The Tax Working Group chaired by the late Dr Michael Cullen released its final report in early 2019. The report included a summary of recommendations with regards to necessary tax changes and the reasoning behind them. One of those recommendations was an extension of the Capital Gains Tax. Five years later, with the C.G.T. effectively buried, it is timely to look at whether that was a good idea.
The Tax Working Group was composed of a range of individuals from Kirk Hope, C.E. of Business New Zealand to legal partners, accounting firm representatives and academics. Notably no one from any N.G.O.’s or Government agencies working in the welfare field or independent researchers were appointed.
Not everyone wants a C.G.T. From a political stand point, the response from the Parliamentary Parties was mixed at the time. Fast forward five years and sentiments in support are growing. The opposition comes from National and A.C.T. who oppose it on ideological grounds that “hard working New Zealanders will be hit with an unjust tax burden”, which in reality is an attempt to avoid high income individual earners and businesses having to pay additional tax.
In support of a C.GT., Te Pati Maori, and the Greens believe that it is essential to restore some kind of financial equity to New Zealand society. New Zealand enjoys a very competent AAA rating, but for investment needed in infrastructure, social services and transitioning to a more environmentally responsible future, another source of funding is needed and borrowing ultimately involves paying back at some point in the future. The Labour Party poured cold water on the idea of a C.G.T., which was probably to stop National using it against them in an election campaign, but Dr Cullen noted that at some point in the future the country will be forced to acknowledge that current means of funding all that is needed are simply not up to the job.
The Opportunities Party, not in Parliament, proposed a Land Value Tax for same/similar reasons to those of the Green Party/Te Pati Maori. It is worthwhile noting that it along with a Luxury Goods Tax and a Wealth Tax were alternatives.
In the absence of a C.G.T., or one of the other three prior mentioned options it needs to be said that New Zealand’s range of choices for addressing future inequity is severely limited. A significant increase in income tax is sure to be repealed at the first opportunity by National and A.C.T., as would any significant increase in the business tax. Whilst G.S.T. is payable by everyone, it disproportionately affects those on lower incomes, who have to pay it as a greater portion of their income to higher income earners.
Example: Person A on $20,000p/a and Person B on $100,000p/a after income tax both go to the same service station once a fortnight and spend $100 on fuel. That is 2,600 per person per annum. Person A will spend 13% of their after tax income on G.S.T. (2,600 / 20,000); Person B will spend 2.6% of their after tax income on G.S.T. (2,600 / 100,000).
How is it fair that a lower income earner will spend disproportionately more than a higher income earner in G.S.T?
There are problems with the Wealth Tax and Luxury Goods Tax. Both, by name can – and will be – readily used by right-leaning parties to suggest envy or jealousy of wealth, and material gains made possible by that wealth, such as cars, boats, light aircraft, jewellery and so forth. Another problem that would surface is where to draw the limits on what can be defined as luxury goods.
That leaves the Land Value Tax, which The Opportunities Party wanted to promote if it got into Parliament. Their version would involve a L.V.T. on urban residential land. It would be set at 0.75% and was forecast to raise about $7 billion. The tax relief to make it possible would be no income tax on the first $15,000.
To be honest, if an L.V.T. or C.G.T. get introduced, it would be a good thing as they most immediately affect the two material items in New Zealand with the greatest inequity: land and capital.
Leftist Kiwi Writes 