Labour’s new tax

NZPA report:

Labour will introduce a capital gains tax on investment properties if it wins the election, raising billions of dollars to pay for its spending promises.

I guess fiscal restraint was too much to hope for.

The party’s tax policy, to be released next week, is still under wraps but NZPA has confirmed a capital gains tax is one of its most important provisions.

It will not affect family homes, which would be political suicide, but will target people with one or more investment properties at a rate of 15 per cent on the profit made when they are sold.

One can have an economic debate on whether we should have a more comprehensive capital gains tax regime. Contrary to what many think, you do pay tax on capital gains if you are deemed investing for the purpose of a capital gain.

But why only investment properties? Why not also tax all capital gains such as on the sharemarket? If you invest in a property development company and their shares go up there is no capital gain, but if you buy a second house yourself and sell it some years later, you get pinged.

The property market was over-heated in the 2000s and before. National’s change last year to remove depreciation on investment properties has actually made a difference. I know as I had been looking at whether or not to sell my old apartment or rent it out as an investment property. before the depreciation change I would have kept it and rented it out. But the loss of the cashflow advantage from depreciation meant that I would have a net cash deficit every year, and it was not worth it unless I was confident of really really strong capital growth.

I doubt the tax will raise as much money as Labour thinks, as people will just hold onto their properties rather than sell them.

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