“Outrageous” NZ has no capital gains tax - UK prof

Professor Robert Wade from the London School of Economics says it is “outrageous” that New Zealand has no capital gains tax.

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Speaking on the issue of growing inequality in New Zealand, Professor Wade told TVNZ’s Q+A programme capital gains tax should receive more political attention.

“And, I mean, it is I think quite outrageous that in New Zealand there's no capital gains tax… But of course if you have a situation where economic policy is being made by the top 1% for the top 1%, then the last thing you're going to get is political movement towards a capital gains tax,” he said.

Professor Wade says people who are concerned about rising inequality should be paying relatively less attention to issues of tax and public spending and look to “pre-distribution”.

“That is, examining the way in which government laws, regulations, policies have the effect of making market income – that’s before taxes and transfers – more and more unequal.”

Prof Wade says laws, regulations, and policies need to be examined to see how they’re impacting on income distribution.

“Corporate governance law has a very strong impact on income distribution. Why? Because the law allows senior executives of corporations to appoint the boards of directors, number one, and number two the boards of directors set the salaries of senior management. And so there is a 'scratch my back, I’ll scratch your back' kind of ethic that evolves and the result is a spiralling upwards of the salaries of senior management. So you need to change corporate governance law. You need to change trade union law so as to strengthen the rights of trade unions to bargain over matters of salary and other things. “

Prof Wade says incomes in developed countries like New Zealand over recent decades have become more unequal, especially in terms of concentration of income at the top.

“Concentration of income up at the top means that incomes lower down are stagnant or even falling. So this is a widespread phenomenon. That’s point number one. But point number two is that New Zealand is up towards the top in terms of how fast inequality has increased. There are countries in north-west Europe – Scandinavian countries, for example; Germany, Belgium, Holland – where they are much more prosperous than New Zealand but income concentration at the top has increased much less than it has in New Zealand.”

Watch the full interview here.

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And we need advice from a Pom
How is England going at the moment?

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what a stupid comment. Are you saying that not a single person living in England has even a single relevant or intelligent comment or perspective on our economy?
The LSE is the pointy end of intelligent, liberal thinking in Economics in the western world. He's a professor there. You get considered for a position like that and perhaps your opinion will have a little more merit.

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Liberal thinking is rarely intelligent.

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Dogmatic thinking is never intelligent

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And dogmatic liberals are the worst.

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The only economist of any note to come out of the LSE was Hayek. You're showing your rust Iron Man...

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Its quite a poignant observation actually.

The UK economy is stuffed. Adding another tax in NZ at the moment would seriously hinder the recovery.

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The highest global growth in the world is currently occuring in the countries with the least regulation. Cause and effect is apparent to the thinking population. Capital gains isnt required we just have to start playing on its absence and this will ensure full employment, strong growth and prosperity for all. Instead we keeping on putting in regulations for just about everything which make doing business in NZ too hard. While the world goes in one direction - we should standout in the other and benefit. but to achieve this we need to get rid of the smokey looney left in the public service who are more interested in preserving their jobs and butts than taking NZ forward.

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Professor Wade is not a Pom. He is a New Zealander.

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Yeah, the London School of Economics is a shocking school eh?

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Totally agree Kate. Watching this morning on TV, this guy was so out of touch about NZ that all he concentrated on talking about was the pitfalls of quantitative easing and had to be corrected a number of times that NZ had never actually done this. A typical academic socialist with no real world experience. Hey fella, if you really want to make a difference then put your capital where your mouth is, start a business, take risks and pay your staff the living wage you bleat on about, Until then remember that as a government funded academic you operate in the "non-productive sector" and suck from the government teat funded by the capitalists you so hate.

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It's been well known for decades that LSE is a hotbed of extreme socialism

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Of course you must be right. Didn't Marx and Lenin and Stalin start it?????

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As NZ and Oz are some of the very few countries that survived the GFC I humbly suggest this guys ideas get relegated to the bin. Whatever we are doing worked fine. Don't tinker.

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Same as we need a dumb comment from someone living in Hong Kong.

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New Zealand not having a capital gains tax is a confusing one for sure, as a lot of activity that is taxed as a capital gains in other countries is taxed as normal income here.

