Capital Gains Tax

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Originally Posted by minimoke

It might have been a valid point 20 years ago when we still had cash. Electronic financial transactions have now got to the point where pundits are suggesting the rare Chequbook will be extinct in 10 years time.

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But the black economy will never die. Under an extreme consumption tax, bata would flourish. Not just in goods but services also. 'I'll do your heart transplant if you paint my house' sort of thing. :scared: Or possibly a mechanic fixes a car for an electrician who installs some new power points. It's illegal now to engage in swapped labour schemes, even casual or informal arrangements. which I am sure would suprise many people.

[QUOTE=minimoke;350994][QUOTE=Aaron;350989]
We might be at odds here. It places a similar burden on the poor as it does the rich.

I don't think we are at odds, I just don't think you understand what I am saying. That GST is a regressive tax is a fact not an opinion.
The less income you earn the more GST you pay as a percentage of your income.
As far as the basics in life go we could agree that everyone has to eat and drink and wear clothes etc. It doesn't place a similar burden on the rich as it does on the poor. The poor will be spending a greater portion of their income on essentials to survive but the wealthier you are the more discretion you have in regard to your consumption/spending.

[QUOTE=Aaron;351001][QUOTE=minimoke;350994]

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Originally Posted by Aaron

That GST is a regressive tax is a fact not an opinion.
The less income you earn the more GST you pay as a percentage of your income.
As far as the basics in life go we could agree that everyone has to eat and drink and wear clothes etc. It doesn't place a similar burden on the rich as it does on the poor. The poor will be spending a greater portion of their income on essentials to survive but the wealthier you are the more discretion you have in regard to your consumption/spending.

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GST is commonly considered to be a regressive tax - but only where all things are equal. It is arguable that a person paying $2.80 is simply paying for the milk.They aren't buying a service and perhaps they cant afford a service - but they are buying a good. Where as a person paying $5.50 is paying for the milk and a service. The greater a person's income the greater their opportunity to purchase additional services - consequently the greater their share of the tax burdon.

I'd also suggest it isn't regressive because poor people have their income topped up through either government benefits or "working for Families". The "poor" person isn't spending all their income on things that attract tax. They are being subsidised by the government who is funded by the higher income earners who contribute more to the tax take. Consequently the tax burden isn't fully felt by the poor person.

If we look at my milk analogy, lets say a poor person earns $10. Roughly 5.6% of that person income has gone on the tax. Lets say the rich person earns $20 - he's still paying around 5.6% tax. How is that regressive?

(Oh - and I assume we can take it that a "regressive" tax is seen as a very bad thing because it hurts the poor where as a progressive tax is a very good thing because it hits the rich. Ideals I'm not comfortable with!)

[QUOTE=minimoke;351006][QUOTE=Aaron;351001]

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Originally Posted by minimoke

GST is commonly considered to be a regressive tax - but only where all things are equal. It is arguable that a person paying $2.80 is simply paying for the milk.They aren't buying a service and perhaps they cant afford a service - but they are buying a good. Where as a person paying $5.50 is paying for the milk and a service. The greater a person's income the greater their opportunity to purchase additional services - consequently the greater their share of the tax burdon.

****I agree, people in general tend to spend more the more they earn and I agree that the wealthy will pay a lot more GST than the not so wealthy. What I am saying is that the not so wealthy will pay more GST as a percentage of their income and they have less choice in reducing how much tax they pay.****

I'd also suggest it isn't regressive because poor people have their income topped up through either government benefits or "working for Families". The "poor" person isn't spending all their income on things that attract tax. They are being subsidised by the government who is funded by the higher income earners who contribute more to the tax take. Consequently the tax burden isn't fully felt by the poor person.

****I don't want to debate how the taxes are spent just that GST is regressive and unfair.****

If we look at my milk analogy, lets say a poor person earns $10. Roughly 5.6% of that person income has gone on the tax. Lets say the rich person earns $20 - he's still paying around 5.6% tax. How is that regressive?

