Mood shifts over capital gains tax
A call for a capital gains tax from Bank of New Zealand’s chief executive reveals a wider acceptance of the need for changes to our tax system, commentators say.
Anthony Healy said the next government, whether it was Labour- or National-led, should look at it as part of its efforts to rebalance the economy.
‘‘I do think the shape of our tax system needs to be looked at, particularly when you consider some of the widening gaps between rich and poor,’’ he said.
‘‘I think addressing that through redistribution, particularly with a capital gains tax, would certainly be something I’d like both [potential] governments to be considering.’’
Economist Shamubeel Eaqub said it was a sign of broader acceptance that the current tax system was too focused on income and spending, and had not struck the right balance.
He said the only other option was some sort of comprehensive capital gains tax. ‘‘Less a capital gains tax on housing per se than taxing income from wealth.’’
He said it needed to be discussed because, as the population aged, there would be more costs to be covered by taxes. That would require a broader tax base to cover increasing pension and healthcare costs.
Ryan Greenaway-McGrevy, a senior economics lecturer at the University of Auckland, said in most other countries that had such a tax, people could also claim back their capital losses against their income.
He said if house prices were set to fall, a capital gains tax regime could be one way to make people more willing to sell. ‘‘ A lot of homeowners and investors are very loss averse. People are unwilling to bank a loss of paper.
‘‘If they can claim back part of that loss … it might make sellers more willing to sell at a loss.’’
If the property market had peaked and was entering a period of decline, that could be a financial drag on the government, he said.
But Labour pledged not to introduce new taxes in this electoral term, so the tax would probably still be three years away.
Infometrics chief forecaster Gareth Kiernan said Healy’s comments were pragmatic.
‘‘Given that we’ve just had five or six years of very strong house price inflation, one could argue that bringing in a capital gains tax at this stage is shutting the door after the horse has already bolted,’’ Kiernan said.
‘‘However, it would improve the future equity of the tax system, even if the massive capital gains of the last few years have been missed.’’
How it would work would depend on coverage, how it was calculated and when it was paid.
‘‘Although economic theory says that all assets that [potentially] appreciate in value should be included, it seems a given that no politician would include the family house,’’ he said.
‘‘Beyond that, though, anything is up for grabs, including commercial property, residential investment property and second dwellings, business ownership, farms.
‘‘Ideally, it would be calculated based on the actual capital gain less the actual expenses of ownership and/or time and money spent to increase the value of the asset.
‘‘However, the expenses can sometimes be difficult and costly to determine so Labour had proposed a lower rate of tax to effectively make an allowance for expenses.’’
He said until the capital gain was realised, the wealth increase was only on paper, so taxing it was problematic.
But putting bigger tax bills on people when their gains were realised could also be unfair.
‘‘If your only income was $100,000 capital gains spread over 10 years, your marginal tax rate at $10,000 per year would be a lot lower than if you had to pay tax on all $100,000 of income in one year.’’
He said National had been opposed to the tax because of its rural support base.
‘‘But if it was done fiscally neutrally and accompanied by income tax cuts, and marketed as stopping property investors and the wealthy from simply getting wealthier from their appreciating assets, I think it would be politically achievable.’’
A capital gains tax was one of the issues to be considered by Labour’s tax working group.
But Eaqub said NZ First might fight against it. ‘‘Its constituency is very against old people actually paying for the things they take from young people.’’
"People are unwilling to bank a loss of paper. If they can claim back part of that loss ... it might make [property] sellers more willing to sell at a loss."
Ryan Greenaway-McGrevy, senior economics lecturer