Capital gains tax: 'New Zealand is joining the modern world'

by Matthew Theunissen / 27 February, 2019
Papers at the release of the Tax Working Group recommendations. P

Papers at the release of the Tax Working Group recommendations. Photo: RNZ / Rebekah Parsons-King

If New Zealand introduces a capital gains tax, as has been recommended by the government's Tax Working Group, it would bring us in line with most other countries.

So what sort of impact does a capital gains tax have in other parts of the world?

 

RNZ spoke to academics from Australia, Canada and the UK. All said it was no longer controversial and had become an accepted part of their taxation systems.

Aussies have been taxed on their capital gains from assets like property, shares and leases since 1985.

University of New South Wales tax professor Chris Evans said the debate that's raging here at the moment was one Australia resolved long ago.

"It was a political hot potato, no doubt. But people got used to it and it settled down quite quickly," he said.

Read more: Capital gains proposal: 'What we've got here is a tax on a tax' - Simon BridgesCapital gains tax concerns being heard, Prime Minister Jacinda Ardern says

Mr Evans, who did some research for New Zealand's Tax Working Group, said any fair and sustainable tax system needed to include a capital gains tax.

"New Zealand's an outlier on this, it's quite surprising. If you look at the 35 countries that are currently in the OECD, New Zealand's the only one without."

And, he said, this country had the opportunity to avoid some of the mistakes made by Australia.

"New Zealand has been far more sensible, in the sense that it's going to treat capital gains just like it treats any other form of income, and so you won't get that complexity of trying to drive a wedge between what's a capital gain as opposed to a revenue gain and all those sorts of problems."

In Canada, a capital gains tax was introduced in 1972, with the tagline "a buck's a buck, a dollar's a dollar".

University of Montreal economics professor François Vaillancourt said concerns around what a capital gains tax could mean for business and property owners have been mitigated in Canada.

"We have a $1 million exemption for small businesses, farmers and fishers. The idea is that a farmer doesn't do much in terms of, say, formal saving plans for retirement but their farm goes up in value and they sell the farm and they make their money that way but then they get taxed on that.

"So it's not as easy for them to accumulate savings for retirement. That's why we have an exemption for these people."

The rates and some of the technicalities of Canada's capital gains tax have changed over the years, but Mr Vaillancourt said it wasn't really a political issue these days.

"In a sense - with all due respect - New Zealand is joining the modern world, tax-wise."

In Britain, a capital gains tax was introduced in 1965 alongside a corporation tax.

University of Birmingham tax professor Andy Lymer said relatively few people pay the tax - about 250,000 a year out of a population of some 66 million.

This year it was expected the government would collect £9.9 billion, or $NZ19 billion.

Mr Lymer was sympathetic to concerns about the complexities of implementing and maintaining a capital gains tax.

"It's there as a key equity balancing tool that balances out between those that are engaging in active income generation through labour as opposed to more passive investment returns through capital gains tax. Therefore, in my opinion, the cost is worth it.

"Provided it's covering its cost, at least it's achieving that equity balance."

As in most countries, the family home is exempt from the tax in the UK and there other exemptions for businesses.

"I would be very surprised if many people in the UK would argue that a capital gains tax should be done away with," Mr Lymer said.

"There's a little debate every now and again about exemptions for homes. We get a bit of debate periodically about entrepreneurs relief - is it too generous? But it's about levels of generosity, not that it shouldn't be there."

The government's full response to the Tax Working Group's recommendations, including any planned new taxes, is expected in April.

Latest

The key to long-term success after weight-loss surgery
107438 2019-06-26 00:00:00Z Health

The key to long-term success after weight-loss sur…

by Nicky Pellegrino

Weight-loss surgery is becoming more common, but lifestyle and attitude changes are needed for long-term success.

Read more
Matariki feast: Kasey and Karena Bird's family recipes
107605 2019-06-25 11:39:22Z Food

Matariki feast: Kasey and Karena Bird's family rec…

by Lauraine Jacobs

Māori food champions Kasey and Karena Bird share traditional family recipes that are ideal for Matariki.

Read more
Julie Anne Genter on bicycles, babies and what's going to make a better world
107579 2019-06-25 00:00:00Z Profiles

Julie Anne Genter on bicycles, babies and what's g…

by Emma Clifton

The MP made world headlines when she cycled to hospital to give birth. She talks about how this put her and what she stands for in the spotlight.

Read more
Toy Story 4: The beloved franchise reaches a Forky in the road
107472 2019-06-25 00:00:00Z Movies

Toy Story 4: The beloved franchise reaches a Forky…

by Russell Baillie

The fourth Toy Story instalment is clever, enjoyable and refreshingly weird.

Read more
Mitre 10 living wage ruling sets precedent for retail staff - union
Apple set to offer sign-in service to rival Facebook and Google
107596 2019-06-25 00:00:00Z Tech

Apple set to offer sign-in service to rival Facebo…

by Peter Griffin

In the wake of data-privacy scandals, Apple is beefing up protection for owners of its devices.

Read more
Understanding New Zealanders' attitudes to paying tax
107563 2019-06-24 16:28:59Z Business

Understanding New Zealanders' attitudes to paying…

by Nikki Mandow

We are pretty good about paying our taxes here, so why would we willingly go along with avoiding GST?

Read more
Border tax rort: Could you be caught by a Customs crackdown?
107530 2019-06-24 10:19:12Z Business

Border tax rort: Could you be caught by a Customs…

by Nikki Mandow

New Zealand retailers hit by a GST rort that has been going on for at least two years hope officials, Trade Me, ministers and even customers will...

Read more