A capital gains tax is double taxation
Someone who buys a million dollar farm or business knows they’re going to be taxed on its income. Without company and income taxes, a million dollar business would be worth $1.39 million, but the buyer knows they’re going to pay at least 28 per cent on income, so it’s only worth a million.
If you built the business, your capital gain has already been reduced by $390,000 from the buyer factoring in the tax they’ll have to pay.
A capital gains tax means you’re taxed again when the asset is sold. At the top personal tax rate of 33 per cent that’s another $330,000. The total loss to the person who built the business is $390,000 plus $330,000. That’s a total of $720,000 – more than half the value.
It is simply wrong to double tax saving an investment. It is wrong to idolise envy and punish success. Those are not the values of an achieving society.
It won’t make housing affordable
All of the most unaffordable housing markets in the world in recent years have had capital gains taxes. Think London, Vancouver, Los Angeles, Sydney and Melbourne. Capital gains taxes do not solve the underlying issues that cause unaffordable housing.
It may bankrupt the cash poor
Details are not known yet but one version of a capital gains tax requires tax to be paid on unrealised gains. If you do not have the cash on hand, you may have to liquidate your assets to pay the tax.
A CGT may not account for inflation
If a capital gains tax does not allow for inflation – and the Tax Working Group has suggested it should not – then you may be taxed because inflation has pushed up the value of your asset, even if it is no more valuable in real terms.
It will punish saving and investment
New Zealand has long struggled with low rates of saving and investment. A capital gains tax introduced alongside lower income tax rates will create a bias against saving and investment in favour of spending, making us all poorer over time.
It may not raise much revenue
The more exceptions that are made for political reasons, the more capital gains income will be exempt, and the less revenue will be raised.
CGTs are costly and complex
One estimate is that valuing all capital assets would lead to a collective accountancy bill of $4.5 billion to value small businesses.
A CGT may lead to death duties
One obvious way people might avoid paying a capital gains tax is to retain assets until they die and leave it to their children. It’s difficult to avoid the conclusion that, sooner or later, the taxman will unite a capital gains tax with inheritance taxes or death duties.