Capital gains tax a game changer

It’s not often that tax is a big talking point. But at the moment, whether it’s National promising to link the tax brackets to inflation, to reduce bracket creep, or the Tax Working Group being expected to recommend a capital gains tax, tax seems to be everywhere you look. This makes sense. Although people tend to think of it as something that’s a bit dry and boring, it really makes a big difference to people’s lives. Many people may not even have considered that without inflationindexation, they would gradually pay more and more tax as their income crept up to the higher tax brackets. Whether you think that increasing tax take is a bad thing depends on your individual politics. It seems sensible, though, to make it more transparent and clear to everyone exactly what is happening. The other major tax conversation seems a little more difficult to negotiate. If capital gains tax is introduced in this country, it will be a game-changer. You can understand the arguments for it. At the moment, someone who makes $100,000 owning a property gets that wealth boost tax-free, provided they did not buy the property with the intention of selling it, and that they owned it for long enough. But if someone worked for a couple for years on a median wage job, they would pay $16,000 or so over those two years in tax. It’s one of the reasons why the richest people in New Zealand usually have a significant amount of their wealth tied up in property. Finding a way to tax wealth goes some way to address the imbalance between workers’ income and investors’ income. But it also takes away some of the opportunity, especially when applied to things such as a small business. A key question to determine how much support such a policy could get if it were adopted is what other changes might come with a CGT. Would we cut GST? The policy will need to be well structured and planned. Otherwise, it could be only the accountants of the world who benefit. The more tax rules there are, the more people want advice on how to navigate them.