Sunday, May 17, 2015

Political flattery or political flatulence?

As the saying goes, imitation is the sincerest form of flattery.  That includes politics.  And Labour and Act should feel pretty flattered tonight.

Let's cut the crap: Despite the rhetoric and weasel-words, National is bringing in a Capital Gains Tax on residential housing.  Sure, it's not going to be on the family home (yet) but it's going to be implemented lock, stock and two smoking chimneys.  

I can see where this will lead, at election time John Key will taunt Andrew Little about expanding it to the family home and then use any slip-up to his political advantage.  Smart politics I guess.

But a CGT that's isn't uniform across the board is just plain dumb and ineffective and will make our already complicated tax system even more complicated.  It'll be great for people like me who have property investor and trader clients (who, by the way, declare their trading income and pay tax on it) but it's still dumb.  But don't allow me to convince you - here's the Prime Minister himself just a few years ago:
I hate capital gains taxes – I just don’t like them. The reason I don’t like them is that, in political terms I don’t think they work.

If government was prepared to do with a capital gains tax what had been done with GST – put it on “virtually absolutely everything with no exceptions – they work well.

Because, in theory, if you earn NZ$100,000 from going out there and having a job, and you pay tax on it, well fair enough. If you earn NZ$100,000 from buying a property, well you probably should pay tax on that – fair enough.

But this is where the problem comes along, and that is, that no politician has the guts to do that. Because they go, ‘well that’s a vote-loser.’ They turn around and say, ‘OK, we’re going to have exemptions – the exemptions are all private housing.
I particularly love this bit from that 2012 article:
The fact that three-quarters of housing was owner-occupied, and would therefore be exempt under those proposals, meant their argument that a CGT would discourage investment in housing was "nonsense."

"The theory is they’re going to sock it to rich guys who live in Parnell – so they’re going to really nail them. But actually, those rich guys in Parnell are way smarter than the left, because they’ve already worked out to buy a big house in Parnell [which] would be exempt," Key, himself a wealthy Parnell resident, said.

“So [those house prices will] go up faster, not go up slower.”
"It encourages people to go into housing; it doesn’t discourage them," he said.
Why should Labour feel flattered tonight?  Well, National spent about five years crying crocodile tears over Labour's plans to implement a CGT and they have copied them, but they're not Labour-lite.  They just do tax *better*!

Act party stalwarts can also join the Labour bigheads tonight.

Sir Roger Douglas has been trying to implement a savings scheme for New Zealanders since about 1970.  Here's the basic story:
We've had a few goes at compulsory savings: the 1975 Roger Douglas scheme that an incoming National government axed in a cynical vote grab; a referendum after the first MMP election in 1996, which became a referendum on its creator, NZ First leader Winston Peters, and was duly lost.
I read somewhere that if Muldoon hadn’t terminated the scheme it would now be worth more than $240 billion.  Based on that $240 billion projection each worker would have $111,200 of superannuation assets compared with the current $6,300 and $86,821 in Australia. The scheme would represent 146% of GDP whereas Australian superannuation (which is considered to be the benchmark for the world) represents only 82% of their GDP.

Well strike me down with a feather if the Greens haven't joined resident communist, Winston Peters, in wanting a compulsory savings scheme:
The Greens have unveiled a kids KiwiSaver policy to promote a savings culture and make family finances more stable.

The policy will cost $224 million during the first three years of operation, Greens co-leader Metiria Turei said.

"A $1000 kick-start deposit, top-up contributions, and matching savings contributions will create good incentives to save for our kids futures.

"With careful saving, most children could have saved at least $12,900 by the time they turn 18 - money they can then use to help fund a tertiary education, invest in their adult KiwiSaver account, or use to help with a deposit on their first home."

The savings plan will help make the finances of families more stable, she said.

But New Zealand First says the party is copying its ideas.
Well, actually both are copying Act and Labour from the early 1970s but we can forget that little detail.

So it's a weird Sunday night when the Greens start agreeing with Act ideas, and National continue implementing Labour's policies. 

