvestment in the productive economy, and savings.

    The tax advantages drive asset prices, and demand for mortgage borrowing, to higher levels than would otherwise be sustained. This increases demand for imported borrowings, which puts pressure on the exchange rate.

    This distortion in the tax system also pushes up house and other property prices beyond the reach of many, while enabling wealthier New Zealanders to pay lower rates of tax on their economic income.

    https://www.labour.org.nz/monetarypolicy

    It’s not mentioned in their Fiscal Plan summary: https://www.labour.org.nz/fiscalplan
    – but it’s in the associated media release (briefly):

    “Labour will introduce a new, progressive top tax rate of 36 per cent on income over $150,000; that’s the top 2 per cent of income earners. We will also raise trustee income tax to 36 per cent to avoid trusts being used as tax avoidance vehicles.

    “This combined with our capital gains tax will allow the Labour-led Government to run surpluses and pay down National’s record debt by the end of our second term,” David Cunliffe says.

    David Parker says: “Everything is paid for, plus we are in surplus.

    https://www.labour.org.nz/media/labours-alternative-budget-strong-economy-and-fair-society

    It’s in their detailed Fiscal plan: https://www.labour.org.nz/sites/default/files/issues/labours_fiscal_plan.pdf

    However this only claims to bring in an extra $1 billion per year:

    This policy will raise an additional $25 million in its first year, growing in outyears to reach $1 billion a year by 2020/21.

    Cunliffe or the Fiscal Plan must be inaccurate.

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  14. anonymouse (709 comments) says:

    By the way, a capital gains tax which at full running is going to bring in 5 billion dollars a year

    Err, no its not

    From David Parker in the 2011/2012 budget debate

    http://theyworkforyou.co.nz/debates/2011/aug/02/estimates_debate

    Treasury’s estimate of the long-term revenue from a capital gains tax excluding the family home was $4.8 billion per annum. We remodelled that through our consultants, Business and Economic Research Ltd, and they cut that back by $2 billion per annum at the maturity of the scheme. So it is raising $2.8 billion per annum once it is a mature scheme, rather than $4.8 billion. The sensitivities in the Business and Economic Research Ltd analysis show that it could be $1 billion per annum more than that, but we have taken the conservative course and assumed the lower figure.

    Labour’s last “official” assumption was $2.8 billion when mature ( maybe upto $3.8 billion) but not $5 billion,

    Has Cunliffe just thrown Parker and his figures under the bus and it simply making $hit up to sound good and to allow extra spending and still claim to pay off debt faster than National

    – in refernce to pete’s post above, the mature date is 2025, but yip, they are playing fast and loose with the numbers

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  15. RightNow (6,909 comments) says:

    According to REINZ the total sales were $38 billion June 2013 to May 2014.
    https://www.reinz.co.nz/shadomx/apps/fms/fmsdownload.cfm?file_uuid=A574D8DD-5854-459A-A306-E761BB1E186B&siteName=reinz

    I’m almost speechless about how to describe the idiocy that is Cun’liffe and Labour.

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  16. ROJ (110 comments) says:

    At full running?

    Gap in the numbers, and taking too long to ramp up?

    Simple – crash the economy, get the inflation mill going, no problems!

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  17. chris (607 comments) says:

    There is absolutely no justification for a Capital Gains Tax. It doesn’t stop house prices rising

    Too right. They have a CGT in Australia and, from memory, both Sydney and Melbourne are even more “unaffordable” than Auckland. Won’t stop them trying to sell it as “providing relief” for the poor Kiwi battlers wanting to own their own home.

    Is it just me, I’m completely and utterly sick of the overuse of the word “Kiwi” to refer to New Zealanders, usually used by the Labour party when trying to connect with the masses.

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  18. chris (607 comments) says:

    I’m also confused about how a CGT is supposed to stop house prices rising. Two issues with it I can see:

    1) People will load the price higher than they might have otherwise sold it to pay the tax

    2) People may hold on to houses for longer, therefore reducing supply. Without an associated decrease in demand that would surely raise prices?

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  19. RRM (9,733 comments) says:

    :-) EXCELLENT policy announcement from silent t.

