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Labour’s capital gains tax announcement has certainly dominated recent political discourse. Some think that it is too timid, others that strategically it hits the right spot, time will tell who is right. Both from a collective good and a political point of view. What is utterly predictable is the chorus from the right claiming that the policy is the worst thing possible and will completely undermine the economy, even though CGTs are common throughout the western world and perform the very important role of tempering the effects of untrammelled capitalism. Nicola Willis is among the loudest of voices. She has this uber confidence in the righeousness of what she says. The problem is that when it is subject to any sort of proper analysis it falls apart. Ever since the policy has been released she has made a number of outlandish claims. Including these. From Radio New Zealand: Willis, National’s deputy leader, told Morning Report the capital gains tax would be “a massive tax on the New Zealand economy at a time when it could least afford it”. “This will put the economy at risk. It’s a terrible idea.” While the policy was being discussed as a “narrow” tax, she told Morning Report it was anything but. “It is certainly not narrow; they have said it would be a tax on every piece of commercial property in the country. That will hit many, many businesses, from a corner dairy to a manufacturing facility. It will also hit everyone who saved and put money into KiwiSaver, because some businesses in their KiwiSaver will now face a new tax. “And it will hit every Kiwi who saved hard for a rental property or an investment in a commercial business. To call it narrow is completely misleading.” Talk about hyperbolic overdrive. The tax is not a massive tax. It will take in an average of $700 million per annum during the forecast period. The current overall tax take is estimated to be $169.7 billion. And it will not hit every business. It will only be paid on realisation of commerical or rental or secondary property and only on an increase in value experienced since 2027. And a profit from that time has to occur. Owners will receive less of the profit as well as keeping a return of their original investment and also the benefit of any mortgage repayment that has occurred. Christopher Luxon also went into hyperbolic overdrive. From Radio New Zealand: “This is a tax on every single business in New Zealand,” [Luxon] said. “Think about that corner dairy owner that actually has to operate from premises in a building that’s going to get taxed, that ends up adding cost to that business owner, that ends up putting a cost out to the consumer.” Despite their claims the proposal is not a tax on every single business. Only those that own commercial or rental properties. And only when the property is sold. And it will not cause rents to increase. They are determined by market forces, not by the whim of landowners wanting to avoid paying tax on what clearly is a business activity. The usual suspects also chimed in. The Taxpayer’s Union, which has never met a new tax it does not want to villify, called the tax a Bach Tax, which it sort of is, but only on the increase in value and only after the gain is realised. It also claimed that the tax was a trojan horse. According to the TPU “[o]nce a CGT is in place, history shows it inevitably expands to family homes, inheritances, and even death duties”. A quick google will suggest that this is not the case. And Landlords think it is an awful terrible idea. Matt Ball, advocacy manager for the Property Investors’ Federation, said this: “If they introduced a capital gains tax, targeted on property investors, and said as a quid pro quo we won’t go back and reintroduce the ban on interest deductibility, I think a lot of people would have said OK fine,” he said. “But if you have one and the other, it’s a disaster. The loss of interest deductibility makes investing in residential property unprofitable. So people will exit the industry, there’s no doubt about it.” The problem for Mr Ball’s analysis is that landlords may exit the industry, but the houses will remain. There may be downward pressure on the housing market but this will only improve housing affordability. They are all practising their attack lines and progressives should be honing their responses. Ideally the debate is reality based. So far there has been a distinct lack of reality with some of the claims being made.
