Unlike Australians, most New Zealanders do not face the annual nightmare of complex income tax returns. When I was Minister of Revenue, I strongly supported the view that the need for tax returns should be rare, not standard.
A capital gains tax is likely to change all that. Capital gains tax is known to require some very complex rules, have high compliance costs, involve filing lengthy tax returns and be very intrusive.
If we have a capital gains tax it should have as few exemptions as possible to minimise compliance costs. But even then it will probably mean hundreds of thousands of people who do their own tax returns will have to now hire an accountant.
The impact on the most vulnerable – those living in rentals could be disastrous.
The rental yield on houses in my electorate is maybe 2 per cent to 3 per cent. That is not an economic return for landlords.
Presumably it is the prospect of capital gains that has let landlords accept such low returns. Yes, tax speculators – the last National Government did that with the two year brightline test. But do not introduce a new tax that increases rents.
We’ve just purchased a new house and had to decide whether to sell or rent out our existing one. As Judith says, the rental return is very small – below the interest you pay on a mortgage. So renting a house out only makes economic sense if you think the capital value will increase.
There are numerous issues like this:
• Will farmers be taxed on the rise in the value of their farms and their livestock?
• Will a small business person be taxed on the sale of the firm on retirement?
• Will iwi face another land confiscation as settlement assets are taxed or will Māori get a special exemption?
• Will the family bach be taxed?
• Will the capital gains tax rate be the same as the normal income tax rates or like almost all comparable countries (such as Australia) will the capital gains tax rate be set at a much lower rate?
• Will amounts left in an estate on death be taxed under the guise of capital gains tax despite election promises not to have an inheritance tax?
All big questions.
A capital gains tax is obviously an internal issue within the Labour Party. David Cunliffe wanted it. Andrew Little was quick to remove it.
To appease Labour’s radical left it has come back to life.
Time will tell.