Fed Farmers and NZIER agree…Labour’s CGT is a dud

Despite some epic dancing on the head of a pin by David Parker, the Federated Farmers commissioned report from NZIER is damning of Labour’s Capital Gains Tax.

A report by the New Zealand Institute of Economic Research (NZIER) reinforces Federated Farmers concerns over the Labour Party’s proposed Capital Gains Tax (CGT).

“The NZIER say the Labour Party’s proposed Capital Gains Tax would not be a good addition to New Zealand’s tax mix as it is proposed, we agree,” says Dr William Rolleston, Federated Farmers President.

“The nature of politics will see the Labour Party try to dismiss the NZIER report.  Yet they must listen to the message because the messenger is credible.

“We commissioned the NZIER to examine Labour’s CGT proposal since it represents a major change to New Zealand’s tax system and has been devoid of critical analysis.

“Perhaps the most concerning aspect of the report comes down to the Labour Party’s revenue assumptions.  In 2011, the Labour Party estimated a 15 percent capital gains tax would raise $17.5 million in its first year, rising to $3.7 billion by 2026.

“The NZIER tell us these estimates are high, since the revenue potential of its proposed CGT is more likely to be half that sum.  In fact it may be smaller.  If this key policy is out by such a margin it asks fundamental questions about the Party’s shadow budget.

“What’s more, the Labour Party’s estimates of CGT revenue were revised up this year.  The NZIER noting Labour’s “…2014 estimates are less believable than the 2011 estimates.”

“Labour also expects to raise at least $1.3 billion from the farming sector but a more realistic estimate is half that sum in 15 years’ time.  NZIER further estimates that the loss in current farm values will be between $2.4 billion and $7.6 billion.  But this will be a one off hit for farmers.

“Lower land values mean lower tax revenue too.  

“Aside from simply delaying sale, the NZIER notes there would be significant opportunities to avoid taxable ‘realisation’ events by keeping assets in the family. The CGT tax proposed would not treat transfers to family members as events where capital gains are assessed.

“A CGT genuinely risks capital lock-in with the housing market.  To avoid taxable gains people will choose not to sell achieving the opposite of what is desired for productive investment.

“Since the housing market has been part of a CGT’s rationale, the NZIER found Labour’s CGT will not aid affordability and is not as progressive as many would like to think.  Indeed, a CGT may lead to higher rents.

“What is more, speculative property investment is already subject to income tax on capital gains.

A capital gains tax implemented anywhere in the world has never achieved what Labour heroically claims it will.

“The lesson we can draw from countries with a CGT is that they are not immune from rising house prices, indeed, two weeks ago, the Sydney Morning Herald reported that Sydney and Melbourne had their strongest winter price surge since 2007.

David Parker’s explanations are just hollow weasel words.

Labour’s finance spokesman, David Parker, said the NZIER report had itself erred in using the Australian CGT as a comparison for its estimates.

The average Australian CGT rate is 25 per cent; Labour has proposed a 15 per cent rate. The NZIER’s assumptions suggested revenue would be twice as high as the likely revenue, Parker said.

He said the report had claimed New Zealand already had a CGT, but it did not. And it argued that a CGT should be “perfect” and include the family home, but few if any countries in the world did that.

Contrary to what the NZIER claimed, Labour’s CGT would allow farms to qualify for the small-business exemption.

Parker said a CGT would arrest housing speculation. In Australia, home ownership had been lower than in New Zealand until they introduced a CGT, and now it was higher.

That is dancing on the head of a pin, and while it may sound and look good for the loyal Labour lickspittles, it just doesn’t wash with the thinking voter.

The facts show that Australia’s CGT did nothing to arrest house prices. Labour, by excluding the majority of residential property Labour’s tax is hopelessly flawed.

On top of that their naked grab for the inheritance sales has cost them the election.

 

 

– Fairfax

 


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As much at home writing editorials as being the subject of them, Cam has won awards, including the Canon Media Award for his work on the Len Brown/Bevan Chuang story. When he’s not creating the news, he tends to be in it, with protagonists using the courts, media and social media to deliver financial as well as death threats.

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