Tuesday, July 05, 2011

A capital gains tax?

Rumour is that Labour is planning a capital gains tax or land tax as part of its big policy announcement next week. Good. At the moment, New Zealand is facing a strategic deficit, created by National's tax cuts for the rich. Extra revenue is needed to fill that hole. And capital gains are the big gap in our tax system, which has meant distorted investment patterns and the wealthy piling up unearned wealth tax-free. A land tax would be a simpler way of filling the same gap, with the added advantage of taxing wealth directly, and in a way that sharp accountants can't escape. While you can make accounting losses while farming capital gains, or funnel profits through Ireland to avoid tax, you can't move or hide ownership of land, making the tax extremely hard to dodge.

National is already scaremongering about how this will hit ordinary kiwis. I don't think we have too much to fear from that. The obvious move is to combine it with lower-end income tax cuts, ensuring those at the bottom end are compensated for the change. Given Labour's past tax changes, I think we can trust them to do this properly. Instead, the people it will hit will be those who own vastly more than the family home, farmers, and other real-estate speculators. Which is as it should be. The basis of a progressive tax system is the idea that taxes should fall most heavily on those who can most afford to pay. The absence of a capital gains or land tax has allowed the wealthiest people in New Zealand to avoid paying their fair share. I would like to see that change.