Capital Gains Tax: Good if it’s done right, but Labour’s doing it wrong
I think Labour should be singing “Six Months In A Leaky Boat”… I don’t know how I ended up with this, but I’ve been leaked information from the Labour Party… (well, I do know, but I’m not telling). Obviously, I can’t confirm the accuracy of this, but this is what I’ve been told. We will find out the accuracy of this when Phil Goff announces the tax package in Hamilton.
Labour’s Capital Gains Tax will supposedly involve not only property (excluding the family home), but also any gains from investments, including shares. This is entirely the wrong thing to do. A positive Capital Gains Tax will involve ONLY investment properties. It would not include investments in businesses.
Let’s look at what happens if you tax gains on investment properties. Property developers cannot get as big a profit margin as they would. This will make people less willing to develop property, stopping the inflation of the property market. This levels off house and land prices, making it easier for New Zealanders to purchase their own home. Now, because these property investors have this excess cash that they want to invest, they will invest in companies. This investment in the productive economy will cause economic growth. Two birds, one stone.
Now, let’s look at the response to including investment in business. Everything stays the same, up to the point where the investors move to the productive economy. Because this also is going to be taxed, they don’t invest in the productive economy. Instead, they invest in overseas markets, causing further economic downturn.
New Zealand is not out of the woods with the financial crisis. We still could go into a double-dip recession. The Labour Party would ensure this happens.
See my original post on Capital Gains Tax too!