GUEST BLOG: Ian Powell – Time to tax property speculation
When she became Prime Minister, following the September 2017 general election, Jacinda Ardern’s government established a working party to advise on taxation, including a possible capital gains tax.
This was actioning a Labour Party election commitment. The working party was chaired by former Deputy Prime Minister and Finance Minister Michael Cullen.
Cullen’s working party did its work and recommended a capital gains tax. But, in April 2019, to the shock and surprise of many (including Labour supporters), Ardern ruled out a capital gains tax. This was not only during her first term of government. It was for as long as she was prime minister. Her argument was that New Zealanders did not want it.
Since she announced her decision in April 2019 the median house price has increased by more than 50% to $880,000. Clearly this was not the Prime Minister’s finest moment. Nor was her finest fiscal decision.
Now Newshub has published a commissioned Reid Research opinion poll with the following question: Should the Government revisit introducing a Capital Gains Tax on property? Kiwis back capital gains tax
The poll is revealing. A significant majority supported the affirmative. Those in favour were 55% and those against were 33%. The rest were ‘don’t know’.
Reframe the debate
Earlier today I was a panellist on Radio New Zealand’s The Panel where the poll results were one of the topics. During the programme a text poll was conducted with 70% supporting the tax. The poll was obviously unscientific but interesting nevertheless.
I argued that the debate should be reframed in order to focus on what sits behind the capital gains tax. For me it is fairness. It is unfair that unearned income was untaxed whereas earned income was. When one gets back to first principles it is as simple as that.
This leads to a tax on property. In particular, taxing income from home ownership for speculative purposes. Distinguish this property from property for owners’ living purposes. But don’t call it a capital gains tax; call it what it specifically is – a property speculation tax.
Just a little bit of courage
Unfortunately Prime Minister Ardern is having none of this (I doubt she listens to The Panel or reads this blog). In her own words she responded “We’re focusing on all of the other things we can do… I won’t change my position on the CGT.”
What Aotearoa New Zealand needs is political courage. In fact, for a property speculation tax it does not require that much courage. The Government appears frightened of something but it is not clear what that is.
It is not good for Jacinda Ardern to oppose something that, based on the best evidence available, only around one-third of New Zealanders oppose and her own party supports. Time for a rethink Prime Minister.
Ian Powell was Executive Director of the Association of Salaried Medical Specialists, the professional union representing senior doctors and dentists in New Zealand, for over 30 years, until December 2019. He is now a health systems, labour market, and political commentator living in the small river estuary community of Otaihanga (the place by the tide). First published at Political Bytes
In 2001 the flat I was renting 1 of a block of went on the market and I brought it for $80000 It sold last week for sold it 2013 for 180000 it sold in Jan 2022 for $ 404000.. 13 years of Labour 9 of National so which party looks after the poor.
BUT capital Gains tax is not the answer- the horse has bolted. It cant apply until a property is sold excluded the family ho me and compared to the baseline from which there is likely to be only falls. We are now are looking at capital losses.
Instead we need a net equity approach
Susan St John and Terry Baucher, .The Fair Economic Return: Restoring equity to the social fabric of New Zealand. RPRC working paper 2021-1 30th June
https://cdn.auckland.ac.nz/assets/business/about/our-research/research-institutes-and-centres/RPRC/publications/WP%202021-1%20Fair%20Economic%20Return%20St%20John%20and%20Baucher.pdf
Pretty sure stamp duties would have an effect-Singapore style…
‘The ABSD rate will go up from 12 per cent to 17 per cent for citizens buying their second residential property, and from 15 per cent to 25 per cent for those buying their third and subsequent properties.’
https://www.straitstimes.com/singapore/housing/singapore-raises-additional-buyers-stamp-duty-tightens-hdb-loan-limit-to-cool
Thanks Susan. I was advocating a limited step only in response to a poll outcome and based on a reframed principle of fairness.
I agree that CGT has limitations but I’ve never seen it as a magic bullet. However, I found your paper well-written and persuasive.
I thought the removal of the tax rebate on mortgage interest and extending the bright line test to 10 years are speculator taxes. Those speculators, in cahoots with their friendly banks, had a 5 year period under Key making big profits over night and doubling land/house prices. They were back with the banks in 2021 again making a killing at the detriment to first time buyers and NZ’s economy. Luxon is going to remove these taxes and other taxes to benefit his property speculator mates and their rock star economy like the Natz have promised in every election since 2005.