Dying In A Ditch For A Capital Gains Tax That Half The Country Doesn’t Want

By   /   February 21, 2019  /   34 Comments

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THE LABOUR-GREEN TECHNOCRATIC LEFT is clearly preparing to die in the very same ditch in which the Right hopes to bury the proposed Capital Gains Tax (CGT). This is unfortunate, since one of the more annoying, if unintended, consequences of such folly is likely to be the fall of the Coalition Government. Assuming, of course, that Winston Peters and NZ First are willing to die alongside their Labour and Green comrades. The sheer improbability of that happening is really the only ray of hope illuminating what is otherwise a pretty dreary situation.

THE LABOUR-GREEN TECHNOCRATIC LEFT is clearly preparing to die in the very same ditch in which the Right hopes to bury the proposed Capital Gains Tax (CGT). This is unfortunate, since one of the more annoying, if unintended, consequences of such folly is likely to be the fall of the Coalition Government. Assuming, of course, that Winston Peters and NZ First are willing to die alongside their Labour and Green comrades. The sheer improbability of that happening is really the only ray of hope illuminating what is otherwise a pretty dreary situation.

It is to be hoped that the partisans of a CGT are stockpiling their rhetorical and evidentiary weaponry with the same eager energy as the National Party, Act and the Taxpayers Union. This latter trio can barely contain their glee that Sir Michael Cullen and his Tax Working Group are preparing to gift them such a large consignment of political dynamite.

Presumably, the advocates of a CGT are confident that this dynamite will explode in the Right’s face. That a CGT, opposed (according to Reid Research) by 54 percent of voters, will nevertheless rouse the “Missing Million” voters from their slumbers and send them marching towards the barricades. Because, according to these same advocates, the CGT is about “fairness”, and fairness is as Kiwi as … umm … voting National and grumbling about tax.

Strangely enough, the Right’s campaign against the CGT will also be based on “fairness”. They will be arguing that it’s only fair that people who have worked hard all their lives to make a success of a farm, a small business, or a rental property, are entitled to be rewarded for all that effort and self-sacrifice by pocketing the capital gain – tax free.

Will the Right focus on the multi-millionaire who invests $10 million, walks away with $50 million, and pays not one cent of tax on his ill-gotten capital gains? Of course not! They’re relying on most New Zealanders not knowing anyone like that. The sort of people most Kiwis do know, however, is the couple who set up their own business, slogged their guts out, and then cashed it in for a tidy sum. Do most Kiwis begrudge these folk their windfall? Not at all. They know what it cost them to get it.

The Right is also betting that the Kiwi dream of becoming one’s own boss remains as strong as ever. At least as strong as any desire to stick it to the rich. That confidence is in no way misplaced since neither the Labour Party, nor the Greens, were willing to make “sticking it to the rich” a central plank of their respective election policy platforms.

Certainly, an invitation to come up with new and inventive ways to “stick it to the rich” formed no part of the Tax Working Group’s terms-of-reference. If it had, then I strongly suspect Sir Michael Cullen would have refused to serve!

In fact, if we think about them, those terms-of-reference were pretty damn lame. The Working Group was not permitted to consider increasing income tax on the very wealthy. They were prohibited from investigating a land tax, or recommending the re-introduction of inheritance tax. Even worse, it was soon made clear by Michael Cullen’s protégé, and Finance Minister, Mr Grant (Budget Responsibility Rules) Robertson, that any revenue raised from a “broad-based” CGT would have to be offset elsewhere in the fiscal system.

So much for the fond hopes of misguided progressives that the additional billions raised by a CGT would be used to fund desperately needed increases in social expenditure.

Nope. Labour and the Greens were having none of that. All they wanted was a CGT. Indeed, so badly did the Greens want it that their male co-leader, James Shaw, recently declared that they didn’t deserve to be re-elected if a CGT was not delivered.

Certainly, when it comes to causes for which activists are ready to endanger their party’s grip on power, the Labour-Green Technocratic Left’s determination to die in a ditch for a CGT is equalled only by the Alliance’s Left’s determination to die in a ditch over the USA’s post-9/11 intervention in Afghanistan. There were many causes for which the Alliance Left might honourably have committed political suicide, but saving the Taliban wasn’t one of them!

