Hard News: Labour's Fiscal Plan: Explaining without losing?
57 Responses
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izogi, in reply to
The capital gains tax has been sold as a means of directing investment away from residential property. But the tax will apply to 100% of the commercial property market, 100% of industry, shares, agriculture etc, and only about a third of the residential property market.
Does it matter? I know the popular political line right now is about residential property, but what's the actual argument for not having a (well designed) CGT, except that we don't already have one and that so many people have engineered their existing activities and life savings around that?
As in, why should income be treated differently depending on whether it comes from a home sale or business sale or a salary or a farm sale or dividends or wherever else?
I'm also not a tax accountant, but to me a lack of a CGT seems to say to anyone that if they have a small bundle of money, then they should buy a house with it (because houses are easiest right now), even if they don't want one, and therefore push up the value of houses, or make that house less available to someone else, and result in someone else who might use the money more effectively not getting it.
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izogi, in reply to
What I’d like to see the media doing to everyone, is not just transcribing the claimed benefits (or drawbacks) of any policy but foregrounding the assumptions that inevitably go into arriving at them and putting them into context.
Policy schmolicy. I want my priority prime-time political analysis to keep me well informed about who's in front according to the latest individual poll, and by how much, who everyone else likes most, and the sports commentary angle of how gleefully awesome or embarrassingly dreadful the tactics and strategies for gaining popularity or undermining others have been.
How else am I supposed to know who to vote for?
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A capital gain tax is dead in the water - it will hurt reneters.
I don't think it really matters what Labour's message or policy positions are - from the Liu donation carry on as reported in the Herald and as trumpeted by Duncan (oath I'm really stupid) Garner a significant number of the mainstream media are bending over to support the Key Govt no matter what.
The underlying issues don't warrant consideration – First Citizen John Key will say his govt have been good stewards of the economy and mainstream media will repeat that message without question.
So how does Labour get the truth out there when the fourth estate is largely incompetent and already swayed in favour of the re-election the John Key Govt?
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Luke Williamson, in reply to
Bang on Dexter! I was just asking Russell if he could, on his new telly programme, ask Patrick Gower why/when he became such a John Key fan boy. The mainstream media sell who they like, then poll themselves and present their results as gospel, and the unquestioning masses who watch TVNZ/TV3 news take it as true. And, as usual, political debate comes down to three minutes of Joyce vs Parker trying to shout over the top of each other to the tune of. “you said . . .” no, you said . . .” Grrrr.
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DexterX, in reply to
Insane.
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Swan,
"As in, why should income be treated differently depending on whether it comes from a home sale or business sale or a salary or a farm sale or dividends or wherever else?"
A few arguments spring to mind, though I am not an expert. The first is you either tax unrealised gains and risk bankrupting cash poor asset owners, or you only tax realised gains. If you only tax realised gains, then you are basically advantaging people who choose not to sell, and distort the market accordingly.
On the fairness argument: Capital values are essentially the NPV of future capital income. So if you get a capital gain, that means future income is expected to increase. That future income will be taxed when realised, so it is a form of double taxation.
A stronger and slightly different version of the above argument is that neither capital income or capital gains should be taxed as all capital income derives from savings of labour income. Labour income is taxed and therefore taxing the income generated via savings amounts to double taxation. This argument is best understood when savings are understood to be deferred consumption (which is what they are).
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BenWilson, in reply to
If you only tax realised gains, then you are basically advantaging people who choose not to sell, and distort the market accordingly.
It's a distortion worth wearing, though. Eventually, they sell. The longer they wait, the higher the tax (because the higher the profit). And is "it distorts the market" really a reason not to tax something that makes people millions? Poor market, it gets distorted. Like it isn't already under our current regime.
On the fairness argument: Capital values are essentially the NPV of future capital income. So if you get a capital gain, that means future income is expected to increase. That future income will be taxed when realised, so it is a form of double taxation.
That doesn't make sense. If you sell, realizing the gain, you won't have a future income from the asset because you sold it.
