30 Comments

it might be far more efficient just to introduce an annual tax on land or land and capital value with an off-setting reduction in income tax. Maybe some tax free element for own home say to the equivalent of median house price - CGT has all sorts of complexities that make it difficult to work and issues like can capital losses be deducted and maintaining in a stable and predictable income stream for government. An annual tax on valuation is unarguable (to a point anyway) and it is an established system already used to calculate local government rates so not complex to set up.

All other non-property activities that presently fall within the scope of untaxed capital gains should be taxed as income.

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Sep 24Liked by Bernard Hickey

"All other non-property activities that presently fall within the scope of untaxed capital gains should be taxed as income."

Timing is important here. For instance if I'm 20 years away from retirement and inherit some $$ (wishful thinking on both counts) and put half into term deposits that return a regular compounded income stream and the other half into shares that pay no dividends but increase in value which would be sold after 20 years to fund retirement, then the taxable revenue available for the government to fund infrastructure and social services that I will consume over those 20 years is going to be very different. For the TD scenario, the income is included in my tax return annually. For the shares, assuming the tax code is changed to require the realised capital gain to be included , it will only bein the final tax return.

And that is for items with a liquid market where a price can be readily ascertained. How will art works and other non fungible stores of valued be taxed?

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dont have all the answers but things like inheritances and windfall gains need to be treated as income in the year they are turned to cash or ownership transferred

NZ is full of millionaires that have done nothing but be born or sat on assets for years while the rest of us worked and paid taxes - this is not simply inequitable - it is causing huge distortions in the social fabric of the nation.

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I agree Ciaran, except I'd leave other business valuation gains untaxed. That really shifts the incentives.

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Sounds like "reward hard work and enterprise" approach which is a welcome shift away from the current settings which reward speculation.

My only concern is the ability of the financial advisors to engineer the value of a business so that not much money is taken out as dividends/salary - which would be taxed as income - and instead offset sales proceeds against owner's current account giving a tax free windfall at the time of sale. I'd prefer something which attributes the sales proceeds against the last (say 5) years of income and recomputes the tax liability for those years. Not too hard to do in this day of vast computing power. It avoids taxing enterprising people unfairly, when the value of the business has been built up over a number of years, but the tax liability falls in one year when sold.

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yes agree under present taxation regime - however things like excessive retained earnings are being seen in other jurisdictions as a form of tax avoidance - Mate from Israel said companies there that become "wallet companies" are taxed accordingly.

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You're game admitting to having a mate from Israel

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ìts one great big religious war that has been going on for millennia - the extremists among the Palestinians have been vowing to wipe the Jews from the face of the earth for the past long time and then are surprised when they get an equally extreme response - Israeli mate told me that a Palestinian who had been working for 20 years within Israel on the kibbutz where Hamas slaughter occurred that fired up this latest round of war guided the attackers around while the slaughter occurred identifying where IDF and armed residents lived. The Palestinians could long ago have chosen to get on with the Israelis and could as the Bedouin and Christian Arabs have - be part of their economy and society but instead took the path of religious and racial intolerance - and all that has resulted in is a fermenting extremism on both sides. It is notable that none of the neighouring Islamic countries are offering refuge for Palestinians - for good reason.

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Sep 24Liked by Bernard Hickey

this "recession" should be seen as part of a much bigger global picture of declining fossil fuel net energy. Bernard have a read of these https://thehonestsorcerer.substack.com/p/2030-our-runaway-train-falls-off and https://www.artberman.com/blog/the-end-of-growth-why-oil-prices-are-falling/

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Partly, but also this "recession" has been engineered to hit low and middle income earners.

E.g. all the recent palaver about WFH vs working in the office has an undertone - if your boss says you must work in the office then you have to do what you're told because in a recession you options (and hence bargaining power) is severely curtailed.

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Yes, these things are all interlinked. CGT is only a cost for people who have to sell, so it simply locks away value for those can afford to retain it (alongside productive economic activity); the financialisation of energy turns natural resources into political influence; the WFH demands... Basically they are all designed to capture agency away from the less privileged, without imposing any meaningful cost on the rich.

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Thanks Mike.

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Sep 24Liked by Bernard Hickey

I am more a fan of broad based land tax, low rate but paid every year. CGT only crystallises if you sell and people like Allan Gibbs and Trevor Farmer are not selling anything. Would also only be willing to support CGT if there is no inheritance carve out, or at least a maximum exemption of say 500k?

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Indeed.

