2nd debate verdicts

September 3rd, 2014 at 6:10 am by David Farrar

Various journalists rate the 2nd debate. From the Herald:

John Armstrong, political correspondent
Winner: John Key
Slaughter-time. Unfortunately for David Cunliffe, lightning does strike twice in the same place. For the second time in successive elections, the Labour leader has come a cropper at the hands of John Key during the Christchurch Press leaders’ debate. For Phil Goff, it was being unable to say where the money was coming from; for Cunliffe it was detail about how Labour’s capital gains tax would apply to homes in family trusts. Cunliffe could not provide an answer. He should have known. He froze. He bore the demeanour of a freshly-killed sheep hanging from a hook at the local freezing works.

Audrey Young, political editor
Winner: John Key
Lightning does strike twice. John Key won the Press debate three years ago when Phil Goff didn’t know the answer to a question, the “show me the money” moment. It happened again in last night’s debate when David Cunliffe didn’t know the answer to a question on his own capital gains tax and trusts. Key answered the question himself. It was a calculated ambush and it wounded Cunliffe. You felt embarrassed for him.

Toby Manhire, columnist
Winner: John Key

It wasn’t quite a repeat of “show me the money” from 2011, but when John Key challenged David Cunliffe on trusts and capital gains, he rattled him.

Fran O’Sullivan, columnist
Winner: John Key

John Key was pumped with all the energy of a barrow boy, ramping up the fear factor about Labour’s “five new taxes” and catching David Cunliffe out when it came to the detail on Labour’s capital gains tax.

And on Stuff from Vernon Small:

Call it a tie.

Prime Minister John Key and David Cunliffe went head to head in the Press leaders debate in a far more even contest than the first televised TVNZ debate.

Patrick Gower at 3 News:

John “The Bantam” Key was back in the Christchurch Press debate this evening.

He was steely, uppity and aggressive, butting in lots and taking the “interrupter” role from David Cunliffe – and plenty of punters won’t like that.

There is a fine line between Bantam and Brat, but Key landed a blow on Cunliffe over the Capital Gains Tax that left the Labour leader flummoxed and rattled.

Cunliffe could not answer Key’s question about whether family homes in Trusts would be exempt from the tax – but he should have been able to, as he developed the policy.

One News:

John Key landed a blow on David Cunliffe over Labour’s planned capital gains tax in a fiery leaders debate in Christchurch.

ONE News political reporters say The Press leaders debate seemed pretty even until the National leader turned to his Labour counterpart and asked: “Will I pay a capital gains tax if my family home is in a trust?”

Labour are now claiming that there will not be capital gains tax on your home, if it is in a family trust, but that isn’t in their policy. I think you call it an urgent clarification.

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125 Responses to “2nd debate verdicts”

  1. Linda Reid (417 comments) says:

    Funny how the NZHerald made it all about Slater…

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  2. Pete George (23,688 comments) says:

    ONE News political reporters say The Press leaders debate seemed pretty even until the National leader turned to his Labour counterpart and asked: “Will I pay a capital gains tax if my family home is in a trust?”

    That was the big talking point but I disagree that it seemed pretty even until then, Key was all over Cunliffe, too much at times but he had Cunliffe on the back foot.

    After the break Cunliffe was obviously under instructions to repeat his first debate tactic of talking over Key, which he did too much and too too loudly. He also recited too many well worn phrases.

    When Labour Party activist Bunji asks Score Draw? at The Standard then it’s a good bet Cunliffe struggled to impress.

    Cunliffe started best, Key got in a zinger and put him off his stride, Cunliffe dominated the second half.

    I don’t think Cunliffe was notably better at the start unless you like sermons, and the ‘domination’ in the second half was often not very pretty.

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  3. lolitasbrother (751 comments) says:

    Capital Gains tax on our homes, why Cunliffe gulped like a gold fish ..

    CGT and Family Trusts, and the David Cunliffe Family Trust

    Family Trusts are quite straight forward in requirement.
    A Settlor gives assets to Trustees who hold it in Trust for Beneficiary. These things must be proper and true

    The trouble was that the business of actually gifting the asset was so complicated , and the deeds and so on, that everyone went to lawyers and Accountants.
    These people then contrived incredible things like double blind trusts and basically :
    • The Asset had not properly been given away
    • The costs were enormous and
    • the trustees did nothing
    • the Trust was invalid, and
    • The legal and accountancy profession people were often incompetent in this regard

    Now the previous Labour Government worked with IRD to tighten things up, and make Trusts less attractive. And they succeeded . Try filling in your IR5 or whatever it is ,and you are going to sweat.

    It was a good move by Labour, Trusts are stupid, and antiquated nonsense and it took me five years to see what was happening.
    Each year the forms got more difficult . I think the tax rate is about 35% , which to a high income earner may be OK .My Family trust is not worth a tinkers arse..
    Labour quite properly wanted to get people back to basics again.
    Are you with me so far
    But the voting block of people with Trusts is now not just Nat voters. Many hard working New Zealanders took this expensive course in the belief it would benefit their children, and that their assets would not be taxed, or taken from them.
    That was the fundamental value for the sacrifice these parents paid.
    Now lets put the flame torch down the methane mine.

    Will you tell us here Mr Cunliffe that you with your safe trust , will you now collapse the value of ordinary New Zealanders family Trusts . And if so why? And if so how?

    Any CGT at all will result in resettlement of Trusts, exemptions, skullduggery, we will have a time and name new beneficiaries.
    I have no professional qualifications Accountant or lawyer
    Paul Scott

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  4. ciaron (1,441 comments) says:

    I agree Pete,
    Nothing is gained when there is more than one person talking at any given time. I’d like to see a format where each makes an opening statement, rebuttal and closing argument and then maybe some audience questions.

    But we have to do away with the “Spartan Style” that we have now.

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  5. redqueen (583 comments) says:

    Vernon Small appears to be on something a bit wacky. It didn’t seem like ‘a tie’, unless it’s a misrepresentation of a Monty Python quote. Equally, statements like:

    ‘In the old-style town hall debate, Cunliffe wound back the level of interjection that characterised his win in the first debate.’

    Sorry, Cunliffe ‘won’ the first debate? Bugger me, who knew? Could the man stop sounding so bloody self-righteous and high and mighty? The little people beneath him, aka New Zealanders, might not appreciate it. But then, I suppose, we’re all just proles to him.

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  6. Keeping Stock (10,443 comments) says:

    Cunliffe is reported to have won the second half of the debate, where Christchurch issues were discussed. But that’s simply because he promised to address every problem to everyone’s satisfaction, irrespective of the cost to the rest of New Zealand. He was making promises he simply can’t keep.

    Whilst John Key’s answers on rebuild issues may not have pleased everyone, they were far more realistic and based on facts, not some esoteric feel-good factor. It’s interesting too that Labour will compel the Anglican Church to preserve a building which is clearly beyond salvation, whereas National will leave it up to the owners of the Cathedral to decide its future; as they should.

    But the sight of Cunliffe caught like a possum in the headlights on the question of his capital gains tax applying to family homes owned by trusts will be the abiding memory and image of this debate. On that basis, Key won by the length of Bealey Avenue.

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  7. hj (7,067 comments) says:

    People are turned off by critical thinking. Instead they want drama. Society is the worst for it.

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  8. markm (114 comments) says:

    this morning Labour changed their policy on CGT on family homes , removing them from the tax.

    Will they be announcing a change in their budget now , with this substantial loss in revenue?

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  9. FeralScrote (229 comments) says:

    I took the hint from the first debate and could not be bothered watching this one.
    But with Paddy “the `tard” Gower and the comments over at the TV3 website going full retard on his review ,obviously it was a win to John Key.

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  10. IGM (529 comments) says:

    Do Cunliffe and Campbell both use the same media teacher? Both pull weird faces not unlike nutted geese. They even have similar levels of idiocy and ignorance.

