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Just Like “Rogernomics”, A Capital Gains Tax Would Traumatize The New Zealand Economy

By   /  February 19, 2019  /  33 Comments

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LATER THIS WEEK, the recommendations of the Tax Working Group will become public. It is highly likely that a Capital Gains Tax (CGT) of some description will be near the top of the Working Group’s “To Do” list. How should Labour handle this extremely hot potato? The tax which all the experts tell us we have to have has much to recommend it theoretically, but, in the bluntest of practical political terms, it could very easily destroy this government.

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LATER THIS WEEK, the recommendations of the Tax Working Group will become public. It is highly likely that a Capital Gains Tax (CGT) of some description will be near the top of the Working Group’s “To Do” list. How should Labour handle this extremely hot potato? The tax which all the experts tell us we have to have has much to recommend it theoretically, but, in the bluntest of practical political terms, it could very easily destroy this government.

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. The farmer, the small businessperson, the professional couple who diligently paid off their mortgage and then leveraged the freehold into a second property: these are the people whose undying enmity will destroy any party foolish enough to enact a CGT.

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. Doubters will find themselves wondering what all the fuss was about when they see how brilliantly the technical changes are working. Opponents, however, should be ignored. They just don’t get it.

Anyone who lived through the “technical adjustments” of the Rogernomics era knows that this line of argument is complete and utter bollocks. 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.

Very few of New Zealand’s social indices have registered a clear improvement in the lives of New Zealanders as a result of the so-called “Rogernomics Revolution”. 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. The dramatic surge in average life expectancy that distinguished the 30 years following World War II has plateaued.

The explanation for New Zealand’s resolute refusal to be improved by the Fourth Labour Government’s neoliberal “reforms” is very simple. 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. Given sufficient time, an organism may adapt to the loss of a limb, or an organ. Wounds do heal. But attempting to pass off the maimed subject of your surgery as a vast improvement over what existed before, is a fool’s errand. Trauma endures.

Has this government, dominated as it is by the Labour Party, learned anything from what happened between 1984 and 1999?

If it politely receives the Tax Working Group’s recommendations, only to consign them, quietly, to the archives, then we may be confident that Labour has absorbed the lessons of its recent history. If, however, Labour presses ahead: proclaiming, once again, the mighty improvements that are bound to follow the suggested adjustments to the mechanism; then we must anticipate the same disastrous consequences.

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?

Will the professional couple with some capital to invest continue to put it into a rental property if a CGT is introduced? Will they go on putting-up with the often appalling behaviour of delinquent tenants? Will they continue to spend a small fortune keeping their properties warm and watertight? They might as well put all their savings into KiwiSaver.

Which is, of course, exactly what the economists want them to do. But will KiwiSaver rent out properties to students? Will it give young tradespeople somewhere decent to live while they amass the capital resources necessary to fulfil the Kiwi Dream of becoming one’s own boss?

Money flows around the social organism we call New Zealand in a unique way. 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.


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  1. Graham Adams says:

    I absolutely agree. Most young people who support a CGT think it will bring down house prices but there is no evidence it will, including from countries like Australia and UK that have one already. And raising the wages of poorer people will do much more to reduce inequality than a CGT. Chris is right that introducing such a tax (even at a relatively low rate) will keep Labour out of power for a long while. Ardern should have learned her lesson after her “captain’s call” before the last election had to be hastily reversed under sustained and immediate pressure from National.

    • saveNZ says:

      Two many comanies are coming into NZ are making the NZ workers who have been their for decades redundant and then easily being able to bring in cheap workers who more and more evidence has come out that are actually paying to come to NZ to work so they can gain residency.

      So the government needs to do something about redundancy and also stop the floods of migrants workers doing VERY low skilled work… and stop the family visas, and make sure those coming into NZ are paid ABOVE market rates and have a much greater time frame and criteria like speaking English like in the old days of immigration that made sure that people were employable and could function here …

      That would stem the demand side for housing. At the same time target tax wise satellite families and cash businesses everywhere…

      also tighten benefits for people living a lifestyle that does not fit with a benefit, aka large new house, newish car, with being on social welfare.

      Make new citizens have to pay taxes for 20 years or be born in NZ and lived a reasonable amount of time here to get super and free health care if you come here.

