Business people are more willing to accept a capital
gains tax - a key Labour Party policy plank - than they have
ever been, Polson Higgs tax partner Michael Turner says.
However, while many were willing to accept such a tax, it
would be the exemptions and the design detail that would
determine its success, he said.
Labour finance spokesman David Parker reiterated last week a
capital gains tax would help a Labour-led government run
surpluses and pay down debt.
Mr Turner said it would be great to get the capital gains tax
debate to occur on a rational and well-reasoned basis.
''There are a number of myths regarding capital gains tax
that need to be dispelled.
''The suggestion that a capital gains tax will avoid a future
housing bubble is simply incorrect. One only has to look at
Australia to see other factors are much more significant than
the impact of capital gains tax.''
The argument New Zealand should have a capital gains tax
because others in the OECD did was weak justification, he
New Zealand should be looking to learn from other countries
and do what was best for New Zealand, rather than simply
replicating what others did.
A capital gains tax had some benefits but there were also
disadvantages, such as providing an incentive for people to
hold assets that they would otherwise sell to free up cash to
invest in more productive sectors of the economy, Mr Turner
''The locking-in effect of a capital gains tax can be quite
In addition, many countries that had exempted the private
home from the tax had found that the exemption, rather than
encouraging investment in the productive sector, encouraged
people to buy grander and more expensive private homes.
The ''mansion effect'' had been seen in other countries and
was likely to be seen in New Zealand if the tax was
introduced, he said.
A well-recognised philosophy of a good tax system was
broad-based and low rate. While a capital gains tax broadened
the base, Labour's suggestion of increasing personal tax
rates at the same time - bringing in a number of exemptions -
called into question whether Labour had the design issues
''Labour does talk about future income tax reductions which
might bring them within a broad-based design philosophy but
this is only a possibility.''
Implementation suggested a capital gains tax being
forward-looking and applying only to gains after
implementation, Mr Turner said. That meant the need to value
property at the date of introduction, which undoubtedly would
be a field day for valuers.
The suggestion of exemptions for the family home, personal
assets, collectables, small business assets sold for
retirement, and payouts from retirement savings all
diminished the broad application of the tax and called its
appropriateness into question.
''While many, including people within IRD and the Treasury,
favour a capital gains tax, it is a broad capital gains tax
without exceptions which is generally supported.''
Under the Labour policy, capital gains would be subject to a
flat 15% taxation with capital losses able to be carried
forward and offset against future gains.
There would be room for debate whether some amounts were
simply income to a person and taxed at, say, 36% or were
capital gains and taxed at only 15%, he said.
Labour suggested assets passed on through death would be
subject to rollover relief and a capital gains tax would not
be payable until the asset was eventually sold.
That created a ''very real prospect'' assets would be passed
from generation to generation in wealthy families and never
be subject to the tax.
An expert panel was proposed to work through the detail of
the design of Labour's capital gain tax. However, experience
in foreign countries suggested valuers, accountants and
lawyers were all in line to benefit from the introduction of
such a tax, Mr Turner said.