The Dim-Post

May 18, 2015

Progress

Filed under: Uncategorized — danylmc @ 8:40 am

Louis XIVths Finance Minister once said, ‘the art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing.’

What strikes me about the government’s new tax – which is totally not a capital gains tax – is that (a) it will probably not deliver any feathers, because property speculators can just defer their sales to avoid the tax, but (b) there is now a ‘brightline’ tax on capital gains instead of a huge nebulous loophole, and this is a big deal on a psychological and political level. It means that subsequent governments – or maybe even this one – can incrementally increase the two year limit out to five years, ten years, then no limit, and New Zealand will have a realised capital gains tax on secondary property.

Yes, the way it came about is absurd. Labour campaigned on a Capital Gains Tax. National opposed it. More than opposed – they tore Labour apart over it. So Labour abandoned it and now National’s introduced a dummy one. Someone else will give it teeth. But it will, eventually, mean our tax system is a little bit fairer.

44 Comments »

  1. We didn’t realise that Louis 14’s finance minister had morphed into the National government! Well said! paleo martin

    Paleo Martin

    Comment by paleomartin — May 18, 2015 @ 8:46 am

  2. David Cunliffe will be grimly satisfied today.

    Comment by Sanctuary — May 18, 2015 @ 8:52 am

  3. “Russel Norman was right.” – John Key, allegedly.

    Comment by Fraud — May 18, 2015 @ 9:04 am

  4. To be fair, if you polled weekly you’d know exactly when to change your mind about important issues.

    Kudos to National for following the only data that matters.

    Comment by Fraud — May 18, 2015 @ 9:09 am

  5. a) it will probably not deliver any feathers, because property speculators can just defer their sales to avoid the tax,

    It’s aimed at the Auckland property boom and the council elections are in 2016. You’d need to be a fairly brave property investor to defer sales.

    Comment by unaha-closp — May 18, 2015 @ 9:24 am

  6. @Fraud

    Not even National actually makes it decisions based on focus groups. Focus groups are used to best sell/disguise decisions already made previously.

    Comment by RJL — May 18, 2015 @ 10:05 am

  7. The capital gains tax you have when you’re not having a capital gains tax.

    Comment by Kumara Republic (@kumararepublic) — May 18, 2015 @ 10:12 am

  8. Reblogged this on Talking Auckland and commented:
    In effect it a small strengthening of our existing laws around taxation of gains made in the sale of residential property.

    I suppose some wider questions now come to mind such as ‘Why now” and “Has National lost the narrative (spin) on this one?”

    I suppose if a Government was being serious a Capital Gains Tax would be universalised to include the Family home backed by a 1% of Rateable Value Vacant Land Tax to be paid annually.

    Comment by Ben Ross - Talking Auckland — May 18, 2015 @ 10:32 am

  9. Does the IRD number/bank account requirement mean that overseas investors will now be required to pay tax to NZ (if they’d normally be liable from within NZ)? Or it it more just to help IRD keep track of who they are?

    Comment by izogi — May 18, 2015 @ 10:58 am

  10. “because property speculators can just defer their sales to avoid the tax”

    That will mean property speculators will withhold supply……..forcing prices higher. Fucking genius.

    Fairer tax system. This was probably been somewhat forced upon the government by overseas lenders. IMF have been pushing NZ for a capital gains tax for some time. Expect the IMF thinks the government will need all the revenue it can get to pay for the interest on its debt say in about 4 or 5 years time. Current State spend on interest around $5 billion pa and can only increase. Perhaps double in five years.

    Comment by Simon — May 18, 2015 @ 11:33 am

  11. That will mean property speculators will withhold supply……..forcing prices higher. Fucking genius.

    Potentially.
    As noted by Ben, a universal CGT + LVT would be probably have been a sensible addition to this if – as we keep hearing from the Govt, Don Brash etc. – the issue is one of supply rather than demand.

    Comment by Gregor W — May 18, 2015 @ 11:55 am

  12. Do you think Key designs easily-evadable taxes himself using skills from his previous life, or gets professionals in to do it.