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  11. fernglas (177 comments) says:

    My reading of the policy document on the Labour website, which I haven’t been to in days, is that it quite clearly says there will be an exemption for family homes, including those in trusts.
    I am more interested in the fact that it also contains an exemption from CGT for KiwiSaver and retirement fund withdrawals. No exemption for unit trusts. Given that Kiwisaver funds and unit trusts are very similar vehicles, it seems to be encouraging a flight of money to Kiwisaver.
    It is at this stage a poorly thought out policy, based on the assumption that property speculators are making a pile of untaxed profits, where in fact the existing law is enough to catch them. I’m pleased Key caught him, out, but there was an answer and he should have known.

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  12. Linda Reid (417 comments) says:

    The trouble is that we have these guys up on a stage like performing seals. Or maybe gladiators would be a better metaphor. What I want to see is the clear policy differences without the performance drama. And we all know that Labour can’t guarantee any of their policy bottom lines because at best they might get 28% of the vote – so we need to know what the impact of having to accommodate Greens, Internet Mana, NZ First etc will do to their plans for the next 3 years, and that has not been addressed at all.

    Love him or loath him, at least you know that Key keeps his word on policy matters. And that National has the strength to dominate any coalition post election.

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  13. Dennis Horne (2,403 comments) says:

    hj (6,748 comments) says: September 3rd, 2014 at 6:56 am
    People are turned off by critical thinking. Instead they want drama. Society is the worst for it.

    Oh, I don’t know. Pity we can’t throw them all to the lions. A Proper Spectacle. ;)

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  14. oldpark (385 comments) says:

    Our man for all reasons and seasons John Key, our Prime Minister mauled Cunliffe the pretender.Even though Cunliffe was schooled by a cast of thousand including
    smarmy Sullen Cullen who John Key made him the chairman of NZ Post. Cullen repaid the favour by setting up a failed ambush against John Key..Stuff give the debate a draw,only because the reporter who wrote the article is a card carrying Labour Party clone.A clone called Vernon Small .

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  15. Dany (7 comments) says:

    David: “Imma let ya finish…”
    Yes, three more years!!!

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  16. EAD (1,331 comments) says:

    The truth be told, I don’t give a flying f**k who won the debate. Words are cheap, actions have substance.

    This debate was just two socialists fighting over who should spend the money. A lot of energy spent fighting over the honey pot and vague ideas on how to refill the honey pot none of which involved spending less money.

    These televised debates are just another bit of reality TV, albeit it is somewhat real. It is compelling because we are looking as much at the individual personalities than their track record and ability to govern NZ.

    The best candidate for leader is not necessarily the one that we most like. It is certainly not the one that is best on his feet. People who are ‘good on their feet’ should become comedians or barristers.

    In an ideal world, politicians would print policies and get elected on policies. If they failed to deliver, they should be canned. The fact that they can argue a point and their teeth polished matters not a damn.

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  17. polemic (460 comments) says:

    It showed up very clearly the rowing eight ad…..

    The statesman with a steady hand or the windbag with hollow talk and throw away promises.

    Do you want to go places with certainty or the dreaded Co-Boat

    perish the thought!!!!

    The final punchline was getting Cunliffe to actually say that Gerry Brownlee has done a good job but if Labour got in then Clayton Cosgrove would be the Labour ChCh Earthquake Minister ……What a joke!!!!! :roll:

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  18. Dennis Horne (2,403 comments) says:

    I’m with Gareth Morgan. A capital gains tax. No exemptions. It’s fair and it’s necessary. Objection? Vested interests.

    Too many young people can’t get homes because too many (mostly older) people are hogging houses they don’t live in. There needs to be some adjustment.

    I don’t think Labour are the people to do it and won’t get the chance anyway. I don’t think National will; popularism not principles. But it will come one day. There are mounting problems with the tax base. And disillusioned young people is no future for society.

    Just because the majority do (or don’t) like something doesn’t make it right (or wrong). Just popular or unpopular. Like the ticks…

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  19. thePeoplesFlag (257 comments) says:

    Hidden due to low comment rating. Click here to see.

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  20. IGM (529 comments) says:

    Who the eff is Gareth Morgan? He is no success story, just a beneficiary of his son’s ability. Best he stick to cat napping, and patronising his North Korean hero, who reminds me of Slobcom, even shares the same Christian name.

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  21. dishy (248 comments) says:

    No wonder Vernon Small calls it a tie: he didn’t understand what went on. He said that Cunliffe “avoided” answering Key’s CGT question. Cunliffe himself admitted, afterwards, that he didn’t answer because he wasn’t sure – he didn’t bloody know. That’s very different from knowing but avoiding the answer.

    Small also reckons that Key “tried to reprise” the “show me the money moment” from 2011 with his CGT question. No he didn’t. The CGT question wasn’t a rhetorical statement like “Show me the money”. It was a simple “yes” or “no” question that Cunliffe should have known.

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  22. KiwiGreg (3,260 comments) says:

    “Too many young people can’t get homes because too many (mostly older) people are hogging houses they don’t live in. There needs to be some adjustment.”

    So your solution is to tax them if they sell their homes? How do you see that working?

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  23. Linda Reid (417 comments) says:

    Young couple, bought a house a few years ago for $300,000. Now they want to start a family so they decide to sell and buy a property with more lawn and an extra bedroom. Sell for $450,000 and have to pay the CGT of $22,500 – which means their mortgage will be $22,500 higher than it would otherwise have been. How exactly is a CGT helping them?

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  24. Nigel Kearney (1,051 comments) says:

    I didn’t see it, but if Vernon Small is calling it a tie, Key must have given Cunliffe a real hiding,

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  25. wreck1080 (3,972 comments) says:

    @dennishorne::

    I’m guessing that putting CGT on the family home would have many fish hooks.

    But, in principle I agree. A CGT should be like GST — apply to all, no exceptions, no confusion.

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  26. Dennis Horne (2,403 comments) says:

    thePeoplesFlag (223 comments) says: September 3rd, 2014 at 7:35 am
    Serious question – had Key been drinking? He certainly behaved and sounded like he had had a few.

    Drunk on success?

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  27. bc (1,377 comments) says:

    Igm – I’m no fan of Gareth Morgan, but he had made a name for himself well before his son sold Trade Me.
    A rather nasty comment from you (yeah I know business as usual).

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  28. jawnbc (93 comments) says:

    Key scored a killer blow on Cunliffe during the first half; Cunliffe won the second half handily. In terms of the debate Key won…but I wonder how much of an impact his demeanour will have: Key came across as smug and aggressive rather than prime ministerial.

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  29. Dennis Horne (2,403 comments) says:

    KiwiGreg (3,225 comments) says: September 3rd, 2014 at 7:39 am

    So your solution is to tax them if they sell their homes? How do you see that working?

    CGT paid on family home on death or selling and not buying another. (Probably farms too.)
    CGT on other houses paid on gain every year.

    If CGT is too hard and unfair, then let’s scrap taxes altogether. You know it makes sense.

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  30. dc (144 comments) says:

    The “was Key drunk?” line is something the lefties are trying to fluff up on Twitter, and now here. Seriously sleazy.

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  31. RF (1,455 comments) says:

    Turtles media training from his large team of minders included how to be a hell fire & brimstone preacher. What a phoney. Pure theatre ….making promises to Christchurch Earthquake victims that he knows he will be unable to keep. He told them what they desperately wanted to hear. Poor suckers.

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  32. Pete George (23,688 comments) says:

    For the first time that I’m aware John Key condemned Cameron Slater during the debate, for Slater’s apparent involvement in trying to smear the Serious Fraud Office.

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  33. Judith (8,534 comments) says:

    Yes, there was that big moment where Key put Cunliffe on the spot, and I would say he won the debate at that point, however, whilst he won that point for his party, and their policies, his overall behaviour was appalling.

    The ‘whatevers’ and childish remarks that many people commented on during the debate, were frankly ‘conduct most unbecoming’ of something we expect from a Prime Minister.

    When you take both aspects into account, I don’t think National will have lost any supporters, but they won’t have gained any either.

    However, Cunliffe’s performance was strong on the things that mattered to Christchurch and many in the audience responded to that. Again, I doubt he lost any supporters over the Captial Gains issue – people that vote for him are highly unlikely to have homes in family trusts, but he certainly won’t have gained any votes from it either. Generally he presented himself in a more professional manner than Key.

    The poll results at the end of the debate were about 50/50 and I think that is probably fair – it was both a win/lose for both men.

