Mark Lister
‘Just trust us’ not good enough on tax
The election odds appear slightly in favour of a Labour-led government. On the tax front, this means uncertainty in the short term and some potentially major changes further out.
The lack of detail is a concern, given Labour has told us very little about how it plans to implement the “vision” it insists it has been so clear about.
Businesses despise uncertainty, and the way they respond is simple. Some investment, hiring and spending decisions are put on ice until they know what they’re dealing with.
In the case of the Labour tax plan, this could be some time away. I doubt the working group will convene over summer, so presumably this mysterious
Labour could be on the right track, but it’s executing badly if it wants to get the business community over the line with this.
committee is a 2018 story. After that, it will report back to the Government, which will take time deciding which recommendations to adopt, ignore and fine-tune. That’s a great recipe for slowing the economy in the interim, which will make life harder for employees as well as bosses. The crux of it all is the much discussed capital gains tax (CGT). Actually, it’s more speculation, as you can’t really discuss something without knowing exactly what’s being proposed. For first-home buyers, I doubt it’ll be a game changer. Other countries with a CGT still have unaffordability problems, so a CGT alone certainly won’t solve ours. That’s no surprise, as neither Labour nor National genuinely want house prices to fall. They champion affordability, yet when asked directly if they want to see lower house prices, they squirm and deflect.
Still, I see what Labour are trying to achieve and I’m on board, in principle at least. It wants to make investing in housing much less of a sure thing, in the hope price rises from here are much more modest.
What worries me are the unintended consequences of a broad-based CGT that applies to everything except the family home.
Investors in productive assets such as businesses and shares could end up similarly punished, and that makes no sense.
We want those investments to be more attractive and taxefficient than property. That way, money that would have simply gone into more houses might find its way into investments that create wealth and boost productivity.
The one-eyed property investment brigade will disagree, but the difference is shares and businesses encourage innovation and create jobs. Houses don’t. Overvalued shares don’t do people out of a place to live either.
Labour could be on the right track, but it’s executing badly if it wants to get the business community over the line with this.
Changes that curtail the vast sums that go into unproductive housing investment are commendable, but not if they come at the expense of businesses and those who provide the capital these firms require to succeed.
A poorly thought out CGT, designed by committee, where voters don’t see the fine print until it’s too late, will benefit nobody. Such significant tax reform is too important for “just trust us” to be good enough.