Food for thoughtby Roger Childs

The problem we have is New Zealanders seem not to want an inheritance tax or a wealth tax or a land tax or a capital gains tax, but they still want to complain about growing inequalities of wealth. —Michael Cullen

Traditionally in New Zealand politics, Liberal and Labour governments have made most of the reforms which we take for granted today, and then the conservative parties coming into power have accepted the changes and then ruled in the interests of the farmers, businesses and the gains 2

A bold claim?  Just check the history of implementing  reforms – loans to farmers, breaking up big estates, votes for women, industrial conciliation and arbitration, old age and widows pensions, state houses, social security, Kiwisaver, Kiwibank, the super fund, Working for Families – the list goes on.

Unfortunately, with only three years between elections, political pragmatism can get in the way of necessary changes. The decision on the Capital Gains Tax (CGT) is a case in point. The prime minister says she is personally in favour, but obviously Labour had to have had New Zealand First support. The Greens are all in favour, but Winston once again has queered the pitch.

Most countries in the world have a CGT, including the US, Britain, France, Germany, Australia and Canada. What’s more, many of these nations have conservative governments who are not in a hurry to abolish such taxes. The New Zealand Tax Working Group was unanimous in recommending that we get in line with our allies, and levy the “unearned increment” which the wealthier interests in our society are currently creaming. The average tax in the OECD is 18.4%, so it’s not as if these earnings would be plundered if New Zealand joined the majority of nations.

Unfortunately, there has been plenty of mischief made and lies told as the CGT issue has been debated in recent times. Simon Bridges talked about an attack on our way of life and Business New Zealand made the ludicrous claim that a New Zealand CGT would cost the country 5 billion dollars over five years in compliance costs!

In the end it has come down to Winston not playing ball, as too many of his grey supporters would have been faced with an extra levy on their comfortable assets. Would a decision in favour have been political suicide for Labour? Not necessarily, as there would have been tax gains for most people if the Working Party’s other proposals had been adopted. Overall there would have a more even distribution of wealth and a closing of the income gap between the financial elites and lesser mortals.

Unfortunately, Jacinda Ardern had made a “not on my watch” statement about a CGT, similar to John Key’s declaration about not raising the age of entitlement for national superannuation. That is a pity, because the next election could see the New Zealand First one man band going down the tubes and a coalition of Labour and Greens, favourable to CGT, winning the contest.

by Geoffrey Churchman

About 30 years ago a Wellington stockbroker told me in regard to tax paid by corporations, “You can’t go by any published statement; the only way to find out if they pay any tax is to ask them.” About the same time an accountant said that it was common for them to produce three sets of accounts: one for the Inland Revenue Department, one for the Shareholders and the real ones, presumably for the directors.

It’s likely to still be the same and the message is that if big corporates can find ways to avoid paying tax, they will.  The same applies to the super-rich, and it’s a major factor in how they became rich.  We know that multi-nationals operating in NZ pay (virtually) no profits tax.

This leaves ordinary people shouldering the total taxation burden.  One of the comments on Mainstream Media following the decision to abandon CGT is that the government will now be without the $3.4 Billion that CGT would have bought in.

But apart from being a highly speculative figure, it will have been an added impost on working people.  And what does the government do with all the tax it collects?  Like the KCDC, the central government spends it on a mix of things that they should be doing; and on profligate waste.  And as is needed with the KCDC, an objective should be to eliminate the latter.  There are several government departments that could be slimmed down or just abolished and the staff reassigned to where they are needed.

At the same time, the tax avoidance loopholes for big corporations need to be closed.

As Roger says, CGT is a feature in most First World countries tax systems including the USA, but there the rates are low.  For most people in America the rate is 15% — you can read how it works here.

One of the big problems with the Cullen scheme was that if shares or property were sold at a loss, those losses could only be deducted against profits from other shares or property they sold that year – not against other types of income such as their wages.  In the USA for individuals, a net loss can be claimed as a tax deduction against ordinary income, up to $3,000 per year ($1,500 in the case of a married individual filing separately). Any remaining net loss can be carried over and applied against gains in future years.

But it’s academic now.  The abandonment isn’t too much of a surprise as people simply do not like new taxes being applied to things that haven’t been taxed hitherto — as Jenny Rowan and Ross Church found out in Kapiti. And they do not like tax/rates increases either.

Another point to be made is we are not totally free of capital gains taxes — if you regularly buy and sell things you are going to treated by the IRD as running a business and profits are subject to tax.

Will the abandonment now improve Jacinda’s re-election prospects?  Possibly.