Westpac backs CGT proposal

In its latest Economic Overview Westpac economists provide a guide to this year's election for financial markets.

It says Labour and the Greens propose broadening the tax base and introducing a CGT, which would be levied at 15%, payable on realisation, but the family home would be exempt.

Labour also proposes to ring-fence losses for residential landlords, meaning losses can't be offset against other income for tax purposes.

"We support the introduction of a CGT, because it will help right the current misallocation of resources to land-based economic activities, and would lift the rate of home ownership."

"By broadening the tax base, a CGT may allow other distorting taxes to be reduced in the future."

Westpac says CGT plus ring-fencing losses would affect house prices by discouraging investors.

"We calculate that a 15% CGT would reduce the value to an investor of a given property by 23%, if rents remained unchanged. Even if we assume a 10% lift in rents, the loss in net present value of the house to the landlord is still 15%."

The ecnomists also say that removing the tax-free status of capital would also impact farm prices.

They also say that if Labour were to led a broad coalition of the centre/left in the next government the market implications would be substantial. Overall there would be a downturn in economic activity and that would mean fewer Official Cash Rate hikes over 2015 and 2016. If National led the next government then it would be business-as-usual and the OCR would continue to gradually rise.

Comments from our readers

On 22 May 2014 at 9:59 am jimmynz said:

Of course they support it, add CGT and watch prices increase in the short term, then add more property ownership with even HIGHER mortgages = more profit to the banks. CGT does not work. How about we aim to solve the problem (lack of supply pushing prices up) not the symptom (CGT = yet another tax)

On 22 May 2014 at 10:01 am Chch Landlord said:

Dominick I think you are forgetting one very important issue that landlords provide accommodation to people for whatever reason cannot or chose not to purchase a home. By ring fencing it means it is just not worthwhile being a landlord so rents will rise and the poor will be living in tents again. Don't forget that rental property landlords are mainly GST unregistered and like myself pay an equivalent amount in GST as a deduction I get from other income. Is this not fair. As For CGT as you are not a property owner I am sure you agree this will be applied to your share portfolio as well??

On 22 May 2014 at 10:52 am Auckland Landlord G said:

Lack of housing for the aged population, lack of housing via housing NZ, lack of housing over all. A CGT will then create a lack of new up and coming property investors to provide a roof over the heads of renters who choose not to own for what ever reason. The higher rent will effect once again the lower and middle class Kiwi. And as far as the investor, this is only one of very few ways an average kiwi can look at trying to provide for their own retirement. Especially those under 45 yrs of age. I beleive there will be no pension for us, and if there is then it will be means tested, or unreachable, which means one again the average Jo will also suffer in retirement. A bigger strain on the community, in so many economic ways.. Please let us investors provide a service for the government in return we get a tax break. So what, it's not huge anyway. Just a little incentive. We still sacrfice in the short term and take an element of risk. Surely there has to be a little light at the end of the tunnel...

On 22 May 2014 at 10:57 am David Whyte said:

Chch Landlord - if second and subsequent properties were subject to CGT on disposal and shares were not - would you invest in the NZ share market?

On 22 May 2014 at 12:33 pm roydy said:

An interesting semi political viewpoint.
Perhaps the headline could have included comment that "economists expect CGT will lead to a 10% rise in rents"
Hard to see when tax would be collected if no properties affected are sold. Brave comment to imply "Interest rates will not go up as much under Labour" Are we expected to believe (as perhaps Westpac economists may) that a Centre Left Govt will somehow borrow less and have more income? (from CGT?) Seems wishful inaccurate expectations to me. Are we supposed to interpret "downturn" as being a new recession. That would be really welcome as a plan to reduce interest rate rises. Value of article? (Minimal)

On 22 May 2014 at 1:00 pm Chch Landlord said:

David - I do not invest in shares as I do not trust the corporates types running our companies (of which I am one) eg Feltex, Urugay FS, SCF. Secondly I do not have any money so I invest in property with 100% debt finance, I employ people, tradies and renovate rundown properties to a high standard and rent them to people who appreciate what I do for them. A CGT does not worry me as I will never sell but it will be a cost to the economy of bureaucrats running it. Property investors provide a service, they do not compete with first home buyers. It is time our economists and public servants realised this.

On 22 May 2014 at 8:13 pm traveller said:

Let's not get obsessed with the possible consequences of a CGT on residential rental property. There are far more things a CGT could affect and few have been mentioned yet - family farms are one which has and share portfolios another. What about pension funds? If a pension fund goes up by 10% in a year will that be taxed too? The proponents of a CGT need to come clean on what will or won't be subject to such a tax.

On 23 May 2014 at 10:58 am Ron Palmer said:

Westpac has and those Australian Banks have a real vested interest in CGT. Their economists would be out of a job if they didn't support a CGT. Can you believe that a Bank, and especially an Australian bank, has a real interest in middle class New Zealanders. Banks look after themselves big time.

Westpac backs CGT proposal

Westpac has come out in support of Labour's proposal for a capital gains tax and says if the centre-left ran the next government then we can expect fewer interest rate rises in the next two years.

Thursday, May 22nd 2014, 7:19AM 8 Comments

Comments from our readers

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