Comments

David Thompson Posted:
So very, very true. It beggars belief that we consider ourselves to be a developed nation when so much of our economy is based on selling milk powder or logs. BTW, I own a Plinius amplifier (my second) that drives a set of Theophany speakers.
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David Thompson Posted:
A robust but sobering report. It concerns me that confidence is rising, yet sales and exports are down and "manufacturers and exporters are still lagging behind other sectors". Surely we should wait until we're earning more money before we start spending more?
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siemens Posted:
Yes true! The only thing that will never die in this world is the nature and its science behind it. Great post.
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Kieran Ormandy Posted:
Thanks for the question Steven, Germany has seen increases in manufacturing employment since 2009, and Switzerland has had stable manufacturing employment between 2006 – 2011, even in the face of ongoing Euro-zone issues. Korea has seen increases in manufacturing employment since 2008 and Israel experienced large increases since 1998, while being stable over the last 4 years. Singapore has had increases in manufacturing employment over the last two years. These countries all value their manufacturing sectors and work to protect them, this is reflected in the above numbers and their performance through the GFC. Note data around the above examples was sourced from OECD labour market stats.
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John Walley Posted:
Point one: you should have no doubt what our Association says publically represent the views of our members. Point two: we don’t knee jerk responses, if you trace back our comments around NZPower you will see them link all the way back to our research in 2004 and 2005. All that material is fully linked from our comments above. Point three: you will note our comments on major users, sadly the same advantage does not accrue to smaller industrial users. The perverse incentives of the LRMC approach in all this are well known. Point four: the NZMEA is not like any other Association in New Zealand we admit only manufacturers and exporters into membership, and our public expressions are the views of that restricted membership.
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7/7/11

Capital Gains Tax objections and the answers


Print-friendly 6 comment(s) Posted in: Blog only

With Labour proposing a Capital GainsTax it is worth looking at some some of the arguments against it. 

Arguments from those who opposed to taxing capital gains and the answers:

  • 'Rental incomes will rise' - rental incomes are governed by supply and demand and the tenants ability to pay whether or not the landlord is paying more or less tax is irrelevant.
  • 'It is too complex' - if the tax is collected on realised capital gains it is simple to collect at the time of sale. Also, most of the developed world collects capital gains taxes without any trouble.
  • 'We will pay more tax' - a Capital Gains Tax means less tax in other areas or lower borrowing for the same amount of government spending. This means more disposable income for the average person.
  • 'Property values will fall' – the anti Capital Gains Tax lobby have argued property values will fall and rise, there is much more to property price than a CGT.
  • 'Capital Gains Taxes in the UK, US and Australia made no difference to the affordability of houses there' - affordability is not the same issue as economic distortions and poor allocation of resources in the economy.  In any case New Zealand's latest property boom was the largest in the world as a proportion of income growth over the same period.
  • 'Property investors usually borrow most of the money for their investment. Banks won't lend cash to buy shares in businesses unless it's secured against their own properties' - borrowing offshore at negative gearing pushes up the dollar, widens the current account deficit and robs the real economy of margin to invest – quite apart from the inequity of tax harbours, reducing borrowing is a good thing.

A series of articles in the Herald provide a good assessment of the pros and cons of a Capital Gains Tax:

http://www.realeconomy.co.nz/144-capital_gains_tax_pros_and_con.aspx



tags: capital gains tax

comments

3 Comment(s)



carl - 25 January 2012 at 14:43 PM
"a Capital Gains Tax means less tax in other areas or lower borrowing for the same amount of government spending. "

Only in your wildest dreams, mate.
a drip or a bucketful does not change an infinite hole.
The only reduction in tax you would see is short-term, and done to create a perception. Once the elephant was sold it'll be put back up, often with extra claw-back clauses to catch more cash.

And Banks do lend for shares - but at lower rates of coverage. 50% for business assets is rule of thumb, 80% for first mortgages, 20-25% for basic unencumbered share parcels. with additional security and reasonable ability to cover debt servicing compliance.

That's the ball.

So why's the man (original poster) running with such blatantly obvious fouls????
John Walley - 26 January 2012 at 13:42 PM
I think we agree on the lending without security issue.

It might well be that the intent to change the source of tax and not increase government spending is fictitious, however given the provision that government spending does not change the statement that tax increases in one area supports decreases in another is correct.

The broader point is demonstrated by the Romney situation where he pays tax at half the rate of his salaried staff - and in the USA capital gains carry a 15% tax rate - it will be interesting to see how that one pans out.

For New Zealand the economic distortions supported by the complete absence of capital gains tax are clear from our abysmal productivity record.

Why save, why invest in production (taxed interest paid or via the income statement) when money can be made without tax from passive asset appreciation.
mist - 26 January 2012 at 20:15 PM
" tax increases in one area supports decreases in another is correct"

it can only be correct if it is true. Observation and repeated sampling has proven that the hypothesis is faulty. Tax increases in one area are not causally linked to decreases elsewhere - not "possibly", not "it adds up".
"Philosophically" it _might_ but testing proves it does not. One could even say "it should" but we both know an equivalent term for "it should" is "doesn't"

What drives taxes down is political advantage. If a political party has an agenda they don't want the public to look at too closely, then sweeters (aka "bait") is put forwards. Tax decreases is a classic.

This can be achieved because the tax increases and tax decreases are not linked. They're not zero sum nor do they have causal or proportional connection. This is because the "buffer solution" in the middle is that endless hole. tax increase means more spending. tax decrease means more government borrowing.
The in/out relationship is decoupled, through size and power in the marketplace (financial economy).

The abysmal productivity is because of the massive overheads from doing business in NZ. personal taxes double the rates of the US, huge taxes on goods and services, massive levies on critical imports, price gouging in the energy and communications markets, interest rates 300 to 500 times that of the US!, and not nearly the number of cost writeoffs either (subscriptions, training, vehicle rebates). Nor would get the 401k option either, of rebuying into the same market and not having to pay CGT. Oh and horrendous ever inflating local rates, again much much higher, for less, than our foreign counterparts (excepting Scandinavian countries).
Our "abysmal production" is a result of this overtaxation being sand in the gears of the economy, wearing it down and rubbing out real growth. Putting CGT makes that problem worse!!

And to sum up... your last comment.... O.M.G.
You think that improving our situation, of people not wanting to save or invest in government buggered industry is to bugger up the ability to accumulate equity in useful assets???????


Where do you think people are going to get savings or capital to do anything??? (including retiring when their earning ability is severely reduced!) Put it in finance companies???????????? Buy the oh-so-excellently-performing NZX? In the few companies squeaking by?

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