Cullen-led group calls for tax cuts and CGT
The Tax Working Group has confirmed its support for a broadbased tax on capital gains, suggesting returning much of the $8.3 billion it might raise over five years via income tax cuts for almost all workers.
Some have criticised the proposed tax as an envy tax, but working group chairman Sir Michael Cullen said it was wrong that wage-earners were taxed on their full income while ‘‘you can earn income from gains on assets and not be taxed at all’’.
‘‘We are proposing a fairly comprehensive approach,’’ Cullen said, releasing the report yesterday. ‘‘There are undoubtedly compliance costs.’’
The proposals, if adopted by the Government, would take billions from the wealthy and give most of it back quite evenly to millions of taxpayers.
The capital gains tax (CGT) proposed by the working group would apply to profits on investment property, land, shares, business assets and intellectual property, but not the family home and personal possessions.
The extra taxes would kick in from 2021 at the earliest and would initially only raise a few hundred million dollars a year, but the working group forecast it would raise almost $6b annually within 10 years.
‘‘Untaxed capital gains mostly benefit wealthy households,’’ Cullen said.
The majority of the extra tax would come from the wealthiest 20 per cent of Kiwis, who own more than 80 per cent of the assets that would be newly taxed.
The working group’s favoured option is to hand back much of the proceeds by increasing the amount of money people could earn at the lowest 10.5 per cent tax rate, which is currently capped at $14,000.
Options include raising the threshold to $20,000 or $22,500 from 2022 or 2023, at a cost of $3.8b to $6.8b over the first five years of the capital income tax regime.
That would deliver an income tax cut worth between $420 and $595 a year to most taxpayers.
The group has also proposed axing employer superannuation contribution tax for KiwiSavers earning less than $48,000 a year, phased reductions for people earning $48,000 to $70,000, and reducing the lowest rates of tax on KiwiSaver and other PIE (prescribed investor rate) funds.
That would deliver another benefit to low- and middle-income earners worth more than $2.3b over five years.
Raising the lowest tax threshold to $20,000 and implementing the KiwiSaver benefits in full could still leave room for some business-friendly measures, such as reintroducing depreciation deductions for owners of commercial buildings, the group believed.
It recommended taxing gains on assets that people already own from the date the tax changes came into effect. It also confirmed people would pay tax on capital gains at their marginal income-tax rate, and capital gains would not be adjusted for inflation.
In general, investors should be able to offset capital losses – for example if they sold shares for less than they paid for them – against their other taxable income, the working group’s final report said.
Finance Minister Grant Robertson and Revenue Minister Stuart Nash wrote to the working group in September asking it to consider a tax-free threshold for smallbusiness owners under which gains from the sale of their businesses would not be taxed.
But Cullen said a ‘‘graduated’’ tax would create distortions, suggesting business owners might split their firms to keep them under any threshold. ‘‘There would be an awful lot of small subsidiaries, for a start,’’ he said.
Robertson would not confirm whether that was the end of that idea. ‘‘We haven’t made any decisions on that,’’ he said.