Monday, May 18, 2015



Winning the argument on taxing capital gains

Last election, Labour campaigned on a capital gains tax to deflate the Auckland property bubble and provide fairness. National, of course, campaigned against it. And now that Labour has backed away from its CGT plans as a supposed election loser, National has decided to introduce one:

A capital gains tax on residential property sold within two years of buying it is being seen as a step in the right direction, but not far enough, with few expecting the new tax to have a big effect on Auckland property prices.

Prime Minister John Key announced the plan this morning as part of the Budget package.

The exemptions to this new bright-line test will be if the property sold is the seller's main home, if it is part of a deceased estate or inherited, and or if it is transferred as part of a relationship settlement.

The tax will be on the seller's normal income tax rate.


Yes, its weak - but it firmly establishes the principle of taxing capital gains. And as others have commented, it will now be very easy for future governments to extend it to make it more comprehensive. A future Labour/Green government will be able to extend that brightline test to five years, or to infinity, while widening the net to capture other sources of capital gains such as financial wealth. And that's a Good Thing - because the current situation where the poor pay tax while the rich get tax-free capital gains is manifestly unfair.

Its also clear that the left has won the argument here, as it has on child poverty and parental leave. The evidence that Auckland's property bubble is a problem is so obvious that even National, a party of and for property speculators, has to recognise it (or at least recognise that the public recognises it). Though I'd prefer that when parties changed their minds, they were honest about it, rather than trying to pretend that we have always been at war with Eurasia and that a tax which taxes capital gains somehow isn't a capital gains tax. If they're not sure how to sell that, then they could do worse than Keynes' "When the facts change, I change my mind. What do you do, sir?"