Political risks of a Capital Gains Tax

Photoshopped image credit: Pixy

Labour proposed the introduction of a capital gains tax (CGT) in 2011 and 2014, and their share of the vote was correspondingly low in both elections. In 2017, Jacinda tried again but had to drop the policy like a hot brick, as Jacindamania started to wane as soon as CGT was mentioned. You may be forgiven for thinking that they would give up on something so unpopular, but here we are again. This is what you get when you have a government more interested in ideology than reality. quote.

National has gone hard on attack on the prospect of a tax on capital income, with its finance spokeswoman Amy Adams saying it would act as a massive disincentive to save, invest or build a productive business.

The Opposition has also described it as an attack on the ?kiwi way of life?, arguing it would hit every small business and bach owner in the country.

But Tax Working Group chairman Sir Michael Cullen says Ms Adams is not right. He cites as an example someone who might think they will make a $10 million capital gain in ten years on a $10m investment.

?Are you not going to invest in that because the return?s going to be $6.7m or $7.2m depending on whether you?re an individual taxpayer or a corporate entity? Are you going to cut your nose off completely to spite your face, which is the Amy Adams argument?? Sir Michael says.

end quote.

I don’t know if Michael Cullen is just completely divorced from the real world, as socialists so often are, or if he is being cute here. For every business owner who makes a $10 million gain on a business, there are literally hundreds of thousands who make more like $50,000 or maybe $100,000, which is intended to help make retirement more comfortable. This demonstrates my point that most supporters of CGT seem to miss.

It won’t be the rich who pay the bulk of CGT. It will be middle New Zealand.

It will be small business owners, landlords with one or two properties, and people with shares and Kiwisaver funds, because there are just not enough really rich people in the country to make much difference to the collection of the tax. Once again, hardworking Kiwis who are simply trying to get ahead in life are the ones that will be hit hardest. This always happens. quote.

Ms Morten says there is nothing in the proposal for small business and every business group has criticised the report. The only businesses that would do well out of a capital gains tax would be tax consultants.

Meanwhile, Sir Michael has also dismissed National?s line that it is an attack on the kiwi way of life.

?There was never a case where most people owned baches in New Zealand and now it?s almost impossible for middle income families to go buy a bach.?

Ms Morten agrees most people do not own a bach or a lifestyle property but she still thinks it is part of the New Zealand psyche. end quote.

Many families club together to buy a bach so that they can have their own little slice of heaven. Most of these people are far from wealthy. They will be affected by CGT if the bach is ever sold. quote.

Just what the government will pick up from the report though is still uncertain and Ms Morten believes it will cherry pick the recommendations, mainly based on what New Zealand First will tolerate.

She points out New Zealand First has been relatively quiet over the past few months on capital gains tax after its leader Winston Peters had earlier been vocal in opposing it.

?Maybe he?s given himself room to move now. But for them it?s actually probably going to be more what they can get through politically in this current environment, let alone what they can get through in the election.?

NBR end quote.

Anyone who ever owns an asset is likely to be affected by CGT at some point. If they own a house, inherit a property, have Kiwisaver funds, or even live in a rural area on a piece of scrub land, CGT may apply.

National needs to make sure it hammers home this message. It needs to keep up the strong rhetoric, right until the election. Otherwise, in 2021, CGT will be a reality for all New Zealanders, and the socialist ideology of punishing those that try to get ahead will be in place for ever.