      Anyone coming into NZ has to pay a tax for ACC as part of their ticket if they have an accident here…

      Stamp duty on any business or land or house sales over 5 million dollars…

  2. Roger Vickers says:

    For an experienced journalist and political commentator such as yourself Mr Trotter, I am appalled to be witnessing your regression into sensationalist media speculation. You impress me with your stark writing technique full of questions around a potential CGT and the “trauma” which would follow. My thoughts after reading thsi piece are; Trotter has a holiday home out west, a home for the family in a Trust and one in every major city in NZ (which by my calculations is 1) and he will miss out on the 29% return his accountant promised if the CGT becomes law.
    Nowhere in your piece of speculative prose do you mention the fairness of our current tax system with hidden trusts, loopholes and a sense that if you have the right accountants and lawyers you can avoid paying your “fair share”. Do you even mention the number of religious and other so called “non-profit” organisations who have grown fat through the weak times of ineffectual governements who were reluctant to look at our tax system for the very reasons you allude to -“… should not expect to be re-elected for a generation…”.
    You certainly have come along way Mr Trotter. Good luck with your property portfolio over the next few volatile years.

    • Nope, just one house, Roger – like most New Zealanders.

      But, my day was a farmer, and I know a lot of small business people and a few landlords.

      “Fairness” is a complicated principle. Pursue it too aggressively and you end up with a slew of unintended consequences.

      One of these will, almost certainly, be the defeat of Jacinda’s government – if she attempts to introduce a CGT.

      • Marc says:

        Hansard, 12 Feb. 2019, extract from speech by Greens co-leader James Shaw:

        “Can we afford not to? We were elected on the promise of change. If we want to reduce the wealth gap, if we want to fix the housing crisis and to build a productive high-wage economy, we need to tax income from capital the same way that we tax income from work. The very last question that we should be asking ourselves is: can we be re-elected if we do this? The only question we really ought to be asking ourselves is: do we deserve to be re-elected if we don’t?”

        Read the whole speech:

        It appears the government will be damned if it does introduce a common and general CGT, and damned if it will not so.

        This is indeed stuff that will be make or break for the coalition government. If the Greens do not get a sort of CGT, they will be in a position where they themselves feel they cannot be re-elected. So that will mean, tensions between them and NZ First, and one of those parties may decide, it is over with being ‘nice’, we need to show the difference between us and them, to have any chance of getting re-elected.

        Maybe Chris wants the Greens out of Parliament, hoping Jacinda and Winston and co will get in with a landslide in 2020? I would not rely on the recent polls too much, things can get very nasty soon.

        • mike says:

          those capital gains will never be realized as gen x and millenniums can afford to pay the prices the boomers need to repay debt and retire

      • SPC says:

        Of course someone your age knows a lot of people who are landlords (and who likely also oppose super being limited to those who are retired). Just like an MP knows lots of work colleagues who also invest in rental property.

        For farmers, “delayed gratification” is making their income via CG – meaning that in some years most of their income is from borrowing against the rising value of their farm.

        Of course this income/CG on their farm value is not realised until they sell the farm.

        Most people selling farms become multi-millionaires and their not paying a CG is privilege at its finest.

      • Hortense says:

        Quite agree. Cullen is very good at imposing taxation pain but bloody useless when it came to fixing the Post Office.

        • darth says:

          this government was not voted in to look after the interest of the baby boomer speculators who don’t vote labour anyway they can go bankrupt and live under a bridge as far as iam concerned we are building a new economy for the future not one based on a life time of debt boomers need to realize the world has changed endless credit growth is no longer possible and we can no longer support our debt based standard of living that game is over its not just new Zealand its world wide.
          its better to have a managed change than have a greek like blow up.kiwi saver will provide the capital for the new economy we will buy back the country and we will own our future and we will not be debt slaves to anyone. speculator/renters can go to hell.

  3. Sam Sam says:

    New Zealand houses look like they’re IKEA wardrobes being put together by high school students. I mean you don’t need a very skilled workforce to put together kitsets yet kiwis pay premium prices for plans that should be $100 a square meter and land prices that should only be $2000 a square meter. This CTG as politically compromised as it is is the down turn kiwi housing desperately needs.

    • saveNZ says:

      Sam, housing is already downturning as most Kiwi’s can’t afford housing on NZ wages.. we needed cheap rentals not middle class buy to lets… (this is something the Labour government gets tricked on time and time again, aka 2014 election was all about capital gains so that ‘first home buyers’ could afford property, Labour have not worked out that most first home buyers can’t afford to buy a house with their insecure poorly paid job and those that can afford a house have higher expectations therefore overpriced so called affordable housing is not in demand).

