Capital gains tax to focus on equity

Equity, rather than the question of curing an over-investment in property, is the focus of a new paper on a capital gains tax for New Zealand.

Friday, September 18th 2009, 11:10AM 4 Comments

by Rob Hosking

The paper, by two tax academics Leonard Burman and David White, suggests a capital gains tax not only on investment property but also - as in the United States - capital gains on owner-occupied housing above a certain level (in the United States, gains above US$500,000).

But in a forum on the question in Wellington yesterday, Burman's main emphasis was on the issue of widening the tax base, while Pricewaterhouse Coopers tax partner John Shewan - who is not a fan of a capital gains tax - said there is an issue to be dealt with around investment properties.

Shewan said a lot of the talk advocating a capital gains tax was confused and emotive.

Given advocates usually suggest exempting the family home, and that this is two-thirds of a property market valued at $600 billion, he said he did not see how it could possibly cure any imbalances.

Shewan did, though, say the remaining third of the property market does need looking at by the policymakers.

"There is about $200 billion invested in rental housing. That produces, shall we say, a very disappointing return to the government.

"That is, a negative tax of about $150 million."

He suggested use of a land tax, or expansion of exiting rules on property investment, should be looked at.

As for a broader capital gains tax, "I'm happy to be persuaded I'm wrong but I'm not persuaded yet," he said.

Rob Hosking is a Wellington-based freelance writer specialising in political, economic and IT related issues.

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Comments from our readers

On 18 September 2009 at 3:47 pm Anita S said:

Fact 1. One of the biggest owners of housing is the government - state housing, can you see them interested in paying a land tax, another tax on a tax, yeah right.
Fact 2. We have a shortage of housing
Fact 3. If the private sector didn't undertake to do rentals, then the government would have to undertake more housing projects.
Fact 4. When interest rates drop and costs stop rising, then the negative tax take will improve.
Fact 5. Its government's gain, when the private sector is a landlord, as the landlord then has all the risk and not the government.
So any changes would apply to both the government and private sector.

On 18 September 2009 at 6:03 pm Rich said:

I agree with Anita S. Fact 6, most landlords charge nothing for their time spent repairing tenant damage and chasing rent arrears and dont mark up materials used. Annual tax take would decrease if landlords started charging market rates.

On 23 September 2009 at 1:23 am Chris said:

Im not surprised that politicians haven't been big fans of the capital gains tax. The truth is is that most of them no doubt have property portfolios of their own so shooting themselves in the foot isn't too bright.
What we are debating here is really not just for the pros and cons of another tax but for a new era in socialism by stealth. If you want to know the truth there it is cut and dry.

On 29 September 2009 at 12:34 am Frank H said:

Fact 7, ever since 'tax' was invented govt has been looking for ways to tax people more, because (Fact 8) each living being working in the state sector aims to use up all his budget or he'll get less the next year.
Even though govt has state housing, if it never sells it never has to pay such tax (unless the proposed tax is on paper gain and not realised gain), hence the tax could be burdened by commoners only. All the justification they'd ever need is "that's the way the rest of the world does it".