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View Poll Results: Should there be a Capital Gains Tax on Property

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  1. #1
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    Default Capital Gains Tax

    Probably the wrong forum for this statement.
    I'll vote for the party that promises a cross the board capital gains tax.Tax wealth instead of income.
    No more mucking around with two portfolios no more FIF rules. (these were brought in to capture the capital gains on overseas shares) no more mucking around with depreciation on houses and LTC companies. No more arguements about intention at the time of purchasing a property.
    Bring the income tax rates down at the same time though.

  2. #2
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    Q - tax capital gains on an accural or realised basis.

    The problem with CGT on an accrual basis is there is no cashflow to pay the tax.
    The problem with CGT on a realised basis is there is no tax generation for a number of years.

    Q - Do you include the family home?

    Q - Do you include roll over releif?

    If not, if you sell something, you cant afford to buy the same item back again, influencing decisions.

    I think there was a good paper by the tax working group. See if you can find it. I am not saying you are wrong, just making sure you are fully informed.
    If so, it defers the tax revenue even further
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    Quote Originally Posted by CJ View Post
    The problem with CGT on a realised basis is there is no tax generation for a number of years.
    People end up holding on to assets far longer than normal would just to avoid tax. This creates an inefficient allocation of capital and a deadweight loss to the whole economy.

    If you want to get radical on a tax reformation. Lets get rid of all GST, income, and company tax. Put a tax on all land. Land owners pay tax directly and everybody else pays tax indirectly through higher prices.

    It might sound extreme but land taxes are the only tax that do not produce a dead weight loss. Just some food for thought.
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    Quote Originally Posted by lou View Post
    It might sound extreme but land taxes are the only tax that do not produce a dead weight loss. Just some food for thought.
    How would it be applied? Cant be by area or farms wouldn't be viable so it must be by 'ratable value'. Given that is somewhat arbitary it doesn't seem fair. Plus it creates cashflow issues to those that own land with no income.

    Why not go to a full consumption tax (ie. GST). You need to buy what you need to buy.
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  5. #5
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    Quote Originally Posted by CJ View Post
    Q - tax capital gains on an accural or realised basis.

    The problem with CGT on an accrual basis is there is no cashflow to pay the tax.
    The problem with CGT on a realised basis is there is no tax generation for a number of years.

    Q - Do you include the family home?

    Q - Do you include roll over releif?

    If not, if you sell something, you cant afford to buy the same item back again, influencing decisions.

    I think there was a good paper by the tax working group. See if you can find it. I am not saying you are wrong, just making sure you are fully informed.
    If so, it defers the tax revenue even further
    You would pay it on a realised basis.
    Family home can be exempt.
    No roll over relief
    Don't sell if you want to buy back straight away.
    Also incurred when making gifts of capital assets on a market value basis seeing as gift duty is about to be scrapped it wouuld be a good replacement.
    Lou points out that people hold onto assets longer. Long term investors can therefore defer their taxes whereas traders/speculators can't.
    We do have a land tax called "rates" farmers end up paying more than their fair share.

    No way should we have just a consumption tax. Taxing consumption isn't a bad idea but GST is a regressive tax so 15% is a much as I would like to see.
    Last edited by Aaron; 11-04-2011 at 09:29 PM.

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    Quote Originally Posted by CJ View Post
    How would it be applied? Cant be by area or farms wouldn't be viable so it must be by 'ratable value'.
    Hypothetically it would be applied based on "ratable value" and zoning. Basically your rates bill on steroids.

    Quote Originally Posted by CJ View Post
    Given that is somewhat arbitary it doesn't seem fair.
    Taxes aren't fair at the moment. We have a progressive tax system where higher income earns pay proportionately more. A land tax would fair in the sense that it is a proportionate tax, however would be less equitable to lower income earners.

    The biggest hurdle or moving to a tax system like this is it will change the land values around the country meaning thousands of people will be either adversely or positively affected for no reason and that would not be fair.

    Quote Originally Posted by CJ View Post
    Plus it creates cashflow issues to those that own land with no income.
    If they own land that produces no income they are either saving on expenditure (ie living in there own home). Saving on expenditure can be thought of income and should be captured by tax net. Making this new system even more efficient.
    Option two they own land with no income. They are not making efficient use of the land. It should be sold so that the most efficient use of the land can be found.


