Capital Gains Tax

[CJ]

Well, firstly, I don't reckon a CGT would really do much to "broaden" the tax base. If you exclude people's homes, the vast majority of people don't own anything worth taxing, do they? A CGT is really simply going to narrow the tax base even further. I think realistically, you cannot squeeze much more out of most NZers, they just don't have enough anyway. You could probably "effectively broaden" the tax base by getting rid of subsidies such as kiwisaver and working for families, interest-free student loans etc.

Great policies but no one will vote for you.

A CGT wont narrow the tax base but I do agree it wont broaden it much if you exclude the family home.

That doesn't solve the problem. Is a landlord who now pays income tax on capital gain also to pay the CGT? Or are some only going to pay CGT without income tax? At what stage does a property investor become a trader? Are developers to pay both? No matter how you lookn at it, it's still a line drawing execrcise. The only way to simplify it is to call all capital gained income.

A gain is either income or capital and would be taxed under the appropriate system. by having teh CGT rate at marginal rates, that distinction becomes academic.

[Aaron]

That doesn't solve the problem. Is a landlord who now pays income tax on capital gain also to pay the CGT? Or are some only going to pay CGT without income tax? At what stage does a property investor become a trader? Are developers to pay both? No matter how you lookn at it, it's still a line drawing execrcise. The only way to simplify it is to call all capital gained income. Primary residence and repatriated funds should be exempt.

I am not quite sure what you mean, for a landlord to be paying income tax on a capital gain currently he would have to be trading property or a developer etc so the capital gain for him is income and all his property is unfortunately tainted by a trader/developer status.
But most landlords currently would not be traders/developers and they would not pay any tax on a capital gain if they sold their property. A CGT would mean these landlords would now have to pay tax on a capital gain. The trader/developers would continue to argue with IRD over their status and would be trying to get any gains treated as capital rather than income so the gains would be taxed at the lower CGT rates rather than the higher income tax rates(they would end up paying some tax one way or another). Whether a gain is considered capital or income depends on what your business is.

[Aaron]

Well, the fairest way is to work out how much we need, divide it by the number of people living here and send everyone a bill.

Agreeing on what we all need might be a problem and although I don't have any figures to back it up probably over half of NZ won't earn enough to cover their own bill.

Minimoke its hard to believe you openly favour a regressive tax like GST. I think most people would agree that a regressive tax is the least equitable way for a government to tax the people. Although does National raising GST from 12.5% to 15% mean I am wrong?

[minimoke]

Minimoke its hard to believe you openly favour a regressive tax like GST. I think most people would agree that a regressive tax is the least equitable way for a government to tax the people.

It would be a progressive tax on consumption. Those with more ability to spend would pay more tax. If you don't have the ability to spend you pay no tax.

I'm not a big fan of taxes but they are of course a necessary evil. It goes without saying that if citizens want services from their government then taxes need to be raised to pay for those services.

We might then walk down the path of what services should government pay for against what citizens should pay. And that leads us to the old chestnuts - paying for healthcare, education and the like. If you take the liberterian extreme the government would only pay for defense of the nation/citizens and a few other things. But in reality we are a a country that on the whole tends to be much more socialist than anything else. So government has quite an appetite for tax revenue.

I'm not a fan on taxing income as this creates a disincentive to earn and invest. For those motivated to earn more they expend more energy and cost on devising ways to avoid/evade tax and this isn't productive - unless you are a tax lawyer / accountant of course!.

So if we want the spoils of ones labour to go to the toiler and the rewards of risk to go to the risk takers we need an alternative. That being consumption.

What do we all consume? New and second hand goods and contracted services. We all have choice on what it is that we consume and the price point we are prepared to pay for those goods and services. So a consumption tax is only regressive if those on increasingly larger incomes spend comparably less. A person on a low income may choose to buy a second hand Toyota Corolla whereas a person on a high income might choose a new Prius. A corporation might choose a Hilux. They all pay the same tax thought the amount they actually pay is discretionary based on the purchasing decision.

Rental on property would be taxed as would car and concrete mixer rentals as you are, in one sense, buying a service from an asset owner. I'd be inclined not to tax residential property purchases (but would tax the real estate agent fee) as you aren't buying a services and since property is a long term "asset which is expected to hold or improve its value over time it is more of an investment than a good or service. An investment in property precludes government from having to provide state funded property. MT tax would also cover transactions such as "trade Me" - anyone done the sums on lost GST as consumers obtain goods in this manner?

In answer to PTC's question I probably wouldn't tax labour through an employers wages. An employer will already pays tax on the purchase of accident insurance, training, safety boots tools and equipment. That's probably enough tax to satisfy governmental spend.

[CJ]

Address the specific routes by which people are rorting the system, but leave assets out of the equation

So ignoring the rate of tax (or assuming any change would be fiscally neutral to the government) what changes would you recommend to broaded the tax base.

Or do you think the current balance is right, if properly enforced (John Key seems to be suggesting this).

[POSSUM THE CAT]

Minimoke would that include purchasing labour IE a 25% tax for employers on wages paid. And remember that without people with the money to become customers all businesses fail. You could use the Australian idea & abolish tax on trusts . The tax liability flows through to the beneficiaries at their marginal tax rate & if they are non income earners the highest personal tax rate applies to counter tax avoidance by paying it to children or other non earners

[Aaron]

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?

[westerly]

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

[minimoke]

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

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.

[fungus pudding]

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.

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..