Opinion

A good fight brewing on capital gains tax

Tuesday, July 05th 2011

Boy we are in for a good debate over tax if these reports that Labour plans a capital gains tax on investment comes to fruition.

I’d been thinking about the idea after reading a couple of piece over the weekend.

The themes which are emerging are that this National-led government doesn’t have a clear (or clearly articulated) economic plan. As an aside it is surprising how many National voters I have come across recently who say they won’t vote for the party this election.

It has, to its credit, revealed a plan to raise money by selling state assets to get the economy back into surplus. This too seems to have luke warm support. I wonder what happens in future economic cycles when we get into a hole and no longer have any state assets to sell. What will happen then?

Another option is to raise revenue by changes to the tax system. The most obvious one is a capital gains tax of some form.

Many, without giving it too much thought, will ridicule Labour’s supposed plan. It will be labeled a left wing, tax the successful, politics of envy sort of thing.

But wait a minute. If you explore the web you will find that many on the so-called right are supportive of the idea of a CGT.

So too are the other side.

We covered this issue in the previous election. The Greens and the Maori party supported a CGT.

Even the NZ Property Investors Federation had some sympathy for a CGT as opposed to other tax options targeted at property investors.

It’s also interesting to look at this in the light of changes the National-led government has made. Its changes to tax laws (depreciation and LAQCs) have neutered the capital growth/negatively geared investment strategy used by many property investors.

Now the standard strategy is cash flow positive with income, as opposed to capital gains. Under this scenario a CGT isn’t too bad.

There is some logic to a CGT. It is pretty much standard practice in other Western economies.

Put aside all the bluster and it may transpire that if this is what Labour proposes then it could be called real leadership and vision.

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