There is a lot of noise but little light being shown on the debate over a capital gains tax (CGT)


There is a lot of noise but little light being shown on the debate over a capital gains tax (CGT).

What the middle-class liberals who dominate the leadership in the Green and Labour Parties don’t have any recognition of is that working people in New Zealand are radically overtaxed and deeply resent that. This is especially true when considered in relation to the benefits we are able to access through the public health, education, housing systems.

Workers pay high tax rates on every dollar of income and every dollar of expenditure.

In addition, we are stung for all sorts of “sin” taxes from petrol, alcohol and tobacco that are simply revenue gatherers since they have almost no impact on changing behaviour

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The government also used to provide lots of services that have been privatised and become a new source of revenue. Let us take one example – getting a drivers licence. When I got mine I went down to the local police station and without charge was taken for a test by a traffic cop. The chances of failing were pretty rare. You actually learn to drive by driving. Now we have to pay hundreds of dollars for driver training and testing, and then paying it all again because the privatised testing company wants you to pay at least twice for the privilege of getting a licence.

Millions of dollars are sucked out of our pockets in fines for hidden speed camera traps that again are just revenue gatherers.

Cops arrest us for bullshit “crimes” like dope possession when the big thieves are the bosses cheating workers out of billions of dollars of legal holiday pay entitlements and are not punished at all for their crimes. The worst sanction they will possibly face is no more than actually having to pay what they should have paid in the first place.

Meanwhile, big monopolies, banks and multinational companies treat taxation as a voluntary activity.

Discussing the introduction of any new tax in the absence of a radical shift in the entire tax system from taxing income and spending to taxing wealth is almost a waste of time.

It is simply politically stupid to propose a new tax without also explaining that 90% of the population will pay less tax under the proposed system than before. That is only possible with a range of wealth taxes, which may or may not include a capital gains tax. If the top 10% of wealth holders have to pay a wealth tax, and there are death duties to everyone who escapes their obligations in life, then we may not even need a CGT.

A CGT does make the tax system fairer but actually has little impact on reducing inequality of wealth.

Because New Zealand hasn’t had a capital gains tax for so long it has led to people investing in property to prepare for their retirement. There are actually 300,000 “landlords” in New Zealand. Many of these people are professionals who chose to invest their savings in property because it was a logical choice in terms of returns. The teachers and engineers who did this invested money they had already paid taxes on. They feel they have already paid their share – especially when compared to the super-rich and multinational corporations who pay no tax.

Their second property is their retirement nest egg. They are technically a “landlord” but they are not a capitalist exploiter. They are just a working person who made choices based on the system that existed at the time. Many of these people would also be happy to pay tax on capital gains if the super rich and multinationals were also doing so and they had a more secure retirement guaranteed through national superannuation. In the absence of that, it is easy to argue the new tax is “unfair”.

That is what made the CGT proposal politically difficult to implement.

The other argument for the CGT is that without it the housing market is distorted. Because capital gains are tax-free the potential gain gets capitalised in a higher price for housing.

The Accommodation Supplement also distorts prices. By guaranteeing a landlord a certain return on their property through the Accommodation Supplement the landlord becomes willing to pay a higher price for the property than they otherwise may have. The supplement therefore also becomes capitalised in a higher price for housing.

New Zealand has one of the highest priced housing markets in the world. There is almost inevitably going to be a crash in prices over the next few years associated with the next world recession that is already beginning.

The housing crisis won’t be solved by the government promising “affordable” housing in an unaffordable market. This was a stupid promise. The government cannot control the market. If they succeed in getting developers to sell homes to someone below the market price then the person will discover that the home has been shoddily built or is lacking basic elements to make it more “affordable”. If the home is actually as good as any other, then the person who buys it is able to bank a capital gain. In those circumstances, the buyer will most likely be a relative of the seller.

