Capital Gains Tax

A Bonus for Business ?

Over the years we have accepted the generally held notion that a capital gains tax would be bad for business - and that politically it would not fly in New Zealand. However, now that the Labour Party has ensured that the concept will be firmly in the public arena for discussion, it is worth consideration as to whether there is any merit in the proposal.
We understand that most of the impact of a capital gains tax, both in terms of the tax levied, and revenue raised, would be in the property sector. On commercial and industrial property particularly - what would that impact be ?
Already we know that the so-called "mom and pop investors" , who are predominantly in the residential sector are more often then not there for the potential capital gain rather than the investment income. And we know that often they are in residential rather than commercial as it's easier to finance residential.
But what  is pure speculation is what impact a tax would have. Would it drive investors out of the sector? Hardly likely ! A 15% (as mooted) tax is unlikely to make an "investor" pack up their capital and move it to the sharemarket . Will a capital gains tax push prices up or down? There are conflicting  views on this one - some saying that there will be less upward pressure on prices as investors go elsewhere; others saying it will increase the rental price of rental properties , which will keep tenants from being able to afford to get into a house of their own (Property Investors Federation). From the Australian experience (where there has been a capital gain tax since the mid 80's) we do know that a tax will discourage buying and selling.

Any impact in the commercial and industrial sector is likely to be  little different. A 15% tax is less than half the tax (presuming they are making money) that property companies would be paying already. And if there are players who find it necessary to flee the industry because all of a sudden they have to start paying tax, then perhaps that is a positive aspect.There is an argument that there are currently too many building owners who don't treat the enterprise as a business, but rather as  a cash cow that doesn't need feeding and nurturing.

Perhaps the bonus for business to come out of a capital gains tax could be that property is seen as a business. And businesses need to be run to professional standards, and be re-invested in, to thrive. Our view is that we welcome paying tax - with the proviso  that it is reasonable. And the more tax we pay, the better. It just means we are making more money!

From a realistic viewpoint however, there seem to be so many exceptions to the proposed Labour Party tax, that no -one would pay it. If you are a property company you wouldn't pay it, as you are already paying tax at a higher rate. If you have held the property for more than 15 years you wouldn't pay it. If you inherited the property from your parents you wouldn't pay it. And so it goes on. We predict that once again the major impact of this argument will be global warming from all the hot air generated.