Capital gains tax on property still alive

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The government is not ruling out a capital gains tax to keep the housing market under control.

Thursday, August 13th 2009, 12:00AM 15 Comments

by The Landlord

It is not quite advocating such a tax, but it is a long way from the National-led government's stance six months ago.

It is a long way from Labour's stance when it was in office.

What has changed?

Finance Minister Bill English yesterday, when asked about a capital gains tax, said; "In the long run the economy needs to shift away from spending and borrowing on housing to more exporting. The signs at the moment are that it's not making the shift that we would want to see, so we need to look at whether there's any policy mix that might make the right shift."

At last week's National Party conference, when asked a similar question English similarly did not rule out such a tax.

OK, so we're not talking gaffe here, or accident. This is a pattern.

But is a capital gains tax a serious option?

Not unless National has rediscovered a taste for political suicide not seen since Jenny Shipley was prime minister.

No, this is a combination of jawboning and a bit of old fashioned scaremongering, so what the government finally opts for will seem more palatable.

The most likely move is a stepping up of the enforcement of existing rules in the Income Tax Act covering property investment.

Labour threw the Inland Revenue Department an extra $14.6 million over three years to better enforce that part of the law.

That three-year programme is now in its final financial year. Although the programme is not being run by Inland Revenue's policy division, there is to be a report to the policy specialists on what the department's enforcement team found as part of their work.

That is likely to feed through into tax changes. The original timeframe for that was not to be until the end of the financial year: it now appears likely that work is being brought forward.

The other avenue for change of course is the Tax Working Group set up jointly by the government and Victoria University.

That group is to report in November and is very much at arm's length from the government. But "arm's length" is still talking distance. The chairman, economist Bob Buckle, has made favourable noises not about capital gains taxes but about property taxes, perhaps using the current ratings system as a base.

In short, a capital gains tax is unlikely. But you can put a ring around some form of tax on land and/or property investment.

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