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Keep Talking - There Has To Be A Better Way

Canterbury Manufacturers' Association (CMA)
Media Release 18 June 2007.

Keep talking - there has to be a better way

The Canterbury Manufacturers' Association (CMA) has welcomed the Reserve Bank's suggestion of a capital gains tax, saying it is important for New Zealand's economy that politicians no longer brush such suggestions under the carpet and start discussing ways to tackle domestic inflation.

"The issue here is not capital gains tax itself, but how we tackle domestic inflation. The fact that the RBNZ floated the idea, and is prepared to discuss other measures apart from the OCR as a way of doing so, is a positive sign and this discussion must continue", says Chief Executive John Walley.

Mr. Walley says that although the majority of OECD countries have some form of capital gains tax, it is unlikely that it will be politically palatable in New Zealand. However, tentatively tinkering with the OCR and trying to cure the side effect on the currency by intervening in the markets is not a fix for domestic inflation or the imbalance that currently exists in the economy against the tradable sector.

"Discussion of capital gains tax, and other supplementary measures around the OCR should not stop, as was the case with the mortgage levy proposal from Treasury and the RBNZ that Dr. Cullen raised in February. If not a mortgage levy, if not capital gains tax, then perhaps a 'two-tier' GST system instead whereby Government would control the base rate of GST while the Reserve Bank would have the authority to determine a rate over and above that to supplement efforts to influence domestic inflation. This would increase costs right across the domestic economy with little impact on exports. More is needed; it is obviously hard for the OCR to reach domestic spending with existing settings".

"The RBNZ needs a greater degree of flexibility in targeting the areas of the economy that require attention, such as investment property demand and consumer spending and needs more tools in the toolbox. There does not appear to be much argument about the problem and political fear of a solution will have to be overcome at some point - the sustainability of our exporters, particularly added value, high tech exporters depends on it".

"The RBNZ's decision to push the idea of a capital gains tax is a step towards finding that solution and, although the discussions surrounding any new taxes and tools that directly address domestic inflation may be politically contentious, that does not make them wrong or something to be ignored".


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