    Key was not drunk. I think he was trying to give a more ‘I’m a normal guy’ approach, but in doing so, lost the demeanor expected of a leader.

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  34. Pete George (23,688 comments) says:

    “Key came across as smug and aggressive rather than prime ministerial.”

    That description could just as easily be applied to Cunliffe.

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  35. Pete George (23,688 comments) says:

    “However, Cunliffe’s performance was strong on the things that mattered to Christchurch and many in the audience responded to that. ”

    Strong in promises. It’s unlikely he can fix all of the remaining problems in Christchurch anywhere near as easily as he suggested. They remain problems because they’re complex and difficult to deal with.

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  36. Dennis Horne (2,403 comments) says:

    What we need is a Lee Kuan Yew.

    We are going down the gurgler but mistake the spin for success. Once in the pipe the destination is the treatment station.

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  37. Dennis Horne (2,403 comments) says:

    Judith. Poor, poor unloved Judith. Pavlov’s dogs lick your downbox every time. ;)

    Actually, the vision of licking a down box has just done something for me… :) :) :)

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  38. Lance (2,721 comments) says:

    So instead of having to face the fact that Key was better, the latest crap from the left is Key was drunk.

    Pathetic

    Absolutely fucking pathetic

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  39. Gravelroad (162 comments) says:

    Labour’s capital gains tax would destroy New Zealanders’ hard earned equity by depressing the value of their homes, farms and businesses .This equity was built up over years of hard work and saving.

    So would their policy of excluding foreigners from our real estate market.

    l

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  40. Dennis Horne (2,403 comments) says:

    Hard earned equity my arse. The increase in value is inflation and at the expense of renters and savers.

    The immigration is to keep the prices up, agree. Chain letter. Will break.

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  41. Judith (8,534 comments) says:

    Pete George (23,349 comments) says:
    September 3rd, 2014 at 8:04 am

    Actually no, it could not be applied to Cunliffe in this instance. He did not resort to ‘whatever, whatever’ as a response, or other such comments that one would expect from a teenager, and not a prime minister. Whilst I agree Key won because of that prime moment regarding capital gains tax, he did not present a professional performance – which stood out in opposition to Cunliffe, who spoke strongly and did not resort to childish remarks. In fact, Cunliffe actually gave Key a couple of compliments during the debate, which stood out strongly against key’s behaviour.

    His behaviour was appalling, and I’m not the only one that is saying that – and you can make it a ‘left/right’ thing you like, but I think if you read the comments made at the time, there were many from national supporters that were unimpressed with John Key’s demeanor.

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  42. wreck1080 (3,972 comments) says:

    “Labour’s capital gains tax would destroy New Zealanders’ hard earned equity by depressing the value of their homes, farms and businesses”

    The general consensus on kiwiblog and other sources is that a CGT has no affect on home values (using Australia and other countries as an example). Although, my opinion is that prices would have increased more quickly in Australia if they had no CGT.

    And, there is definitely an inequity in not having a CGT. Someone can dig drains for a year and earn 40k and must pay tax on that. But, a homeowner in central auckland who makes 100k capital gains for doing nothing and pays no tax.

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  43. Ross12 (1,456 comments) says:

    Linda @ 7.03

    I think this comment by you is very important and perhaps has not been highlighted enough

    ” And that National has the strength to dominate any coalition post election.”

    Maybe control instead of dominate but your point is well made.

    I just heard Mike Williams saying to Hoskings on his show that he thought Hoskings moderated the first debate very well —I can see a new Tui billboard coming out of that. I really think these political pundits are completely out of touch with the average voter.

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  44. WineOh (633 comments) says:

    After the shouting match that was the first debate I didn’t watch this one, listening to the soundbites this morning I Key may a small error by saying that there was a Capital Gains on family trust property. What he should have done instead is harangued Cunliffe by saying that he either didn’t know or didn’t want to tell us. Which is it David?!?

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  45. Lance (2,721 comments) says:

    @Dennis Horne

    The CGT is not just on houses, it will kill business value in NZ.
    I agree that houses are unproductive and instead there should be a good incentive to invest in productive enterprises. So why the hell would you set about punishing that very vehicle with a CGT?
    A recipe to move NZ businesses offshore, hell we have had the Victorian state offer us (serious) money to set up there

    Stupid

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  46. Nukuleka (350 comments) says:

    The left continue their negative obsession with John Key and the success he has made of his life- a great ‘state house to PM’ success story! They are determined to use every trick in the book to diminish him. Unable to make a dent in his popularity and the reputation he has for his managerial talents, his economic nous and sheer niceness they resort to the cheapest tricks in the book. Having failed to undermine him through their hacking, anti- semiticism and so on they now put around the lie that he’s a drunk! This will have as much traction as the feeble ‘Collins must have something on him’ garbage that they have been circulating of late.

    New Zealanders know a fake when they see one, and that fake is certainly not John Key.

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  47. Keeping Stock (10,443 comments) says:

    @ Gravelroad – as a business owner, I agree completely. My wife and I have built up several businesses from scratch over more than ten years. We’ve provided employment for a good number of people, we’ve met our PAYE and GST obligations, and when we’ve made a profit, we’ve paid tax on it. We pay ourselves salaries, on which we pay PAYE and all the trimmings.

    We have been the ones who have dealt with the stress, and the sleepless nights, especially during the GFC. We’ve been the ones who have put our own money where our mouths are, taken the risks, and worked the ridiculous hours that come with trying to get a business established. We recently had a tentative offer to purchase, which was tempting. It would certainly allow us to pay up all our debt, and set us up for retirement. It has come to nothing for now.

    But if we do sell at some time in the future, Labour and the Greens are going to tax the bejesus out of us simply for being successful and for creating a business that has worked, and which someone wants to take over as a going concern. There’s something fundamentally unfair about that.

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  48. Ryan Sproull (7,288 comments) says:

    But if we do sell at some time in the future, Labour and the Greens are going to tax the bejesus out of us simply for being successful and for creating a business that has worked, and which someone wants to take over as a going concern. There’s something fundamentally unfair about that.

    They want to tax you because it’s currently untaxed income. You’ve worked to create something saleable. You sell it. You pay GST like everyone else, in the form of CGT.

    I’m happy to be challenged on that. That’s just how it seems to me.

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  49. Pete George (23,688 comments) says:

    and you can make it a ‘left/right’ thing you like, but I think if you read the comments made at the time, there were many from national supporters that were unimpressed with John Key’s demeanor.

    I’m not making it a left/right ‘thing’. I was unimpressed by Key’s demeanor at times during last night’s debate, too trtite, too many interuptions and too ‘smart’.

    I was also unimpressed with Cunliffe’s demeanor at times – too loud and interrupting, and also smug-like after delivering well rehearsed sermons.

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  50. wiseowl (939 comments) says:

    There were no winners.
    It was like a comedy and unfortunately the kiwi voter is the loser.

    I do not think National are running the economy in the best manner but would have the screaming shits if Labour gets anywhere near power.
    What a quandary.

    These debates do not provide the thinking person with the indepth analysis of policies required to define the truth behind the facade.

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  51. Ross12 (1,456 comments) says:

    Keeping Stock

    You are absolutely right about taxing the return on your efforts to build the business. In doing it there is no compensation for the months ( perhaps years) of “free” time you and your wife put into it. I’m sure early on your car , your house etc were used for various things and not charged to the business. They might sound small to someone who hasn’t set up a business but collectively they are huge.

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  52. burt (8,324 comments) says:

    We need more debates, it gives Cunliffe a chance to understand his own policy.

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  53. dog_eat_dog (790 comments) says:

    Death taxes by stealth? How repugnant. Taxing people after they die is vicious and vindictive.

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  54. Keeping Stock (10,443 comments) says:

    @ Ryan – more than happy to pay GST on the sale. Not happy at all to be double-taxed, or slammed with a CGT rate north or 30% compared with GST at 15%.

    I still maintain a one-size-fits-all CGT is a huge disincentive to small businesses like ours. Frankly, it’d be easier to simply close the doors and walk away than to sell up, and have to hand at least a third of it to a government that has done nothing to add value to our initiative, hard work, capital investment, risk and endeavour.

