Capital Gains Tax

[CJ]

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????

[rpcas]

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.