Capital gains tax is our great ‘MacGuffin’
The Government remains paralysed over the issue of taxing capital gains. Sir Michael Cullen, who chaired the working group that recommended a tax, has seen his contract extended. By all appearances, the purpose of his ongoing role seems to be to run interference while the Government figures out how to paint its way out of the corner.
Having put them into trouble, of course, Cullen hardly seems like the man to pull them out of it.
He can hardly prepare the ground for walking away from his own proposal. What is really called for is a rethink of the whole thing.
By the working group’s own admission, its tax could be counted upon to put only a slight downward pressure on house prices.
At the same time, it would exert a small upward pressure on rents. In other words, Cullen’s tax cannot be justified as any kind of solution to the housing crisis. Nor will his tax increase the ability of the state to spend money on social programmes.
The tax is simply not designed to raise additional revenues. New takings are to be offset against income tax decreases resulting in a reform that, while adding massively to tax compliance costs, is meant to be fiscally neutral.
Finally, there will be no great rebalancing of investment incentives. Currently, tax is generally not payable on the sale of things like property, shares and business assets, which were not acquired for the purpose of being re-sold.
If Cullen’s tax is implemented, it will apply to all those things except for the family home.
So, relative to each other, the incentives will remain the same. If anything, the effect will be to discourage investment overall.
This being the case, why would the Government adopt Cullen’s tax? Why change the law so that thousands and thousands of New Zealanders incur new billions of dollars in accounting and valuation costs to no discernible practical benefit? Is it a triumph of ideology over pragmatism?
In part, perhaps. But more particularly, the whole affair speaks to the ongoing ‘‘MacGuffinisation’’ of politics. The phrase, coined by a vulgar but perceptive American blogger, refers to the way tropes about goodies and baddies displaces substance in political debate.
The particulars of a policy do not really matter so much as the role that policy plays in the narrative of a heroic struggle.
The word ‘‘MacGuffin’’ was itself coined by Alfred Hitchcock to refer to an object in a movie around which a plot revolves. What it is exactly doesn’t really matter. What matters is that the hero and the villain both care a lot about it. That contest over the MacGuffin keeps the plot moving.
A classic example is ‘‘Rosebud’’ in Citizen Kane. This word is the last, enigmatic utterance of a dying newspaper baron. We then learn the story of the dead man’s life through a reporter’s endeavours to get to the bottom of what or who Rosebud is. Or consider the diamond necklace in Titanic. Ostensibly, the hunt for this diamond is the very reason the characters have come together to tell the story. In substance, it is little more than a framing device for telling a doomed love story.
The tendency to treat politics like this has been gaining ground for a while. What else is Donald Trump’s wall, if it’s not a MacGuffin? Nobody really seems to think it will do any good. At the same time, it would cost a pittance in the context of overall American federal expenditures. And yet it has become the centrepiece of an intractable political debate that turned so toxic the US Government was actually shut down over it.
So it is with capital gains tax. Whether Cullen’s tax would be a well-designed, proportionate and effective policy is quite beside the point. That is not the object of the tax to so many of those who have their hearts set on getting it.
Last week, political commentator Matthew Hooton described the way that some of the prime minister’s fans don’t really care about what she does and doesn’t do as a matter of substance.
He had an interesting way of putting it. ‘‘[It] doesn’t matter what Ardern does,’’ he wrote, ‘‘it is enough that she is.’’
Hooton is working towards a PhD in philosophy, so can be forgiven a degree of abstraction here. But he’s not wrong – though Ardern is hardly the first leader about whom this can be said. Her boosters are as emotionally invested in her heroic journey as surely as her detractors are invested in her essential villainy.
If the debate over capital gains tax was really about taxing capital gains, the sensible thing to do would be to go back to the drawing board. But Cullen’s tax is not just a tax. It is the Maltese Falcon, the Philosopher’s Stone and the mysterious contents of Marsellus Wallace’s briefcase.
The only question is whether the prime minister will score a victory over a wicked landlord class. All else is incidental. The effects in real life are beside the point.
The tax is simply not designed to raise additional revenues.