    Quote Originally Posted by CJ View Post
    Why not go to a full consumption tax (ie. GST). You need to buy what you need to buy.
    I don't have anything against GST. I excluded in my first post as I thought idea of one tax was a more utopian view. I would mean we would not need accountants for compliance work.
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    Quote Originally Posted by Aaron View Post
    We do have a land tax called "rates" farmers end up paying more than their fair share.
    Farmers do not pay there fair share of taxes.
    1. Farmers have loads of deductions, heaps of cracks to slip personal expenditure into the books.
    2. Heaps of potential for income to disappear on to the kitchen table.
    3. Then the fact that a farmer will sit on bugger all "taxable income" for his life time. Using the increase in farm technology/efficiency, that increase the value of his land that is leveraged to the hilt. He then retires to Whangamata on huge capital nest egg tax free.
    4. The return on assets in the farm industry is lower than the cost of debt. This does not make economic sense why would they be doing it. Unless they doing it for capital income or other kickbacks.
    Last edited by lou; 11-04-2011 at 11:38 PM.
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  8. #8
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    Quote Originally Posted by Aaron View Post
    Probably the wrong forum for this statement.
    I'll vote for the party that promises a cross the board capital gains tax.Tax wealth instead of income.
    No more mucking around with two portfolios no more FIF rules. (these were brought in to capture the capital gains on overseas shares) no more mucking around with depreciation on houses and LTC companies. No more arguements about intention at the time of purchasing a property.
    Bring the income tax rates down at the same time though.
    CGT just wont fly in NZ, & we can do better than that.

    If people think CGT will hit the greedy property speculators, these are the one leveraged & making losses, or have offsets to other businesses, so its a "looney left" wet dream to think the rich will start paying up.

    What would be more beneficial is a flat tax of 20%, to start with.

    Drop the company tax rate to 10%, & add in a 10% compulsory super component (thereby matching the 20% flat rate, reducing any need for dodgey accounting)

    Bring in some form of a financial transaction tax, not quite sure how this should be set up though.

    Perhaps bring back in the Estate Duty/Death Tax, you cant avoid a death tax, so why not clip the ticket on the way out?

    If we could somehow outlaw the green party, we could just nationalise a mineral & hydrocarbon company to mine our own resources!

    Imagine that, another Maui to provide us with CHEAP POWER & we the taxpayers would own it!
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    I am with CJ on this one.

    No income tax. Low company tax ( if any ). Retain excise taxes ( fags booze etc )

    GST with no claw back.. Thus relief from never ending paper work..

    What about introducing a Tobin Tax ??

  10. #10
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    One issue with CGT as a form of revenue is that it tends to dry up just when the economy is at its weakest, thereby dealing a double blow to govt accounts and capacity to stimulate.

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    Quote Originally Posted by Lizard View Post
    One issue with CGT as a form of revenue is that it tends to dry up just when the economy is at its weakest, thereby dealing a double blow to govt accounts and capacity to stimulate.
    The same could be said for GST and income tax. Maybe not losses but much reduced.
    Capital gains tax would not be about going after anyone in particular as Shasta suggests above. I just think that an earned dollar of income can sometimes take a lot more effort than a capital gain so why is it that we are happy to tax income but not capital gains.
    Last edited by Aaron; 13-04-2011 at 10:44 AM.

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    Quote Originally Posted by Aaron View Post
    The same could be said for GST and income tax. Maybe not losses but much reduced.
    Capital gains tax would not be about going after anyone in particular as Shasta suggests above. I just think that an earned dollar of income can sometimes take a lot more effort than a capital gain so why is it that we are happy to tax income but not capital gains.
    GST and income tax reduce in a downturn, but maybe 10% would be extreme. Corporate tax can fall more dramatically along with profits. But CGT seems likely to dry up entirely AND erode income tax when losses are used as offset.

    In theory, I actually like the fair dividend rate method used in FIF. FIF is only complicated because it doesn't apply across the board and there are the options for using CV.

    To use FDR for all assets would just require a quick totting up of assets at the start of the year and then applying a low-level tax based on that amount. Make interest costs and rates tax-deductable... this should pretty much offset all the FDR on most properties. The great thing about FDR is that those who can achieve a better return on assets get rewarded for it and those who want to tie money up in non-returning assets have to pay the cost. There are very few loopholes and minimal administration. Money goes where it works hardest and should increase asset base and therefore tax-take over time. Of course, I know you are all thinking the obvious - the reality is that finding a fair and accurate way to set value across all assets is not simple, let alone getting people to declare all their assets. However, we seem to put up with the rating system and that can be fairly arbitrary in places.

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    Once you go right back to the basics and think about the purpose of a tax, you start to get a better idea of which taxes are well directed. The purpose of a tax, despite common belief, is NOT to fund government spending, but rather to create demand for the currency and to regulate aggregate demand (restrict inflation). Quite clearly, the government actually believes they must tax or borrow in order to fund spending (this is not the case for a sovereign government that issues its own non convertible currency, with a floating exchange rate), therefore they enact tax policy with the idea that the more tax revenue, the better. This is all misguided.

