Capital gains tax debate ‘misses benefits’
New Zealand’s conversation about a potential capital gains tax focuses too much on the introduction of the new tax and not enough on what other tax cuts might be able to happen at the same time, one economist says.
Last week, the International Monetary Fund said a capital gains tax or CGT was one of the things the New Zealand Government could consider using to regain control of the housing market. It warned the housing market was vulnerable to a ‘‘pronounced correction,’’ which would rock the economy.
‘‘Introduction of stamp duties or an expansion of capital gains taxation could reduce the attractiveness of residential property investment,’’ the report said.
Vend chief experience officer Ben Gracewood also highlighted the issue when he tweeted, after the sale of the business was announced: ‘‘Looking at my impending tax bill for this Vend deal, the obvious lesson is: do not work for years with a bunch of incredibly talented people generating hundreds of tax-paying jobs. Buy houses.’’
Vend staff had shares in the business that would result in a payout when the deal was done.
Benefits from employee share schemes are taxed.
Economist Shamubeel Eaqub said issues such as that might make people think about the tax system and ‘‘how uneven it is. We do tax capital but it is uneven and housing gets let off.’’
But Gareth Kiernan, chief forecaster at Infometrics, was doubtful anything would change.
‘‘People might be thinking about it, but unfortunately there is a lot of political and voter selfinterest that is severely limiting the political willpower do anything about it. The chunk of property investors in the middle of the voting spectrum is too significant for either National or Labour to risk alienating.’’
He said the way that tax was talked about also missed the benefits that could arise out of a capital gains tax.
‘‘It also does not help that so often the political debate is focused on the introduction of the new tax, rather than on the tax cuts that would presumably be able to occur once the CGT came into effect,’’ Kiernan said.
‘‘I would have thought that focusing on the carrot aspect of the whole package, along with the potential contributions that the changes could make to reducing inequality or preventing the housing crisis worsening further, would help reduce the unattractiveness of a CGT to the broader electorate.’’
Last month, it was revealed the wealthiest New Zealanders pay 12 per cent of their total income in tax on average, according to research from Inland Revenue and the Treasury.
The same research found 42 per cent of the wealthiest New Zealanders were paying lower tax rates than the lowest tax rate paid by people who earn their money from an ordinary job or a benefit.