One really good idea, and one really bad.  And as I say above, it's not me saying the CGT is a really bad idea.  


Psycho Milt said...

I look forward to the media spending the next week mercilessly repeating back to him all Key's jibes about how stupid a capital gains tax would be - oh, wait, that's in some alternative universe with actual journalists in it...

JC said...

Labour and the Greens will be horrified once again. Key has aimed at their bogeymen once again and if the AK house market fails to collapse as a result their foreigner fantasies likewise fail.

Both parties are now scrambling to distance themselves from their own demanded changes.


Nick K said...

JC, the Herald is reporting Andrew Little as saying he won't go near any sort of CGT saying it doesn't work.

Isn't like fucking weird?

Ghost Of Greenwood said...

National have given a future Labour government carte blanche to introduce a CGT in earnest.

Key's National - dumber than a sack full of hammers.

Howie said...

It's not a capital gains tax. It can't be, the government opposes a CGT. It's just a tax on the capital gain you get if you sell your house. Got that? Key says so. Wait! Is that a ponytail?

Anonymous said...

It would be fairer to call it a property speculator/trader CGT. Otherwise you are ignoring the exemptions which will cover the majority of property transactions. Labour's CGT policy was all encompassing (so far as anyone knows), and would have captured all sales over time. So it is unfair to claim it is the same as Labour's policy, and in fact, it simply clarifies the existing tax rules already in place for speculators.

Can anyone explain why there is the 2 year qualifying period? Should there be some pro rata tax over a number of extra years, otherwise what happens if a speculator simply sells after 2 years and 1 week? It would still be an abnormal home housing transaction then, especially if it was done repeatedly.


Howie said...

"Labour's CGT policy was all encompassing"

False. It excluded the family home.

"So it is unfair to claim it is the same as Labour's policy, and in fact, it simply clarifies the existing tax rules already in place for speculators."

False. This tax captures transactions which are not for the purpose of speculative capital gain which are undertaken within two years of purchase, so it's an extension on current arrangements. Sure it's useless and gameable, but no one said the Nats were anything but useless.

Adolf Fiinkensein said...

Wake up people.

It is not a new tax. It is merely a change in the rules surrounding the assessment of the existing capital gains tax which has been in force for decades.

However, it is superb politics from National.

Howie said...

"It is not a new tax."

False. It is a new tax as it will apply to people who previously did not have to pay tax on their capital gains. Any other interpretation is non-factual (or a fib if you prefer).

Adolf Fiinkensein said...


Only a twisted leftie could say somethng so stupid.

They always did 'have to pay the tax.'

Previously they evaded it.

And don't think people will simply sell after one year and one month. Mr IRD doubtless will deem the start of the sale process to be the measure of two years. Further, anyone who sells before three years can expect some very close IRD attention.

Suck it up, little squirt.

Nick K said...

The exemptions to National's new Capital Gains Tax are:
- the seller’s main home; or
- inherited from a deceased estate; or
- transferred as part of a relationship property settlement.

So there is no exemption for receiving property as a distribution under a trust. That means that homes owned by trusts that are the seller's main home that are distributed under that trust to a beneficiary could make that beneficiary liable to pay CGT.

What was all the fuss at the last election with Labour's proposed Capital Gains Tax where the home was owned by a trust? Oh that's right, National complained it would be caught by the new tax!

Just sayin'

Howie said...

"They always did 'have to pay the tax.'

False. Previously the tax was payable only where the purpose of the sale was specifically capital gain. Now it's payable regardless of intent. Simple enough four you dummy?

"And don't think people will simply sell after one year and one month."

They won't as it's two years, moron.

The Veteran said...

Nick ... thank you for confirming that a home inherited from a deceased estate is exempt.

If I recall correctly and subject to flip and flop Labour's CGT included that.

Amid all the wailing and gnashing of teeth one thing stands out ... there ain't enough houses in Auckland to meet demand and until that is fixed nothing much will change.

Not helped by a dysfunctional Auckland Council nor by Labour/Greens/NZ First opposition to RMA reform.