FINANCE

Capital gains tax won't affect the average New Zealander

Friday 8 July 2011, 8:47AM
By AUT University
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The average New Zealander will not be affected if Labour proceed with the proposed capital gains tax, say AUT University Law academics.

Disagreeing with Prime Minister John Key’s recent statement about capital gains tax being impractical and unworkable, Professor Chris Ohms, Dr Ranjana Gupta, Dennis Moodley, and Katherine Ritchie say CPT on investment property will prevent the injection of capital into an unproductive part of the economy.

“From an economic point of view a CGT is absolutely necessary to allow for an efficient allocation of factors of production such as capital. Introducing this policy would force the serious investors to put their money into markets that will stimulate economic growth,” say Ohms et al.

Capital gains tax would not affect the average New Zealander, the academics say, because the majority don’t have investment properties.

“Those that do, do so to reduce their annual income tax bill in any case. For example, they are high salary and wage earners who recoup PAYE by utilising losses from investment property. The recent introduction of the LTC regime will do little to remedy this problem.”

On a global level, Ohms et al say most OECD countries are moving their tax reform toward the idea of the comprehensive tax base (CTB), which would in the ideal world make income the sum of what you spend in a year plus your net increase in wealth (realised or not).

“The CTB has never been used in practice but a full CGT on capital assets excluding the family home has already been introduced in Canada, the United Kingdom and Australia. The Australian CGT works well and the thousands of New Zealanders fleeing these shores clearly see it as no deterrent to better economic and social conditions in Australia.”

The academics say tax reform cannot proceed in a vacuum and that it must be undertaken in a wider economic policy framework in order to produce long term benefits for the economy.

“As it happens Dr Brash’s excellent 2025 Closing the Gaps report which strongly commends a Single Economic Union with Australia should be studied closely by all political parties.”