The labour Government in New Zealand are trying to say they are copying the world in tax reform. Strange really because after the Lange/Douglas reforms in the 80’s we thought we were leading in tax reform. There is no doubt that two simple rules applied; do not make collection expensive and do not provide disincentive for growth.
It certainly never was take from the wealthy and give to the poor. The reason is simple you could take a lot away from the wealthy and the poor will still be poor. We need wealth to create jobs and growth. Diminishing wealth and giving it to public servants to squander on schemes to pass over a small part of what was gained helps nobody. It is certainly not going to help grow the overall wealth of New Zealand
Let’s look at some of the more stupid aspects. The pension scheme , KIwisaver was a brilliant way to get people to save and do more for themselves in retirement. The money in these schemes in the meantime grows and is reinvested to promote more growth. However CGT is going to directly impact on a quite large portion of these savings. Tax them and making sure they become a waste by directing the money as tax through public servants .
Then there is tax going to apply on CGT of the sale of the homes of those naughty people who are using their homes , in a small part, to run their business. How dare they! They are creating wealth and jobs!. They already pay rates on their homes and tax on their income. But because they are often working at home often at night, and claiming some tax relief on the space used, they are condemned to paying CGT on the sale of their home!. This means small business, like builders, plumbers, and painters are now discouraged to work at night. Perhaps they could work in their vans or cars during the day so they can make less money , employ fewer people and thus avoid the CGT trap. Heaven help, they might even be considered ‘rich pricks’.
What about the young couple who want their first home. They want to get on the property ladder so they are not a future burden to society. So many bring in others to rent a room so they can afford the mortgage. But NO the CGT Gods say that turns their home into a profit making asset and yes they will pay CGT at the sale of this property, when they decide to upgrade. This is vital because that money will go to public servants to handle badly and waste. But don’t worry instead of all that heartache just join the queue for a Government funded home. These public servants will use the money gained through tax including CGT to pay for this .
So what am I saying, simple if you apply CGT across the board it will disincentivize people from trying to better themselves. The same goes for farms and a myriad small business examples. There is nothing wrong with creating an extended brightline test on second property sales. But why at 33 cents in the dollar? Whatever is done keep it simple, do not disincentivize people. It is not a great panacea for fixing a system that is not broken. However, what does need to be done urgently is rescaling of the tax steps to make earning a living a positive thing and far better than producing nothing and receiving handouts