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Claims that a capital gains tax would create large amounts of government income and make houses cheaper were flawed, Polson Higgs tax partner Michael Turner said yesterday.
Speculation continues to grow that Labour will soon announce its revamped tax policy, which will include a capital gains tax, something left-leaning politicians believe is a cash cow.
Green Party co-leader Russel Norman said yesterday a capital gains tax - excluding the family home - would enable more people to own their own homes.
"The lack of a comprehensive tax on capital gains is keeping the dream of home ownership out of reach for many New Zealanders, especially first home buyers who struggle to get a foot on the home ownership ladder.
"The same can be said for young New Zealand farmers, who are being priced out of owning their own farm due to tax-free speculation in rural property."
The absence of a comprehensive tax on capital gains made the tax system hugely regressive and unfair, Dr Norman said.
The Greens were using figures included in the Victoria University Tax Working Group's papers, which showed that about $4.2 billion could be raised by taxing individual investment, commercial and industrial and rural properties at rates ranging from 25% to 30%.
Mr Turner said Dr Norman was implying that a capital gains tax would make homes more affordable, but the only way to do that was to earn more income or for house prices to fall.
"Often, when you put a tax on something the price goes down, because people take the tax off the total and that's what they are prepared to pay."
Houses being bought for either investment purposes or as first homes would go down in price, but that could cause problems for those home-owners with 80%, 90% or 100% mortgages on their properties.
The value of their homes would fall and they would end up owing the bank more than the property was worth.
"That must make the banks nervous," he said.
The effect would be people not selling their assets if it meant getting a tax bill.
Research overseas had shown people would rather sit on an investment asset than pay tax.
That meant capital was not being directed to areas where it was most needed, inhibiting economic growth, Mr Turner said.
A major issue would be the value of a property at the introduction of a capital gains tax.
If a property was bought for $200,000 10 years ago and was now worth $300,000, most countries in the world would set the value of the property at $300,000. To do otherwise would mean an investor was being taxed on the increased value over the last 10 years.
That was unfair and unsaleable, he said.
If the property was valued at $300,000, then it was likely the investor would sell immediately at $300,000 to avoid the tax.
It also would be at least 12 months after the introduction of the tax before any money would flow into the crown coffers, Mr Turner said.
Asked what would happen if an investor sold a property below valuation, Mr Turner said the capital loss would be offset against future profits or capital gains tax. No tax refund, as such, would be paid.