    Now, for everybody who has a house (or is getting ready to buy a house) the election just became:

    Would you like to pay a whole lot of capital gains tax? Yes / No.

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  20. mister nui (1,016 comments) says:

    A CGT has never worked* ANYWHERE in the world that it has been implemented, all it does is increase house prices.

    *When I say worked, I mean in controlling house price inflation. It now seems that this is not Labour’s intention, but simply to rip another gazillion $$$ out of the economy to spend on silly pet projects, just like they have always done.

    It is a real pity that the parties of the right are totally useless at soundbite politics – they should be able to succinctly wrap this madness up into a soundbite and sell it to the proletariat.

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  21. mister nui (1,016 comments) says:

    People may hold on to houses for longer, therefore reducing supply. Without an associated decrease in demand that would surely raise prices?

    This would then affect the revenue raised from the CGT (due to lower volume)….. I guess Labour would then just up the rate of CGT….

    The only other winners out of this will be the banks and the real estate agents, as they make all their profits based on percentages, higher house prices means bigger loans and larger commissions.

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  22. Oskar (34 comments) says:

    Re Cougar’s comments at 4.08pm.
    If I read you correctly this is the situation you outlined. We bought our house 25yrs ago for say$100,000. Its is now mortgage free and is now worth say $700,000. My wife and I get wiped in an accident so we are not living in the house when its sold. So the house gets sold as part of the estate with the proceeds to go to our children. With a 15% CGT on the increase in value of $600,000 under Cunliffe’s policy the Govt would take $90,000. If that is correct then they can stick policy where the sun don’t shine. Or have I misunderstood this part of their policy??

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  23. burt (8,154 comments) says:

    Oskar

    Not wanting to diminish what Cougar has said – but just to make it real easy – if you earn more than a beneficiary or have assets worth more than a bong or a p-pipe – Labour will take it off you. It really is that simple.

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  24. graham71 (12 comments) says:

    In regards to the dairy farms
    There is around 12000 dairy farms
    With around 4.5 million cows
    Which gives an average of around 375 cows per farm
    South Island farms are large but there are heaps of small north island farms

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  25. graham71 (12 comments) says:

    Also we have a livestock scheme already which if you sell all your cows the profit is taxable income already

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  26. graham71 (12 comments) says:

    Or if you sell vehicles and plant above the depreciated value you are liable for income tax

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  27. gravedodger (1,537 comments) says:

    The useful idiots who believe Labour CGT is anything other than a further assault on wallets of the productive as anything remotely to do with the property market is just wrong.

    It is about envy and votes no more no less.

    To the commenter who said CGT was the last untaxed target, you aint seen nutthin yet.
    Death taxes, Dunny Taxes, taxes to access foreign funds, Turnover tax, financial transaction taxes, then there is an untapped list of “levies”, medicare, carbon, location/transport levies, surcharges, do we still have payroll tax.

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  28. Pete George (23,413 comments) says:

    Oskar – I don’t think it’s quite like that, it isn’t retrospective. Capital Gains will only be calculated from when the CGT starts, not backdated to when a property was purchased. I expect valuations will be interesting.

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  29. itstricky (1,744 comments) says:

    But in reality, their CGT is just about increase the tax burden on New Zealanders by $5 billion a year.

    Or, it could be about flattening out the property market and you could be denouncing it because you know it will be popular and you know National won’t propose the same. 6 of one; half a dozen of the other.

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  30. graham71 (12 comments) says:

    Also if you look at annual farm sales it’s around 100-200 a year
    If you say the average value is 10 million for say an 650 cow farm
    Then if you are lucky you could get 300 million max from farm sales
    In a good year
    But bear in mind 3 years ago no farms we sold in 12 months in Canterbury
    Farm sales are different to house sales
    More boom and bust

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  31. Pete George (23,413 comments) says:

    From Labour’s Fiscal Plan, page 20:

    mplementation:
    The CGT will be forwarding-looking and only apply to gains accrued
    after implementation. Past gains will not be affected.

    https://www.labour.org.nz/sites/default/files/issues/labours_fiscal_plan.pdf

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  32. themanwhowatches (25 comments) says:

    itstricky………….what is the support for the hypothesis that a CGT “could…….flatten out the property market”? It is likely that if a CGT is popular at all it will be only with those who are envious of others with money invested in property, and a good bet that many of the enviers will be renting property from those whom they envy. It will be a jolly good thing, then, when those ones get hit with the increased rents that their landlords will set once they’ve figured out their potential liability. Or sell their properties.