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  55. Sublime (295 comments) says:

    Toby Manhire, columnist. Winner: John Key

    Uh oh, Cunners. If there’s a time to haul out that final, desperate plan it is now.

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  56. Mark (1,493 comments) says:

    Key should win these debates comfortably as Cunliffe is starting with the huge handicap of trying to defend Labour and Green policy positions that simply make no sense.

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  57. kiwi in america (2,511 comments) says:

    Leaders debates throughout the western world tend to be over analyzed by the chattering classes, beltway insiders and political obsessives (like most of us – lets face it regular contributors to political blogs are political obsessives). Middle NZ, floating voters, Waitakere Man – you get the gist – take away impressions from one or two big sound bites – the same big sound bites that the media tend to focus on. Reagan killed Mondale with “I want you to know I will not make age an issue of this campaign. I am not going to exploit for political purposes my opponent’s youth and inexperience”. Bush 41 did the same with Dukakis over the release of killer Willy Horton. Goff was toast after the “show me the money” line ironically at the same Press debate 3 years ago.

    Here we are 3 years later and a Labour leader produces the main sound bite from the debate again over an inability to articulate their Capital Gains Tax. Cunliffe’s momentum was stopped dead in that moment. This is a flagship policy. It’s integral to Labour’s revenue raising to pay for all its promises. Cunliffe and his minders knew that Goff’s lack of knowledge of its detail was the coup de gras to his campaign so you’d think that Cunliffe would’ve been boning up on Labour’s 2014 iteration pretty thoroughly.

    The failure to know this detail is a perfect illustration of why the policy is so flawed. In order for any broad based tax to succeed, it has to have minimal exemptions (as per NZ’s world renown clean GST) and yet without some key exemptions (the family home) a CGT is political poison. Labour are now damned if they do and damned if they don’t on the issue of rental properties in trusts. First off since it does appear to be their policy to exempt rentals in trusts (some 200,000+ properties) notwithstanding Cunliffe not knowing on the night, do their costings of the expected revenue reflect this leakage? Having advertised this large and relatively easy loophole, will the revenue be further undermined by widespread avoidance by rental property owners who own them outside a Trust forming a Trust? And finally faced with such leakage, would Labour pledge to somehow limit the transfer of a rental property into a trust effectively agreeing with John Key’s assessment at the debate when he answered his own question with a yes.

    A CGT was always a messy dogs breakfast of over estimated revenues and basically a boost to the earnings of tax accountants and lawyers finding ways for legal circumvention as happens in other overseas jurisdictions. It would appear that the complexity is beyond two current Labour leaders to adequately master in debates with John Key.

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  58. waikatogirl (674 comments) says:

    CGT isn’t paid if you sell your business to retire but heard asked if you sell your successful business at say 50ish without another immediate business replacement, is it your intention to retire or not? Questions……..

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  59. dime (10,137 comments) says:

    Its pretty clear Key won the debate and the moment of the debate was the CGT fuck up by cunliffe.

    So what do i hear on zb news this morning? not one mention of cunliffe, just how key got nailed on christchurch issues and some woman kept yelling out “shame on john key”.

    The ZB newsroom is a fucking disgrace.

    What did make me lol is 2 mins later they have hooten on with that fucking moron who flew to melbourne to dig up dirt on jk (lol). Even he said key won.

    He then when on to say keys lost his magic and just looks like a balding middle aged man.

    as opposed to what? the other guy? at least 20kegs over weight with the biggest double chin i think ive ever seen and also just an ugly ugly man. oh yeah, an ugly, fat man with NO FRIENDS.

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  60. trout (945 comments) says:

    CGT is easy to say but incredibly difficult to implement. If applied generally are assets to be revalued every year (as with share portfolios in Oz) and tax paid annually on unrealized gains? Rather than exempt family homes it would be better to follow the US example where all property is taxed but if another house is bought for personal use within 2 years of the date of sale of previous house the tax is rebated.
    And Cunliffe did ‘win’ the second half of the debate by promising to give CH.Ch. people all they asked for. Buy the votes to hell with the cost! Other taxpayers elsewhere may be somewhat reluctant to buy into this distribution of largess; especially in areas where there have been less publicized disasters and limited government assistance.

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  61. Gravelroad (162 comments) says:

    Anyway we already have a capital gains tax.
    It’s called Local Government rates.
    Labour and associates just want to take over that pie.

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  62. tvb (4,519 comments) says:

    These debates are a bit of a gladiatorial contest and John Key is pretty skilled at them. Cunliffe is not too bad as well. Labour need to clarify where they stand on CGT on family homes held in trust. Cunliffe said today they will be exempt but then the fine print of Labour’s policy could say otherwise. This is a very complex policy no matter how Cunliffe spins it.

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  63. Colville (2,300 comments) says:

    KS.
    Not wanting to tell you how to suck eggs…
    You could deal with the CGT issue/risk now by selling the company shares now..
    Your accountant would love all the fees but if it is a significant (potential) CG bill it would be worthwhile.

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  64. Colville (2,300 comments) says:

    Jeasuus Dime. You didnt have a drop of JDs in your coffee did you? :-)

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  65. Colville (2,300 comments) says:

    So no CGT on family home.
    So I own a house.
    and a beach house (which I am sitting in now)
    Da Missus will own a house which will get rented for cash.
    She will also own a beach house which will probably get rented..because Da Missus tends to stay in my beach hose which is nicer, but has the downside of having Me in it.
    The Son owns a house which he lives in and rents..
    He also has a “beach house” but its in Palmy…and gets rented…to students…

    No CGT so far :-)

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  66. RF (1,455 comments) says:

    How can one trust Turtle when every utterance of his is scripted … from the statesman like stance, hand gestures, deep serious voice, praising JK etc. Does he plug in at night to recharge his memory bank.

    Reminds me of a movie plot where the rogue robot who was on a killing rampage was finally brought to a halt when the hero managed to pull out the memory chip from his back. Turtle.. sorry…. the robot was brought crashing to the ground and lay there kicking prior to exploding.

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  67. Ryan Sproull (7,288 comments) says:

    @ Ryan – more than happy to pay GST on the sale. Not happy at all to be double-taxed, or slammed with a CGT rate north or 30% compared with GST at 15%.

    Isn’t the CGT proposed at 15%?

    And are you saying you already pay 15% GST on the sale of your business, before a CGT?

    I still maintain a one-size-fits-all CGT is a huge disincentive to small businesses like ours. Frankly, it’d be easier to simply close the doors and walk away than to sell up, and have to hand at least a third of it to a government that has done nothing to add value to our initiative, hard work, capital investment, risk and endeavour.

    Everyone else gets taxed on their work – why shouldn’t you also?

    (Playing Devil’s Advocate here a bit. The case for CGT seems far more obvious in the case of investment purchases/sales, rather than businesses which the sellers have worked to build up.)

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  68. kiwi in america (2,511 comments) says:

    Ryan Sproull
    “I’m happy to be challenged on that” as well you should.

    There is no untaxed income in the kind of business Keeping Stock mentioned. If the owners draw a salary or drawings they pay PAYE or provisional then terminal tax on that. Any profit not distributed is then taxed at the company tax rate. When it comes to GST, it is added to the asking price of a going concern so is a red herring and unrelated to the issue of a CGT. If KS sold his business for $750,000 it would be advertised as $750,000 + GST. The purchaser pays $862,500, KS keeps $750k and pays the IRD $112,500 in GST. The purchaser can then claim that GST portion of the purchase price as an input cost in his/her next GST return. For the seller of the business it’s a wash.

