Labour’s inflation tax

Simeon Brown pointed out:

“According to Labour’s own modelling, where house prices rise by 3 per cent and inflation sits at 2 per cent, the vast majority of the revenue collected from Labour’s Capital Gains Tax comes only from inflation rather than real gains.

“Under those conditions, a couple who buy an $800,000 rental and sell it five years later for $927,000 would have to pay a tax of $35,600. Once inflation is accounted for, that amounts to an effective tax rate of 81 per cent on the couple’s real capital gain.

Any CGT must be on real gains, not nominal gains, otherwise it is just a tax on inflation. The higher inflation is, the greater the tax take.

“If property prices only rise by 1.5 per cent per annum, a business owner with a $600,000 property who sells up after ten years will face a tax bill of $27,000, even though the value of their property has declined in real terms by nearly $35,000.

Yep people who make a real loss, will be taxed on the nominal gain and so end up paying $27k tax on a $35k real loss!