Large media attention regarding a proposed capital gains tax has drawn large public option and debate regarding the advantages and disadvantages, with the tax working group delivering final report on the 21st February 2019. The aim to increase ” improve housing affordability, lead to a higher rate of home ownership, help remove the heavy skew we have towards land-based investments, and eventually lead to a more diverse national balance sheet, improve incentives to engage in paid work if income tax was reduced.”
Tax working Group has raised concerns over the structure, fairness and balance of the tax system, leading to the recommendations that the government tax more income on capital gains. The Housing affordability subject has received a lot of media attention with increase in housing prices year on year and the ability for the average New Zealander to achieve their first home. Numerous policies by government including kiwi saver & kiwi build assistance and recently the new polices around Anti money laundering and oversea investment act have been implemented to stabilize the real estate market.
All members of the tax working group agree that a capital gain tax on rental property should be implemented, with 8-3 members favoring a capital gains tax on all assets sales, the estimated value of savings would generate $8 Billion Dollars over the next 5 years.
With the proposed value of saving they have suggested that they redistribute to other tax areas including; lowering personal income tax to break the income inequity gap, Low to middle income users would benefit from less tax on the kiwi saver scheme, whilst they have highlighted the need to support local businesses, the need for reduced tax would not apply.
Whilst the final report has been issued, the mixed reactions with the media have highlighted the challenges and complexities of the capital gains tax.
• Paul Glass, executive chairman of Devon Funds Management: “CGT would add huge complexity to one of the world’s simplest tax systems.”
• Dominick Stephens, Westpac chief economist: “CGT It would improve housing affordability, lead to a higher rate of home ownership, help remove the heavy skew we have towards land-based investments.”
• Andrew King, executive office, NZ Property Investors Federation: Opposes CGT because landlords already pay extra tax via council rates.
• Property Council: “CGT tends to be sub-optimal in terms of their coverage and ability to be a viable and stable revenue source. But there is a strong equity (fairness) rationale for the introduction of a CGT in New Zealand.”
• AMP Capital Investors: “Introduction of a broad-based CGT is the obvious missing component of our tax system.”
• EY: “If the Government has concerns regarding all forms of capital investment, [we recommend] considering a broad-based CGT. One of the key criteria by which we should assess our tax system is through equity and fairness. Our current tax system focuses heavily on taxing income. However, income is not the only or major source of affluence for many New Zealanders.”
• Federated Farmers: 81 per cent of 1393 survey respondents oppose CGT. Farmers would quit the industry, CGT would make work for accountants and lawyers and create issues with inter-generational family farming operations, respondents said.
• DairyNZ: “Introduction of a comprehensive CGT presents significant challenges, both in transition and practical implementation.”
• Craig Stobo, company director: “New Zealand already has a CGT. However, it is not comprehensive and there are concerns about how to consistently enforce it.”
• Waikato Tainui: “Any new asset/wealth taxes, including any CGT or land tax, must exclude all Waikato-Tainui whenua and other taonga and all raupatu and other Tiriti settlement assets including post-settlement right of first refusal assets acquired from the Crown.”
• Taxpayers’ Union: “Taxing capital should be approached with great caution in the specific New Zealand context. New Zealand’s economy suffers from shallow capital markets and allow productivity, contributing towards a low wage environment. A CGT would likely make that worse.”
A full report of the capital gain recommendations can be found on the tax working group website. https://taxworkinggroup.govt.nz/resources/future-tax-final-report
https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12203299 – 18Feb