The common factor here: what links the Labour-Green Technocratic Left with the old Alliance Left; is a peculiar kind of political tone-deafness. The suggestion that a Western political party eager to be re-elected should stand in the way of punishing those responsible for the atrocities of 9/11 should have sounded absurd in the ears of practical political activists. Similarly, the notion that the single most important change for which ordinary New Zealanders are clamouring is a CGT. Not effective action to eliminate poverty and homelessness; not immediate and drastic measures to combat climate change; not cleaning up our rivers and streams; or improving our mental health services. None of these things – judging by the lethargy and prevarications of this government and its technocratic supporters – are worth dying in a ditch for.

But a CGT is, apparently, deserving of the ultimate sacrifice. Even if it means that all hope of making progress on the issues ordinary Labour and Green voters really do care about will be lost. Even though it will allow the Right to come storming back to power on populist promises of saving the family batch and making it possible, once again, for hard-working Kiwis to cash-in their dreams.

 

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34 Comments

  1. David Stone says:

    I listened to Cullen on nine to noon this morning while sorting out wiring problems on the truck.
    I was pleased to here the recommendation for farm disposal to family would not be assessed. And very surprised that the CGT is proposed to be applied to shares. I still won’t be holding my breath till that happens. In fact on reflection the whole working group project may well turn out to have been nothing but an PR stunt. They can pretend to have aspired to taxes that would delight everyone who resents farmers, property developers, speculators and shareholders by pretending they wanted to tax their arse off, but unfortunately it was decided the time is not right at the moment.
    Let’s see what happens on the ground.
    D J S

    • CLEANGREEN says:

      David,
      I hope your truck is not your living?

      We have prooof that trucks pay only 54% of their road-wear to the roads now, while private vehicles pay 66%.

      So we don’t want any more taxes to ‘prop up truck owners’ who are carrying freight aa a living.

      We don’t want more trucks gridlocking and ripping up our roads, and making ‘our residential noise vibrations and air pollution much worse for our health’ – of us all.

      • David Stone says:

        It’s part of my living Cleangreen. I deliver my timber with it.
        Can you suggest an alternative? There used to be rail on my little forrest when it was covered in Kauri, running down the valley to the gulf, but that was long ago. Only one length of light rail left.
        D J S

  2. mosa says:

    To the rich and privileged that live among us i have this message.

    Join the rest of us and pay your fair share of tax.

    Pure and simple.

    • OCON says:

      Thats the thing isn’t it. Fairness is relative. What you consider ‘fair’ the next person won’t.

      For example I don’t consider that it is at all fair that a small business owner, who already pays tax; creates jobs and often pays him/herself a meagre salary/wage should be taxed further as proposed by Cullen’s CGT recommendations when they sell their small business. These Nzders are already paying their fair share of tax.

      CGT advocates may well consider that it is fair to tax these folk on the misguided assumption that they are ‘rich’ and ‘privileged’ (however this is defined)

      • Aaron says:

        The big problem is that they weren’t allowed to look at a financial transactions tax. The reason everyone is so skint and won’t handle extra tax very well is that the super rich have all the money and are playing a global game of monopoly with it.

        • bert says:

          Exactly.

          33% on a million leaves $670,000
          33% on a 100,000 leaves $67,000

          Who is the wealthiest?

          What is fair?

    • Salacious Crumb says:

      Does that include Iwi who have $50 billion in assets and are exempt?
      Asking for a brown mate…

  3. Kat says:

    The “family bach” 1950’s style…….
    Or, the million dollar mansion at Omaha……..

  4. Tiger Mountain says:

    the Nats and their supporters are making the most noise about this, but there is soon to be a generational changing of the guard in this country, and will “generation rent” really be that concerned about a CGT?

    people with thumping great student loans, struggling to pay extortionate rents on some one else’s “ex statie”, unlikely to get into even one property, never mind multiple properties like their landlords

    50% of New Zealanders own just 2% of the wealth, and have little or no assets or savings–according to the 2018 “Inequality Tower”

    there is ample time for the TWG report to be examined, polls taken and adjusted for a bill, but Chris is right about the timing, it should have been second term stuff really, the Govt. should have charged into a massive state house and apartment build with the new united Polytechs churning out hundreds of trades skilled people as required

  5. Marc says:

    Over half of the country would never want to give up their private motor vehicle, even though that is where NZers are world leaders (like many other citizens of ‘developed’ nations) in polluting the atmosphere and contribute to climate change and global warming.