****In your example both people spend roughly the same proportion of their income so pay roughly the same proportion of tax compared to their income although the $20 guy has paid almost twice as much GST. From a previous post you didn't want to debate how much the basic necessities of life are but can you agree that if you don't eat you die and if you don't have clothes and shelter hypothermia could be a problem in winter. Assuming you agree with the preceeding statements you can understand that at a very basic level people will need to spend a certain amount to live its not really a choice. ( option (1) buy food and pay GST or (2) die). Spending and consumption over and above that is discretionery. In your example if the basic necessities in life cost $10 then one guy is going to pay $2 GST. The other guy can spend $20 if he wants to and will pay proportionately the same amount of GST but he can also choose to spend $10 and invest the other $10. Tax paid as a portion of income for Mr $10 is 20% for Mr $20 its 10%. Also Mr $20 may benefit on not having income tax or capital gains on his investments.****

(Oh - and I assume we can take it that a "regressive" tax is seen as a very bad thing because it hurts the poor where as a progressive tax is a very good thing because it hits the rich. Ideals I'm not comfortable with!)

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Personally I see a tax that expects those least able to pay actually paying a higher proportion of their income as unfair and bad. Its an ideal I am comfortable with. I also don't think progressive taxes are always better. In fact with a flat capital gains tax rate we could flatten the income tax rates as well and try and make things as fair as possible.
Not sure how to break up your quote so my other responses are between the **** within the quote above.

[QUOTE=Aaron;351032][QUOTE=minimoke;351006][QUOTE=Aaron;351001]

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Personally I see a tax that expects those least able to pay actually paying a higher proportion of their income as unfair and bad. Its an ideal I am comfortable with. I also don't think progressive taxes are always better. In fact with a flat capital gains tax rate we could flatten the income tax rates as well and try and make things as fair as possible.

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Well Aaron. there are parts of life that aren't fair. Sh#t happens. You either adapt to your environment, you do something to make the most of it or you do something to better it. The choice is the individuals. Now I figure paying taxes to support some lazy benificairy so they can enjoy a life style of sloth and KFC is unfair. I think its unfair I pay taxes so some fat person can get their obesity can be treated in a public hospital. I don't think it fair that my taxes are paying for the sins of our forefathers. But as I say Sh#t happens, time to move on.

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What I am saying is that the not so wealthy will pay more GST as a percentage of their income and they have less choice in reducing how much tax they pay.

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So Moses came down and wrote in stone that person should only pay a certain percentage in GST relative to their income. I don't think so. They do have some choice - but not necessarily a lot. They could buy that cheaper bottle of milk, they could go to the second hand shop for brand new clothes or alternatively they could do something to increase their income and hold their expenditure. I'd hazard a guess the low income earners are disproportionate users of government spending. We know for example that low paid Maori have greater numbers in prison than higher paid Asians. If you are a consumer why shouldn't you pay your fair share.

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I don't want to debate how the taxes are spent just that GST is regressive and unfair.

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As I have already pointed out a consumption tax is not necessarily regressive. That is your view but again something that isn't set in stone. That they are "unfair is certainly worth debate since that is pure opinion and speculation.

If we look at my milk analogy, lets say a poor person earns $10. Roughly 5.6% of that person income has gone on the tax. Lets say the rich person earns $20 - he's still paying around 5.6% tax. How is that regressive?

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In your example both people spend roughly the same proportion of their income so pay roughly the same proportion of tax compared to their income although the $20 guy has paid almost twice as much GST. From a previous post you didn't want to debate how much the basic necessities of life are but can you agree that if you don't eat you die and if you don't have clothes and shelter hypothermia could be a problem in winter. Assuming you agree with the preceeding statements you can understand that at a very basic level people will need to spend a certain amount to live its not really a choice. ( option (1) buy food and pay GST or (2) die).

