An example of why we need a Capital Gains Tax on housing

There was an article on the New Zealand Herald website on Tuesday saying that the average house price in New Zealand has increased to a level that is about 5.4% away from the peak in 2007. This is due to houses in Auckland selling for well over the valuation price. House prices in Auckland have increased to above the 2007 peak.

This is exactly the situation that led New Zealand into the financial crisis. If we didn’t have such a culture of property speculation, we would not have had been hit so hard by the recession and would be in a better position now to help Christchurch than we are. Not that I am saying we can’t sort out Christchurch – it’s just must harder than it would have been if we didn’t have a system of investing in areas that only detract from the economy.

A Capital Gains Tax on housing and only housing would result in investors getting less profits from speculative markets and therefore will push people into investment in the productive markets which would push up production, giving a sustainable boost to the economy. However, a tax on anything more would cause issues rather than solve them. This would make less profit to be made in both speculative and productive markets. Investment in both areas would fall and the investment dollar would go overseas. That is going to lead to huge negatives in the economy.

Yes, a Capital Gains Tax should have an exemption for the family home. I was discussing this with a friend who doesn’t support a CGT, who’s comment on that was “but what is the family home? Surely a good lawyer who invests in property would have five of them.” My answer to that is simply. Firstly, you define a family. Secondly, you define a home. Thirdly, you say a ‘family home’ is the one home that a family lives in. An example of legislation would be:

(1) Interpretation

For the purposes of this Act:

(a) a family is a group of legal citizens or residents of New Zealand who live together on a permanent basis.
(b) a home is a residential property.
(c) a family home is the one home that a family lives in on a permanent basis, that is owned by one or more members of that family.

(2) Sale of property to be subject to tax

Capital Gains from all properties, residential, commercial, industrial or otherwise, will be  subject to a Capital Gains Tax.

(3) Family homes to be exempt

Notwithstanding section 2,  family homes are to be exempt from any Capital Gains Tax.

Now, to explain why I used “citizens or residents of New Zealand” rather than “persons”. A legal person does not stop at human beings. It includes businesses and corporations. Using the word “persons” would open a loophole, allowing a building that houses more than one business and is owned by one of those businesses to be sold as a “family home” if that building is in a residential zone. By saying “citizens or residents of New Zealand”, I’ve removed that loophole.

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Posted on July 16, 2011, in New Zealand Politics and tagged , , , . Bookmark the permalink. 1 Comment.

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