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Lack of tax on capital gains fuels growing inequality

7 December 2011

Lack of tax on capital gains fuels growing inequality

Closing the single largest remaining tax loophole by introducing a capital gains tax (excluding the family home) would help close the growing gap between rich and poor, the Green Party said today.

A recent OECD report entitled Divided We Stand: Why Inequality Keeps Rising highlights how inequality grew particularly fast in New Zealand from the mid-1980s to late 2000s.

“Bill English has failed to close the single largest remaining loophole in our income tax system. A comprehensive tax on capital gains (excluding the family home) is hugely progressive and would help close the growing gap between rich and poor,” said Green Party Co-leader Dr Russel Norman.

“Treasury advice to Bill English in 2009 made it clear to him that capital assets are owned disproportionately by higher income families. The advice said not taxing this income is regressive. That’s Treasury’s way of saying that a capital gains tax is incredibly fair.

“Both John Key and Bill English have consistently defended the tax loophole, however, preferring to ignore growing inequality in our society.”

The OECD report found that capital income in New Zealand for those in the top quintile grew 9.4 percent over this period yet declined 3.9 percent for those in the lowest quintile — the second-largest widening of the capital income gap in the OECD.

“The largest proportion of capital gains is earned by those at the upper end of the income spectrum. This income currently remains untaxed,” said Dr Norman.

“This tax loop-hole for those that can afford to own multiple properties needs to be closed.

“By refusing to implement a tax on capital gains, the National Government is not protecting the interests of wage and salary earners.

“A capital gains tax is a fair, progressive tax — one that treats every dollar earned the same.”

Link to OECD’s report Divided We Stand: Why Inequality Keeps Rising: http://www.oecd.org/document/51/0,3746,en_2649_33933_49147827_1_1_1_1,00.html

Link to the Treasury & Inland Revenue’s background paper on capital gains tax: http://www.victoria.acnz/sacl/cagtr/twg/Publications/3-taxation-of-capital-gains-ird_treasury.pdf

ENDS

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