    If you go by what half or more of people want, we will NEVER address the major challenges of humanity, so it shows, even just changing the tax system by introducing a capital gains tax seems impossible to implement.

    In my honest opinion this country is truly screwed.

    People put up with endless commercial advertising and brainwashing, leaving them addicted to consumerism and wasteful and short sighted, dumb living, rather than get informed and educated about stuff that may make sense.

    Hence NZers are mostly senseless consumerist dreamers and in some form short sighted ‘idiots’.

  6. Marc says:

    Well, shifting the income tax thresholds upwards, as Cullen et al suggest, thus offering low to middle income earners more in their pockets in return for the introduced CGT for those having significant assets to sell, that appears to offer some a bit of a carrot to perhaps accept it after all.

    It is not as clear cut as Chris seems to be making his point here, or trying to do so.

  7. Marc says:

    Sometimes Chris Trotter seems to be great at leftist folklore, but when it comes to take some ‘leftist’ action, he appears to belong to the ones who will not even sit it out in the trenches, he is one of the first who runs away.

    But I had personally thought, that a higher tax rate at about 40 or 45 percent for big earners would have had a better chance of being accepted and gathering in revenue.

    Then again, the Tax Working Group was told not to go there.

    The government tied its own hands on various options, now they have recommendations that may be unpalatable, but doing nothing is no option either, as it will be like being caught out with your pants down.

    Stupid government, really!

  8. saveNZ says:

    The problem with capital gains is that the amount of tax you pay if you even pay it, is based on your taxable income… which as we can already tell, is something that richer, cash economy and multi residence folks, trusts and businesses can easily manipulate – all ‘pretty legally’.

    We already have copious amounts of evidence that companies with high turnovers in NZ pay little if any taxes here… from big Pharma to half the rich listers who don’t have to pay the top tax rate already.

    It also is celebrated that capital gains don’t tax the family home. Ok then, so people like Thiel who have a 30 million dollar home and doesn’t choose to reside in NZ might be able to pay no taxes on the gain by calling it a family home, but that teacher who lives in a 300k house and has a bach or rental property does who own a fraction of the assets that the richer home owner does?
    Capital gains does not tax the rich due to extensive loopholes already available, in fact it is a get out of jail free card to encourage more accountants and lawyers into the tax system for legal tax avoidance.

    Just look at the people who are in the tax working group! No entrepreneurs just more of the dreary same, people who make money cutting costs, making people redundant, avoiding taxes or in legal battles, and the obligatory union member or iwi member to pretend it represents, NZ. The tax working group is full of people who represent all that is wrong with the status quo and old style companies, and represents why NZ does not gain any productivity because our entire economy is now based on cost cutting and accountancy measures and ponzi’s like cafes, not actually creating value in the new economy or understanding what drive that.

    Large companies and organisations can just make themselves a charity an pay not taxes, no taxable income, no capital gains!

    Is that fair? I’m all for Robin Hood and direct taxes, fuck anything that relies on taxable income to calculate the tax rate!

    Thanks fuckers (sarcasm) in the tax working group who once again protect their own arses and stop any new ideas on taxation that might propel NZ into a 21st century solution to taxation and globalism.

    The government hides behind another working group to screw people over once again, Rogernomics style, by another ‘trickle down’ type promise that will be their sad legacy like student fees with 10% compounding interest, which of course have raised standards and got more people into education and doctors and nurses to stay in the country like they promised (NOT). Then 20 years later they water it down by having first year free… no interest on loans etc… pathetic they can’t learn from mistakes aka bringing in radical ideas to target certain groups (aka taxable income payers) ain’t going to get taxes out of the many non taxable income payers who make money and use services in NZ but it will unfairly tax those who already pay their share.

