Capital Gains Tax would traumatise the NZ economy

Photoshopped image credit: Technomage

Chris Trotter, a socialist, thinks that the introduction of a capital gains tax (CGT) will ‘traumatise’ the New Zealand economy. Michael Cullen says it is all about ‘fairness’ (please note, it is not about revenue, but ‘fairness’), but I think Trotter is right. quote.

The most important aspect of the CGT issue, and the one the Coalition Government should keep in mind at all times, is that the expectation of capital gain is now ?baked in? to the economic expectations of a huge number of New Zealanders. One might even say that it is the beating heart of this country?s economic culture. The prospect of collecting a tax-free capital gain at the end of a life of hard work and deferred gratification is what keeps ?Middle New Zealand? going. end quote.

Trotter recognises that capital gains are usually the result of sacrifice and hard work and that any government that introduces CGT is going to be punished. quote.

Only those who conceive of our society as some sort of mechanism could possibly advocate a CGT. These are the people who believe that with a just few, judicious adjustments to the social mechanism everyone?s lives will be immeasurably improved. end quote.

Socialist ideology at its best. Fairness is everything. Except why it is fair to tax the same people over and over, while 40% of our society pays no tax at all (except GST), is beyond me. quote.

The ?short-term pain for long-term gain? mantra advanced by the Fourth Labour Government (and amplified to ear-drum rupturing levels by the news media) was a lie.

The wage-earner?s share of company surpluses has reduced in comparison to the shareholder?s. The number of New Zealanders owning their own homes has declined sharply. end quote.

This was the famous ‘trickle down’ theory that socialists claim never worked. That is a moot point, but CGT will have wide reaching effects that this government has not considered. quote.

Society is not a mechanism, it is an organism. Ripping things out from, or cutting them off, a living system doesn?t improve it. All that happens is that the system is left wounded and bleeding. e

End quote.

Think about this. You own shares in an New Zealand company that is subject to a compulsory buy-out. You have no choice about selling, but will immediately reinvest the proceeds back into the market. You lose 33% of the capital gain in tax. You now do not have enough money to keep your share portfolio at the same value as it was. That’s fairness, is it? quote.

What farmer (who is not a corporation) will persist with the heartbreak and stress of extracting value from the land, if the tax-free reward awaiting him at the end of his stewardship is transformed into a crippling tax bill?

Will the small-business owner be content to pay herself less than the staff she employs; will she continue to pour her blood, sweat and tears into her enterprise; if a third of the capital gain she hopes to realise at the time of its eventual sale is payable to the IRD? end quote.

Remember that if that business was started from scratch rather than purchased then the entire sale proceeds will be subject to CGT. One third of the sale price will go in tax. quote.

We are not Germany, with its hugely facilitative regional banking structures and its comprehensive tenant protections. Nor are we the USA, with its vast domestic market and its middle-class households? longstanding propensity to invest in stocks and shares. Ours is an economy driven by delayed gratification: by putting in the hard yards now, on the promise of tax-free capital gains later. Rip that expectation away from aspirational Kiwis, and the economic organism will suffer yet another massive trauma.

Those responsible for inflicting a Capital gains Tax on New Zealand should not expect to be re-elected for a generation ? at least.

  the daily blog end quote.

Well said, Chris. Some socialists can see sense, it seems.