Capital gains tax: coming, ready or not

Digital image credit: Pixy

Jacinda Ardern told us during the election campaign that she would not introduce any new taxes until they had consulted with a tax working group (at that stage, to be appointed), who would come up with a number of proposals, which would then be presented to the electorate at the 2020 election. In other words, ‘No New Taxes’ until 2020.

Well, we already know what a pack of lies that was. Fuel taxes, carbon taxes, tourist taxes, bed taxes, toilet taxes… higher income taxes, because of the cancelling of tax cuts – you name it, if it moves, it is taxed. And if it doesn’t, it is taxed extra hard.

Back then she tried to pretend that they had no predetermined ideas on what those taxes were going to be. Well now, even that idea seems pretentious, if not an outright lie.

Because the ACT Party Press Release of 24 July suggests that some ideas on taxation are already predetermined.

As if we didn’t know. Quote:

?The Finance Minister?s?answers in the House this afternoon show he clearly favours the introduction of a fully-fledged capital gains tax?, ACT Leader David Seymour says.

?Grant Robertson said there was ?no doubt? investment needed to be shifted away from the housing market.

?The Government has ruled out taxing the family, and therefore the largest asset class a CGT would cover is our stock of rental housing. End quote.

The government just doesn’t seem to realise that this particular horse has bolted. I’m not saying that there are no more investors, but there certainly is not the number there used to be. Most investors have seen the writing on the wall, which has been coming for a long time. Large numbers of them have sold their properties for a nice, tax-free, capital gain in the last two years. There is not the tax revenue in investment property that they think there is.

Not that it will stop them though, even though the news is bad for this type of tax. Quote:

?In background papers released online, the Tax Working Group was told told by officials that a GCT will reduce the supply of rental housing and increase rents.

?A CGT will therefore be paid for by poorer New Zealanders in the form of higher rents.?The taxpayer will also be forced to shell out even more in accommodation supplements.

?These facts aside, a CGT is incredibly complex, would increase compliance costs significantly, and would raise no additional revenue for the Crown. End quote.

This government has already shown that it has nothing but contempt for poor people. Even the threat of a Capital Gains Tax is enough to send investors running for the hills. All it will mean is that there will be fewer rentals available because the government doesn’t have a hope in hell of providing enough housing for even the most needy. All governments for the last thirty years have relied on private landlords to fill the void. Private landlords, however,? have been abused for so long now that most have taken their (still) tax free capital gains and run for higher ground. And who could blame them?

That does not solve the housing problem though. The housing problem is not just about homes forfirst-timee buyers. The housing crisis is for anyone wanting to live anywhere.

It would be political suicide for any government to propose charging CGT on the family home, but that is what they must do if there is to be any real revenue from this tax. They will not do that, and so it can only be seen as another slap in the face to those ‘rich pricks’, who can afford to own more than one house. Even if it is mortgaged to the hilt.

But here is the real irony of the whole situation.

The main argument in favour of a capital gains tax is that it disincentivises housing as an investment, and encourages funds to flow into ‘productive assets’, presumably business assets.

For a capital gains tax to succeed even remotely, it will have to be applied to all asset classes, not just housing.

The other large asset classes are commercial property and equities. So when Grant Robertson says that ‘investment needed to be shifted away from the housing market’,? guess which sector he is going to hit most?

That would be the business sector.

Commercial rents will increase. Small investors, looking to put their money somewhere, will be spooked out of the sharemarket because of capital gains on increases in share prices. The market itself will be spooked for a while. In short, investment money for the commercial sector will dry up, and business costs will increase.

So the end result of all this will be higher rents for poor people and increased costs and a lack of investment for business. But we know this government hates both poor people and the business sector, so they won’t mind one bit.

Sounds like an awesome plan, Grant. Wish I’d thought of it.