Tony Fitchett questions the maths on capital gains and property taxes.
Gerrard Eckhoff (Opinion ODT 9.6.25), railed against the possible introduction of a capital gains tax "and its numerous close relatives — the land tax, the wealth tax, asset tax, inheritance tax which all hover over those who choose to take a risk to benefit themselves and their families".
He claims that advocates of higher taxes ("the Left" and "the tax and spend gallery of the envious") "believe that a CGT is needed to offset what they see to be the original sin of being productive and successful".
That description of those arguing for CGT and/or wealth tax is about as accurate as his arithmetic, as in: "land or a building in 50 years’ time will be worth a few thousand percent more than its value today ... so a $3 million home will be commonplace". Taking "a few" as three, adding 3000% to the current average house price of $914,000 would make $28.3m, not $3m.
New Zealand at present suffers from low tax income, significantly less than comparable OECD countries, and inadequate for funding its essential social services: education, healthcare, housing for the poor, and support of the disabled, sick, and unemployed, not to mention NZ Super, let alone paying for its planned defence spending growth.
He seems to regard any form of taxation of capital acquired through business as evil, comparing it to "demanding money with menaces", and asks "why it is so wrong to be able to sell your main asset untaxed after a lifetime of work and retire with some discretionary spending money?".
He doesn’t show, though, why it is acceptable to tax every dollar earned by those on the minimum wage (or less), who often struggle to buy food, housing, and heating, but not the capital generated by their hard work, and eventually realised, mostly tax-free, by their employers.
Most OECD countries have a CGT, as well as steeper progressive income tax rates — Australia (which is attracting many of our young people) doesn’t tax the first $18,200 earned, but has a top marginal income tax rate of 45%, plus 2% Medicare levy, on income over $190,000, compared to NZ’s 39% on income above $180,000. It has a CGT (allowing for inflation, excluding the family home). Many OECD countries also have inheritance tax, ranging from 4% (Italy) to 80% (Belgium).
New Zealand already has a CGT, on rental property resale, though the present government severely reduced its scope. It could be extended to cover most realised capital profit (perhaps exempting owner-occupied homes), but that would take significant time to introduce and to start producing significant tax income.
A form of real-property tax, as proposed by economist Susan Edmunds in 2020, which would deem the value of real estate above a personal exemption threshold to be capital invested and earning a notional income, to be taxed at that taxpayer’s marginal rate, could be implemented quickly, as property values are regularly measured, and the IRD could easily incorporate the necessary calculations into its systems.
An inheritance tax should also be considered, which, as Thomas Picketty has argued, would restrain the inequality explosion New Zealand has suffered over the last 40 years.
Mr Eckhoff claims "Few members of the Left have ever owned and run a business, so simply do not understand the implications of extra taxation of small businesses."
I was once an owner-operator of a small business and an employer.
The most difficult tax problem I had wasn’t business-related but personal: managing the provisional tax system with a marginal tax rate of 66% (that dates me) on my personal earnings.
Personal-realised CGT, and property and inheritance taxes, aren’t taxes on a business. They are taxes on individuals’ income and assets, whether earned by daily work or by capital gain.
IRD research shows that from 2015 to 2021, while middle-income New Zealanders paid, including GST, an effective tax rate of 20.2% on their personal income, the equivalent for the wealthiest, thanks to realised capital gains and use of trusts, was 9.2%.
Is that fair, Mr Eckhoff?
• Tony Fitchettis is a retired doctor.
