We are in need of a new approach, a better and more innovative way to improve our lives and to forge a much improved future; is the proposed Capital Gains Tax the magic bullet?
There is no end to the invention, craft and guile demonstrated by those of a social reform mind-set; the earnings and savings of others is ever so easy to spend. Half truths and emotive catchphrases serve to muddy and dilute rational debate when actually debate is what is required.
I am no fan of a capital gains tax per se, but was one to be introduced as an integral component of a total tax reform package and the numbers stacked up I am open to persuasion. I am open to the deferment of retirement and the pension; any and all options are free to be cast upon the table. I am uneasy with loose generalisation and emotive branding( i.e applying the word ‘rich’ to describe any aspirational family, any one expecting to enjoy the fruits of their labour and sacrifice,) it genuinely bothers me particularly when in an attempt to marginalise or demonise sections of our community, or in an attempt to avoid detailed scrutiny.
Is a household ‘rich’ if it generates $75,000, or $100,000, or $150,000? What is the definition of rich? There are families whose sole household income is the benefit in one form or another with an income in excess of $100,000. Are they rich, the new marque of success a model to promote in our quest for advancement? They’re a big part of our society.
Of itself, CGT will achieve little other than a little more capital distribution; it is no incentive to perform or stimulus to the economy and is not a wealth generator. Already the signs are that the mooted tax will be riddled with exemption and anomaly; an utter gift to the accountants and lawyers in our society. One of the supposed gains from the tax is the argument that investors will be driven to place their funds in the fiscal Wild West that is the share market. I suspect that it will be easier to herd cats. Neither will the Tax reduce the price of houses or somehow make them more available; homes in the UK and Australia cost more than in NZ and are often more scarce. It is more likely that little will change beyond the increase in weekly rental charges.
The government is not borrowing money as a result of private investors buying real estate; private investors take out their own loans through the Banks. Government borrows to pay for otherwise unaffordable options such as student loans, welfare, working for families etc. . Worth noting that NZ is relatively lightly indebted , consider the following public indebtedness of Governments as a proportion of their GDP- NZ 24.7% , Aus. 22%, Can 82%, USA 69%, UK 73%, France 81%, Germany 75%, Jpn 195% and Sth Africa 31%, Greece 125% and Italy at 117%. Makes you think doesn’t it. (Source the Economist). I think the %ages have altered a little since the article was published but the relativities are probably much the same, a small increase in the GDP of New Zealand would affect the ratio.
The fundamental reason that investors do not invest in the share/bond/ futures markets is essentially lack of trust and knowledge. The tax won’t change either and I am sure recent corporate history will hinder rather than help. Unfortunately we are a financially unsophisticated people, as a result prefer to invest where control and understanding are available – security too.
Inflation over the years has caused anomaly, inflation can be described as the diminishing capacity of money to do its job. A Coca-Cola in ’73 cost approx. 21c, today $2.00. Close to a 10x multiple in $ terms for the same product even given the advantage of new production technologies, it simply takes more money to do the same job, more labour.
In the late 80’s the cost/m2 to build a home was about $7-850, now it costs $1750-2000 and rising. A home purchased 10 years ago in Golflands for $305,000 recently resold for $625,000, just the same except it is 10 years older, the people who bought it could find no better home for the money. It’s not that the vendors made a profit in real terms; they were not able to go buy another similar home for $305,000 and resume their standard of living, simply that as a result of inflation it now takes $2.00 to do the same job that $1.00 could do 10 years ago. An investor would need to receive $2.00 for every $ invested simply to retain the purchasing power of the investment. If the tax applied to the difference between purchase and sale prices the government would basically be taxing inflation. Doesn’t seem right.
Our Tax base is deficient as a result of policies that have resulted in approx. 50% of our work force effectively paying no tax on their incomes after all entitlements are claimed, 40% of the workforce paying 30% of the tax take and a mere 10% of the workforce contributing 70% of the revenue. How do we afford such generosity, such liberal entitlements? There is an absence of justice and equity in those numbers. (Sourced mainly from radio comment so not necessarily 100% accurate, likely to be fairly indicative.)
It is a truism that says ‘what gets rewarded gets done’. We reward irresponsible couples(?) for giving birth to children they cannot support educate or provide for, people for willingly elect to remain uneducated and unskilled, those who elect to eat themselves to obesity and diabetes and we are surprised when such a large section of society take up the option. We do not willingly reward prudence, hard work and sacrifice; acknowledgement seems to be reluctant and grudging, it’s a poor attitude. Focus on the development of self reliance and personal responsibility would probably generate a better outcome, we will sooner or later be compelled to address our imbalances either as a result of internal or, God forbid, external forces.
Greece is in trouble today, heading for a serious financial reckoning with the EU. Simply put the country cannot generate sufficient income to pay for incredibly generous ‘entitlements’ their citizens have come to believe are rights, especially given that tax avoidance is a national sport. Too few people paying too little tax to keep too many who expect too much.
The only difference between Greece and New Zealand is Time.