Thursday, June 04, 2009

Capital gains tax or status quo?

Treasury is proposing a capital gains tax. On reading the headline alone one would have every reason to think the Left would be jumping for joy. But read on to find a capital gains tax would be offset with drops in income and company tax. Treasury Secretary, John Whitehead;

"A key priority has to be reducing effective marginal tax rates and increasing the rewards for effort. There is a growing view that the high mobility of our skills base means high personal income taxes are especially harmful for New Zealand's growth and productivity," he said.

At the same time New Zealand's company tax rates are at the upper end of the scale by the standards of the OECD and other open, small economies. "The pressure on us will be even stronger if the review of Australia's tax system currently under way leads to further company tax cuts across the Tasman."

One of those classical 'classical liberal' dilemmas. What to support?

a/ the suggestion (because there will be less tax on individuals)
b/ the status quo (because any new tax should be opposed)

The cautionary aspect for me would be that whenever government changes the tax system it designs the changes in a way that delivers it more revenue. No reason to believe National would be any different given their commitment to leave big-ticket spending alone. And the state grows.

4 comments:

Lucia Maria said...

Why not just support tax cuts and see what happens? If our high taxes are limiting productivity, and we lower taxes and find productivity grows, surely over the long term this will increase the tax take by itself without the need for another type of tax.

ISeeRed said...

No CGT in NZ, thanks. Oz has it, didn't stop the property buubble there. Just introduce a flat income tax and matching company tax.

Shane Pleasance said...

Stop making me pay for low grade services and monopolising industries - ergo, the tax take.

There is already a company tax on profit for property developers. Non-commercial property exchanges are either that or they are not. Police it appropriately. Properties gain capital either following investment and improvement of the property or sometimes just over time or changes in economic circumstances.

The more complex we make the laws, the better the smart crooks will be at finding holes.

I don't care what they decide to do. To me the government is becoming increasingly irrelevant - by their own actions.

kiwipolemicist said...

The trouble with a capital gains tax is that it will discourage entrepreneurship, which what creates wealth for entrepreneurs and their employees. Indeed, in practical terms it's the only way of creating wealth.

I've looked at the effects of a CGT:
http://kiwipolemicist.wordpress.com/2009/06/04/treasury-recommends-capital-gains-tax/