IMHO the only thing that should be taxed is corporate income, as companies are a state creation and are provided with special rights and advantages over doing business as an individual, like liability protection.

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I assume you are the joke poster.
Companies are far from the only structure created by the state.
If you take out sufficient public liability insurance,you can quite safely trade under a non corporate structure.
We will use a trading trust coupled with asset protection trusts,if you suggest we will escape income tax.

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The US and the UK, where Professor Wade comes from, have Capital Gains Taxes but that has not prevented property booms there or wealth disparity increasing to the most extreme levels in the developed world.

Actually a CGT is bad for several reasons, including that exempting the family home tilts the balance further towards property investment as all investments are subject to CGT. Another is that it distorts business investment decisions as they have got to take CGT into account. Finally, CGT is destabilising to a country's budget as the revenue from CGT goes from positive to negative when boom turns to bust.

A wealth tax or a land tax (ideally without exempting the family home), as recommended by the Tax Working Party, makes more sense.

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Good letter. If you have a capital gains tax you also have to refund capital losses. As well imagine the administration costs of any such tax. One can only imagine the invisible and unmeasured costs of such a tax. Who would bother to buy the old house in the good street, renovate for rent etc.

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Judging from the state of the Auckland property market,a CGT would not dissuade investors.
Anything you spent on renovation is deductible either as repairs,or capitalised to the dwelling.
Under the Au CGT model.you are taxed on half the capital gain.
So the asute investor will ensure a deduction is obtain for any remedial work as repairs,but only half the Capital gain is taxed.

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"A wealth tax or a land tax (ideally without exempting the family home), as recommended by the Tax Working Party, makes more sense."

You are correct.

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Fine if you don't want people to own their own homes I guess.
And why should they when they can rent our spare ones instead and pay them off for us?
I mean how else are we going to pay for our rental properties, with our own money? God help us, what next? Wage increases? Give me a break.

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As John Key has said,you cannot exempt the family home under CGT.
That distorts investment,as Carmel Fisher with her $8 million house on the North Shore,will have an unfair advantage over my residential house of $650k and my 21 house rental portfolio of $350k per house.

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Mate, if a few people decide to overspend on their houses to avoid paying tax, does that justify preventing people from owning their own bit of security in life in the form of a home they can't be turfed out of?
If the rich among us (and good luck to them) couldn't avoid a bit of tax that way they'd find another way, so what's the loss?
You can't really justify a rule that impacts on the masses by reference to its effect on the spending decisions of a few.
Why don't you invet in something productive?
Capital gains, I know... sorry for asking.

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Mate, a CGT in this country is inevitable given our reliance on Australia,as Australia has one in place.

Given the inevitable,I am in agreement with John Key in regard to the inclusion of the family home,and you are in agreement with the Labour/Green parties in exempting it.

NZ is already classified as a tax haven in world terms.
That is why there are so many offshore residents coming in here,buying and selling property,and escaping offshore with the profits,having escaped any form of taxation both here and at home.

There is a lack of traceability in NZ due to insufficient hooks because of no CGT.

For tax agents,administration of a CGT would make life simpler as there would be fewer areas open to debate.

You seem to have a strange ideology when you suggest that an $8 million home gives a person "their own bit of security in life in the form of a home they can't be turfed out of."

Mate for some people it is a $500k home, for some it is a $300k home,and for some it is a $75k home.

The ownership structure where the house is held is far more important than its value.

Once you have been at the defensive end of potential multimillion dollar claims,as I have,maybe you will figure it out.

The govt pussyfooted around with taking depreciation claims on rental properties which has increased the income tax take from that sector,but has not achieved the objective of dampening the house market.

Considering you have no idea what I invest in,and considering you seem to lack the ability to consider the overall economic picture,it is a bit rich for you to suggest I invest in something productive.

When a CGT is introduced,I assure you the Nats will not remove it.

Now tell me this.
You are a USA citizen.
Your house is sold at a mortgagee sale.
The sale proceeds do not cover the mortgage.
You may owe the IRS in taxes.
Why is this?