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We are fortunate to have a government that will provide a minimum level of income to families, beneficiaries, superanuitants that prevents them from dying. That seems to be fair to me but I can't figure why a person who is unproductive should have the same net income expectations as a productive person. Nor do I see why productive people should subsidise those who want a life style that their income can't support.

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Spending and consumption over and above that is discretionery. In your example if the basic necessities in life cost $10 then one guy is going to pay $2 GST. The other guy can spend $20 if he wants to and will pay proportionately the same amount of GST but he can also choose to spend $10 and invest the other $10. Tax paid as a portion of income for Mr $10 is 20% for Mr $20 its 10%. Also Mr $20 may benefit on not having income tax or capital gains on his investments.

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The reason being is that Mr$20 has earnt more than Mr $10. Why should he not be entitled to keep the benifits of his labours?

That's right this is a thread about capital gains tax.

I guess my arguements about GST won't change Minimoke's view, maybe my logic is flawed but it seems to make sense to me and I don't seem to follow his logic pointing out how GST isn't necessarily regressive so I'll have to give it a rest. I agree whether its fair or unfair is a matter of opinion but there is something on that in the Gareth Morgan Article above.

What is your view on CGT Minimoke? For or Against and why?

From the days of Regan and Thatcher followed in NZ by Douglas and Richardson there has been a world wide push to sell Govt. assets and lower taxes. Death duties - gone, Gift duties -gone, marginal tax rates lowered always at lower percentages the lower the income. Definitely a politically driven agenda by the far right.
He who has the capital makes the gains. It is very simple really.

Westerly

[QUOTE=Aaron;351001][QUOTE=minimoke;350994]

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Originally Posted by Aaron

We might be at odds here. It places a similar burden on the poor as it does the rich.

I don't think we are at odds, I just don't think you understand what I am saying. That GST is a regressive tax is a fact not an opinion.
The less income you earn the more GST you pay as a percentage of your income.
As far as the basics in life go we could agree that everyone has to eat and drink and wear clothes etc. It doesn't place a similar burden on the rich as it does on the poor. The poor will be spending a greater portion of their income on essentials to survive but the wealthier you are the more discretion you have in regard to your consumption/spending.

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Except... you forget that savings are really just deferred spending... its all going to catch up with the wealthy eventually. Those savings will be spent on consuming goods and services in the future, and the wealthy will be taxed just like the rest of them.

We don't save money for fun, we save so that we can spend in the future don't we?

The only real discretion that the rich have is the choice to save or spend their discretionary income. But either way that income will be taxed when it is spent; by themselves or by their kids etc it doesn't really matter, it will still be taxed.

Probably be need to be a tax on capital leaving the country to make it work though

Just another incentive to spend , spend and spend some more as those in charge of the state coffers loot any last penny from those who try to get their head above water. A state dependent nation of debt laden paupers is in Labours best interest.

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Originally Posted by Aaron

What is your view on CGT Minimoke? For or Against and why?

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I'm against.
There is a traditional view that there are four purposes for having taxation. The first is Revenue - a government needs revenue to provide the services which are an outcome of the policy the citizens have voted for. Generally I have no problem with tax as a revenue gatherer. If the citizens are dumb enough to want a Ministry of Womens Affairs (something I think is a total waste of money) I accept this is as an expense that must be paid for and I quietly, but begrudgingly cough up my taxes for this.

A second concept tied to the first is Representation. We can go back to the boston tea party for the good ole adage "No taxation without representation". This is pretty important because it helps keep government honest with how it spends the revenue. National has shat on this concept in Canterbury by removing our right to elect our representatives to Environment Canterbury yet we still have to pay our taxes. I have a major problem with this - this is something that should be rectified before we introduce another tax.

The third concept is repricing. This is a mechanism government uses to try to change behaviour. Cigarette tax is an example where smokers are gouged. Worst yet is the Carbon Tax where we are all gouged on the pretence that little ole NZ can stop the planet from self destruction. Bull**** I say.

