Labour onto a winner with Capital Gains Tax

by Jake Quinn

Most OECD countries have a capital gains tax (CGT) in varying forms. To not have a CGT is unusual and doing so provides no great competitive advantage to New Zealand, in fact it creates a tax haven for unproductive asset investment.

CGT is a common sense tax, it’s a fair tax, and it’s a rational tax. Not having one is stupid so I am pleased to hear the speculation, i.e. carefully leaked plans from Goff’s office, that Labour would introduce one if elected.

The presence of CGT levels the playing field between the productive sector (like the share market) and the unproductive sector (the housing market).  Not having a CGT essentially forces “rationally acting” investors to buy rental property, and to do little else.

Apart from some short-term economic activity (paying builders, plumbers, decorators and electricians, and pushing up the demand and hence price of building materials) a too hot housing market does very little for New Zealand’s long term economic sustainability.

A successfully built house does not innovate, does not create jobs beyond those required to build and maintain it, does not build the tax base, make profit from which taxes can be extracted and it does not encourage much (useful, taxable) foreign investment.

Furthermore, an over-heated property market pushes home ownership out of the hands of many middle and lower paid people. Home ownership is a good thing. It gives people a stake in their community and their future.

There are so many good reasons to have a CGT and few reasons not to. The biggest one has always been political. Popular wisdom, they will tell you, dictates that introducing a CGT is political suicide. This wisdom, which, oddly, just operates in New Zealand, has long been propagated by well heeled multiple property owning folk.

It’s “un kiwi” says federated farmers.  PM John Key, suddenly forgetting everything he learnt from a long and successful career in international finance, says it will destroy the economy in one fell swoop. OK John, tell that to… err, most modern democratic states that already have one.

And if you think it will do much to dampen property prices, just pop across the Tasman to my current home of Sydney where you’ll find that you can’t buy a 3 bedroom house for much less than a million bucks (PS, they have a CGT, stamp duty, and a myriad of other taxes not found on NZ shores).

So bloody goood work Labour. For the first time this term you’ve captured the imagination of the media, the chattering classes and most importantly, the nation. Smells an awful lot like leadership, doesn’t it.

It needs to be done and it’s about time. It’s good for the economy.