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Capital gains tax on property still alive

The government is not ruling out a capital gains tax to keep the housing market under control.

Thursday, August 13th 2009, 12:00AM 15 Comments

by The Landlord

It is not quite advocating such a tax, but it is a long way from the National-led government's stance six months ago.

It is a long way from Labour's stance when it was in office.

What has changed?

Finance Minister Bill English yesterday, when asked about a capital gains tax, said; "In the long run the economy needs to shift away from spending and borrowing on housing to more exporting. The signs at the moment are that it's not making the shift that we would want to see, so we need to look at whether there's any policy mix that might make the right shift."

At last week's National Party conference, when asked a similar question English similarly did not rule out such a tax.

OK, so we're not talking gaffe here, or accident. This is a pattern.

But is a capital gains tax a serious option?

Not unless National has rediscovered a taste for political suicide not seen since Jenny Shipley was prime minister.

No, this is a combination of jawboning and a bit of old fashioned scaremongering, so what the government finally opts for will seem more palatable.

The most likely move is a stepping up of the enforcement of existing rules in the Income Tax Act covering property investment.

Labour threw the Inland Revenue Department an extra $14.6 million over three years to better enforce that part of the law.

That three-year programme is now in its final financial year. Although the programme is not being run by Inland Revenue's policy division, there is to be a report to the policy specialists on what the department's enforcement team found as part of their work.

That is likely to feed through into tax changes. The original timeframe for that was not to be until the end of the financial year: it now appears likely that work is being brought forward.

The other avenue for change of course is the Tax Working Group set up jointly by the government and Victoria University.

That group is to report in November and is very much at arm's length from the government. But "arm's length" is still talking distance. The chairman, economist Bob Buckle, has made favourable noises not about capital gains taxes but about property taxes, perhaps using the current ratings system as a base.

In short, a capital gains tax is unlikely. But you can put a ring around some form of tax on land and/or property investment.

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Comments from our readers

On 13 August 2009 at 4:45 pm David said:
Ha All you suckers who voted for National--we told you so!!!
On 13 August 2009 at 6:52 pm Doug said:
Why stop at CGT, What about Land Tax, Stamp duty. There are a heap of taxes that good be thown at the Property Investing Business. Only issue is unless someone supplies some more houses house prices will not go down and demand on rentals will increase and all these above costs will be passed on to those of our society who can only afford to rent.
On 13 August 2009 at 7:48 pm John said:
If the government wants to help the economy in this country they should be doing all they can to encourage investment in any form not discouraaging it. Improvements in the investment infrastructure of new Zealand will attract foreign investment as well which will benefit the economy much more.

Encourage investment make it easier for
Kiwi's to invest in the growth of their country. This would of course improve exports as well as industry begins to produce more products and services that the world economy wants.
The government should spend more time talking to other governments about easing restrictions to allow kiwi products to compete on equal footing.



On 13 August 2009 at 10:27 pm Keith said:
CGT assumes there is a capital gain which is highly unlikely in the current market. Moreover, Brash talked seriously about CGT when he was Reserve Bank Governor in the 90s and so have various MPs and has anything happened!
On 14 August 2009 at 12:14 pm david said:
Bringing in the tax will see a flight from property investment. Does the Govt think they can do better as landlords than the private sector? We've been there before!
On 14 August 2009 at 1:29 pm Quenton said:
I think CGT is an option. Anyone that is considered to be a property deveopler is obliged to pay tax on any profits, why should average Joe Blow who owns more than 2 properties not be considered to be the same as a developer. I think anyone should be able to own 2 properties no questions asked.After 2 they should be treated the same as a developer.It is radical policies such as this that may force banks to reduce their rates and in turn bring down the NZ dollar.
On 14 August 2009 at 1:34 pm Quenton said:
I think CGT is an option. Anyone that is considered to be a property deveopler is obliged to pay tax on any profits, why should average Joe Blow who owns more than 2 properties not be considered to be the same as a developer. I think anyone should be able to own 2 properties no questions asked.After 2 they should be treated the same as a developer.It is radical policies such as this that may force banks to reduce their rates and in turn bring down the NZ dollar.
On 14 August 2009 at 1:47 pm jim said:
When will the polly's efer learn that Kiwi's will put their dollars where they want to-not where the Government thinks they should Where are the incentives ?????????
On 14 August 2009 at 2:45 pm ray said:
The Labour Government would have had to do the same because thier mates the Green Party were incenced about a CGT, and still so today. The Australian model is worth implementing as it allows for movement in the C.P.I. They do not apply this to the family home but all other assetts including shares. The Aussie model was put in place by the Bob Hawke Labour Govt 20 years ago and has survived. Only Kiwis are too greedy to not follow suit but Bill English is correct in this instance. NZ will not survive another burst of house inflation again and prosper.
On 14 August 2009 at 9:06 pm Charlotte Lee said:
Hey lets have a referendum on it! Oh thats right. Regardless of public opinion John will decide on the final outcome of that issue. Spose Bill will do the same on CGT regardless of public opinion.
On 14 August 2009 at 10:10 pm Nick said:
From a purely tax point of view the tax base has to be widened. It is unreasonable to expect capital gains to be tax free when wages, profits and expenditure are taxed.
A capital gains tax will allow income and profits taxes to be reduced.
From a national wealth point of view we overinvest in domestic property, thus starving the productive sector of investments. A capital gains tax, by reducing te return on property will go some way to redressing this imbalance.
On 19 August 2009 at 3:29 pm Tony said:
"The government is not ruling out a capital gains tax to keep the housing market under control." Right! Haha, put tax (whatever tax) can increase housing prices, what do you mean control?
On 21 August 2009 at 12:10 pm sleepOnRoad said:
Yes, please put averious taxes, and increase house prices (By tax earner), and increase rent (landlord will do), and we (lower income earners) can sleep on the road, lovely road! please do now, we cannot wait! not time to talk about - From a purely tax point!!!!
On 2 September 2009 at 8:40 pm Andrew said:
Bring it on, this country needs a CGT. We need to tax unproductive investments more like residential property investment, and productive investment less like business and exporting companies. Over time this will mean lower house prices in real terms, lower interest rates and a higher standard of living as a country.
On 7 September 2009 at 11:25 pm Maria said:
We went didn't buy rental properties because we loved looking after tenants. We bought them to fund our retirement because we realised the Government wouldn't look after us in our old age. It's been bloody hard work and has in fact wrecked my 40 year old marriage. So as far as I am concerned, the Government can stick their idea of a CGT up their arse.
Commenting is closed

 

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ANZ 8.64 7.84 7.39 7.25
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China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - 7.04 - -
Co-operative Bank - Owner Occ 8.40 7.24 6.79 6.65
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Co-operative Bank - Standard 8.40 7.74 7.29 7.15
Credit Union Auckland 7.70 - - -
First Credit Union Special - 7.45 7.35 -
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Heartland Bank - Reverse Mortgage - - - -
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ICBC 7.85 7.05 6.75 6.59
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Kainga Ora - First Home Buyer Special - - - -
Kiwibank 8.50 8.25 7.79 7.55
Kiwibank - Offset 8.50 - - -
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Resimac - LVR < 90% 9.84 9.09 8.59 8.29
Resimac - Specialist Clear (Alt Doc) - - 8.99 -
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Unity 8.64 6.99 6.79 -
Unity First Home Buyer special - - 6.45 -
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Westpac 8.64 7.89 7.35 7.25
Westpac Choices Everyday 8.74 - - -
Westpac Offset 8.64 - - -
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Median 8.64 7.29 7.32 6.65

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