The fourth concept is Redistribuiton which is where the government tries to move wealth from the rich to the poor. I have no difficulty with this if the redistribution is to support the needy. I do have a problem with this where the redistribution is to the lazy. Examples of this is payments to benificiaries who have been unemployed for many years during times of low labour supply and with intergenerational state dependency.

Essentially I am against taxes because the Governement is ****ing with us but its the fourth reason, redistribution which leads me to my primary reason from being against a CGT.

I'm of the view that those who create an income and take the risks by investing in the capital that a society needs should be rewarded for getting off their bum. They should not be penalised and I see a CGT as a penalty. If we look at property, there is already a mechanism for a governement to gather revenue from rental property owners and thats through the enforcement of policy which already provides for the taxation of revenue - and I can see owners have, in many cases, used the sale of their property at a price higher than they paid for it as a revenue stream.

If a CGT is to be "fair" it should apply to all gains on capital. That would include any gain I make on the Sharemarket. Now, why would I take a risk by placing my money in a startup company if I don't get a return on the risk I'm taking. If I buy a company and take a low wage so the cash flow is protected in order to grow the business and pay the employees a decent wage why should I then be taxed on the blood and sweat I have put into the business.

Also to be "fair" if my capital looses value should I not be entitled to a tax rebate?

Before we look at a CGT the government should get its house in order around the four "R's". If they were to do this we may just find we don't need an extra tax like CGT.

[QUOTE=mr.needs;351066][QUOTE=Aaron;351001]

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Originally Posted by minimoke

We don't save money for fun, we save so that we can spend in the future don't we?

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My idea of abolishing all taxes and implementing a Consumption tax doesn't seem to be gaining any traction - put your post is getting to the point I'm trying to make. A consumption tax gets everyone either now or at some stage. How much fairer can you get than that!

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Originally Posted by biscuit

The only CGT close to being "fair" would be a CGT on all assets including the family home etc and realised or not. Anything else is simply an attempt to shift the tax burden even further onto a politically insignificant minority.

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Then why a separate tax? Just treat all gains as income, and eliminate the silly 'intention' test that we have now, and will remain under a separate CGT. But to tax unrealised gains would be a nightmare and quite unworkable, although it would be popular with valuers..

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Originally Posted by biscuit

Well I am not in favour of a CGT so it doesn't bother me that it would be unworkable!

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And I'm not too happy about income tax, but to try and decide when capital gain is income - and when it isn't, based on 'intention' is woolly line drawing. Capital gained is always income - like it or not. It is ridiculous to say it is income if earned by a developer, but not income if gained by an investor.

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Originally Posted by biscuit

I think that logically you are right. But then, unrealised capital gain in the value of a domestic residence is then also logically "income".

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Is money owing to a business income, or does it only become taxable once received?

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Originally Posted by biscuit

I don't understand the relevance of that comment. From my point of view, I have several unmortaged properties paying me income. The Government gets a good slice of that and I think they should be satisfied with what they get! If the properties go up in value, I would be pissed off to have to pay tax on unrealised gain. If they only tax realised gain, that is inherently unfair and it produces a distortion that may influence my investment decisions. We all know that there are distortions in the system, but there are better ways to specifically address those issues.

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I also have unencumbered properties, that's my sole source of income except for a bunch of LPT shares. and pay heaps of tax. I certainly don't want to pay more, but even so I don't see why I shouldn't. It is money earned. There are definitely people, and plenty of them, who play the game solely for capital gain - to date a lot of them have flicked in and out of properties, never made a trading profit, and never paid tax on realising a profit. Good on them - for that is what the rues allow. However the numbers of them doing just that, writing books, running seminars telling others how to do that - it is only a matter of time that this will change. Still, it will be a good few years yet. Goff's mob will never get in so labour will have a new lineup and new policies by the 2014 election. I reckon National will make gains taxable, but it will never be retrospective, so make the most of it over the next 10 or so years.