Damien Grant on Michael Cullen’s nasty tax surprise

Damien Grant discusses Michael Cullen’s proposals for new envy taxes: Quote:

Sir Michael Cullen has emerged back onto the centre stage of our national consciousness like a spectre that refuses to move to the other side.

His Tax Working Group has prepared an interim report that comes in at 190 pages.

The short version is that Cullen and his coterie wants to tax capital gains to make our taxation system more progressive and fair.

Fair. Perhaps the most overused word in contemporary New Zealand.?End quote.

The left-wing always says fair when they really are trying to say they are jealous, envious and the rich pricks can pay more. The thing is rich pricks have a threshold at which they say no more then structure their affairs in such a manner so the government get less, much less. Leaving the burden back on the working stiffs who can’t organise their affairs in this way.?Quote:

The Working Group consider it unfair that people who earn incomes from capital gains should not pay tax while those who earn wages from working do.

Last time I looked capital doesn’t magically appear under your pillow. You first have to work. This income is then taxed.

From what is left you may accumulate a surplus that you then can either spend on smashed avocado or convert into an asset.

This asset has been paid for by taxed income. The revenue from this asset, interest, dividends or rent, is then taxed again.

Finally, after years of diligent toil, (or to be fair weeks of holding an Auckland doer-upper) it is time to sell this asset.

Let’s say the asset produces $50K a year in rent. After tax, this is only $36k. Someone buying this will pay what they consider a fair price for an asset only generating $36k.

The owner of capital is being penalised by getting a lower price for their capital as a result of this tax on rental income.

But this isn’t enough.?End quote.

No, not for socialists, they want more and more and more again.?Quote:

The person who has saved, been prudent over their life and accumulated some wealth, is going to be taxed a third time because Sir Cullen wants to strip them of a percentage of whatever increase in value they have managed to obtain since owning the asset.

The Reserve Bank has presided over a decade of low interest rates and are, in spite of the fact that we are in the middle of an economic boom, continuing to suppress the OCR.

In response, prudent Kiwis look for other sources of capital to generate an economic return as they move into their twilight years.

Many have turned to property.?End quote.

Putting your money on term deposit may be moderately safe, but the returns are commensurately low.?Quote:

Any capital gain accumulated up to the introduction of this new regime will probably not be taxed yet the prospect of future capital gains tax will suppress the eventual sale price.

Cullen views this as a good thing, as a means of addressing housing affordability.?End quote.

I don’t necessarily agree that a capital gains tax will suppress sale prices. You only have to look at Australia to know that this isn’t true. It won’t affect Auckland house priced but it may well wipe out modest gains in property values in the provinces, leaving those in the provinces poorer.?Quote:

Hopefully, Winston can put a stake through the heart of this latest Cullen program.

We already have the Cullen Fund; we don’t need a Cullen Capital Gains Tax to add to his legacy. End quote.

Generally, if a government runs into an election promising to raise taxes they get a smashing. More so when those taxes will attack the main investment vehicle of many voters. I hope Labour does run a capital gains tax for the next election. The carnage will be impressive.