GUEST BLOG: Geoff Simmons – Davidson is Wrong: Capital Gains Tax Will Hurt the Poor

By   /   March 12, 2019  /   18 Comments

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Marama Davidson has come out claiming that a Capital Gains Tax should be just the start of tax system reform that favours the poor. The trouble is that a Capital Gains Tax excluding the family home actually helps the middle class. It doesn’t help the poor, and will probably even hurt them.

 

Marama Davidson has come out claiming that a Capital Gains Tax should be just the start of tax system reform that favours the poor. The trouble is that a Capital Gains Tax excluding the family home actually helps the middle class. It doesn’t help the poor, and will probably even hurt them.

Any tax change creates winners and losers. This can be unpredictable, but modelling can give us some idea of what to expect. What this modelling tells us is that if you care about the poorest people in society – which I do – then a Capital Gains Tax excluding the family home looks like a bad idea.

In fact this proposal looks like more middle class welfare. Given that this Government has already given us Kiwibuild and free tertiary education, we don’t need any more of that.

 

Capital Gains Tax Excluding the Family Home

What might happen with a Capital Gains Tax imposed only on investors (however you define them)?

House prices should fall – a little bit, because only investors are affected. Some landlords will sell up and leave the market. These houses will be picked up by those people that can afford to buy a first home – the middle class.

So far probably nobody reading this blog is crying into their cornflakes. But stay with me.

This leaves fewer properties for rent. We know that rentals have more people living in them than owner occupied dwellings, so this increases the pressure on the remaining rentals by a lot. Rents will rise, probably by quite a lot.

Here’s the kicker – the Capital Gains Tax excluding the family home doesn’t raise very much money. So there isn’t enough money to compensate poor people for the higher rent costs.

The result is that more than half of new households would be worse off, especially the poor ones.

A large part of our society needs to rent and will always need to rent. They have no hope of owning a home. Our tax system should be helping them first and foremost. The Capital Gains Tax – excluding the family home – fails that test.

Let’s contrast that with what happens if we include the family home.

 

Capital Gains Tax Including the Family Home

For starters including the family home would make this whole Capital Gains Tax exercise a lot simpler and harder to avoid. That is bad for accountants but better for most of us.

A Capital Gains Tax including the family home would reduce house prices by quite a lot. Investors and home owners would take a hit, but unless they had just bought very recently they would probably barely notice.

Again lower property prices are obviously a good thing for first home buyers wanting to get on the property ladder. Renters meanwhile face slightly higher rents as landlords look to recover the costs of the higher tax.

However, thanks to including the family home the tax change would raise a lot of money. When this is given back to people in tax cuts, most people (75% of new households) are better off. Thankfully that includes the poorest in our society. Win!

Currently home owners get the biggest tax breaks in our society. By exempting the family home from any new tax this Government looks determined to keep it that way. So much for caring about poverty.

So when people ask me if this Capital Gains Tax excluding the family home is a step forward or not, I say no. It will do little to solve inequality or sky high house prices. Worst of all it will probably hurt the poor. The only way a Capital Gains Tax can raise enough money to compensate the poor is by including small businesses. Not only would this be bad for jobs, Winston will never let it happen.

You’ll probably never hear this said on this site but John Key was right – a Capital Gains Tax needs to include the family home or you may as well not bother. Given Marama Davidson’s comments last night about being open to including the family home she may well be waking up to this fact.

 

Geoff Simmons is an economist and Leader of the TOP Party.

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18 Comments

  1. Sam Sam says:

    Ok so every ones saying its a supply problem. So here’s an opportunity to force developers to build low cost housing/rentals through exemptions.

    • saveNZ says:

      The housing crisis not a supply issue, it is a demand issue from having 70,000 new residents, 800 new cars on the road a week in Auckland alone, 150,000 work permits for foreign nationals and nearly 5 million tourists coming here per year and has been happening for about 3 years in a row….

      Not hard to work out that there is a artificially created demand for housing and accomodation.

      If the government and council were worried about housing affordability, they could easily have used the unitary plan to put in low cost housing/rental requirements, aka 15% of all new build apartments needed to be under $250,000. However they didn’t and instead eroded democracy with lowering zoning thresholds and conditions, that sky rocketed the cost of land and increased the building of McMansions. luxury apartments and the demolition of affordable housing.