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Isnt the UK a model of financial success. What rubbish. A capital gains tax would be the last nail in NZs coffin.

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Inequality has little to do with what you earn. Its what you do with what you earn that makes the difference.
If you smoke, do drugs, drink and live at the pokies, keep a couple of dogs, you will be financial history.
If you study, save, invest a portion of earnings, have a good attitude to work and life you will do very nicely
Its not lack of money its lack of financial knowledge.
I watched Q and A this morning. What a real little lefty is our professor

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I am impressed that you are so well acquainted with the personal circumstances of hundreds of thousands of people, and able to dvise them where they are going wrong. Marvellous.

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lol, outrageous to who? What does this idiot know about New Zealand? How does he know that what is happening overseas is happening here? Has he made a study of it or just read a book?

Given how small how capital markets are, just how many New Zealanders are actually deriving their income or the bulk of their income from capital gains?

We already have a capital gain taxes on property flippers and share traders, so Wade is quiet wrong when he says there are no capital gain taxes in New Zealand. If those individuals are not paying their due on their trades, this is a matter that should be taken up with the IRD. Exactly when was the last time the commissioner appeared on TV and was asked to explain himself?

And why aren't TV journalists asking questions about how much tax was collected in capital gains last year on property and shares in New Zealand? I suppose it's because that would involve too much independent thinking.

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Wade is correct. There is no capital gains tax in NZ. Capital gained can be treated as income and income tax is sometimes applied, although in certain circumstances a capital gain can remain free of tax. It's a highly desirable system. I hope it's never changed.

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There is a "capital gains tax" in NZ.
The problem,as a long serving IRD officer said to me,is that there are too many exemptions.
If CGT was introduced,collection would not be as difficult as mooted.
For any tax payers who have an accountant/tax agent,it is simply a matter of arithmetic.
Au has had CGT since 1985.
I have never seen any taxpayer volunteer themselves to be a sharetrader,except during the 1980's when some of those who made losses,wished to claim an income tax deduction for them.

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I think you'll find there is no such thing as a CGT, although capital gains can be subject to income tax. If you are correct, and there is a capital gains tax in NZ, would you be good enough to tell us the rate please?

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You are being silly and just arguing semantics. The reality is that if you have a realised (or unrealised in some instances) capital gain on certain types of activities in New Zealand, you will pay tax on those gains. You can call it income tax, capital gains tax or Mary Poppins, it really is irrelevant to the fact that those gains will be taxed whether they are actually used as income by the recipient or not.

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Someone who buys and sells cars, antiques, shares, property or any other commodity or stock on a regular basis, acting for profit. must include the profit as income and pay income tax on it. That is not capital gains tax. We do not have a capital gains tax, and it is you who is playing with semantics. We are free to dispose of our investments or our property without taxation on profits; or with no need to return profits or losses. The test in NZ as to whether or not a transaction is taxable is the intention at the time of purchase. That is not the case in countries where a CGT is part of the tax system.

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New Zealand doesn't have 1 billion people on our door step so the humble income of NZ is not the same... love these experts... go home lad.

Why should NZ have more tax, we have a dollar one third the value of the UK. Sounds like more John Key agenda.

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We don't tell the UK how to run its tax policy, so why should we listen to a leftie UK academic telling us how to run ours. It is interesting that all the academics who think we should have CGT never risked any capital to start up or run a business. They assume that all investment is profitable. They would be more honest if they proposed a tax on capital gains and a deduction for capital losses, Unfortunately, in most countries that have a CGT, the deductibility of capital losses is severely limited or barred, leading to a one way bet against investors by the tax authorities.

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The professor is everywhere economical with the truth. Sweden's inequality has increased more than NZ's. NZ's inequality has been stable since 1995. NZ has a capital gains tax for shares and property except where capital gain was incidental to the investment. The effect is actually a higher rate of taxation than applies in most capital gains regimes since it is taxed as income.

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Wrong. NZ applies income tax to share and property gains, but does not have a capital gains tax. Your last sentence is questionable, given we have not been informed of Labour/Greens proposed CGT rate, and our income tax rates are progressive.