The solution to the challenge the government faces is to go straight for a wealth tax that targets everyone with an asset above $5 million. The government could design a tax that can’t be avoided in life or death. Working people would not care a bit because almost none of them would have an asset above $5 million.

This is simple and easy. But the problem is the current leaders of the Labour and Green Parties don’t have the courage for that.

Before the election, the two parties promised they would adhere to a “fiscal responsibility” agreement. This promised to always run budget surpluses and never exceed a certain low percentage of government spending in relation to the size of the economy. This guaranteed that they would not be able to increase taxes and spending, even if it was to increase taxes on the rich and spending on the poor.

That is why they actually told the tax working group not to recommend any tax increases without tax decreases. Why would you do that when there are huge gaps in needed spending in so many areas? It might be OK if you instructed them to increase taxes on the rich and reduce taxes on the poor. But that was not done.

It was never going to be a realistic possibility for this government to introduce a CGT in isolation from a broader radical reform that included wealth taxes. NZ First is a coalition partner and promotes itself as the representative of small business and the elderly (white property owner). It was inevitable they would block the change.

Because of that, it is not useful to try and make deep conclusions about the direction of the government. This is not a “retreat” because it was never going to happen. This is not lack of courage because the government has promised to do nothing radical.

Yes, the Labour leaders could have argued more forcefully for a CGT. But at the end of the day, that would have been a waste of time in the absence of a more radical change to the entire tax system which NZ first would have resisted even more strongly.

I have a proposal for a temporary solution without new taxes. The CGT, if it had been implemented without other tax cuts, would have raised about $3 billion a year. That would probably be enough to address the most urgent problems in health, education and welfare.

But there already exists a fund valued at $40 billion that the government could take and use over the next decade to fund urgent needs in health, education and welfare and still have a billion dollars a year to build 10,000 state houses a year.

That fund is held by ACC. It only exists because the 1990-1999 National government changed ACC from a pay-as-you-go system to a pre-funded insurance model so it could be sold. ACC taxed us more than it needed to for years to build up that fund. Another negative side effect of the insurance model was a culture of denial of entitlements that was imposed. When Labour came in to office in 1999 they cancelled the privatisation but didn’t change the insurance model and culture of denial.

I am convinced that if the government said it was taking back the ACC fund and using it for useful purposes while telling ACC to fulfil its original goal of being a provider of accident entitlements as of right for the injured, then the country would applaud.


  1. The Greens are not interested in working people, Mike!

    They are there to roll out the agenda of their campaign funder Pierre Omidyar, and his friend Hilary Clinton, who seek to prevent their faction from ever losing again through controlling speech.

  2. I’m sorry but what IS bullshit is that the lower earners are massively over taxed.
    You need to be earning near $50k per year on average before you effectively pay any tax at all.
    This means many low income earners are getting a free ride. Do I have a problem with this? Not as long as they are putting an effort in like everyone else.
    But suggesting they are massively over taxed is massive bullshit.

    • Proportionately workers ARE overtaxed with GST and PAYE in relation to the wages they earn – and the kicker , – from that wage they spend more on to survive in consumption.

      This leaves them no room to have surplus cash to invest in. They live from payday to payday often having to borrow to survive until the next payday.

      Many employers take full advantage of WFF and other supplements,- as do landlords with accommodation supplements. Why? – Because wages are just far too low to pay for the basic costs in living including rent.

      By contrast , corporations pay very little tax. At one stage before deregulation company tax was around 35%. And because it was we did not suffer a declining infrastructure . Even with privatization of education , – has that alleviated infrastructure stress? No.

      All it DID manage to achieve were generations saddled with monumental debts.

      If people really wanted to be honest about the Genesis of all these issues they would go right back to when it all started : Ruth Richardson’s Employment Contracts Act 1991. And her ‘ Mother of all Budgets’.

      And before that , – the man himself, – Roger Douglas and his unpopular neo liberal ideology that overturned our highly successful social democratic Keynesian system.

