Capital Gains Tax

[Te Whetu]

I'll also put my 2 cents in. In general I agree with rpcas, though I do disagree with a couple of his conclusions (at least as I read them):

1) The government spends using NZD.

2) This can generally be funded in three ways, i) Issue Debt, ii) Print NZD, or iii) Tax.

3) However even when the government uses the "tax" method, it's the same as printing NZD then destroying other NZD through tax.

4) The broad impacts of each method.

5) Issuing debt: This is the same as destroying dollars but with a promise to print more later... reducing inflation/tax now but increasing inflation/tax later.

6) Printing NZD: This directly increases inflation. All dollars are worth less with inflation and this impacts everyone to the extent they are long/short cash. In theory it does not impact people with real assets; so someone long real assets and short cash benefits and vise versa. Funding government spending through inflation does not seem fair and does not promote the use of the domestic currency.

7) Taxing: Assuming we want a government who spends, and assuming we don't want this to be funded via inflation then we need tax. So it is about making the tax both fair and non-disruptive. Problem is everyone has a different view on fair and fair often does not equal non-disruptive.

8) I agree with Liz here, I really would like the FDR to be broadened across all investment assets. Maybe exclude the family home from the definition of investment assets, this would be done so as to help get the act through, (and because the government sees positive externalities from home ownership and therefore wants to encourage it).

9) Personally I would like the tax on the family home as well, but that's mainly because I like renting and don't particularly like the idea of subsidising land owning families. (Which I would need to do as the FDR tax would be accounted for in the rent I pay).

10) By borrowing to fund the current deficit spending, the government is effectively reducing the inflation its spending would otherwise be causing. Later on this will need to be funded through inflation or taxes.

11) I generally support the governments aim to get into surplus quickly, as the long term inflation/tax impacts of excessive borrowing are harmful to our economy and increase the potential for future inflation/taxes.

Cheers
Te Whetu