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Sep 25·edited Sep 25

the capital income tax would be paid on sale of the asset or if not sold on the inheritance of the asset. no exemptions except for own home. assets of trusts would possibly be a difficulty.

most other western countries have capital income taxes which proves they are possible and should be examined when setting up a capital income tax in NZ.

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It is inequitable to provide tax allowances for interest on rentals but not to have a tax on the capital gains at the other end. That was in part one of the reasons for the collapse of overinvestment in horticulture and farming in the 1980s. Instituting the capital gains tax will be complex so take time. Much easier to scrap the tax allowances on interest now, use that money for better things, and work on the details of the CGT later. Disclosure, I am not a trained economist so I look forward to being educated.

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it is an extremely gross injustice to allow residential rental property owners (investors and speculators) to deduct mortgage interest from their income because it gives them a colossal financial advantage over people who are purchasing a home for themself (and family).

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If rental property owners get to deduct mortgage interest so should owners if single family home. Simple & fair. Not fair to Renters, perhaps they should have tax deduction on portion of rent.(complicated but not impossible).

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Your The Post articles wouldn’t open for me, is that because I do not subscribe to the paper? Thanks for all of the info.

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It's good that new taxes are being talked about, but I am not at all impressed with Labour's party-line on CGT so far. They seem to be leaning into the idea of "fairness" (based on the narrow idea that the working-class' income is taxed, but capital-class' gains are not). In my opinion, this is incredibly short-sighted (and explains why people like Antonia Watson can get behind it - knowing it's a non-starter), because it exposes any debate about it to infinite anecdotes about "life savings" and "just trying to get ahead"... Building any new tax around a 'fairness doctrine' has always been a doomed project. Ideally, we should tax wealth (by way of tracking land and asset values), tax inheritance, and tax transactions. Any (or all) of these things (on-paper) serve both right and left ideologies:, encouraging productive money use, and opportunity for all. They should be a no-brainer, and fairness doesn't even need to be a consideration (...unless, of course, you happen to be a politician or capitalist concerned about how "unfair" those sorts of taxes are on those who relatively benefit from the status quo)

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I wander if we will see more willingness on the part of "the big end of town" to call out government BS when the negative effects from their policies are felt by those in the big end of town.

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Sep 25·edited Sep 25

Rumblings in Australia:

Federal officials have started work on options to scale back negative gearing and capital gains tax concessions, preparing the ground for a bold new housing policy that could define the federal election.

The Albanese government has asked Treasury for expert advice on the possible changes after years of dispute over billions of dollars in annual tax benefits as the Greens demand an end to the tax breaks and the Liberals warn against a hit to investors.

https://www.smh.com.au/politics/federal/negative-gearing-in-labor-s-sights-as-albanese-readies-for-election-battle-20240924-p5kd0w.html

https://archive.is/hwnH7

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Eloise Gibson, RNZ, also picks up on greenwashing from a B-Corp status company: 'The "award" for "greenwashing excellence" was given to a carbon neutral company with B-Corp status, Wright Communications, which works for Z Energy and Toyota."

https://www.rnz.co.nz/news/national/528941/carbon-neutral-pr-company-put-on-f-list-for-promoting-fossil-fuels

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the time to commence/introduce/start a capital income tax in NZ was years ago.

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I found her arguments about the higher profits of the banks in NZ and the level of risk they carry interesting in light of the analysis you have written, Bernard. Are you able to take a deep dive into what she said?

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I've opened this one up after surpassing 100 likes. Thanks again to paying subscribers to The Kākā for their support to bring my public interest journalism work out from behind the paywall whenever possible.

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Is there merit to exploring a CGT that includes the family home but the cost base is indexed to CPI?

It feels fairer to remove inflation from true profits, reduces the likelihood of a CGT just motivating more property investment in NZ, and may mean homeowners don’t want to see house price inflation outpace CPI - encouraging yimby-ism and supply expansion?

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Bernard where is the HOON this week ? Miss it

Sigrid Campbell

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I think that bloke is upset that a big 4 bank isn't on his "side". He came in the politics saying he could work with these large corporations - turns out, only when he agrees with them. Then resorts to one of the oldest NZ political playbook tactics - Australian bashing.

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Your flaming Earth toon brings this quote to mind:

"Gaia is a tough bitch — a system that has worked for over three billion years without people. This planet's surface and its atmosphere and environment will continue to evolve long after people and prejudice are gone."

http://edge.org/conversation/lynn-margulis1938-2011

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