    Comment by richdrich — May 18, 2015 @ 12:27 pm

  13. evading tax is always easy, not getting caught is the hard part.

    It’s seems to be part of a more general trend to give the IRD more powers to go after evasion.

    Comment by NeilM — May 18, 2015 @ 12:37 pm

  14. evading tax is always easy, not getting caught is the hard part.

    Not really.
    It’s pretty hard to avoid PAYE or paying GST for instance.

    So it would be more accurate to say, evading tax is always easy if your principle income is not in the form of wages.

    Comment by Gregor W — May 18, 2015 @ 12:54 pm

  15. Chewing Gum CGT?

    Comment by PatrickT — May 18, 2015 @ 12:55 pm

  16. You avoid GST and other taxes by using cash. Which is something else recently been in the IRD’s spotlight.

    Comment by NeilM — May 18, 2015 @ 12:58 pm

  17. NeilM – you don’t avoid paying GST. The entity that you purchase goods or services from avoids paying it to the IRD.
    Hence my point.

    Comment by Gregor W — May 18, 2015 @ 1:20 pm

  18. I agree it’s likely to deliver little in the way of revenue but it’s more likely to be abolished than extended because of this. Its’s there to settle the market not deliver revenue. Once the hype is gone from Auckland this tax will disappear as well.

    Comment by artcroft — May 18, 2015 @ 1:28 pm

  19. Gregor W, if the trade you just employed was substantially labour (gardening, painting, etc) you have avoided a decent chunk of GST. It’s not ALL or NOTHING.

    “What strikes me about the government’s new tax – which is totally not a capital gains tax – is that (a) it will probably not deliver any feathers, because property speculators can just defer their sales to avoid the tax, but (b) there is now a ‘brightline’ tax on capital gains instead of a huge nebulous loophole”

    I think it could be designed to capture those who buy apartments off plan, then flick them on before construction. If these people have a decent holding of actual rental properties, they may find it easy to defend “intension to sell, just changed my mind about this type of property/this location, honest guv”. Plenty made a decent chunk of money doing this in the early 2000s: GBP5,000 down, another GBP15k to pay when construction begins (with the balance spread to completion), but sold for GBP15k in the meantime. 10k pure profit, albeit subject to UK CGT. When the market dips, there’s a chance you’re left holding flats. But if you haven’t overdone it, you simply stump up the 15k, rent the place out for a few/five years, and sell it once the markets are back up. And then you’ll still have make decent money, you just have to ensure you have adequate cash for the balance of the deposit, cashflow for the mortgage repayments (but often the rent will be sufficient) and some amount of approved finance in place (using the equity in your long term properties to reduce the appearance of leverage.

    Comment by Clunking Fist — May 18, 2015 @ 2:00 pm

  20. True CF – but it would be very easy to claim that you paid the bill, not knowing that the GST component was missing. As a consumer, you are under no obligation to check the validity or legality of an invoice, or even request one if one is “missing”.
    The responsibility of paying the GST to the IRD is on whoever collects moneys on the IRDs behalf as it is implicitly assumed that all transactions carry a GST component as prescribed by law.

    It is mandatory to produce an invoice for goods or services sold, not to request or retain one as the purchaser. For whatever reason, the seller does not produce an invoice, that is their problem with the IRD, not yours as a consumer (unless of course you are trying to claim something back from the IRD without the correct paperwork).

    Comment by Gregor W — May 18, 2015 @ 2:30 pm

  21. You’d need to be a fairly brave property investor to defer sales.

    Infometrics are forecasting that “nationwide house price inflation [will] peak at 14% in 2015/16, with … [s]ome reversal in prices is possible in 2017 and 2018 as economic growth slows and the undersupply of housing in Auckland and Canterbury is resolved.”

    http://www.interest.co.nz/property/69342/economic-forecaster-infometrics-picks-14-house-price-inflation-2015-16

    I’m not sure you need to be that brave to hold on to property for the next two years with that forecast.

