Cracker by Damian Christie


Another Capital Idea...

Yeah I know, I know. I’ve been away. Too much to do, not enough to say, and even less time to say it, that’s been the problem. And with a baby due later in the year (our first), I can’t see that changing any time soon. My blogging, erratic at best, will become increasingly sporadic. I’ve thought of throwing in the towel, then I thought, why? I like it here. The great thing about Public Address is the different voices, and that includes their varying pitch and frequency. So I’ll just write when I’ve got something to say, and the time to say it. Even if, as I discover when I get off the plane from Wellington having bashed this out, Russell has already said it. Although his doesn’t use the phrase “wet-nurse”. Your choice.

I wanted to start a conversation about Capital Gains Tax, which after this week’s leak looks set to be part of Labour’s tax policy at the next election. I don’t quite know why they decided to leak their own policy (which is what I’m led to believe happened), the last thing Phil Goff needs is to look like a flailing I-can-neither-confirm-nor-deny leader when this is the first bold thing the party has done in a while. I disagree with Russell’s analysis it was a smart thing to do – Key might appear ‘panicky’ to some, but at the moment he’s the one dictating the conversation around this, absent any response. By the time this comes out next Thursday, the media conversation will be over, and Labour will have lost another opportunity. CGT will be “that thing John Key told us was bad.” If I’m wrong, I’ll buy you a beer Russ :)

Now I’m not generally a fan of more tax. I quite like having money, and working seven-or-more days a week at the moment to produce various shows, I feel like I’ve earned it. Fundamentally I believe in a proportional tax system, where the more you earn, the more you pay.  I also believe in a low, or even nil rate up to some minimum income level, the latter of which Labour is also expected to propose. But am I a fan of Labour’s expected reintroduction of a “rich prick” top tax rate? No. I accept it’s an arbitrary point of view, but zero low tax, sure, punitive high tax rate, no. For nine years under the last Labour administration the top rate was used as an increasing tax grab, and despite promises it would only affect around 5% of the population, over three terms it was allowed to creep to almost three times that.

On the other hand, as one of National’s policy advisors said to me the other day, “of course capital gains tax makes sense”, and then added, “but it’s political suicide.”

Yes it makes sense to tighten up the biggest systemic loophole we have, where people can make huge amounts of money but pay no tax on it. I haven’t heard anyone arguing otherwise who isn’t arguing out of self-interest. As Key says, people will simply go to their tax accountants – I can’t help but picture a row of dangling ropes, connected to bells in various parts of the JK mansion, variously labelled “Cook”, “Nanny”, “Tax Accountant”, “Wet Nurse” and so forth. Maybe that’s true (about people going to their accountants, not about Key having a Wet Nurse.) Maybe it’s a glib response that could equally apply to the idea of company tax as a whole. Maybe Key knows CGT makes sense too. He’s certainly been vague enough about it in the past to suggest he can see the logic. It just might make for an uncomfortable summer of BBQs with the neighbours up at Omaha.

There was a chap interviewed on the news the other night on this. A guy who routinely buys and sells houses for a profit. “I employ people” he said. “I employ carpenters and electricians and plumbers and so on. So why should I pay tax on the money I make.” It barely requires a second glance to point out that a lot of people employ others and still have to pay tax on the money they make. They’re called business owners. And therein lies the fundamental hypocrisy of it all. We wonder why kiwis invest in real estate and don’t invest in business? Because one is not only relatively risk-free, it’s also completely tax free.

If the introduction of a CGT results in people leaving the housing market, or holding on to their second or third houses rather than selling them for a quick profit, okay. Far more likely is that people will add the tax they will pay into their rational decision-making process to sell at any given time, the same as they might do with real estate agent fees. And if paying a bit of tax means they’ve got less money to buy the next house with, well that’s okay, because the deflationary effect will mean that next house’s price isn’t juiced up on the promise of quick profits.

It makes sense, and I think a world where CGT is part of our tax scenario is one in which I could happily exist. But I’d rather see it as another tool in the box, with a corresponding drop in something else, than an increase in the pile. I don’t know of any party that won an election promising higher taxes, but I’m sure to be proven wrong on that. In the meantime, let’s hold our breath for Labour’s announcement next week. 

I’ll have an Asahi, thanks Russell.

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