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
Dominick Stephens - Chief Economist at Westpac
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.
| « Bad broker Buddle changes plea | Interest rates tipped to rise but price expectations weaken » |
Special Offers
Comments from our readers
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)
Sign In to add your comment
|
|
Printable version |
|
Email to a friend |