    Comment by Flashing Light — May 18, 2015 @ 2:40 pm

  22. This 2010 Treasury aide-memoire to Bill English reinforces Danyl’s point about how future governments can move the bright-line test
    http://www.treasury.govt.nz/publications/informationreleases/budget/2010/pdfs/b10-am-tsy-lpbt-19mar10.pdf

    Comment by TerryB — May 18, 2015 @ 2:49 pm

  23. Does the IRD number/bank account requirement mean that overseas investors will now be required to pay tax to NZ (if they’d normally be liable from within NZ)? Or it it more just to help IRD keep track of who they are?

    Izogi the intention is two-fold: meet NZ’s international anti-money laundering obligations (an increasingly onerous task) and allow IRD to track down foreign investors. The proposed withholding tax for foreign vendors ties in with this.

    http://www.interest.co.nz/opinion/75537/terry-baucher-says-current-ad-hoc-approach-taxing-capital-gains-leads-lack

    Comment by TerryB — May 18, 2015 @ 2:51 pm

  24. Thanks @TerryB.

    Comment by izogi — May 18, 2015 @ 2:54 pm

  25. I guess, worst case scenario, this reads like a parable about effective leadership and how best to engage in it.

    Comment by Lee Clark — May 18, 2015 @ 3:20 pm

  26. So who are the effective leaders here? Can you explain your parable, Lee?

    Comment by sammy 3.0 — May 18, 2015 @ 3:34 pm

  27. @sammy 3.0,

    Imagine John Key is an elephant and Andrew Little is a horse. Then imagine that they both are walking through long grass. The elephant is taller than the horse, so it can better see where to go. That’s leadership!

    Comment by Flashing Light — May 18, 2015 @ 3:48 pm

  28. “Someone else will give it teeth. But it will, eventually, mean our tax system is a little bit fairer.”

    Really? If we did end up with a CGT on secondary property only, we would have a wedge between rentals and owner occupiers. Given owner occupiers are typically wealthier than renters, it would be regressive. Why’s that fair?

    Comment by Matthew W — May 18, 2015 @ 7:51 pm

  29. sammy I’ll try but after ‘Sparkling Wit’ finished metaphorically eviscerating me, I can hardly see the screen for tears of laughter. I just thought that It seems that everyone wants a piece of this one, and many can rightly claim it for themselves.

    If you look at KB for example, despite previous memes about lower taxation and a general dislike of CGT, suddenly it’s ok now Key has appeared to endorse it. So suddenly despite previous disparagement of the idea, he now shows ‘leadership’, despite knowing his native support might dislike it. (But who now rally to his side nonetheless).

    But one might say that the Labour Party showed leadership by bringing this to the public gaze. Unfortunately Cunliffe wasn’t;the effective leader required to float it. And Labour they apparently ditched the idea when it appeared unpopular. So one mark off Little. However, some are congratulating themselves on having influenced the Government to do this. So one might say that progressive politics provided the leadership example in that case.

    Meanwhile the policy gets a reserved ‘thumbs up’ with even a post about it on The Standard, and a kind of coy accolade at The Dimpost. So if leadership is about carrying as may people with you as possible even when making unpopular decisions, Key has shown effective leadership, and left some other leaders on the wrong-foot.

    Comment by Lee Clark — May 18, 2015 @ 8:08 pm

  30. Lee, this is not a CGT. It just makes it easier for the IRD to claim the profits are income for transactions which most people would expect to be anyway. Why it doesn’t apply to the main home, I have no idea. The only people I know of who have bought with “intent” occupied the houses while they renovated them.

    Comment by Matthew W — May 18, 2015 @ 8:14 pm

  31. To be fair Matthew W, Labours CGT proposal was also ex the family home (which FWIW I agree is absurd).

    So this not-CGT is no more silly that the proposed actual CGT.

