Christoper Niesche writes in the Herald:
A capital gains tax was introduced in Australia over three decades ago and since then house prices have roared out of control.
But does this mean that capital gains taxes can’t help control house prices?
Not necessarily. It depends on why they were introduced and how they were designed.
As New Zealanders contemplate casting their vote in a couple of weeks’ time and voting for a party that may or may not introduce a capital gains tax (perhaps things are clearer on the other side of the Tasman than they are from this distance) there are some lessons from Australia.
The capital gains tax was introduced in September 1985 by the Labor government of Bob Hawke and Paul Keating.
In 1985, the median Sydney house price was just A$92,000 ($102,000), compared with A$1.1 million in 2016.
But before we jump to the conclusion that capital gains taxes can’t limit property prices, we should look a few of the reasons that it hasn’t done so in Australia.
The first reason is that it was never intended to limit house price growth. In Australia, the CGT was intended to raise money for the Government and to ensure that those people who were lucky enough to have investable assets paid tax on those gains, in the same way others pay tax on their wages.
There is a case for a CGT in NZ, which is to broaden the tax base. But Labour are selling it as something that will lower house prices. It’s a fallacy.
To maximise the amount of money raised, the tax was applied to any investments, be they houses, other property, shares, bonds, works of art, or whatever. Thus it did nothing to divert investments away from property.
And Labour are saying they will exempt the so called family home, which means again it will have almost zero impact on house prices.