It is not often I refer people to a really good article on The Standard, let alone one by a Labour candidate, but Deborah Russell has done an easy to read analysis of the Government’s tax changes around property.
She doesn’t say whether it is a good or a bad thing – just calmly explains what the change is, how it will work, what impact it is likely to have, and whether or not it can be regarded as a capital gains tax.
So what difference will it make? Very little in terms of tax revenue. I imagine that most property speculators will simply elect to hold onto their properties for at least 731 days, thereby avoiding paying tax on their capital gains. The real effect will be to slow down the property market in Auckland, and elsewhere. It will knock the top edge off the market, winding it back just a little bit. Together with the Reserve Bank’s new rules about the deposits that Auckland property buyers must have, the heat may be taken out of the property market. There will still be pressure due to inwards migration, but frantic speculation in property should calm down.
So why use a tax measure at all, if it’s not going to raise any revenue? And heaven knows that the government must be looking for every possible tax dollar it can find.
It’s a preventative measure, not a revenue raiser. Back when we had a gift duty in New Zealand, there was never very much gift duty raised. Instead, the threat of gift duty meant that people didn’t try to avoid income tax by gifting away assets that earned income. So they couldn’t engage in all sorts of elaborate tax schemes, or if they did choose to do so, there was a price to pay. Most people elected not to engage in the elaborate schemes, and so very little gift duty was ever collected. It was a very effective tax measure.
Likewise, this measure should be very effective in shutting short term speculation down. I suspect that once the two years is up, plenty of properties will end up on the market, but very few properties will be sold under the two year mark, and so very little tax revenue will be collected.
I always enjoy an insightful analysis, regardless of medium or author.