    Comment by Gregor W — May 18, 2015 @ 8:30 pm

  32. Isn’t the biggest impact of this going to be the killing off of tv programmes like the block?

    If so that would be a far greater contribution to NZ’s culture than a tacky new flag/logo. Now that’s leadership.

    Comment by insider — May 18, 2015 @ 11:53 pm

  33. I know it’s not CGT, Matthew,

    Comment by Lee Clark — May 19, 2015 @ 7:32 am

  34. … but if Labour had proposed it I dare say the KB end of town would have gone feral.

    Comment by Lee Clark — May 19, 2015 @ 7:33 am

  35. OK yes, you are right.

    Comment by Matthew W — May 19, 2015 @ 8:38 am

  36. Key has shown effective leadership, and left some other leaders on the wrong-foot.

    Yes an odd turn of events. Compounded by Key’s critics claiming there was no tax on property profits – which there has been for a long time as evidenced by this adjustment.

    It might not be a CGT but to most people it’s what a CGT would do so now Little is stuck having said there was no CGT, demanding one when a lot people understand there sort of was one and then backing off the idea right when Key makes a move.

    I understand that Little wants to have a full review of taxes which might produce something interesting, maybe a FTT or the like.

    But for the moment trying to be clever over housing doesn’t look to have paid off.

    Comment by NeilM — May 19, 2015 @ 8:51 am

  37. Key has shown “leadership”, in the same way that the Soviet Union “defeated” Japan in WW2 …

    by declaring war on August 9, 1945.

    Comment by sammy 3.0 — May 19, 2015 @ 9:28 am

  38. NeilM – while I agree with you that Little has been wrongfooted to an extent, I’m amazed at your ability to put lipstick of this particular pig in favour of Key.
    Purely on a perception basis, Key has done a 180 no matter what the tax is called.

    Interestingly, I note that he still holds the position that there is no housing affordability ‘crisis’ in Auckland.

    Comment by Gregor W — May 19, 2015 @ 9:45 am

  39. Isn’t the biggest impact of this going to be the killing off of tv programmes like the block?

    Why would that show be killed off? I imagine that that show pays tax on any gains, but even if it doesn’t but soon will, it would merely be required to pay a % of any gain. It is like you’re suggesting that everybody wants to quit the workforce because they have to pay tax on their income.

    Comment by Ross — May 21, 2015 @ 7:42 am

  40. “Fiscal gender reassignment”

    Comment by NeilM — May 21, 2015 @ 4:15 pm

  41. In days gone by the Labour leader had Brian Edwards as media adviser, not John Tamihere.

    Coming straight after the Young Labour remit this can’t be an accident.

    I’ve been expressing doubts re Litlle’s approach – after initially thinking relatively positively about his taking up the leadership – which has been met with general witheringness.

    He’s glib, oddly over confident and perhaps a bit not very pleasant.

    Comment by NeilM — May 21, 2015 @ 4:56 pm

  42. Their mouths attract their feet way too much. Do not deserve to govern. Sad for the rest of the left.

    Comment by Sacha — May 21, 2015 @ 9:53 pm

  43. He’s glib, oddly over confident and perhaps a bit not very pleasant.

    He’s a horrid horrid man Neil, and if your toes poke out from under the bedclothes after you turn out the light he’ll bite them off.

    Comment by Joe W — May 21, 2015 @ 10:22 pm

  44. Initially, the main problem was that since Labour had been in power for so long National could just say “not our fault, it’s a problem we inherited”. But it’s been over 6 years now and National have introduced such dumb stuff it’s time to play up all the awful, awful laws that have been introduced.

    Laobur go after Key because without him National are nothing – they have all Key’s failings without being able to hide them*. Perhaps the time is to leave Key but to go after the others – play on the succession aspect.

    (*yea, generalising but not that much.)

    ~~~~~~~~~
    I didn’t think pony tail gate was going to have much effect on the polls – if a person didn’t change their vote over the casino deal than a bit of casual harassment ain’t going to do it.

    Comment by mjpledger — May 27, 2015 @ 10:18 am


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