Will we look for a win-win solution?

Canterbury Manufacturers’ Association

9 March 2007

Will we look for a win-win solution?

The Canterbury Manufacturers’ Association says that the response from the real estate sector to the lift in the OCR further illustrates the need for a rebalanced tax system to include capital gains along with profits and income.

“The Real Estate Institute says that the housing sector and those borrowing are not to blame for inflation, and the CMA agrees because they are chasing the best (tax free) investment they can find. This is good practice”, says Chief Executive John Walley. “The Reserve Bank is not to blame for being unable to control inflation because, as reported, for some interest rates are ‘water off a ducks back’. The Bank is doing what it can with the only club at its disposal, while the dying export sector looks around for some straw to grasp”.

“It is natural for all sectors of the economy to play to the rules, but it is the responsibility of the policymakers to determine that those rules support living standards for the long term. Unfortunately, New Zealand currently operates a win-lose policy in regard to inflation management and in the end; living standards that depend on the export sector will suffer”.

The CMA says that rebalancing the tax burden must not lead to a higher tax take, but income, profits and capital should all carry some of the taxation burden.
“Right now, the domestic economy is overheated due to people, quite reasonably chasing tax free gains, but exporters are bleeding, so as one sector wins, the other loses. At future times, the pain and the pressure will continue to swap sides unless we can find a more balanced long term win–win solution”, says Mr. Walley.

“What is it that New Zealand knows that the majority of OECD countries, who have balanced taxation loads, do not? Until New Zealand is prepared to get a grip on these issues, long term living standards will fall as people chase short term returns of the back of policy driven tax free returns”.

“The discussion around ‘new’ taxes will always be a politically contentious issue, but it is certainly worth talking about and it might just be worth doing something as a result.”

“New Zealand’s living standards will only improve over the longer term if the productive and exporting sectors are strong. This requires balance and fairness within the taxation system and if a tax on capital gains is part of a win-win solution, then it is time for policymakers to show leadership and start the debate which cannot come soon enough for some”.

ENDS

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