    What isn’t a wash is a CGT. It is a tax on the capital gain in other words the increase in the value of the business that came about because of the owner’s hard work. Usually the purchase price of a business comprises 3 (sometimes 4) distinct items each which can be valued separately. Plant/Equipment (usually at the book or depreciated value), Stock (usually at wholesale cost) and Goodwill. The 4th can be Intellectual Property. Goodwill is the intangible value that the owner built into the business over years of successful trading. Its an amalgam of marketplace reputation, unique products/services, location, past growth and future growth potential etc. Having worked for a niche finance company I developed specialist skills in valuing the businesses we funded and when I went out on my own as a broker, I valued goodwill for some of these businesses. The goodwill, as KS eloquently described, is the sweat equity of the owner – a commodity that you cannot put a specific value on except that the end result after the risk of losing your home mortgaged to start the business, meeting payroll, PAYE and GST payments, hiring and firing staff and so on and so forth. A CGT is a tax on the increase in value the market recognizes after a successful business is built. It is a pure envy tax promoted by those who don’t understand how wealth is created and it falls disproportionately on the lower middle class battlers for whom their business is their primary retirement scheme. Large businesses are usually acquired with bank debt and the funders will simply add the CGT to the loan and amortize it over 25 years making little affect on a large business’ profit. Similarly the wealthy not only find ways to avoid the tax but have a larger capital and savings base that easily absorb the effect of the CGT. The small business owner usually cannot pass the CGT cost onto a purchaser because they are usually younger debt laden people leaving paid employment often for the first time who can barely scrap together enough to pay the asking price minus the effect of any tax. Thus it becomes an extra tax on the lifetime of hard work of ordinary kiwis AFTER all the company and PAYE they have paid along the way in the years profits were made.

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  69. Nigel Kearney (1,051 comments) says:

    Everyone else gets taxed on their work – why shouldn’t you also?

    When a company makes a profit, that profit is taxed. If the shareholders take the money out and spend it there is no further taxation. But if the profits are put back into the business then the value of the business increases so, if there is a CGT, those profits will be taxed a second time. That means a CGT is effectively a penalty for choosing to investing money rather than spend it.

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  70. dime (10,137 comments) says:

    “Jeasuus Dime. You didnt have a drop of JDs in your coffee did you? :-)”

    The election is pissing me off :D

    if we lose ill be retiring from kiwiblog until we regain power. otherwise ill probably stroke out heh

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  71. Ryan Sproull (7,288 comments) says:

    What isn’t a wash is a CGT. It is a tax on the capital gain in other words the increase in the value of the business that came about because of the owner’s hard work.

    I guess that’s my question. The owner’s hard work that increases the value of the business is rewarded when the business is sold. When is that hard work taxed?

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  72. Ryan Sproull (7,288 comments) says:

    When a company makes a profit, that profit is taxed. If the shareholders take the money out and spend it there is no further taxation. But if the profits are put back into the business then the value of the business increases so, if there is a CGT, those profits will be taxed a second time. That means a CGT is effectively a penalty for choosing to investing money rather than spend it.

    Thanks, Nigel. That makes a lot of sense.

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  73. kiwi in america (2,511 comments) says:

    Ryan
    Why should the hard work be taxed twice? That’s the nub of the issue! Furthermore the stated purpose of the CGT, make house prices more affordable to cut down on evil speculators, CGTs in Australia and the UK have had zero impact as they suffer from even more housing unaffordability issues than in NZ.

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  74. Neil (589 comments) says:

    There already is a CGT in New Zealand if you are trading-property,shares,stock on farms etc. If you buy today and sell tomorrow you are quickly involved in tax issues.
    All I can say about Labour/Greens/Mana is that they are keen to redistribute wealth to the people who dribble away their money. The Left appeal to the envy of those wasteful people who are screaming poverty .
    Big Bad Cunliffe to me resembles the wolf in Little Red Riding Hood. He seems determined to rid NZ of people who are willing to give things a go. Reward the indolent !!!

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  75. Ryan Sproull (7,288 comments) says:

    Ryan
    Why should the hard work be taxed twice? That’s the nub of the issue! Furthermore the stated purpose of the CGT, make house prices more affordable to cut down on evil speculators, CGTs in Australia and the UK have had zero impact as they suffer from even more housing unaffordability issues than in NZ.

    I’m asking when it was taxed the first time.

    Salaried work is income-taxed.
    Profit is company-taxed.
    When is work that increases the value of the business taxed?

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  76. chris (647 comments) says:

    Question. If I buy a house for $400k and sell it for $500k to buy a new house for $500k, I made a capital gain on the sale of house 1, but I’m no better off as far as capital is concerned. (In fact I’m worse off because of various fees & commissions from the transaction.) Why should this be subject to a CGT?

    Supplementary question. Is a CGT as simple as you bought the house for $400k and sold it for $500k so you must pay tax on $100k, which ignores a) inflation, b) any money spent on improvements/maintenance and c) the cost of servicing the mortgage?

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  77. rangitoto (251 comments) says:

    “ciaron – But we have to do away with the “Spartan Style” that we have now.”

    I don’t know why you say that. The word laconic derives from “Spartan Style” after all. The Ephors replied to Phillip’s threats with the single word “if”. Cunliffe’s style is better described as a combination of verbal diarrhoea and shouting.

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  78. chris (647 comments) says:

    Actually disregard my first question. I’ve realised that in order for it to work, you need to apply CGT to each sale otherwise you never catch the total capital gain over time.

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  79. TiggerNZ (2 comments) says:

    Both sides will claim victory, but last night PM Key sheeted home to swing voters some ugly truths about Labour they won’t easily shake off. To wit: Labour will send 16,500 kids straight to the dole queue, introduce 5 punitive taxes, and bring in massive, unjust uncertainty for homeowners. Moreover, DC is a relic of the broken Clark govt, failed as Minister of Health and would be a disaster as PM. DC is an accomplished champion debater (http://www.kiwiblog.co.nz/2014/08/the_1st_leaders_debate.html); therefore he could be expected to hold his own in the debates. 28-Aug, when he caught JK on the hop, was DC’s high point. All downhill from here.

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  80. Ross12 (1,456 comments) says:

    Ryan

    ” When is work that increases the value of the business taxed?”

    It is either taxed when the owner pays himself a salary ( or drawings) or it is not paid work in the first place. The owner(s) often work very hard, unpaid to build the business , especially at the start. Even when it is established and times get rough , ask any small business owner how often he goes without a few weeks pay/drawings so he can continue to pay his/her staff.

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  81. Ryan Sproull (7,288 comments) says:

    It is either taxed when the owner pays himself a salary ( or drawings) or it is not paid work in the first place. The owner(s) often work very hard, unpaid to build the business , especially at the start. Even when it is established and times get rough , ask any small business owner how often he goes without a few weeks pay/drawings so he can continue to pay his/her staff.

    That unpaid work is rewarded when the business is sold, correct?

    I’m asking when that unpaid work is taxed.

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  82. Nigel Kearney (1,051 comments) says:

    When is work that increases the value of the business taxed?

    If that work creates a profit for the business, that profit is taxed. If there is no resulting profit because the owner paid themselves salary instead, then that salary is taxed. If the work increases the value of the business then it enables profits to be made in future years (because future profits determine price). So the work is taxed when those profits are made.

    If there is no resulting profit or salary there is no tax. But in most cases when that happens there will not be a capital gain either. There may be situations where a skilled accountant can legally avoid a gain being reflected in either salary or profit, but that same skilled accountant cannot prevent the gain being liable for CGT. I can’t think of an example but some people are more creative in that area than I am. So a CGT would catch any of those cases, the issue is whether the downside is worth it. I think not.

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  83. Sir Cullen's Sidekick (895 comments) says:

    If Toby Manhire says John Key is a winner, then John Key won the debate by Usain Bolt margin.

    While there was no catch phrase like “Show me the money” to my disappointment, John Key did land a punch with the CGT trust question and also the side punch – “He knows one or two things about trusts, trust me on this” – That is the precise moment, all the left wing nutters and the MSM who is plotting against Key must have felt like digging a hole and hiding.

    Talking of holes, John Key also said – “you are already in a hole David” – or something to that effect which was funny.

    But I feel, they should not be allowed to interject or talk over each other. I hate that. Listen to what the other person has to say and then respond. Otherwise it becomes a screaming contest and Cunliffe with his megaphone voice will drown out key.

    When will I get UFB in our area? The streaming speed was awful – but mercifully whenever Cunliffe started his preaching!!!

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  84. KGB (1 comment) says:

    This is why DC & kim the krim want everyone running out to the polling booths today…they don’t want voters to have time to explore or question policies. Sensible voters watch, listen, and learn before they cast their vote.