      Capital gains does nothing if you are just buying up housing and don’t intend to sell them any time soon…. unlike a stamp duty that gets paid not matter what tax affairs you have… with anything linked to end of the year returns that are overseas based you can send the profits overseas, while loading up the NZ company with debt so you don’t pay taxes… see what happened with Cadbury… https://www.radionz.co.nz/national/programmes/ninetonoon/audio/201843153/business-commentator-rod-oram

      I’m all for DIRECT taxes. Look how much they make on the petrol taxes in Auckland.

      If you are going to tax, at least make some money out of it. Income taxes and business taxes down in NZ, more direct taxes like GST up.

      • Sam Sam says:

        Yeah well either the average wage is raised from about $72k to about $120k in order to support an average house price of about a million dollars or the average house price will come down wrecking every ones days and giving the shrewd opportunities to pick up bargains OR.

        Worker benefits improve so a two income family can afford to run two or more jobs while looking after children and a mortgage.

        There are a multitude of levers a government can pull hard on to balance income and expenditure at the national level to balance all this, tax is one, releasing land is another, restricting immigration is another.

        If it was me, seeing as it’s a Labour Party in government I’d probably go after improved worker benefits more than a tax solution. Labour is exempting a whole bunch of people from the tax any way so they better have something up there bloody sleeve.

    • darth says:

      the housing crash is here it is happening and the window to exit is now closed the we told you so moment is here

  4. SPC says:

    Being a baby boomer trumps everything.

    In a rational world, super – a retirement benefit, would not be paid to those still working and all income, including CG, would be taxed equally. And so $3B pa would be available for health and education and state housing. But baby boomers put themselves first.

    Got to love the Goebbels like lie that landlords sacrificially upgrade their properties for their tenants – even now many are still without insulation despite years of incentives and now requirement to provide this coming due soon.

    The greed of capitalism is strong with this one.

    • Marc says:

      The truth though is, that most still try to get their own residential property, and many will try to also get an investment property, as that is what ‘hard working’ Kiwis have become accustomed to, as it has been preached to them for so long, property is the ‘best investment’.

      Too many love to play Monopoly and play on the market place, even small earners dream of owning one day.

      They may settle for an apartment or two, or a unit or two, but still want their own, as paying rent is as appealing in NZ Inc as wearing your work mate’s urine stained underwear.

      The system has intentionally been designed the way we have it, as people are meant to be servants and slaves, dreaming of ‘breaking free’ at last by buying property.

      It takes a real game changer to change that mentality that so prevails among the population here. They rather put up with endless immigration, to feed the Ponzi Scheme, all thinking of number one only, to feather their nests, or at least to ‘safeguard’ their retirement.

    • darth says:

      baby boomers are fucked a lot wont be able to retire they will be lucky to have a home when the bank is finished with them.

  5. saveNZ says:

    Elections are easy now to predict in NZ.

    Labour will try to say they will help blue collar and middle class workers by introducing a capital gains tax which is not giving the above any more money in their pocket and if they own a house (aka 65+% of Kiwis) may devalue their only asset…

    Labour will offset this by very complicated set of tax credits, and piece meal bribes that the neoliberals in treasury and policy get excited about but you need an accountancy degree to fathom, that are targeted at blue collar and middle class workers.

    Sadly not sure how many will have a job anymore with the rise of 180,000 open work visas a year and free residency off that in very low skills areas in particular creating a lucrative side industry of people trafficking and immigration lawyers here.

    Labour will counter this by double speak policy that tries (and does not succeed) with hedging their bets on immigration and allowing further immigration while trying to pretend they are cutting down on it… aka the good idea but very flawed foreign buyers bill that when watered down allows anyone in the world to buy new property assets and land in NZ, (overseas sales have increased under labour/greens/NZ First apparently), and OZ, Singapore and anybody resident here like foreign students even if they are not a citizen to buy existing and new property here…

    National will in the last year boot out Simon, and replace him with lots of hype about the new leader, which may be Judith if they can’t find anyone better, and they will campaign on tax cuts that will put money in the blue collar and middle class pocket… depending on what the polls say they will be cagey about immigration, but of course we know that all Natz imagery is always Pakeha focused on their election campaigns and then on the side any migrants can buy their way with favourable policy with a mere $100k, wink, wink…

  6. Marc says:

    “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. The farmer, the small businessperson, the professional couple who diligently paid off their mortgage and then leveraged the freehold into a second property: these are the people whose undying enmity will destroy any party foolish enough to enact a CGT.”