  9. Rogaldo Winthrope says:

    Although I support a CGT … I think it is a clumsy and suicidal political move. If there is implementation, against public sentiment, the coalition government may well fall and be replaced …. even by National’s current clown car of cartoon villains. Facts about CGT’s fairness will fall on deaf ears in an abysmally post-fact world. Crosby Textor will be beside themselves with glees at the unexpected propaganda opportunity CGT will provide the grotesque and disheveled Tory ranks.

  10. sean says:

    I seem to remember David Lange saying something along the lines of any govt that wants to commit suicide need only considering bringing in CGT.

    I think he was right. Certainly I wont be voting for any of the parties in this coalition next election and I have been on the left pretty much forever.

    There is no need for new taxes we have a healthy surplus and people have a right to a nest egg with super being pushed beyond the grasp of many with the age it kicks in constantly climbing higher.

  11. esoteric pineapples says:

    As per usual, the only people who will be taxed are those in society with the least power, money and influence.

  12. Andrea says:

    This unseemly passion for taxes as a weapon…

    We have taxes forever in this country. Are we actually getting value for what we’re paying?

    Over-priced politicians and upper echelon public servants. Project blow-outs – and we don’t know why. Poor design and engineering. Truly expensive prisons and a poor rate of social rehab. Etc.

    And they want MORE? They have yet to show they can deliver with what they already get.

    For me, the missing element is by what means do Kiwis who have zero desire to be landlords, or share speculators, trade their time, effort, and skills to get ahead without being hamstrung, kneecapped and kicked into touch by a bunch of ticket-clippers who want their slice from income earned?

    How come businesses can avoid tax and employees/customers can’t?

    Why wasn’t GST considered as a strong element in causing economic misery at the lower end on income? And set it back to it’s original amount at least?

    Oh, wow. Peons on pittances could get a tax rebate of about a week’s income if the revenue takers changes tax rates at the bottom. Wow. I bet the pensioners and beneficiaries will be sooo pleased. They can only aspire to income like that.

    And – isn’t it time for some real numbers in this? Like – how many Kiwis own baches, boats, rental properties? And how many don’t?
    How many people rent? Pay mortgage/s on one house? Have freeholded one house?
    Surely someone knows. Is it a secret?

    Oooh! This will affect savers! Oooh! Without a CGT savers are doing it hard, too. 0.1% on an online account – less RWT, of course.

    Instead of ‘tax the rich!’ – how about working to make more of us better off and free of those groping hands on our wallets?

  13. Rewarding capital at the expense of rewarding labour and initiative breeds stagnation and wealth inequality. As the link below from the Australian Treasury illustrates, NZ’s No-Tax regime is a complete anomaly:

    http://comparativetaxation.treasury.gov.au/content/report/html/08_chapter_6-03.asp

    • OCON says:

      Keith

      Taxing capital; especially that generated by small business, breeds a lack of investment, a reduction in the number of jobs created, and a stagnating economy – hence greater strains on the ability of the overall economy to pay for education, health and welfare programmes et al.

  14. Chris Harris says:

    Chris is right in the sense that the real alternative to CGT was a land tax, but that was specifically ruled out. Thus, to claw back real estate windfalls, the group proposes a CGT that will be a big hassle for small business proprietors. As Bryan Bruce says, it really is a Claytons proposal in that sense.

    The irony is that we could afford a land tax, in spite of what Dr Cullen says about all the hardship it would cause the farmer. Even if that is admitted, we could limit its effect to the urban areas where 88% of NZers live. Property rates are 0.22 or 0.23 per cent of property value in Auckland and Queenstown, whereas in several states of the USA, such as Texas, you are getting on for nearly ten times that.

    In the absence of serious charges on land of the kind levied even in right-wing states of the USA, we get investor opinions such as this: “Land, land, land is the only long-term holding. It is not subject to fashion, styles and renovation.” (From a 3 June 2012 online comment by ‘John’, ‘a property investor since 1974’, to Bernard Hickey, ‘All our eggs are in the wrong basket’, New Zealand Herald, 3 June 2012.) You’d think they’d bring in a land tax to prick that bubble, but then again, maybe our political class thinks the same way.

    So instead we get the CGT as the next best thing, which is going to make life hard for small businesses, have massive compliance costs, generate capital gains losses credits if we have a recession, and so on.