      The neo liberals in both Labour and National need to take some honesty pills and admit they were wrong , – instead of constantly trying to prop up an obviously failed system that has put stress on the majority of New Zealanders while making the already wealthy obscenely more so on the backs of those common New Zealanders.

    • I’d say the biggest group paying taxes are the $70k to $200+ group because at that point you effectively get zero tax relief (aka accomodation supplement, WFF, CSC etc) but are paying full taxes as well as the user pays taxes.

      For those that think over $100k is a fortune that should be taxed to the maximum, remember $120k is the income that qualifies people for Kiwisaver ‘affordable’ homes.

      $120k goes no where in Auckland if you are paying an average mortgage or rent and have to pay steep travel costs or steep prices to live in the central city, have debts like student loans or credit cards and people on those incomes are being increasingly seen at the food banks around Auckland.

      Talking about salaries and taxes does not take into account salaries can go a lot further in areas like the Southland where houses and rents are 1/4 of the price of Auckland!

      They used to have ‘London’ rates in London which mean’t the companies paid about 30% more in London than other parts of the UK. It needs to be bought in in Auckland.

      Allowing people to be paid minimum wages or even the so called living wage is a joke in Auckland and getting residency on that is pathetic and often fake anyway,

      If someone is trying to get residency here then they should be only allowing salaries over $120k to be counted because that is what you need to be on to survive easily and letting people in on minimum wages is not only driving down wages for others but also stressing out all our infrastructure, driving up prices and allowing frauds and unscrupulous employers to flourish!

      Everyone is taxed the same in NZ but due to the immigration experiment in Auckland now hitting the rest of the country then you may be unable to get by on that so called ‘high salary’ and baulk at being told you need to constantly pay more taxes of which Auckland council spends huge amount of working out new ways to tax their residents!

      Also remember a lot of the people at the peak of their salaries now, are also paying back student loans at 12%.

      Mortgages on an average Auckland house price of just under $700,000 are large and the average rent in Auckland is $568. (Interestingly the central Auckland which includes all the inner city apartments is the MOST expensive option for 3 bedroom houses at $1,085 making a mockery of the so called affordable apartments that seem to be non existent.

      everyone in Auckland apart from the woke are aware of the push in central Auckland is for luxury housing for down sizers, new residents and America’s cup style living NOT affordable housing, and you can’t win, because anything built cheaply in apartments often needs repairs within a few years due to our lack of building controls or consequences to developers from building leaky or substandard buildings as well as paying huge body corporates.

      After the 12% student loans, 30% income tax, 12.5% GST, 10% petrol taxes, and having the average weekly travel costs of $50 for public transport as well as council rates in Auckland are averaging at least $50 p/w… insurance $30 p/w. water $25 p/w, power 25+ p/w… easy to see why people are getting frustrated at the wokies saying how under taxed the middle classes are..

      Also increasingly if you get sick and need anything that is not life threatening you have to go private to ensure you don’t get sicker while waiting.

      Charges like parking are astronomical in Auckland and so are the eye watering amounts collected in traffic infringements also always aimed at the middle classes who bother to pay it, and not get them wiped.

      If you calculate the effective tax rates for many of all the extras that are compulsory to live with like rates/water/power/insurance/travel etc it is extremely high, well over 70% of income and unlike the 1970’s you aint getting the same cradle to grave, care you used to get!

      • Forgot to mention the “donations’ for schools of several hundred dollars per child, and the cost of preschool child care $180 – $300 per child for full time care+…. (also includes the 20 hours ‘free’ child care)

        By being on a low income or being a satellite family you tend to earn no taxable income, so then can get welfare and entitlements so that you pay much less for everything from rates to childcare…

        It’s those, the woke call, ‘greedy’ taxpayers who are left to pay the full price on everything as well as the taxes for everyone else.