A stronger and slightly different version of the above argument is that neither capital income or capital gains should be taxed as all capital income derives from savings of labour income
That also doesn't make any sense. A person who buys a house worth a million one year and sells it the following year for 1.1 million without doing anything to it at all has not gained that 100k from any labour of any kind. They may not have even laboured to get the million in the first place, if they bought it all on tick, with an inheritance as the deposit.
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Personally I prefer a land tax. After all, in most of the places with housing shortage, the majority of the cost is in the land, not the house upon it. Further, by occupying land, a business, homeowner, farmer etc. is depriving others of revenue from and enjoyment of that land. The current CGT as put up by Labour (and the Greens for that matter) excludes the majority of the residential real-estate market, so will not make enough of a difference to justify the inefficiencies in collection.
Keep it simple with a broad (no exclusions) land tax, of which a portion goes to local government via rates, and a portion to central government, reflecting the various costs for infrastructure required etc.
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Swan,
"That doesn’t make sense. If you sell, realizing the gain, you won’t have a future income from the asset because you sold it."
The tax will still be paid. It is double taxation on the same income no matter who is paying it. Ultimately the end consumer will be paying in the long run. In the short run it depends on elastic irises.
"That also doesn’t make any sense. A person who buys a house worth a million one year and sells it the following year for 1.1 million without doing anything to it at all has not gained that 100k from any labour of any kind. They may not have even laboured to get the million in the first place, if they bought it all on tick, with an inheritance as the deposit."
Where did the inherited money come from?
However what you describing is getting closer to actual labour income. Trading is actually more like labour income. So there is a grey area where you labour income can be disguised as capital income which would be an issue.
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Rich of Observationz, in reply to
And also, consider this: they are allegedly going to buy 60 new hybrid buses, which will be a good half a mil each, that's $30 million. The trolley wiring has been half replaced already - they're scrapping all of that at a cost of maybe $30mil. A lot of the infrastructure is the electricity lines companies, and they pay for that (out of the cost of the power, which is way less than the cost of diesel).
Basically, any saving is going to be very marginal indeed.
I wonder whether WCC could take back the public transport in the city from the regional council and maintain the trolley buses, possibly paid for by a congestion charge on suburban car commuters.
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Swan, in reply to
Here is Scott Sumner on the issue explaining it no doubt much better than I am.
Cheers
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tussock, in reply to
It is double taxation on the same income no matter who is paying it
That's a specious argument. Everything is double or triple or more taxation because money really does circulate. When I spend money in a shop I've been taxed and then they pay GST, and then the wages the shop pays and profits they make are taxed, same for all the other businesses in the chain, and their workers also spend that money and pay GST, and around it goes. Bit and bobs get claimed back along the way.
If someone happens to buy and sell assets during that merry-go-round, and you set the tax rate on that to zero like we do, people will game the system with asset-trades. It's like the government paying people to put ever more money into fixed assets, which with a limited fixed asset supply can only ever distort asset prices upward in the long run, at least until the pyramid comes crashing down.
In the US it got so bad the banks wrecked the entire world's economy gambling on house prices going up year-on-year forever with no significant risk. The market is literally insane around tax gaps.
Joyce is simply being deceitful to say that leaving some private homes out of the system will make people game it when almost everyone in the National caucus is already gaming the system more than they could with this change, including him. The perfect is not a true enemy of the good, especially if a perfect system is unelectable.So yes, asset taxes are totally a double tax. Just like every other tax. And they're important because our asset prices are highly distorted against their realisable value at the moment, because of people gaming the system to chase that 0% tax.
Someone asked how you play the game? The standard was (it changes as the govt/IRD tweak things) to count your rental as a loss maker, and dump 30% of your income into improving it's value (while secretly defrauding the IRD by putting most of the money into your own house instead). This gives you a tax rebate for your regular income equal to your normal tax bill. That's harder to do now than ten years back, especially with WFF giving many folk 0% tax anyway, but not impossible.
The game finishes when you flip properties and realise the untaxed capital gain. You earned 90k, put 30k "into the rental at a loss", paid no tax, sold the rental for +60k when inflation happened, for net income 120k, total tax paid 0k. Times about 50 for rich folk, inside those layers on layers of trusts they "know nothing about" while living in and driving.