  15. G.A.P. says:

    Agree with much of what you say Chris, but surely you mean “invasion” of Afghanistan by the us not intervention(hows that working out)? Still it has kept the arms manufacturers rolling in profits for eighteen years who gives a fck about the murdered Afghan civilians???

    • Sam Sam says:

      The invasion of Afghanistan was an exercise in self deception and bullshit. If the u.S. wish to die in Afghanistan, by all fucken means. The crucial part of compensating the taxpayer or “offsetting” is how to take the top bracket so homes above $8 million and shove it into state housing. What ever floats your boat just make it happening.

  16. dennis dorney says:

    Why all this fuss about the Capital gains tax? The arguments for and against a GST only mean any- thing if the value of a house actually increases. The tax, if applied , will not be retrospective. The value of houses has peaked through most of New Zealand. This means that a CGT will not generate income until the next speculative housing boom.
    This means that we are arguing about irrelevancies. We should be asking why ‘used’ houses increase in value. It has nothing to do with higher wages or more expensive materials. A ‘used’ house has already been paid for at least once in its life. It is no longer pristine, yet its value continues to rise. Why? Because it is the land that rises in value, not the house. It is natural that the value of a ‘used’ commodity should fall (look at cars). Why are ‘used’ houses exempt? Because there is no other investment that gives banks such a good deal.
    When the banks create a mortgage (from nothing) they get as their collateral a house that can be expected to rise in value over most of its life. No other loans offer half as much security to the banks, so the banks encourage house purchases and discourage unsafe loans (to small business , for example). The market, given that stimulus, responds by pushing up house prices. The speculators, seeing an easy dollar, move in and in no time at all we have a speculative housing boom, which grows until it collapses under its own weight, which must occur at some point because the rise in house prices is not backed by an increase in real house values.
    There is clearly no point in using a capital gains tax which operates only under speculative conditions. Governments need to stop banks from creating these artificial booms. Ideally the government should own all the land of NZ on behalf of all Kiwis and the land should be only available on long term rent. Since, under the present system, it is the land prices that support speculation, preventing land sale would stop speculation totally and the value of a ‘used’ house would fall just like the value of any other ‘used’ commodity. That would kill a Capital Gains Tax on housing immediately.

    • David Stone says:

      I think the point of the CGT is to curb the speculative conditions as much as to generate revenue. So if it kills the bubble it will have done it’s work.
      D J S

    • Peter Bradley says:

      That’s very well explained and relates to bank lending i.e. creating ‘new’ money in the economy – going to assets that deliver no corresponding ‘new’ goods and services.
      However, the cycle that you describe appears to have been extended in many countries by opening local housing markets to international buyers thus circumventing the normal constraint of affordability.

  17. mike says:

    i don’t think its the capital gains tax that’s worrying them i think its the shift in where the money is being invested ie kiwi saver sucking up money that would have went into residential property. capital gains tax will accelerate this trend . i know in my case has. property is a ponzi scam the baby boomers are finding themselves high and dry loaded up on debt and sitting on property the next generation are not going to buy at prices the boomers need to pay there debts oh well to bad.
    the baby boomer have held us to ransom for long enough they need to realize times have changed.

  18. Zack Brando says:

    I’m fine with a CGT on commercial and residential land and structures. I don’t own either and I think they’re overpriced.

    No provision for capital losses should be given as if/when the housing bubble pops speculators will be able to cash in at the other end, at the expenses of the tax payer.

    Home ownership is at record lows and social inequality at record highs. Despite opinions to the contrary, Labour probably won’t lose the election on this one issue. The main stream media is often propaganda and watched mainly by National’s voting base anyway.

    Have to own property to care about this one. Clearly the property lobby wants the government to believe only people with rental properties vote.

  19. saveNZ says:

    You have to wonder why they can’t just have a simple stamp duty which has the advantages of NOT needing a valuation and an accountant and a lot of uncertainty over the tax bill.

    A stamp duty is collected instantly and hard to evade. A stamp duty is an easy calculation that unlike capital gains, does not requiring specialist fees as it is done as part of the sale and collected as the title is transferred.

    A stamp duty would make copious amounts of taxes quickly and on the AMOUNT of capital not airy fairy tax avoidance!