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Wrong yourself. A tax on capital gains is a capital gains tax irrespective of how it is named. If Wade knew what he was talking about he would be criticizing its limitations rather than denying it exists. In most countries there are constraints around applicability as well as substantially lower rates than income taxes. Labour/Green policies are totally irrelevant to these straightforward facts that you seem determined to muddy.

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No. It's income tax. We don't have a capital gains tax. It would be quite ridiculous to have Labour/Greens promoting the introduction of a capital gains tax if we already had such a thing. Try investing in Australian shares - easily done online from your armchair, and you'll soon learn what a CGT is. I suppose if you don't care about the odd misnomer you might as well call GST a capital gains tax as well, given that it ultimately only applies to the mark-up or gain.

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Oh yes, lets be like Denmark with 69% tax rates and 42% capital gains. What a stagnant disaster. All risk takers, clever producers and potential employers just leave the country, head for Germany, Switzerland, or South East Asia.
Ill take a guess and say our professor has had a life on the Government tit. Without rewarding risk takers we take a dive to the bottom.
Capital gains tax is nothing but an envy tax, just a handbrake on enterprise.

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Where do the media get all these left wing wingers. Professor of economics London - what sought of dead end job is that. He could probably get a job in The Treasury here.

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In my opnion, CGT is neither good nor bad. Just like any other tax. When first introduced, there will be those whine, complaint and curse. But over time, we come to terms with it and eventually settle to live with it. The end result being more money in the government's bank. Why not have it then?

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Of course the government is so much more wiser about spending money than the people who generate it in the first place.
Such a display of wisdom.

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"There are countries in north-west Europe – Scandinavian countries, for example" back to this old one again - these countries which up until recently comprised a single ethnicity are always held up as an example - however the impact on these countries to the movement of people from other places into the EU are causing problems and they are starting to have the same sort of inequality issues appearing - e.g. Sweden is up there with NZ in terms of growing inequality and have just had those riots.

Again someone selecting certain points and ignoring others to back his general point of view. In a Professor this is a major failing.

In the end it is really technology, not capital gains that is now having the major impact in inequality as technology is allowing us to replace jobs that unskilled people could do - and it is difficult within a generation to change the skill sets. e.g. online shopping Amazon with 65K odd workers would have some 600K workers if it was a normal bricks and mortar operation, I know that is an extreme example but this is happening in many areas, prefabrication, specialisation etc.

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I didn't realise nepotism is unique to a capitalist regime. I also didn't realise that trade unions and socialist regimes were free of nepotism. How could I have been so blind!

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The UK economy is seriously stuffed. Get your own house in order first.

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The biggest advances in wealth inequality have come about with the introduction of more and more taxes, and more taxes that extend further down the scale. When the government becomes involved in 30-40% of GDP then income and wealth inequality is an almost inevitable outcome, as a lesser example of the vast wealth disparities exhibited in autocratic and communist countries when governments are involved with > 80% of GDP.

E.g. a capital gains tax will make poorer people poorer more than it will make rich people poorer. That NZ does not have one is legacy of our fast dying egalitarian past where a battler out on the land could still eke out a decent holding through hard work. A far cry from something a socialist academic from the City of London could comprehend.

Fairer wealth distributions can only come abut when the government gets out of the business of wealth "re-distribution" (robbing peter to pay paul) altogether and lets the chips fall where they may. Upholding property rights and the ability of citizens to retain their earnings is the best thing the government can do to bring about fairer wealth distributions. Amazingly, very few governments do this, I suppose wealth inequality is a guaranteed source of angst behind pushing for more government so why would they?

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Just how does fairer wealth distribution come about by letting "the chips fall where they may"? Or is your idea of fairer simply that you can make more money easier for yourself?

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Did you miss the meaning behind the fable of the cricket and the ant at primary school?

A fairer wealth distribution comes about by people who earn it get to keep it and people who squander it get to rue their profligacy and decadent lifestyles. It is not a number on the statistical economists spread-sheet.The big guy in the sky is keeping the ultimate ledger ... so just let the chips fall where they may, and leave the rest of us alone, thank you.

The diggers went to the other side of the world to fight for the freedom to go to hell in the manner of their own choosing.

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