    You are right, Chris, but with that, one has to ask how capital gains of significant amounts can be achieved, offering gains even after years of some (moderate) inflation and depreciation.

    The answer is, you will only get a capital gain on your own home, or business even, if we have a ‘growing’ economy. And how has New Zealand’s economy ‘grown’?

    It may partly have been due to the use of more capital (land, resources) to produce more. And as productivity has hardly increased on a per capita basis, the only way this was achieved is BY CONTINUED IMMIGRATION AND ALSO NATURAL LOCAL POPULATION GROWTH!

    Thus it is based on a totally unsustainable system that we cling to. We use more land and resources, which are finite, to squeeze ever more out of them, thus also polluting the soil, air and water, eroding some land, degrading soils and increasingly also exploiting labour that is cheaply paid (immigration to ‘fill the gaps’).

    We basically have the upper and middle class ‘borrow’ at the expense of the future generations, not just financially, but also in resources, climate and environmental quality standards, which we exploit, thus exploiting all that to maintain a lifestyle that cannot really be sustained for much longer.

    By the way, to get one’s own home, and in some cases businesses, the only way most get there is by inheriting or borrowing or both. And the high interest for borrowing makes a few others fat and rich again, while people end up in slave like conditions.

    If we want to truly safeguard the future, we must change a.s.a.p. from the existing economic model resembling a Ponzi Scheme to one that is truly sustainable, without use of much fossil fuel, and without immigration and population growth.

    As that is a measure that will not be achieved without pain, all governments keep lying to the voters and existing population, selling them the Kiwi Dream BS, so as we can carry on as usual, just work hard, save, invest, borrow and ‘grow’ the economy.

    NZ has grown in population from nearly three and a half million in the early 1980s to now nearly five million. See the picture and reason for what we have as a system?

    Yep, it is nothing else like the old failed recipe preached by politicians of developed nations in the 19th century, have more babies, and we will ‘grow’ and become ‘stronger’ and ‘more prosperous’.

    How did that work out? It will soon come to bite us, very harshly in our bottoms.

  7. Castro says:

    Martyn, why do let this obviously right-wing Boomer have such a platform on your blog… is he paying you?

    Sell your property, Chris, donate all your wealth to charity, get a fast food job and a private rental (if you can), and see what you think then.

    The greatest trauma to No Zealand since Rogernomics and Ruthanasia, and essentially their continuation, has been and is neo-colonial levels of migration… what many right-wingers, such as yourself Chris, fail to understand is that social collapse is inevitably followed by economic collapse; yes, it is about the economy, stupid… but only when there’s a society on which to base it.

    • saveNZ says:

      Judging by the shortages of private rentals I’m not sure this discourse that NZ is awash with private landlords making copious capital gains is true.

      The shortage of rentals is because we have more people arriving in NZ that have money and buy up the rentals to live in, or need to rent themselves making the demand side unable to ever be filled aka (70k new residents, 180k open work permits, nearly 5 million tourists).

      Then we have the dysfunctional supply side Ponzi construction scams where building quality buildings is not the goal, making as much money as possible is the goal under neoliberalism and the smaller operators are being priced out because large operators are bringing in people who are not skilled and undercutting them.

      This approach however does not work out cheaper or produce quality buildings on time and budget, it does the opposite, drives local skilled people out of the industry or country as the low wages and poor benefits does not attract talent to stay here and the ponzi is continued with people making money from $40k per person to come into NZ on open work permits and little chances of work, who also take up housing and lower wages by being touted cheaply in the industry. Instead of the money going to the trades people themselves the money goes to third parties, project managers, labour hire firms, etc

      • darth says:

        there is no shortage of property there is shortage of affordable low maintenance homes 9 times the local income get real that’s a sign of ponzi finance and fraud

  8. Richard Christie says:

    I’m confused.
    I thought Chris Trotter identified himself as being left wing.

    This post could have come from a National party strategy memo.

  9. Richard Christie says:

    ” Ours is an economy driven by delayed gratification: by putting in the hard yards now, on the promise of tax-free capital gains later.”

    lols. we’re certainly delusional in regard to such self-perceptions.

    My observation is that we are a country of extreme short sighted thinking and always going for the cheapest option regardless of poor quality and long term reliability. Hard yards now, my arse.

  10. Andrew says:

    I completely agree Chris.