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  33. ShawnLH (4,481 comments) says:

    “Or, it could be about flattening out the property market”

    It would not actually achieve that. It’s revenue gathering plain and simple. Nothing wrong with that as such, but it’s a dishonest policy and, I suspect, being promoted dishonestly.

    And, more importantly, it’s simply not needed.

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  34. mister nui (1,016 comments) says:

    itsthicky, can you point me to a country in the world where a CGT has flattened property prices?

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  35. itstricky (1,744 comments) says:

    itstricky………….what is the support for the hypothesis that a CGT “could…….flatten out the property market”?

    You can call “them” envious if you like, I’d probably use the phrase “young people with dreams”. Nothing wrong with having dreams. And you’re quite right – those that they supposedly “envy” – or let’s say “aspire to be like” may sell one of their ten properties that they’ve been using to write off their own personal liabilities for the past ten years against and, well, flatten out the market.

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  36. itstricky (1,744 comments) says:

    itsthicky, can you point me to a country in the world where a CGT has flattened property prices?

    Nope I don’t have any stats on that. I don’t think anyone disagrees that CGT will assist in the property market, flatten it, assist with bubbles etc and make taxation fairer. Click on DPFs tag link at the top for a one stop shop, if you will. He’s just complaining g that it *appears* that Labour won’t reduce other taxes in proportion. I think it’s just an allergic reaction to what could be a popular policy that he knows National won’t go near for fear of moving tax brackets onto the more well off.

    You can do better than itsthicky – really – do you have to stoop to name calling. Grow up a little.

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  37. themanwhowatches (25 comments) says:

    itstricky….I respect your right to think that the CGT will “flatten out the market” but I am not aware that this has occurred anywhere else on the world, so I have a different view. I also agree with you that people with the dream of owning their own property are perfectly entitled to do so, it is a very natural thing (and many years ago I felt the same way). My view is that a CGT will not have any impact at all on their achieving that dream, there are many other factors at play in that regard. The “enviers” as I called them are much more likely to be a different demographic, the hard core non-dreamers who expect the taxpayer to look after them with minimum effort on their own parts, and who soak up the Labour-led rhetoric that “rich pricks” are the cause of the country’s problems.

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  38. WineOh (621 comments) says:

    @unpccougar – easy way around that is a family trust. The trust can live on in perpetuity – thus those with the smarts & dollars will avoid it.

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  39. Pete George (23,413 comments) says:

    Treatment of Gains at Death: Capital gains on inheritance passed on after death will be rolled over to the heir, and not payable until the gain on the asset is realised.

    Trusts: We will ensure trusts are not used as a means of avoiding a CGT

    No details on how they would ensure that.

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  40. Fisiani (1,017 comments) says:

    Labour wants $5,000,000,000 a year from every business, bach owner, kiwisaver account holder, investor and farm to spend on things that will win votes for Labour. That’s a whopping $2500 a year from every worker ($5,000,000,000 / 2,000,000) or put simply STEALING $50 A WEEK from every worker.

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  41. Johnboy (15,858 comments) says:

    5 Billion a year extra from those fuckin rich pricks that earn more than $70,000 a year is nothing!

    They can afford heaps more!

    Cunners and Wussel is coming and their coming for you smug bastards that can still just afford to pay your bills! :)

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  42. big bruv (13,647 comments) says:

    I keep saying this and very few seem to get it. It matters not what Cuntliffe and Parker say about taxes, the simple fact of the matter is that Labour alone will NOT be setting the tax rates. Labour cannot govern without the stinking Greens and we know for sure that the Greens will not be happy with the top rate at 36c.

    Both Cuntliffe and Parker are well aware of that, their statement of the top rate being 36c is simply meant to appease the middle class, to make the middle class think “well I suppose that’s not so bad” when the reality is that once the stinking Greens get around the cabinet table we will see top tax rates well into the late 40’s if not higher.

