Bollard on capital gains tax - what he actually said

Order Paper

Rob Hosking

It was not that big a surprise when Labour Party leader Phil Goff came out in favour of a capital gains tax on the weekend.

A couple of days earlier, Labour finance spokesman David Cunliffe rushed out a press release saying Reserve Bank governor Alan Bollard had told the finance and expenditure select committee New Zealand should look at such a tax.

“Governor Bollard called on the Government to consider complementary policy tools, including a capital gains tax on speculative housing investment, to help prevent a resurgent debt-fuelled housing bubble, David Cunliffe said,” read the press release.

The trouble is, that isn’t quite what Dr Bollard said.

Firstly, he didn’t “call on” the government to do anything.

Secondly, while he certainly indicated tilting the tax balance more onto property investment is worth looking at, Dr Bollard did not do anything so crude as call for a capital gains tax.

The comments Mr Cunliffe referred to came during an exchange at the select committee hearing on Thursday afternoon to discuss Dr Bollard’s monetary policy statement that morning.

Mr Cunliffe asked whether there were “complementary” policies a government could look at to help the operation of monetary policy.

Dr Bollard said that indeed there are.

“We’re particularly interested in the prospect of seeing a flattening of the tax incentive structure around housing investment.

“It seems to me the most obvious part of that would be around taxation on people who intend to flick on investor housing.”

And, asked by Mr Cunliffe whether he believed the current tax system favours of property investment, Dr Bollard drew a big breath and said, “the short answer is yes.”

That though is somewhat short of calling for anything, let along a capital gains tax. As Dr Bollard well knows there are existing provisions in the income Tax Act which allow the Commissioner for Inland Revenue to treat the gains on the sale of property by people who are consistently buying and selling properties as income.

What it boils down to is determining those people are buying and selling property so frequently they are essentially traders, and any capital gain is treated as part of their income.

Mr Cunliffe knows – or should know – this provision is there: Labour threw the Inland Revenue Department an extra $14.6 million to better enforce that part of the act, back in the 2007 Budget.

At the time, Mr Cunliffe’s statement looked like a rush of blood to the head. After Mr Goff’s announcement on the weekend, it is clear it was rather a bid to claim some extra-Parliamentary kudos for the idea.


11 · Got a question about this story? Leave it in Comments & Questions below.

This article is tagged with the following keywords. Find out more about MyNBR Tags

Post Comment

11 Comments & Questions

Commenter icon key: Subscriber Verified

The easy fix is to stop the depreciation claim on buildings- over time the deduction is only a tax deferral, as the depreciation is clawed back on sale. It also leaves a big compliance risk for the IRD.
This would wake a lot of property investors up to what the investment is really costing.

Reply
Share
  • 0
  • 0

dead right K1. also restrict the loss from 'passive'investment businesses like renting to say $10000 like they used to so that people begin to look at residential property as a level playing field with other investments rather than an opportunity to get a whopping great tax refund while all the while enjoying a capital gain on their property.

There are a fair few 'equity partnership' dairy farm investors in the same boat(though it has sprung a leak or two in the last year)

Reply
Share
  • 0
  • 0

Cunliffe and Goff have both demonstrated by their recent comments on matters economic, why they are not the government; and why they are never likely to be, as long as they have such an inability to comprehend the meaning of comments that they hear or read.
From the long term perspective of NZ's economic future, long may this ignorance continue.

Reply
Share
  • 0
  • 0

Should have realised Labour can't report factually.

Govt should look at changing the framework around investments so that people make a choice that is not affected by biased / poor tax legislation.

No depreciation on rentals, perhaps GST on interest when used to finance property, RIP LAQC, change Capital adequacy ratios for banks that lend on property, Reserve Bank Act change focus from solely CPI.

Capital Gains Tax by its very nature would have to be over legislated, creating a whole new cash cow for lawyers and accountants to exploit.

We need Key, English and Bollard to follow a KISS principle that encourages investors to make the right choices. (Keep It Simple Stupid, and reduce compliance cost / waste)

Reply
Share
  • 0
  • 0

K1 Good point except that generally it is the LAND that goes up in value and the BUILDING that depreciates. Thus if valuations are done correctly the depreciation is a legitamate claim. The concern is that this level of ignorance that is driving the debate and you can't get more ignorant than Goff and co. After all didn't Bollard ask Cullen for additional tools to curb house price inflation? Appologies Phil I don't think you were part of that government were you?

