We care about the rich – that’s why a CGT worries most of us

I’m not sure why people are in such a lather about a possible capital gains tax (CGT). We still don’t know whether it will be implemented and, if it is, what form it will take.

The only certainty is that the idea will wither on the vine if the Government even suspects such a tax will cost it the election in 2020.

Already National has gone back to its old rule book and positioned itself as the party of the ‘‘hardworking’’ New Zealander and the Kiwi way of life. The tax has, like Hitler’s Russian front, opened up a battleground Labour did not need and cannot afford.

A new tax will always be greeted with suspicion. The forecast revenue it generates will necessarily be a stab in the dark and people will worry it will be circumvented. In some ways, Labour would sustain less damage from simply raising the top tax rate to something like 35 per cent. Highincome earners are generally not their constituency, and certainly not NZ First’s.

Another idea might be to stop allowing taxpayers to treat the interest cost on a rental property as an expense, in the same way as depreciation was removed as a deduction.

The fuss about the tax appears to have little correlation to the number of people who will be directly affected. About threequarters of the country will probably be immune to the new tariff which, in simple terms, will tax people on the profit earned from selling assets.

The obvious target is the profit earned on the sale of properties that aren’t the family home. I haven’t seen any figures, but many ordinary Kiwis have stashed spare cash in what is called an investment property.

It needs to be remembered that a large chunk of the population doesn’t even own one house. New Zealand has about 1.8m homes, of which about two-thirds are owneroccupied.

The others are rented. The trend in home ownership is going down, so in the future even fewer voters should care about taxes on property sales.

You’re also much more likely to attract the CGT if you’re in the top 20 per cent of incomes. These earners own about half of the assets that would be caught by a CGT.

If you look at asset wealth rather than income, you see the impact will again miss most people. The richest fifth of households own 82 per cent of the assets that would be subject to a CGT.

So something other than being worried by a direct hit to the pocket is going on. I think it’s because most New Zealanders care about the rich or, to use a better phrase, the well-off.

They care about them for two reasons. They aspire to having the sort of income the well-off have, and they respect the hard work successful people have done to get ahead.

This is, like the American dream, the Kiwi way of life and the ambition of just about any functioning society in the world. The desire to improve your position.

If I can channel Jordan B Peterson for a second, the general public appreciates that people who make the right sacrifices at the right time are always going to be better set up for the harshness of life.

They will not only ensure a happier existence for themselves but also have a surplus to share. By being generous they will foster goodwill and be well thought of by the rest of the community.

Our group mentality is then wary of forcibly removing the fruits of hard work and sacrifice, even if that would benefit more people than it would discourage. It’s clearly understood that those not so willing or able to sacrifice daily pleasures and desires for longer-term necessities and benefits should bear some of the cost. And they do.

Nevertheless, the principle that those who can afford it best should pay the most tax prevails in the modern functional state.

Tax above a base level is like a compulsory donation paid mainly by the rich, and people, even if they are not rich, will tolerate only so much.

New Zealand has about 3.8m potential taxpayers. About 1.9m of those taxpayers earn less than $40,000 and pay only 8 per cent of the tax take. Around 317,000 make more than $100,000, but pay 42 per cent of all income tax.

It’s not surprising that those that earn the most pay the most tax, but what is alarming is how few people we depend on to pay nearly half of all income tax. People appreciate the old story about not killing the goose that lays the golden egg.

When you look at net tax – that is the amount paid after credits and benefits (like superannuation) are deducted – about 40 per cent of households receive more in tax credits and other benefits than they pay in tax.

More than one in three households are contributing nothing to New Zealand’s tax take.

Some of these will be very wealthy ones that have structured their affairs with the help of advisers precisely to achieve this.

A moderate CGT is not going to impoverish the well-off or change their lives much, but it sends a signal that worries everyone. We then need to remind ourselves that a good minimum standard of living, starting with first-class free education and healthcare, is better for everyone.

They aspire to having the sort of income the well-off have, and they respect the hard work successful people have done to get ahead.