    Since the purpose of the tax is not to raise revenue, how taxes are directed should depend mostly on the side effects of the tax. I believe income taxes discourage additional work, unfairly take away from the people that produce NZ's real output, and do not meet the purpose of a tax (like land taxes and GST do).

    EDIT: Oh, and another problem with income taxes.... there are loopholes, and they require a lot of work to keep track of. The sad part of all this is that the income taxes hurt the productive capacity of NZ. How much time is spent keeping track of income taxes that could be spent elsewhere? How many bright students go into tax accounting/law, an industry that adds absolutely nothing to the real standard of living? I have read of one former hedge fund manager and fiscal/monetary operations expert that estimates this loss of productivity from income taxes could be between 10-15% of GDP.

    Quote Originally Posted by lou View Post
    Taxes aren't fair at the moment. We have a progressive tax system where higher income earns pay proportionately more. A land tax would fair in the sense that it is a proportionate tax, however would be less equitable to lower income earners.
    I think it would be more equitable for lower income earners. The current system, whereby ordinary workers automatically get dollars deducted from their wages while property speculators and those that can afford tax lawyers/accountants get away free (well, relatively) is not fair.

    A land tax would be perfect. Like you said, it could be based on value, and I think it could be perhaps slightly progressive. For example, 4% per annum for the first 500K of the houses value, 5% for 500-1M, 6% for 1M+.

    The biggest hurdle or moving to a tax system like this is it will change the land values around the country meaning thousands of people will be either adversely or positively affected for no reason and that would not be fair.
    Agreed, though it could be phased in over time (and income taxes phased out) to reduce this effect.

    Option two they own land with no income. They are not making efficient use of the land. It should be sold so that the most efficient use of the land can be found.
    Agreed.
    Last edited by rpcas; 14-04-2011 at 10:17 PM.

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    Quote Originally Posted by rpcas View Post
    Once you go right back to the basics and think about the purpose of a tax, you start to get a better idea of which taxes are well directed. The purpose of a tax, despite common belief, is NOT to fund government spending, but rather to create demand for the currency and to regulate aggregate demand (restrict inflation). Quite clearly, the government actually believes they must tax or borrow in order to fund spending (this is not the case for a sovereign government that issues its own non convertible currency, with a floating exchange rate), therefore they enact tax policy with the idea that the more tax revenue, the better. This is all misguided.
    interesting. Can I just clarify. Taxes aren't there to fund government spending because the government could just print the money. Therefore taxes are for another purpose????
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    Quote Originally Posted by CJ View Post
    interesting. Can I just clarify. Taxes aren't there to fund government spending because the government could just print the money. Therefore taxes are for another purpose????
    Yes, though I prefer not to use the term "money printing", as there is plenty of room for confusion because of its many different informal meanings.

    Essentially, every time the government spends they are "money printing", and every time they tax, they are "destroying money". If the government spends $100 today on welfare benefits, all that will happen is the Treasury's account at the RBNZ will be debited by $100, and the recipients commercial bank's reserve account at the RNBZ will be credited $100 (and so will the recipients account at the commercial bank). If the government then decided to tax the beneficiary $100, the exact reverse process would occur.

    Looking at this process, it becomes quite obvious that there is no operational limit to the government's (Treasury + RBNZ) ability to credit and debit numbers on a computer - meaning that there is no operational constraint on government spending (There is perhaps a political constraint on government spending though. I am fairly sure that the USA has a law prohibiting the Treasury's account at the Fed from going into overdraft [a stupid law made by misguided politicians]. I do not know for sure if there is a similar law in NZ).It is also important to note that government spending logically must come BEFORE taxes and the issue of securities (contrary to popular belief) - if the government didn't spend before it required taxes to be paid, then citizens could not obtain the dollars necessary to pay their taxes.

    Moving on, the purpose of taxes is to create demand for the currency (the obligation to pay the government NZ dollars creates demand for those dollars, essentially enforcing their use), and to regulate aggregate demand (to ensure the private sectors "spending power" does not outstrip the productive capacity of the economy) in order to maintain price stability. Don't get me wrong - taxes are absolutely vital, just not for the commonly thought reason.

    Note - I think it is worth mentioning here that the USA, UK, Japan, Australia, and NZ governments are all currency issuers, whereas Germany, France, Greece, Portugal, California, Christchurch City Council etc are all currency users. The differences between currency users and issuers is HUGE, and any comparison of the sort that John Key regularly makes is totally inapplicable.
    Last edited by rpcas; 15-04-2011 at 03:41 PM.

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