        So you have to wonder what is the incentive for our governments to overload Auckland with so many people from overseas gaining residency here who either earn zero income or are on such poor wages they qualify for subsidies from the rest of the country…. maybe an easy way to break the welfare system for privatisation when it can no longer cope with the amount of demand?

        Likewise the interest in giving new residents in jail residency or pushing people to get permanent residency or citizenship within a few years and then hey presto find they are engaging in illegal action in particular about getting money from incoming new residents to gain residency, post residency! What a ponzi!

        No matter, the exisiting tax payers are keen to waste their taxpayers dollars not on health and education but extra for the justice system to be overloaded as well as extra inspectors and police for frauds, and the lack of real jobs and opportunities going south from the Ponzi’s and new jails needing to be built, sarcasm.

        • Also forgot to mention the 2-4% of taxes you pay unless you opt out of Kiwisaver, our non guaranteed private insurance system that is allowed to charge on average 20% of savers profits in fees.

          Auckland is now the best place in the world for satellite families. You get gold card and free travel and medical care for the grandparents to look after the kids, free medical care and education for the kids when you have a ‘low’ income from having the earning members of the family overseas and paying taxes elsewhere.

          You can pick up a lovely new residence for 1.2 million and pop into a trust or company or be owned by relatives, with 4 bedrooms and 3 bathrooms which are built for this activity so there is room for the inlaws, pop out in the new car, and then say you have zero income and apply for a support benefit….

          So it is quite a different kettle of fish for those who are truely in need and living in poverty and those leading a very comfortable lifestyle but have little income.

          There is nothing fair in place to measure the difference in terms of gaining a benefit and welfare entitlements, apart from taxable income which has become a joke and completely unfair.

          In Italy they went around asking those living the high life and driving around in expensive cars on benefits to explain themselves.

          In NZ the fraudsters have already thought of this, and say the ‘won’ their lifestyle at sky city and this has been going on for decades while our government does nothing to combat the problem which is encouraging more fraudsters to come here!

    • Perhaps you haven’t noticed GST. That taxes the poorest hardest of all.

      Remember john key increased it give tax breaks to corporate and high earners who spend a very small proportion of their income that attracts GST

      • Well your wish is granted.
        Take the tax you pay and subtract the subsidies you get for doctors, schools, etc and your contribution to law enforcement, government, defence etc and you end up with a negative number.
        Nobody that receives more from the government than they contribute is over taxed and anyone that says otherwise needs to take off their ideological blinkers. Otherwise you are no better than those on the right you revile so much.

        • And add back in the essential work supporting our societies success, which is mostly done by low to middle income earners, they are already contributing more than their fair share.
          Speculators in existing assets, contribute bugger-all.
          And cost all of us in higher interest rates, housing and land costs.

          Who should be paying taxes, again?

  3. …’That fund is held by ACC. It only exists because the 1990-1999 National government changed ACC from a pay-as-you-go system to a pre-funded insurance model so it could be sold. ACC taxed us more than it needed to for years to build up that fund. Another negative side effect of the insurance model was a culture of denial of entitlements that was imposed. When Labour came in to office in 1999 they cancelled the privatisation but didn’t change the insurance model and culture of denial.

    I am convinced that if the government said it was taking back the ACC fund and using it for useful purposes while telling ACC to fulfil its original goal of being a provider of accident entitlements as of right for the injured, then the country would applaud’….


    And kill two birds with one stone.

    Nice one again , Mr Treen.

  4. Obvious, and not the first time I’ve heard it. Maybe there should be a movement built up to this effect?

  5. Why not just go back to a tiered income tax structure and have low income earners pay little tax and high income earners par 60 or 70%? The massive reductions in top income tax levels were supposed to improve productivity. They have had their chance to prove it. It hasn’t worked. It has just made the wealthy wealthier and the poor poorer.
    I think that income tax should be the only tax and it should be people who earn more should pay more and sufficient to cover government services.
    D J S

    • Yes , – the tiered income tax regime. Similar to what we used to have. Heartily agree. And the rorters and the takers can shove it.

