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!


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Posted on July 9, 2011, in New Zealand Politics and tagged , , , , . Bookmark the permalink. 5 Comments.

  1. I respectfully disagree. Using different taxes here and there to encourage growth in different parts of the market is not an appropriate use of taxation.

    Either have a CGT apply to everything, or don’t have it at all. That’s the only way you don’t get the political party of the day deciding for us which market is good and productive, and which is not. Let investors decide where they want to put their money based on the best return without having to take tax into account.

    Taxation should be a revenue raising practice to pay for government programmes. It should not be a method by which the politicians of the day bring about their idea of social or economic “goodness”.

    • If anyone could ever suggest that the housing market is a productive industry, I will give them a medal, because they are probably the best bullshitter in the world. There is no way the housing market is part of the productive economy. A housing boom can only cause problems. Investors will want to invest in housing unless pushed in other directions.

      A CGT like that which I am suggesting in this post would kill two birds with one stone. I would boost the economy, as well as normalise the housing market. What Labour is supposedly suggesting with kill one bird and yet arm the other one with ridiculous levels of weaponry.

      • I would position myself inbetween the two of you (giggidy giggidy). I agree with James that a CGT should be applied to all capital gains (though, as in my post on your last entry on Labour’s CGT I would prefer to simply acknowledge this as ‘Income’ and tax it as such) but I agree with Daniel that what we need now is to encourage investment in industries that are actually productive.

        As such I think introducing a tax on CG on investment properties soon would be great, and then to slowly introduce them over a period of years on capital gains made in other sectors. This doesn’t have to negate your position James, it, however, is to do with the realities of managing a government.

        New Zealand has seen the detrimental effects of rapid economic change in the past and we are still paying for them. This is particularly evident in periods such as Rogernomics; changes which could possibly have been advantageous if they were enacted at a slower pace, giving society, and thus ‘the economy’, time to get used to the altered regulatory landscape.

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