      There are plenty of housing being built, but people can’t afford them on NZ low wages and insecure working conditions. They are aimed at Satellite families for the most part in Auckland and new residents bringing money with them. https://www.youtube.com/watch?v=LIMM0Tbya3M

      Look at the headlines. Today over 2000 people being offered ‘voluntary’ redundancy at Vodafone ahead of a public offering and the jobs offshore to an Indian company has been suggested.

      How can people continue to afford housing or service mortgages when their jobs are being removed not just in low tech areas, but high tech areas?

      Chorus line workers are also in the news being forced to work at below cost conditions, on top of having to shell out $50k for their vehicle which used to be supplied.
      https://www.radionz.co.nz/news/national/384509/line-workers-lawyers-prepare-class-action-against-visionstream

      The ‘housing’ crisis is not what it seems. It is more a ‘wage’ and ‘conditions’ crisis in NZ… and getting worse because it is not being addressed.

      The only thing that keeps people out of poverty in NZ these days is their house. But apparently that is the next to be ‘tinkered’ with. Not to raise taxes of course, because why do that, it is to ‘redistribute’. I guess when you next get made redundant, on top of the 33% of tax you pay off the redundancy payment in taxes, you can then be forced to sell your house or business, and pay an additional 33% CGT taxes?

      More and more NZ business are now at the mercy of ongoing sales and cost cutting, how long before the Palm oil giants come and remove the 13 manufacturing sites and 1800 employed people in NZ, in this and other examples….

      It has happened to Cadbury.

      And Kiwis often earn far less after being made redundant. Aka they never recover.

      https://www.radionz.co.nz/news/in-depth/365540/why-being-made-redundant-in-nz-is-so-tough

    • Seekay says:

      The housing crisis is a demand problem first and foremost, due to the massive net immigration we have had for many years now. How can we continually say it’s a supply problem…it has been shown to be impossible to produce the houses we need so why aren’t we reducing net immigration. We also need to be dis-incentivising property investment, capital gains tax will help but a bigger deterrent would be if there was an over supply of rental properies, which reducing net immigration would help achieve.

      • saveNZ says:

        The people saying it is a supply problem are echo chambers of which are often continually reinforced by MSM and neoliberals both from Labour and National. Sadly the Greens seem to have picked up the virus too.

        If you look at the NZ Herald link about the McMansions, notice the NZ news is now actually Australian news…

        https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12211787

        Anyway NZ herald has not been NZ owed for a while…it’s owners are HT&E and it’s two largest shareholders are the Australian fund manager Allan Gray Australia and News Corp Australia.

        NZ Herald apparently outsourced the bulk of the Herald’s copy editing to an Australian-owned company, Pagemasters in 2007.

        Also fired the local journos like Dita de Boni and satirists like Malcolm Evans who can show complex concepts of unfairness simply to the masses via cartoons …

        Of course big business supports globalism and free trade, they want more opportunity to expand and decrease local content and employees to control and contain the news while saving money.

        https://en.wikipedia.org/wiki/The_New_Zealand_Herald

    • Sam Sam says:

      What’s right for right now is is addressing the homelessness and inequalities and climate change because that’s what arguably won Jacinda her government. These are certainly very difficult issues to solve and I would say even more difficult to solve than choosing who we let in. Immigration can not be helped unless we axe residency status as Australia has done to us and tie every one down with citizenship. From my point of view we should maintain our freedoms of movement as much as possible.

      We know that regulating capital will be very tricky under the Treaty of Waitangi. Everything you read in the English version Treaty that the Crown has presented is posturing by the Crown to create a PERCEPTION to the New Zealand public and Māori that there is a cost to leaving New Zealand. Everything in the Treaty can be negotiated AFTER a contract is signed and DISPUTED in the Waitingi Tribunal. I would also add that it’s actually so obvious that it’s up to the public that New Zealand politicians with their own selfish career risks know they won’t get away with it and that the electorate will punish them hard. So the chances of Capital Gains Tax or similar measure are greater than people think.