    With a stamp duty the government could make it so that affordable housing is exempt aka housing under $350k does not pay it for first home buyers, instantly increasing developer interest in affordable housing!

    Like everything this government is doing, their tinkering on everything to do with housing aka unitary plan, is driving up the rise of McMansions and new builds everywhere which people on low wages can’t afford, even if they get that minuscule amount of income tax back.

    This article shows the issues of not just the taxes to be paid, but also thousands will need to be shelled out in specialists to calculate the bill, aka needing to spend thousands of consultants to work out the tax bill each time (aka a valuer and an accountant), and why it is advantageous to have a gigantic family home, instead of a modest one, or two modest ones that one is rented out to help the rental crisis. ‘

    Aka a capital gain tax will be creating the opposite of what needs to happen in NZ where we need more affordable houses built not gaming the tax to encourage the opposite like they did with unitary planning and the evidence is apparent if anybody wants to view the new housing estates going for $850+.

    https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12206285

    Capital gains also advantages divorced or separated parents who presumably don’t have to pay the capital on two houses instead of the one if the family is together. Or what happens if the children have a house in their name, are they taxed or not??

    Most people are not against paying tax, but they do draw the line at unfair and confusing taxes where someone much poorer pays the tax, divorced people have tax advantages, and the tax is not linked to the amount of capital someone has in in real terms aka on the easily modified (for some) taxable income, various criteria that exempts the family home even if it is a multimillion dollar one while someone else with less assets pays more.

    Also does not target the increasing amount of new residents who don’t bother putting in regular tax returns, have a satellite family with some family member ‘living’ there (and “owning” the property on paper) while they work overseas, who will be exempt further creating more resentment of how the government always lets new residents get a free ride from existing tax payers. Aka free tertiary fees for new residents (while some former tertiary students had to pay 10% compounding interest if they graduated in the 1990’s and still paying off that loan) and the high taxes that the boomers were paying in the 1970’s that created the infrastructure that now it seems that someones rich aged relative who got granted NZ residency now gets to enjoy along with the free hospitals due to our poor and unfair planning on immigration controls.

  20. CLEANGREEN says:

    CGT would be acceptable if we saw rich listers pay their fair share but don’t as we know from Government records now.

    So if Sir Michael Cullen was to propose ‘to remove GST entirely when CGT comes into being and place a simple sales tax of 6% on all goods; – as most of the rest of our global trading partners do, – he would be so popular with NZ First and the country and win the next election.

  21. saveNZ says:

    Slightly tangential to the topic of capital gains, but puts light to the government ‘accounting’ switch and bake, approaches over the years which have been used in NZ since Rogernomics and tends to turn into a disaster and plunder from ordinary people.

    Every decade another scam, Rogernomics, the global financial crisis (where the financial sector individuals were not put in jail but many people lost their savings), Pike River and the bankruptcy of solid energy to avoid paying damages to victims, also not jail time for those involved in the deaths…

    For good reason many people in NZ will not vote for any more of complicated tax raising schemes from the government… while being told ‘how good and fair it is’ for us.

    The government constantly lets people down and it doesn’t seem to matter which government, as soon as the financial types get their way, tax money disappears and when the shit hits the fan, nobody is held accountable as ordinary people’s lives are destroyed, people’s lives lost, wealth stollen in complex schemes that nobody seems keen to unravel.

    ‘Plunder’: How the bill for the Canterbury earthquakes was passed on
    https://www.stuff.co.nz/the-press/110674808/plunder-how-the-bill-for-the-canterbury-earthquakes-was-passed-on

  22. let me be frank says:

    If “half the country dosn’t want” a CGT then ipso facto half does….as usual the challenge is to win the problematic centrist swing vote and whether that occurs is uncertain either way, so there may well be no ditch demise….time will tell.

    Either way its tinkering.

  23. Richard Christie says:

    75% of the country didn’t want Key to flog off power generators.

    Ignoring them didn’t harm him at all.

    As far as I’m concerned all personal and company income should be taxed regardless of source. The only criterion being that it is income.

    Oh, and end all tax exemption for the Church based solely on the criteria that they are a religion. They must prove any charitable status.


 
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