    I’m not ideologically against CGT – it has it’s positives and negatives but my concerns are firstly that this government isn’t sophisticated enough to comprehend some of the scenarios that may unfold, and secondly their seeming hatred of landlords.

    You’re on the mark regarding rental accommodation. There is a perfect storm brewing in this sector:

    1. A genuine shortage of housing stock, thanks mostly to Auckland Council and its heavy handed bureaucracy.

    2. A wave of baby boomers cashing in their renters as they head into retirement. These will be sold mostly to first time buyers. Good for them but it reduces the rental stock.

    3. Government imposed requirements for heating and insulation regardless of whether you live in Invercargill or Kerikeri.

    4. Looming interest rate rises, driven from the USA.

    Without a capital gain, current rental returns don’t even equal the rates provided in a risk free term deposit so add the risk of damage to property by a bad tenant and being a landlord simply doesn’t make sense. (My mate recently had to fork out $40,000 to repair his renter after a tenant trashed it)

    • Sam Sam says:

      And 5.., still no policy around compensating the tax payer for increased tax.

    • Marc says:

      Hah, you know that a CGT would only kick in once an asset that is taxable under the circumstances is SOLD, for a GAIN, don’t you?

      So those who have invested in rental homes, they should stick to renting their properties out, and collect the rent, to use for themselves, or to re-invest, or whatsoever.

      If all or many rental property owners would suddenly want to sell, before a CGT on properties would kick in, we would have a glut of homes on the market, sending prices right down.

      First home buyers, and some long term investors will rejoice, cheap properties for sale, after all.

      And what would they do with the properties? Either live in them themselves as owner and occupier, or rent them out again.

      Homes will hardly sit empty for too long, and nothing much will change, perhaps temporarily there may be a bit of a shortage of rentals, as first home buyers would jump in and take over such homes, but as new homes continue to be built, that will not last, there will be new rentals also, available for renters.

      Those who buy first homes are likely to be renting now, so they will vacate and make room for other renters, perhaps even homeless, and the stock of property will remain at least as what it is, slowly grow due to additional building, partly through Kiwi Build.

      We have scare mongers all over the show, all running around like chooks with their heads cut off. In reality there will simply be a re-arranging of the tax systems, and generally most will not be affected by all that much anyway.

      Long term landlords will likely keep their rentals for longer, so to keep earning rent, rather than sell them, as they will after all be taxed for a capital gain.

      Stop playing cry baby, Simon Bridges, Amy Adams, Paula Bennett and others, stop pretending the world will end, it is more like re arranging the deck chairs on the Titanic, as the whole economic system we have is not sustainable anyway, and will eventually collapse, even if just gradually.

    • darth says:

      there is no shortage of house its a scam 16000 homes for sale in Auckland
      theres a shortage of affordable homes


  11. Cagey says:

    Remember when a house was just a home…

  12. Charlie Prose says:

    This country pays such ridiculously high taxes, it is unbelievable. No one on here says anything about the lifestyle block owners that WILL be taxed on any land over the 4500 square meters. THIS would not be exempt so why would my 300,000 house with land on it have to pay CGT when someone with a million dollar house in Parnell not have to pay on their “home?” Me and my partner have paid taxes on this house when saving to buy it, and over the years will pay maintenance, council rates, and interest on the loan. All of this will be in excess to any “income” you could make off the place if you go to sell it. CGT is a double tax and dis-incentive for anyone to save on any level. NZ is going backward if they introduce this tax since our cost of living is already sky high compared to the rest of the world (we are one of the only countries paying GST on basic living items such as food and clothing)…this tax is just going to divebomb this low wage economy into the abyss even further. But wait – let’s do it because it somehow “levels the playing field.” People that believe this are incredibly ignorant.

  13. Natlaka says:

    Right on Charlie – some people save their entire lives for a home. The size of the land is irrelevant. How to make NZ a place that is unaffordable? Introduce yet ANOTHER stupid tax. We pay enough already. I agree that it is a double tax and any capital gains should be offset by capital losses (homeowners should be able to take deductions for interest on loans, maintenance etc. just like landlords do) – if it isn’t, now THAT would not be fair.

    • Another “stupid tax”, Natlaka? Which one? PAYE? GST? The ones we pay now when we go out to work and earn a living? You’ll excuse me if my sympathy for property speculators/investors is somewhat lacking.

      Pay your tax on capital gains. Just like we pay our taxes on income. Fair’s fair, mate.

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