    Nobody should think that a Labour, Stinking Greens, Motherfucker/German Crim and Winston First party will raise taxes by only 5 billion, if you double that to 10 Billion then you might get somewhere close to what those wankers want to steal from the productive sector of the community.

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  43. Lucia Maria (2,243 comments) says:

    “Labour wants your kids inheritance” or “When you die, Labour/Capital Gains Tax will take a share of your house” or “Capital Gains Tax – Death Duties in Disguise”.

    There ya, sound bite political sloganeering. I’m sure there’s more.

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  44. Johnboy (15,858 comments) says:

    So you’re not voting Cunners/Wussel/Metie/Hone/Laila/Dot..etc…etc..then bb?

    What a fuckin surprise! :)

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  45. Johnboy (15,858 comments) says:

    Are you wearing them thighboots at present Lucia?? ….phew..sweating a lot!! :)

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  46. RightNow (6,909 comments) says:

    For me a cgt would make me keep the old house when we upgrade. Might as well have rentals I suppose.

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  47. gander (91 comments) says:

    itstricky (1,482 comments) says:
    July 8th, 2014 at 6:21 pm

    Nope I don’t have any stats on that. I don’t think anyone disagrees that CGT will assist in the property market, flatten it, assist with bubbles etc and make taxation fairer.

    I disagree.

    A CGT exempting only the family home will just cause investment to be diverted from rental accommodation and from the share market into the family home. So:

    -construction of rental property decreases;
    -the share market gets even less liquid;
    -family homes get dearer.

    A CGT that exempts the family home has really squelched real estate speculation and house price inflation in Canada. Yeah right.

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  48. Fisiani (1,017 comments) says:

    Every Kiwisaver account will be ripped off by 15% Capital Gains to pay for socialist stunts.

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  49. simpleton1 (172 comments) says:

    During late 1970’s & 80’s 13 years were over 10% inflation of which 9 of those years were over 15% inflation and reached a peak of over 18% for one year.

    Anything of value soared, so would be all fully taxable under a cgt regime.

    That would be one reason why cgt will not need to be back dated, as money can just be printed by the government and as inflation soars, so again the government will be there in a few years time looking at the % increase, to collect again with the other hand, via cgt, probably called “balancing the books”.

    Government is always the best beneficiary from inflation, and cgt will be icing on the cake.

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  50. simpleton1 (172 comments) says:

    The dual effects of inflation ( which rips off the saver ) then with cgt will also rip off any investor, (not only in housing) but in goods, stock , business, shares, antiques, art, machinery etc.

    Money can be printed according to the greens, given by the government, then taken back by the government through cgt., making a so called well “balanced budget”.
    More than enough money is already swimming in the system, “haircuts” being a possiblity, and cgt is just another version of a “haircut”

    With a tax cgt on inflation, what can go wrong?

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  51. Cactus Kate (549 comments) says:

    So their flagship CGT envy tax on housing requires house prices to dramatically rise even further to collect CGT.
    Right so how does this improve the incentives for government policy to actually make housing more affordable?
    Doesn’t compute.
    Unless the Cap gain from when you purchased your house retrospectively rather than from September 2014. No policy details yet of course so we can’t see how ridiculous it will be.

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  52. altiora (233 comments) says:

    I would love to know where this 5 billion figure came from. I think it’s pie in the sky stuff.

    Treasury has never supported a CGT because 60 – 70% of residential properties are owner-occupied and usually they are exempted from CGT; imposing the CGT on the remainder isn’t worth the administrative cost. Also, the reality is that people can choose not to sell their investment properties, thereby avoiding any at time of sale CGT, making it very difficult to actually predict how much would be raised by a CGT in any year.

    So this suggests that Labour are making figures up in order to magically pay for their spending promises, which is entirely possible given they’ve got rid of the Treasury intern.

    Alternatively, the CGT Labour is proposing:

    1. Will be imposed on family homes as well as investment properties; or

    2. The CGT will not be imposed at the time of sale but rather imposed a regular intervals regardless of sale on the basis of the properties’ perceived increase in value, for example, on the basis of ratings valuations.

    Both of these possibilities would increase the amount collected from a CGT, but would be hugely unpopular. I doubt we will get any more details on the CGT given that, as with Labour, details will be revealed after it takes government.

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