Capital Gains Tax – Not Our Problem

Despite the hype, a capital gains tax is nothing to do with most of us. For those of us who earn our income by working for a wage or salary, it is irrelevant. A capital gains tax only affects people trying to make money out of money, for example by buying and selling property or shares. Most of those people are to be found in New Zealand’s top 10% of earners.

And fair enough. Why should wealthy investors not pay their fair share of taxes on the money they earn, like the rest of us?

It is not a huge imposition. The tax will only be paid on the difference between the price paid/valuation in 2021 and what the asset is sold for at a later date. If the asset doesn’t increase in value, they won’t have to pay any capital gains tax. The rate is to be the same rate every worker pays in tax for earning the equivalent amount, currently between 10.5% and 33%. If workers can live off what they earn after paying their taxes, surely investors can do the same.

In addition, improvements made to assets can be deducted from the capital gains. What could be fairer? It is hard to see how this can be an affront to “the New Zealand way”, as some have claimed. Unless the New Zealand way includes an agreement that the wealthy should not be expected to pay taxes.

Actually, our very high earners should be counting their lucky stars they got off so lightly. Unfortunately, increasing the top tax rates was off the table for the Tax Working Group. There are many who feel that New Zealand’s top tax rate of 33% for people earning over $70,000 is far too low. There is a big difference between an income of $70,000 and an income of $700,000. An additional top rate of at least 60% for very high earners, e.g. over $200,000, is long overdue to even up the income inequality in New Zealand.

The Tax Working Group bypassed the opportunity to recommend a financial transactions tax and remove at least food from GST, or even better, remove GST altogether. A financial transactions tax would have a significant impact on those who move their substantial amounts of money around to make more money. GST, on the other hand, impacts on low and middle incomes much more.

In Germany, proposals have been put forward recently to limit the number of rental properties investors can own and to implement a five year rent freeze where rents are increasing too quickly. And there are provisions for the state to have the power to buy properties in areas where rents are out of control.

A capital gains tax is not about the money, it’s about fair play. It’s about quietly discouraging people from treating property as a commodity, and treating it instead as a place to live or work in. It’s about gently discouraging corporations buying businesses for the express purpose of flipping them off for maximum profit as soon as possible. A capital gains tax may slightly reduce demand and make it a little bit easier for people to buy their first home or own their own business. Surely that’s a good thing.