      So always drop the inconvenient truth in the middle and at the end identify new financial identified staff moves or local hires and Auckland will remain the financial and economic engine of anew Zealand for the foreseeable future – All they’re doing is ring fencing assets and moving some support staff so that New Zealand becomes a home for every one and kiwis become global citizens.

    • Brit Bunkley says:

      National has been selling public housing for the last 25 years (including famously in the last 90’s to an Australian liquor outlet). It is time to restock the supply? Why is that subject mysteriously avoided?

  2. Peter Mcfarlane says:

    I’m still not convinced that the number of occupants will drop radically when people transition from renters to owners.
    Prices are that high that most new owners will be getting flatmates, at least in the first few years.
    I would also challenge government to forget about 1st home buyers for now and just get all new builds running as rentals, maybe even rent to own. At as low a price as possible.
    This needs to be of a scale big enough to put downward pressure on the rental market. We can sort out 1st home buyers once that rental market is more balanced. At the moment landlords get away with murder, raising rents due to demand as well as any increase in cost. I. E. Having their cake and eating it too.
    The only other option is a rent freeze which won’t go down well.

  3. Mjolnir says:

    “Renters meanwhile face slightly higher rents as landlords look to recover the costs of the higher tax.

    However, thanks to including the family home the tax change would raise a lot of money. When this is given back to people in tax cuts, most people (75% of new households) are better off. Thankfully that includes the poorest in our society.”

    Hang on Geoff, what’s to stop landlords raising rents for poor even more, following tax cuts?

    We saw precisely that behaviour when govt increased accomodation allowances, such as for students. https://www.stuff.co.nz/national/politics/100485600/student-allowance-boost-blamed-for-rent-spikes

    So your logic kind of collapses at that point.

  4. Rickoshay says:

    I keep telling you lot that we should Tax capital leaving the country, 70 percent Tax on capital leaving at the border is the answer, that would effect the offshore investors not the renters, that way they would be forced to reinvest in NZ ie; build more rental homes with their capital gains. But no this gov thinks that by banning key money they helped the renters, but the costs immediately resulted in a rent increase, as will a CGT, they really look after those Oriental investors dont they.
    Gotta be pushin for a Bank directorship once they are VOTED out.
    Lets make a pact as voters, the instant a PM, MP breaks an election promise thats the last time they get voted in period full-stop, its called accountability.

  5. stefan says:

    It is hard for me to take this seriously at this stage, as my understanding of CGT is that the taxi only payable when the house is sold… If One is planning to start, or house a family long term, then a 2-5 year cutoff point takes it out of the picture entirely for the “domestic” owner…
    That tells me that the debate over whether the “family home” is included is purely semantics… and let’s be realistic boys and girls, a speculator who has millions tied up in property shouldn’t find it too hard to be able to mislabel investment property as a family home…
    Considering the massive housing shortage the Nats manufactured on behalf of their owners, then getting a desperate prospective tenant to agree to pretend they are family, and aren’t paying actual rent doesn’t look too hard an ask.. When given a choice between having a roof over ones heas, or sleeping on a couch, park bench, in a tent, car, or garage, it’s a no brainer…
    The bottom line , and the criminal Key knew this well, is that whatever form the law takes, the speculators will find ways to go around it…
    This also totally ignores the building program being undertaken by the current govt, which is a necessity as a result of the Corporate Raiding party deliberately creating the massive shortage needed to create the property bubble that did… Where does this article acknowledge that reality? TOP in name NAT by nature…

  6. MattMeek says:

    Hang on a second, if a capital gains tax is likely to result in a loss in capital value is anyone going to actually have to pay it anyway? Have I missed something??

  7. Z says:

    To unwind this mess after a couple of decades of the State ingratiating itself into the accommodation market is going to be hell.

    My guess is that Accommodation Supplement will be phased out, with a new alternative that pays less people a subsidy will replacing it.

    Yeah, CGT is going to brutalise those on the bottom. If you really want to help people don’t tax the first 30K and remove the subsidies. This would allow the market to cool as it should during the next economic cycle.