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  85. wreck1080 (3,972 comments) says:

    Rather than a CGT, perhaps a ‘land-tax’ would be more appropriate.

    Payment options could include pay on sale or pay annually based on the owners income.

    This should be fiscally neutral — ie, income taxes drop accordingly.

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  86. Ross12 (1,456 comments) says:

    Ryan

    Nigel is explaining it better than me.

    But you have to be kidding with your question …” I’m asking when that unpaid work is taxed.”

    Why the hell should unpaid work be taxed !!!?? Next minute you be wanting to tax “stay at home mothers” using that logic.

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  87. chris (647 comments) says:

    A land tax based on income? But that’s an income tax.

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  88. kiwi in america (2,511 comments) says:

    Ryan
    Its taxed twice because the work produces profits and salaries that are taxed each year. The goodwill is an intangible – it is the value of the business in excess of the physical assets and the profits. It is the value the marketplace puts on reputation, quality of service, location, innovation etc all of these as a result of the unpaid labours of the owners. Those on the right say to incentivize rising generations to make the same investments to increase value and build viable businesses that hire staff and pay taxes, the capital gain of these endeavours should not be taxed. It’s the same argument over death duties.

    The left never see an activity that shouldn’t be taxed and don’t give a stuff about the myriad of tax avoidance tactics that the rich can employ leaving the self employed merchant and tradesman, often from the very working class the left purports to fight for, having to pay a pernicious tax on their enterprise resulting in a disincentive to go it alone and create wealth and employ others. For the amount of tax that will ACTUALLY be raised (not the lofty projections that are always made and never met due to all the avoidance tactics they spawn), it is dwarfed by the economic growth stifling signal it sends to the new wave of entrepreneurs who now must face an additional tax on their entrepreneurial risk. Some budding Bill Gates looking at the net of CGT return of the sale of his dad’s plumbing business will say, its not worth it – I’ll stay working for someone else. The opportunity cost of a CGT is the lost tax revenue that governments would make if the nascent entrepreneur left his employment, pursued his dreams and ends up with a business that pays $100,000s in taxes and PAYE and employs hundreds. It’s because the technocratic statists of the left come out of unions and academia and rarely have had to cope with all the risks and stress that comes with starting a business and so are clueless as to this crucial engine of capitalism – small business start up.

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  89. Distilled essence of NZ (85 comments) says:

    Key behaved like a loud-mouthed school boy with no manners. What’s more, when he was shouting over Cunliffe (most of the debate) it was in an irritating nasal tone. Cunliffe was by far the more composed and mature of the two and the clear winner. It’s no surprise that old tory rag granny herald is back on message.

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  90. wreck1080 (3,972 comments) says:

    “A land tax based on income? But that’s an income tax.”

    You misunderstand. I said the payment method (not the payment amount) depends on the owners income.

    eg, pensioners with no income could pay the cumulative tax when their house sells.

    But, wage earners could afford to pay annually.

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  91. chris (647 comments) says:

    That makes sense, thanks. I’m certainly coming around to the idea of a land tax (and get rid of most other taxes), but I’ve always disliked how it makes assumptions on ability to pay. With your options it makes sense.

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  92. emmess (1,433 comments) says:

    So, let’s for argument sake say John Key was drunk
    So David Cunliffe can’t even beat a drunk in a debate.
    That is rather sad, maybe another apology would be in order.

    Also, for me the key moments were when John Key was interjecting five new taxes and David Cunliffe had no comeback. Even most lefties can work out how much of a turn off a single tax increase is, even if they are fiscally neutral, which these five most certainly are not.

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  93. Alan (1,087 comments) says:

    That a family home held in a trust would be exempt from a GCT has been Labour policy for a long time, iirc David Parker is quoted on exactly this point in the NBR in May.

    That Cunliffe floundered and answered the question very poorly in beyond debate, but equally so is the fact that the Labour policy position is unchanged and John Key was factually wrong

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  94. burt (8,324 comments) says:

    Alan

    Yes, how outrageous that Key didn’t answer Cunliffe’s questions for him.

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  95. oldpark (385 comments) says:

    Lest we forget .Labours/Greens proposed CGT will be retrospective from the day it was purchased.Say a property bought in 1980 $50,000 now worth say $450,000 Capital Gain tax will be assessed on $400,000.The family home will be exempt to a point.Once passed on by death,say mum and dad.The inheritors once they on sell the house ,it will be assessed for CGT.In fact it really is a defacto death duty tax,what an ambush.David Parker the Labour Party finance person ,who was caught filing false company documents,when he was Helen Clark’s ATTORNEY GENERAL,IN 2006.Was dumped from that position.He has kept that dirty dark sneaky little secret under wraps.The green party also want the CGT inflation adjusted.

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  96. Sir Cullen's Sidekick (895 comments) says:

    To the trolls from the left – Cry over this precise moment when your messiah was gasping for fresh air. Choke on this bros!

    http://tvnz.co.nz/vote-2014-news/key-cunliffe-spark-up-over-capital-gains-tax-6069868

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  97. Distilled essence of NZ (85 comments) says:

    Sir Cullen – Key got his facts wrong there, and has been caught out on it. Cunliffe should have known enough to know Key had made it up.

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  98. Ryan Sproull (7,288 comments) says:

    If that work creates a profit for the business, that profit is taxed. If there is no resulting profit because the owner paid themselves salary instead, then that salary is taxed. If the work increases the value of the business then it enables profits to be made in future years (because future profits determine price). So the work is taxed when those profits are made.

    The work is taxed after the worker (the owner) has sold the business and so has been paid for that work?

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  99. Ryan Sproull (7,288 comments) says:

    Ryan

    Nigel is explaining it better than me.

    But you have to be kidding with your question …” I’m asking when that unpaid work is taxed.”

    Why the hell should unpaid work be taxed !!!?? Next minute you be wanting to tax “stay at home mothers” using that logic.

    Ross,

    The complaint seems to be that the unpaid work does get paid, in one lump untaxed sum, upon selling the business.

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  100. fernglas (177 comments) says:

    To be fair, Oldpark, Labour has specifically said that the tax will not be retrospective, so the property would be valued on a date to be fixed but at or after the time the tax comes into force. And in some ways the Green proposal to make it inflation indexed is fairer than Labour’s which is not to index but to have a flat rate of 15%. It all depends on the rate. 15% with an allowance for inflation will mean the tax is hardly worth collecting

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  101. Ryan Sproull (7,288 comments) says:

    Ryan
    Its taxed twice because the work produces profits and salaries that are taxed each year. The goodwill is an intangible – it is the value of the business in excess of the physical assets and the profits. It is the value the marketplace puts on reputation, quality of service, location, innovation etc all of these as a result of the unpaid labours of the owners. Those on the right say to incentivize rising generations to make the same investments to increase value and build viable businesses that hire staff and pay taxes, the capital gain of these endeavours should not be taxed. It’s the same argument over death duties.

    If the argument is that CGT on small businesses disincentivises the kind of businesses we need, I get that. I’m just pointing out that it seems to be a kind of income that is untaxed. I’m quite fine with the argument, “It’s unfair, but it rewards investment in small business, which is best for everyone.”

    The left never see an activity that shouldn’t be taxed and don’t give a stuff about the myriad of tax avoidance tactics that the rich can employ leaving the self employed merchant and tradesman, often from the very working class the left purports to fight for, having to pay a pernicious tax on their enterprise resulting in a disincentive to go it alone and create wealth and employ others. For the amount of tax that will ACTUALLY be raised (not the lofty projections that are always made and never met due to all the avoidance tactics they spawn), it is dwarfed by the economic growth stifling signal it sends to the new wave of entrepreneurs who now must face an additional tax on their entrepreneurial risk. Some budding Bill Gates looking at the net of CGT return of the sale of his dad’s plumbing business will say, its not worth it – I’ll stay working for someone else. The opportunity cost of a CGT is the lost tax revenue that governments would make if the nascent entrepreneur left his employment, pursued his dreams and ends up with a business that pays $100,000s in taxes and PAYE and employs hundreds. It’s because the technocratic statists of the left come out of unions and academia and rarely have had to cope with all the risks and stress that comes with starting a business and so are clueless as to this crucial engine of capitalism – small business start up.