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Brent Jackson, in reply to
In Scott's example he equates the profit made on investment with inflation. This is clearly not correct. As Ben stated above, buying a house for a borrowed $1m and selling it the following year for $1.1m will yield an untaxed profit. There is no deferred consumption. There is merely a gamble that the house can be sold for an increased price that is more than the cost of servicing the debt.
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Swan,
That type of activity is more properly defined as labour income. And in NZ it would be taxed as income so it is not currently untaxed.
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If you don't stand up and say to IRD: "yes, I bought this rental property with the intention of selling it at a profit and my business is to do this repeatedly" then you don't pay a penny in tax on those "accidental" capital gains.
It's even on the website to make sure nobody accidentally pays tax:
Was one of your reasons for buying the property to resell it at a profit? NO
Have you got a regular pattern of buying and selling houses? NO
...there is probably no tax to pay on a property you have bought and resold at a profit as it was not your intention to sell the property at the time of purchase.I'm not sure how the IRD could ever enforce a tax based on "intention" without importing a highly trained team of telepaths from the planet Tharg.
Middle class welfare, pure and simple.
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Here is Scott Sumner on the issue explaining it no doubt much better than I am.
Not really. In his explanation thrifty brother gets to be a lot richer than spendthrift brother. He does exactly the same work, but gets 96k to spend instead of 60k. It just happens to be some time into the future. And it's an example, like so many economic ones, that deliberately avoids the context of the saving of 120k over 20 years being absolute peanuts compared to the kind of capital gains people get from large assets, particularly highly leveraged ones like property, and particularly when the period spans more than lifetimes.
I do not have that much of a problem with people earning large sums of money by simply being patient with it and investing it wisely. But I do think they should pay tax on however much it went up, just the same as people who lifted how much money they had through long and equally patient toil. At some point a reckoning must be made that this wealth acted like an income and if income is something we consider it fair to tax, then it should be taxed.
I'm not so convinced that income should be taxed. But that's a whole other question.
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nzlemming, in reply to
And also, consider this: they are allegedly going to buy 60 new hybrid buses,
Which, incidentally, haven't been invented yet. Insanity.
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Matthew Poole, in reply to
businesses that aren’t in the business of trading commercial property
Businesses that are in that business, of course, are already subject to CGT on their transactions.
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Steve Barnes, in reply to
If you only tax realised gains, then you are basically advantaging people who choose not to sell, and distort the market accordingly.
Nobody but the scaremongers are talking about taxing unrealised gains, the same scaremongers who complain about increased top tier taxation as if it applied to every cent earned (or not earned if you include capital gains). So, if you don't sell your asset then you neither loose or gain, if you borrow against it then the lender takes a gamble on future value, that is how it should work and does work if you are honest about how you use your assets and manage them.
Your argument on labour income is also flawed as, traditionally "unearned" income was taxed at the top rate so as to not disadvantage actual workers who incur expenses in travel, clothing and tools which were not claimed against tax by employees and sole traders until very late in the 20th century.
If citations are needed then feel free to find them as it is my day off and I doubt very much if you are prepared to pay my fee, especially at double time.. -
Steve Barnes, in reply to
just realized I was derailing this thread.
I see what you did there. ;-)
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Rich of Observationz, in reply to
HP.
The company that made some of the first usable desktops, had a reputation for making top quality kit, had a chance to be the original Apple when employee Steve Wozniak offered them his design, still mainstreamed the laser printer and produced fairly reasonable server hardware and finally pretty much destroyed their business over a period in the early 2000s, ending up merging with Ross Perot's old screw-the-taxpayer vehicle.
That HP?
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You mean This mean machine?
HP plans to launch memristor, silicon photonic computer within the decade. Electrons, photons, and ions will work together to revolutionize computing.
;-)
Not that I am trying Tram-ple on the thread. -
Ian Dalziel, in reply to
give 'em enough trope...
...called simply "The Machine
That's just plain asking for trouble!
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Ian Dalziel, in reply to
the dig-it-all era...
...cloud computing is powered by coal...
...The ICT ecosystem now approaches 10% of global power generation.that's the pits,
keep it seamly!
:- )and lest we forget...
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Oh, sorry Steven, I meand Trhaed.
(tee hee, he will never notice :-D )
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