      There was a time in this country where corporate tax was 35%.

      And we had full employment, a world class health / education system , and a single wage could pay rent, run a car, feed and clothe a family of four, keep the family pet/pets, – and not have to sleep in a car or some dirty alleyway.

      • I looked up the historic high corporate tax rate once, cause my old man paid no tax on his little farming company. must have been specially set up for land development and only for resident companies.
        The very high (internationally) corp tax rate was because at the time all the corporations were owned in the UK and their shareholders were all in the UK so all the profits were taxed in the UK. The only way for the NZ govt to get any tax revenue was to tax the NZ branch of the company here before all the profits went abroad . Just like it has come around again today, only I don’t think higher corporate tax is high on Mr Cullen’s list of priorities.
        D J S

  6. I tell you what, Mike Treen, at present the bulk of the NZ population, that is mostly the better of part of what is known as ‘the middle class’, mostly property owners, they live beyond their means.

    They may complaint while still running two plus cars per household, having property to house themselves and their kids, and some even regularly enjoying overseas holidays (even if it is just the Gold Coast, Sydney or the Pacific Isles), and having the latest Samsung or i-phone.

    They do actually live on speculated growth, on artificial ‘growth’ at the expense of the future generations and the environment.

    Goods consumed here and used here, even some services, come from overseas, from large scale industrial production by robots and in other cases also cheap labour.

    Middle men and women cash in by operating quasi cartels, even some small ‘business operators’, importing cheap stuff and selling it at nice margins, offering them income and lifestyle. They complain already about internet shopping, being competition.

    Farmers either have share milkers work their guts out, to make a living, or operate farms so they can earn a bit from on-selling down the line, to make a capital gains windfall. Same applies to some business operators.

    All is built on a Ponzi like scheme, and that works based on population growth, inviting immigrants in to do cheap and difficult work also, all for the carrot called PR, and a promise of a ‘Kiwi lifestyle’ opportunity of owning one’s own quarter acre section or at least a town house or apartment.

    If there was no immigration, many so called industries would stand still, there would be no significant growth, also due to low productivity, as most small to medium size businesses have little capital to modernise and become more efficient.

    NZ Inc is built on immigration and a Ponzi scheme financial system, all else is delusional, you can go on about fair tax, fair wages, bla, bla, bla. Get rid of the Ponzi scheme and immigration, live sustainably, and things may balance out, but that means a more humble lifestyle for the middle class, which does not want that.

    They rather dream of lifestyles affordable under the fossil fuel extraction and exploitation system we have, for a while, and they want to live like US American consumerist middle class people, and as European middle class people.

    Meanwhile the environment gets destroyed, species die out, pollution is in water, air and soil, and farming and other industries suck the last bits of worth out of the grounds, while climate will change and make it all more difficult.

    In Christchurch Boy Racers play little rascals, blowing more pollution into the air, in Auckland and elsewhere the infrastructure is built all for cars and trucks. Nobody gives a shit here, it seems, except a few, and they think they can carry on as per usual to destroy the environment, exploit the resources and screw this country up.

    Your post is one dated and beyond the point, Mike, taxation is just one issue, a side show almost, given the seriousness of the real challenges we face here and globally. We face extinction, but people are too busy re arranging the deck chairs on the Titanic, it seems.

    We will have to learn to be more humble and to return to live in some form of sustainable harmony with nature, all else is endless BS.

  7. Finally an article on CGT I can agree with.Good stuff that cuts past the marketing and tells it like it is.

  8. Jay, where have been living, Planet Mars ? If I have to earn $50.000 before paying any tax (I wish!) how come my Super is taxed at an effective 17.5%? Incidentally this is a classic double-dip by successive governments. We pay tax to pay for superannuatiuon and then it is taxed again before we receive it!


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