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Closing the Gap statement on CGT decision

Today’s decision ruling out a Capital Gains Tax for New Zealand is hypocritical from a Government that campaigned on improving wellbeing, reducing inequality and governing on the basis of fairness, efficiency, and rationality, said Peter Malcolm, the spokesperson for the income equality group Closing the Gap.

“Improving wellbeing and cutting inequality requires a tax system that boosts the income of the those on lower incomes and reduces that of the very well-off,” Mr. Malcolm said. “But that is not going to happen under a government that previously ruled out more steeply progressive tax scales, and that has now decided against a comprehensive capital gains tax.”

Let’s revisit some of the rational arguments for a capital gains tax, Mr. Malcolm said.

Firstly New Zealand is the only western democracy to not tax capital income.

Secondly, economic efficiency and fairness mandate the introduction of a CGT. Not taxing capital profit skews investment toward property, which does nothing for workers or for the nation’s productivity.

“I feel really sad that a Government that has promised so much, has given way to the wealthy, the selfish and the greedy,” Mr. Malcolm said. Without a CGT there is an incentive to invest in assets where the capital profit is not taxed. Likewise with farming where too many farmers and their bankers ignored profitability because the farm was likely to inflate in value delivering tax free profits. Our productivity as a country has long been lower than equivalent western nations. One reason is that too much capital is invested in assets for tax free capital gain and not enough in better technology and mechanisation to boost productivity. As a result New Zealanders wages are lower and we all are poorer than we should be.

The other issue; that of fairness, needs careful thought. Many in the private sector and a number of politicians are claiming that small businesses will become less attractive to their owners. The argument is that owners of small businesses get up and go to work in the morning because they know that one day they will sell their business and make a tax free profit on that sale.

But what about all the other hard working New Zealanders who also get up early and work hard all day for wages. A sheep shearer is taxed on his or her income, as is a bricklayer, carpenter or school teacher. These are hard working people who have their earnings fully taxed. Where is the fairness in allowing owners of a business, farm or rental home be somehow exempt from tax on their capital profits.

In looking at the question of fairness it would be quite unfair to exempt the family home. Very expensive homes will become a favoured investment if the home is left outside the net. Certainly there are very good reasons to encourage the ownership of your own home. One is that home ownership creates greater financial resilience at retirement. But there could be exemption levels.

And to sum all this up, where is the fairness in, a person in a job paying $50,000 a year, paying approximately $8000 in tax and a person selling an asset with a profit of $50,000 paying no tax.


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