    Again, I understand the idea of waiving the tax in order to incentivise behaviour. I’m just investigating the different argument against CGT, which seems to be that the income is already taxed.

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  102. kiwi in america (2,511 comments) says:

    Ryan
    The owner pays him/herself for his efforts via a salary or drawings and pays tax on that. The goodwill value of the business is an intangible asset that arises from the position and reputation of the business and other factors mentioned earlier. It is an ancillary benefit independent of the remuneration received for the actual hours worked for which the owner pays him/self AND ON WHICH HE/SHE PAYS TAX. Hence being double taxed.

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  103. oldpark (385 comments) says:

    @Fernglas

    Who could believe anything they say regarding CGT.They change the criteria every time they are asked a sticky question.Last time I saw the shift was Cunliffe on the debate.He didn’t know what his policy was or might be.How can we be fair to such a bunch of trolls .Also Green Party want CGT inflation adjusted on top of the so called 15%.As for Parker their CGT expert.He was caught fiddling his company records in 2006 when he was ATTORNEY GENERAL in Labour Government.Trust Labour David Parker yeah right.

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  104. Ryan Sproull (7,288 comments) says:

    The owner pays him/herself for his efforts via a salary or drawings and pays tax on that. The goodwill value of the business is an intangible asset that arises from the position and reputation of the business and other factors mentioned earlier. It is an ancillary benefit independent of the remuneration received for the actual hours worked for which the owner pays him/self AND ON WHICH HE/SHE PAYS TAX. Hence being double taxed.

    The value is clearly not intangible, as it’s evaluated and rewarded at the time of sale.

    That ancillary benefit is not being taxed at the moment. The salary is being taxed at the moment.

    You’re describing a situation where a person, in retrospect, underpaid themselves for the work they did (the work was worth more than the pay), in order to avoid being taxed on the ultimate resultant income generated by that work, are you not?

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  105. kiwi in america (2,511 comments) says:

    That is only true in the early stages of a business when it is not making a profit. Owners of new businesses are massively underpaid but as soon as the business makes a profit – the owner is taxed on all of that profit even if he/she leaves some of it in the business. There is no avoiding tax on the income a business generates – the owner either pays a salary in line with the profits OR they pay themselves less than the profits and then the business pays company tax on the remaining profit. You are assuming that a CGT somehow captures a huge pool of hidden avoided tax – that is not the case.

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  106. Jeannie (15 comments) says:

    Judith – I did not see this debate but sorry, but talking over the top of someone is more un professional than a few ‘what evers’.

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  107. Ryan Sproull (7,288 comments) says:

    That is only true in the early stages of a business when it is not making a profit. Owners of new businesses are massively underpaid but as soon as the business makes a profit – the owner is taxed on all of that profit even if he/she leaves some of it in the business. There is no avoiding tax on the income a business generates – the owner either pays a salary in line with the profits OR they pay themselves less than the profits and then the business pays company tax on the remaining profit. You are assuming that a CGT somehow captures a huge pool of hidden avoided tax – that is not the case.

    Not necessarily a huge pool. But I am interested in getting to the bottom of this.

    I see what you’re saying. It seems to be that every dollar is taxed – whether it’s paid via salary or left unpaid as profit. The dollars can’t escape being taxed in one of these ways. Right?

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  108. kiwi in america (2,511 comments) says:

    Ryan
    Correct – if the owner pays him/herself a salary PAYE tax is paid as per the usual rate for that salary (as if you worked for someone else). Some owners simply take drawings at the end of a month when they see what’s left over after all expenses are paid – those owners pay provisional tax on the drawings and then terminal tax on Feb 7 of the following tax year as a final washout of all tax owing. If either method does not empty out all the profit from the business, assuming it is a company, it will file an IR 40 and pay the corporate tax rate on the remaining profit. For a sole trader it would be covered in the terminal tax. There’s no escaping it.

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  109. Ryan Sproull (7,288 comments) says:

    Correct – if the owner pays him/herself a salary PAYE tax is paid as per the usual rate for that salary (as if you worked for someone else). Some owners simply take drawings at the end of a month when they see what’s left over after all expenses are paid – those owners pay provisional tax on the drawings and then terminal tax on Feb 7 of the following tax year as a final washout of all tax owing. If either method does not empty out all the profit from the business, assuming it is a company, it will file an IR 40 and pay the corporate tax rate on the remaining profit. For a sole trader it would be covered in the terminal tax. There’s no escaping it.

    Right, those are all the dollars within the business.

    Now, I come along and buy your business. Those are new dollars entering the game. Is company tax paid on those dollars, or is income tax paid on them?

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  110. Nigel Kearney (1,051 comments) says:

    Let’s use an example with real numbers:

    Mary has a furniture making business. She buys 100 planks of wood for $100 each and uses each plank to make a table that can be sold for $200. She sells 50 of the tables and still has the other 50 in stock. At that point she has costs of $10,000 and revenue also $10,000 so zero profit.

    Case A: She sells the other 50 tables immediately and ends the year with a profit of $10,000. This is taxed at 30% so she pays $3000 tax.

    Case B: She sells the business for $7000. There is no CGT so she pays no tax at all. But the new owner sells the 50 tables, incurring no cost for purchasing materials, so makes a profit of $10,000 and pays $3000 tax on that profit.

    Case C: She sells the business for $7000 and pays CGT at, say, 10%. She started the business herself from nothing so the entire $7000 is capital gain and the tax is $700. The new owner still makes $10,000 profit and still pays $3000 tax on that so the total tax is now $3700.

    As you can see, the gain is taxed as profit in all cases. The CGT is an extra tax.

    In fact the logical thing to do here would be for Mary to sell the business for $0 but pay herself $10,000 in salary first by borrowing from the bank. The new owner would apply $10,000 to wiping out the bank overdraft and get that back from selling the tables. There would be no profit from the business as the $10,000 revenue and $10,000 salary would offset one another. So Mary would have $7000 (after tax) and the new owner would break even, the same as case B without the CGT, but with added transaction costs.

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  111. Kimbo (1,096 comments) says:

    Posted also in General Debate:

    So David Cunliffe reckons it is dirty “gotcha” politics when his opponent quizzes him about the specifics and details of Cunliffe’s own policy, in the context of a public policy debate where Cunliffe, supposedly a “very intelligent man” with a prior background in policy formulation and administration, had the aid of 5 assistants to help prepare him compared to the “fly-by-night” speculative skills of his interrogator?

    Gee, no wonder Labour education policy from Russell Marshall on has been opposed to exams as a valid and worthwhile means of testing the knowledge of a student!

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  112. kiwi in america (2,511 comments) says:

    Ryan
    See Nigel above

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  113. Sir Cullen's Sidekick (895 comments) says:

    Distilled essence of NZ (32 comments) says:
    September 3rd, 2014 at 11:17 am
    Sir Cullen – Key got his facts wrong there, and has been caught out on it. Cunliffe should have known enough to know Key had made it up.

    Essence – Didn’t you read what DPF wrote at the end of his blog piece?

    “Labour are now claiming that there will not be capital gains tax on your home, if it is in a family trust, but that isn’t in their policy” – That is all John Key pointed out. I think once Labour is caught out they are providing “explanation”.

    Bro, in politics, explaining is losing.

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  114. artemisia (256 comments) says:

    The family home in a trust – no CGT – the definitive answer from Mr Cunliffe. Interesting. That will give the ‘expert panel’ a headache I reckon. Who do you suppose comprises the ‘family’ in the ‘family home’. The trust, if the owner, cannot be a family. The settlors have passed the property to the trust, so are not owners and should not control the property (or it may be a sham trust). But probably live in the house. And think they do control it. The beneficiaries are really the owners, just not yet. They may well have their own ‘family homes’. (Which might also be in trusts just to be a bit more interesting.)

    So for a home in a trust, will it depend on who is living in it, and when? Even if they don’t own it?

    There are hundreds of thousands of trusts in NZ and many of them have one or more properties. Think I recall seeing somewhere that per capita we have by far the highest number of trusts in the world.

    That’s a lot of people going into an election relying on a simple statement for a complex issue.

