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.
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