Monday 11th July 2011 2 Comments
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Prime Minister John Key is continuing to attack Labour plans to announce a capital gains tax but the leader of Government support party ACT, Don Brash, is open to the idea.
Labour tax policy isn't being released until next week but NZPA has confirmed it will include a capital gains tax on investment properties, including farms and on shares but exclude the family home.
In a 1998 speech Brash, then Reserve Bank Governor, spoke about the tax advantages of property investment.
"It is not at all clear to me why, given an already-strong tendency for New Zealanders to invest in property, we should give special tax advantages to that form of investment."
NZPA asked Brash if he still felt that way and what ACT's position was.
Brash said he was talking to colleagues about it and would comment in a speech tomorrow.
At a personal level he thought the idea had merit.
"I think you will find most economists feel uneasy about the fact that someone who works for wages can pay tax at 33 percent...and someone who makes a capital gain pays no tax on that. It does on the face of it seem unfair.
"The difficulty is, that actually designing a capital gains tax which doesn't create more distortions than it removes is not easy. I am certainly open to thinking about it, yes."
Key this morning said Labour was stuck on problems that were relevant when it was in Government but were no longer live issues.
"Budget 2010 and Budget 2011 actually made it much more difficult for people to speculate in the property market, removing everything from depreciation right through to beefing up the capability of IRD to clamp down on those who do speculate in the market."
Key said if Labour wanted a capital gains tax they should do it properly and excluding the family home cut out 80 percent of the residential market: "it's not going to work".
The fundamental question was whether New Zealand needed a new tax and he did not think it did.
"We'll be back in surplus in three years, we'll be growing jobs, our debt will be topping out at under 30 percent of GDP."
Key said there was already a capital gains tax.
"Anybody that buys or sells shares or properties, or whatever it might be, with the intention of reselling them is subject to capital gains."
The tax system was "quite a comprehensive" and capital gains taxes did not generate large income and took a long time to generate any, and would discourage investment costing jobs.
"Do we really want to put a dagger through the heart of growth? "
He also said a capital gains tax would see rent increases.
Labour is also looking at reinstating a top personal tax rate. Key said presently the top rate was aligned with the trust rate and a higher tax would prompt evasion. He was also critical of plans to remove GST off fruit and vegetables.
"Personally, I think we've got a tax system that most countries in the world would want to have."
He said Inland Revenue got boosted funding in the budget to better crack down on avoidance.
The Greens support a capital gains tax, it was their policy before Labour's. They argue that those on lower incomes earned money from wages, which were fully taxed, while the largest proportion of capital gains was earned by those at the upper end of the income spectrum and this income was untaxed.
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