  8. countryboy says:

    T.O.P?
    Meh.
    Never mind stirring up the symptoms of narcissistic and sociopathic greed an’ that. How about taking the ‘opportunity’ to go after the foreign banksters? Then after they’re sentenced, asset stripped and banished we re nationalise what were our stuff and things?
    And once that happens? We, all of us, demand a royal commission of inquiry into who took what for why and how much they got for it that now sees homeless people living rough in average streets where there are now multi million dollar weatherboard huts squeezed onto MJ Savage’s 1/4 acre sections?
    A CGT now is like putting a bandaid on the neck-stump of a headless corpse, for Christ’s sake. It’s too late for that. We need to get serious re why we Kiwis are living in poverty on a rich land? A million dollar property that was once selling for $180 K deflates your pay scale Dumbasses. Every time house prices rise, un fettered, we get poorer. And who encourages that? YES! CORRECT! The bankster!
    There’s even less written here about the effects of the nefarious infection that foreign banking has on our lives than of how family farming is the source of all that money other useless, riche, urban bastards fuck around with.
    “What this modelling tells us is that if you care about the poorest people in society – which I do –“
    I bet you do. You, and your riche accountant Boss man. I bet you cry yourself into hysteria as you roll about naked on all that money.
    Hence etc, fyi,btw.
    Meh.Meh.Meh.Meh.Meh.Meh.Meh.Meh.Meh.Meh.Meh.Meh.Meh.Meh.Meh.Meh.Meh.Meh.Meh.Meh.Meh.Meh.Meh.Meh.Meh.Meh.Meh.Meh.Meh.Meh.Meh.Meh.Meh.

    • saveNZ says:

      Apparently the government is interested in tinkering with everything to do with middle and poor NZ but when it comes to the real profits being removed from the country…ahhh, er, um, well nothing.

      Apparently it is the people’s fault that banks are allowed to earn obscene profits here.

      Nothing to see here, apparently a financial transactions tax ruled out. Wonder why?

      https://www.newshub.co.nz/home/money/2019/03/the-astounding-profit-australian-banks-make-in-new-zealand-every-hour.html

      Helen Clark can also enjoy some palm oil with her morning Vogals. The price of free trade and ongoing vision of neoliberalism has bought us.

      https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12211787

      NZ is being sold up in a race to the bottom to be bought up by the most greedy and environmentally destructive companies from around the world who will also invariably find a way to pay no tax here. They will also probably find a way to qualify for various dole to work grants and tax credits such is the pathetic nature of world inequality.

      This is the policy vision of NZ housing… for the more wealthy

      Viral picture proves ‘McMansions’ are out of control

      https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12211787

      and the poor…

      https://en.wikipedia.org/wiki/Shanty_town

      or $1200 p/w emergency housing with scams operating both from the claimants and the providers!

      Work harder NZ – there are plenty of people who need the money in the burgeoning ‘social bonds’ type markets to earn or be donated taxpayers dollars to ‘help the poor’ who maybe would not be poor if it were not for the government neoliberal policy.

      It is government policy driving down wages and conditions and increasing population growth so that people are forced into $1200 p/w motels, and more taxes for infrastructure needed beyond what is able to be afforded in NZ and born by those already paying more than their share.

    • mikesh says:

      We probably should prevent the banks creating money, or, by imposing a high reserve ratio, at least inhibit them from doing so. This would give the government the monetary space to enter the housing market on it’s own terms.

      Also, making interest rates non deductible would place landlords in the same position as home owners.

  9. Andrew says:

    Of course Davidson is wrong.

    Not only is she a hard line socialist, she’s a hater.

    A truly nasty piece of work

  10. John the Little says:

    That is such crap, Andrew. You are PROJECTING you own hate onto the Green co-leader because she’s a woman and represents the under-dogs in this country. You are privileged,, white, male, affluent but you lack empathy with those less fortunate to you.

    Did you think you became affluent by yourself? No, you stood on the shoulders of others and enjoyed the privelege given to you by sheer lottery of which family you were born into. Add to that free education (or near-free), free hospital care, subsidized medicine, good workplace conditions, and other state services or subsidies, and you’re lucky to be here in NZ rather than the USA or some developing nation.

    Projecting your own insecurities onto Marama Davidson isn’t a reflection on her, it’s a reflection on YOU.

  11. jasmine says:

    Did you think you became affluent by yourself? No, you stood on the shoulders of others and enjoyed the privelege given to you by sheer lottery of which family you were born into.


 
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