Reply
Share
  • 0
  • 0

Capital gains should be treated no differently from any other form of return on investment. If someone buys a capital asset that generates rent, interest or whatever and then sells the asset later at a profit, the gain on sale should be taxable, irrespective of one's "intention" or previous behaviour. The current regime is seriously flawed.

Reply
Share
  • 0
  • 0

There is an absolute ignorance of this whole issue from media commentators - the present tax law is quite adequate to tax any property speculation / trading, all the IRD have to do is to enforce the law as it stands.
New Zealanders generally want to invest in property because 1) we are a DIY nation, 2) many financial markets / planners advice have been crap 3) people know that property will be there tomorrow when they wake up and that over time it will rise in value

Reply
Share
  • 0
  • 0

bollard needs assistance in controlling the rising nz dollar
fiddling with interest rates is not enough on its own
a capital gains tax on investment properties is probablyinevitable

Reply
Share
  • 0
  • 0

Is the price structure of real estate influenced by tax incentives and the promise of turning taxable income into tax free gains? Answer yes. Does it need fixing? Answer yes, because the inflation is debt funded through imported money, not earnings funded.

Asian traders / buyers are out in force again in Auckland. They are prepared to pay very high prices.
They generally do not buy to keep, that is historically proven, so it would seem the seeds for another round of signifcant price inflation is well and truly underway.
Dr Bollards comments do not help, rather the talk just proves how weak gevwernment and it's agencies are. The Asians are laughing you Dr Bollard, actions not words will lower the risk our private debt will grow to even greater heights, we could be be number 1 in the OECD rather than 2 - for debt

I have young family trying to buy a family home at present. Even with low interest rates and very solid income affordabilty is difficult due to price.

I agree with many comments by others, keep any change simple, The word intention should be removed, Any business asset sale above book value incurrs tax, why is property different?

I worry a wealth tax on all property assets is being considered. Rates and regional council levies are already sinking my ship.

Reply
Share
  • 0
  • 0

We should copy Hong Kong and scrap income tax and replace it with:
1. Property tax (flat rate on appraised rental value, regardless of ownership or financing, and with a fixed % deduction for upkeep)
2. Salaries Tax (progressive rate, on wage and salary income), and
3. Profits tax (flat rate on reported profits of any business, regardless of who gets the profits or the type of entity involved)

The top rate of salaries tax should be the same as the property tax rate and the profits tax rate. There should also be an interest tax, or make interest non-deductible for profits tax purposes.

There should also be a land value tax, can be included with property tax, on the unimproved value of the land.

Residential property can be taxed at a concessional rate, regardless of whether it is owner occupied or investor owned, or residential property can be fully exempted, although not the land.

Owners of residentail properties are not wise to hold them: the cost of ownership are substantially more than renting, and the return on rental properties is poor. Sell now, prices are only 10% down from the peak, invest in shares or private business.

Reply
Share
  • 0
  • 0

NZers, do not trust financial investment advice. But we are justified in not doing so. Look at the rubbish that was spawned recently as 'solid investments' which all fell over. They didnt just devalue they completely fell over. They all blame the market conditions, but the truth is they were just crap. Nothing has changed. Money managers are now MMG Partners...new clothing, same problem, they sell crap. So would I want to give up my rental property? It may have lost 10% of value, returns are not high, tenants are difficult, but unlike that 20k in Babcock and Brown, Hanover, Blue Chip or St Laurence at least I still own something of value.

Reply
Share
  • 0
  • 0

Post New comment or question

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.

NZ Market Snapshot

Forex

Sym Price Change
USD 0.7025 -0.0133 -1.86%
AUD 0.8915 -0.0210 -2.30%
EUR 0.5929 -0.0139 -2.29%
GBP 0.5340 -0.0079 -1.46%
HKD 5.4795 -0.1098 -1.96%
JPY 79.0870 -1.8550 -2.29%

Commods

Commodity Price Change Time
Gold Index 1288.1 7.380 2017-10-19T00:
Oil Brent 57.0 -1.160 2017-10-19T00:
Oil Nymex 51.5 -0.530 2017-10-19T00:
Silver Index 17.2 0.223 2017-10-19T00:

Indices

Symbol Open High Last %
NZX 50 8124.1 8124.1 8124.1 -0.57%
NASDAQ 6583.7 6605.3 6624.2 -0.29%
DAX 13036.3 13042.6 13043.0 -0.41%
DJI 23107.5 23167.2 23157.6 0.02%
FTSE 7542.9 7542.9 7542.9 -0.26%
HKSE 28783.8 28798.8 28711.8 -1.92%
NI225 21363.0 21448.5 21363.0 0.40%
ASX 5896.1 5896.1 5896.1 -0.22%