Some have suggested that the Minister of Finance wants a capital gains tax to mitigate the fiscal disaster he’s inherited.
I reckon we’ll have a CGT within 4 years, but not because Mr English will be forced into it as a fix for current difficulties.
For a start it’s almost inconceivable that a CGT would tax gains made before its start date. So there’s not much likelihood of any significant revenue until the cycle moves from bust back to boom.
Secondly, a principled tax would make capital value losses deductible. Even if losses were capped (value loss floor) or were only offsettable against CGT, the current outlook could suggest losses in government revenue, or little gain, from a CGT for the foreseeable future.
Still, I’d be willing to buy an iPredict contract on the likelihood of a CGT within four years. Bill English will be interested in the integrity of the tax regime. If a CGT is necessary to reduce distorted investment incentives, we’ll get it.
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The interesting thing about a CGT is that its often claimed that it would stop things like housing bubbles.
But hasnt the UK and Ausy and the US etc all got a CGT ??? It hasnt done anything in these places to stop a housing bubble.
Secondly – why do people buy houses for investment and dont buy shares?
Well its simple. Take say telecom. They were $9 when my mother in law bought in – what are they now – $2.50. Or Carter Holt or Fletchers or Air NZ, and so on. If you look at the top 10 or 20 and check the return if you invested in them all, then over a ten year period (which I looked at) the return (without dividend) was 1% pa. The Dividend pushed that way up to about 2.5% !!
Our management quality is so low that anyone who does the anaalysis simple goes and buys a building. I mean no building reduces from an equivalent value like the Teelecom shares have or the air NZ shares did.
And a CGT wont change this.