Should HAPS wade into the Capital Gains Tax fracas?

Is it too contentious given its political temperature, “threatening the kiwi way of life”? What the hey! We might want to pay more attention to our rivers and lakes, as they are more likely to threaten our way of life faster than a new tax will.

Shall we start with context? Out of the 36 OECD nations, New Zealand is the only country without a capital gains tax. Do we know something that ALL of the other countries don’t know? Or…. are we just really behind the times when it comes to tax policy? Actually, let’s delve into the context a little more. I had a look at the history of CGT in the UK and Australia. CGT was introduced in the UK in 1965. Over the past 54 years the tax has been tweaked and adapted over time, and works well. In Australia, it was brought in in 1984. By all accounts, the Australian way of life still seems to be intact 24 years later.

Let’s look at the implications of the introduction of the CGT in New Zealand. Policy over the last couple of decades, namely the government divesting its rental property portfolio, and the lack of CGT, has both encouraged and forced private investors to provide the vast majority of rental accommodation. Now with legislation requiring better standards (such as proper insulation, extractor fans etc) and a CGT tax proposed, property investors will, by and large, be looking for easier ways to make their capital work for them. Because, let’s be honest, being a landlord is no walk in the park! While there may be some gains to be made, it’s still a bit like being the parent of adult children, with that permanent niggle in the back of your mind that something might go wrong. Even when you are the most organised landlord, you still have to be on standby for that nocturnal phone call saying that the roof has blown off in the wind!

There is no good tax reason for CGT not to be implemented, as after all, it is only fair for income to be taxed. My fear is that the unintended consequences of these policies will be disastrous for the most vulnerable sectors of New Zealand society. What I believe needs to happen simultaneously with the introduction of CGT is investment in social housing by local and central governments. However, as Kiwibuild is demonstrating, it is no easy feat to build a lot of houses in a short time frame with a shortage of tradespeople due to booming private sector, and lengthy council sign off on codes of compliance.

Winter is coming…