    What we do know is that IRD will be collecting any CGT and they will be applying the law carefully, and clearly publishing the rules – in their normal way.

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  115. Ryan Sproull (7,288 comments) says:

    Let’s use an example with real numbers:

    Mary has a furniture making business. She buys 100 planks of wood for $100 each and uses each plank to make a table that can be sold for $200. She sells 50 of the tables and still has the other 50 in stock. At that point she has costs of $10,000 and revenue also $10,000 so zero profit.

    Case A: She sells the other 50 tables immediately and ends the year with a profit of $10,000. This is taxed at 30% so she pays $3000 tax.

    Case B: She sells the business for $7000. There is no CGT so she pays no tax at all. But the new owner sells the 50 tables, incurring no cost for purchasing materials, so makes a profit of $10,000 and pays $3000 tax on that profit.

    Case C: She sells the business for $7000 and pays CGT at, say, 10%. She started the business herself from nothing so the entire $7000 is capital gain and the tax is $700. The new owner still makes $10,000 profit and still pays $3000 tax on that so the total tax is now $3700.

    As you can see, the gain is taxed as profit in all cases. The CGT is an extra tax.

    In fact the logical thing to do here would be for Mary to sell the business for $0 but pay herself $10,000 in salary first by borrowing from the bank. The new owner would apply $10,000 to wiping out the bank overdraft and get that back from selling the tables. There would be no profit from the business as the $10,000 revenue and $10,000 salary would offset one another. So Mary would have $7000 (after tax) and the new owner would break even, the same as case B without the CGT, but with added transaction costs.

    That’s excellent, thanks, Nigel.

    However, none of those seem to include the kind of value increase I’m trying to track down here. Do businesses generally sell for the immediate sales value of clearing their existing stock?

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  116. Nigel Kearney (1,051 comments) says:

    Technically, businesses sell for the discounted value of expected future profits after tax.

    My example was an extreme simplification and assumes the existing stock will be sold immediately with no sale costs and then the business will cease trading. It is a business where value has been created but that value has not yet been turned into taxable income or profit. I thought that was your point and one example of it is as good as any other.

    Note also that even in case B, company tax has cost Mary $3000. She doesn’t pay anything but the resale value of her business is reduced by $3000 because the tax rate means the new owner has a lower after-tax profit expectation.

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  117. Ryan Sproull (7,288 comments) says:

    Technically, businesses sell for the discounted value of expected future profits after tax.

    My example was an extreme simplification and assumes the existing stock will be sold immediately with no sale costs and then the business will cease trading. It is a business where value has been created but that value has not yet been turned into taxable income or profit. I thought that was your point and one example of it is as good as any other.

    No, my point is more that the work that someone puts into building up their business creates value greater than simply the sum of the business’s sales, costs and inventory. KIA listed a few examples – reputation, IP, internal processes, etc. These all increase the value of the business, are produced by the owner’s work (and the work of his/her employees), and are recognised in the sales price of the business. Salaries have already been paid and taxed, but this value has been created over and above the salary cost to the business.

    Is it that these things are valuable in so far as they increase the projected profits of the business, and if those projections turn out to be accurate, greater tax is paid due to greater profits?

    It still feels weird that the owner gets this money over and above drawings or salary, without it being taxed at that point.

    But I suppose if there wasn’t any company tax, the projected profits of the business – and thus the sales value of the business – would be proportionately higher.

    Okay. I think I see how the company pays the tax in the future even if the owner doesn’t pay any tax on that income at the time.

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  118. Ryan Sproull (7,288 comments) says:

    Thanks for taking the time to talk that out with me, Nigel and KIA.

    I still a dirty socialist who thinks capitalism is a form of institutionalised theft, but I think you’ve changed my mind on CGT.

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  119. PaulL (6,048 comments) says:

    @Ryan Sproull: perhaps consider it from the other angle. If I buy a business for $10,000 (because of goodwill, not because it has stock), and through my own incompetence I destroy that goodwill. I sell the business for $1,000 to someone who thinks they can fix it. Will I get a tax deduction for my $9,000 capital loss?

    I think at one point Eric Crampton had a pretty thorough analysis of CGT, and from an economic perspective it is definitely considered double taxation. All his posts on CGT are: http://offsettingbehaviour.blogspot.com.au/search/label/Capital%20Gains%20Tax

    Some quotes from in there:
    “This only makes sense if a capital gains tax is expected to raise positive revenue, in which case it would represent an increase in the effective tax rate on capital which is already triple taxed relative to labour income (by being taxed once when the original money saved was earned, again as it accrues interest, and a third time when the portion of the nominal return that just represents adjustment for inflation is also taxed). Maybe this effect is outweighed by other benefits of a capital-gains tax, but I would really like to see what these benefits are believed to be.”

    “Similarly, a capital gains tax that excluded the family home, while doing nothing to change supply and demand, would be a way to reduce prices to owner occupiers while increasing prices to renters. Such a policy proposal wouldn’t make much sense from a party representing lower-income households (who are more likely to be renters), but it is perfectly consistent with a party that proposed exempting fresh fruit and vegetables from the GST.”

    This post had a lot of content and links on why capital gains taxes aren’t necessarily a good idea economically (although they may be politically if your aim is to have more taxes, and then still come back and say “but our income tax is lower than other countries, let’s put that up too”): http://offsettingbehaviour.blogspot.com.au/2013/06/against-capital-gains-taxes.html

    There’s a great piece in there about house prices that uses shoes as an analogy. You have to read it to get the whole thing.

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  120. PaulL (6,048 comments) says:

    And this one is the one I was looking for: http://offsettingbehaviour.blogspot.com.au/2012/02/what-is-wrong-with-housing-anyway.html

    It explains why capital gains are already taxed.

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  121. Ryan Sproull (7,288 comments) says:

    Cheers, Paul, I’ll read them when I have a chance.

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  122. kiwi in america (2,511 comments) says:

    You’re welcome Ryan. I was once a “dirty socialist” – believed every ounce of the left’s rhetoric until I began to actually write cheques for tax as opposed to having it deducted as PAYE. It had the effect of concentrating my mind more sharply on the effectiveness of many government programmes. The CGT is a good example. Very easy to put the tax into a demagogue like sound bite until you realise that many of the arguments fall apart when you really examine it. You’ll find a lot more touchstones of the left similarly wither under proper scrutiny.

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  123. Dennis Horne (2,403 comments) says:

    Ryan Sproull. You probably won’t see this but never mind, someone will down tick it down for me! :)

    Houses. The argument that the increase in wealth should not be taxed because the money has already been taxed applies equally to interest on savings, the capital has already been taxed if it was earned.

    The reason GST is added to business assets when sold is that the original GST paid was clawed back when bought. It is totally absurd that a farmer can get a huge increase in wealth and it’s not taxed. It’s true some of it is inflation but that applies to savings too.

    I haven’t read this thread properly but the argument against CGT is: We don’t pay tax on our increase in wealth if we do it this way and we don’t want to change that.

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  124. Ryan Sproull (7,288 comments) says:

    You’re welcome Ryan. I was once a “dirty socialist” – believed every ounce of the left’s rhetoric until I began to actually write cheques for tax as opposed to having it deducted as PAYE. It had the effect of concentrating my mind more sharply on the effectiveness of many government programmes. The CGT is a good example. Very easy to put the tax into a demagogue like sound bite until you realise that many of the arguments fall apart when you really examine it. You’ll find a lot more touchstones of the left similarly wither under proper scrutiny.

    Don’t worry, KIA. I think taxation is just as much theft as capitalism is.

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  125. ste3e (119 comments) says:

    We have a despicable little country with some of the worst stats on poverty, pollution, suicide, and incarceration and the only thing we can think about is the economy. And our thinking about the economy is utterly flawed. Foreign investment is not altruistic; it comes here to make profit and mostly it does not make profit in those areas where the country should be heading. Where are the foreign investors creating wood processing plants to add value to our forests and employment to our towns? If foreign investment won’t do it then the government should otherwise it is a waste.

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  126. ste3e (119 comments) says:

    Cunliffe’s failure in the second debate was to even try to defend the status of homes in trusts. The red tide that got Cunliffe leadership of the Labour party probably don’t have houses much less houses in trusts.

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