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Tuesday, February 01, 2011

Where Goff will get the money

John Armstrong: Goff's cake recipe proves hard to swallow
It being election year, Phil Goff has decided to hold a press conference every Monday to counter the Prime Minister's use of his weekly media briefing to set the political agenda. Yesterday's first effort was hardly an unqualified success.

Instead of setting the agenda, Goff found it being set for him by the media. The questions had a recurring theme - where is the money coming from to fund Labour's seemingly ever-expanding list of promises.

You would think that being part of a newspaper that spent most of last week focusing on Phil Goff's hair colour, Armstrong would be keen to stop showing the out right bias the NZ Herald has against Labour. Seeing as Armstrong hasn't once asked how National has funded it's tax cuts, he wants to put the acid on Phil's costings. Fair enough for asking but eye rolling that Armstrong hasn't been nearly as critical of John Key.

The reason why Goff is being slow to become explicit about how he intends to fund his policy platform is a simple three words - Capital Gains Tax. We need to expand the tax base, that is what our experts have spelled out to us and Goff's holding back from announcing it is due more to needing to sell the benefit of policy before giving National the chance to scare monger the cost...

Busting the myths of a capital gains tax
One option is a capital gains tax. Its benefits include fairness, strengthening the tax system and generating revenue. These benefits are the reason why such a tax keeps being raised as an option for reform.

New Zealand keeps rejecting capital gains tax largely because of three persistent assumptions about how capital gains tax works in practice: that it would be too complex, not generate enough revenue, and become a Swiss cheese of exemptions over time.

These concerns meant that the Government and some members of the Tax Working Group rejected capital gains tax about this time last year.

Surprisingly, these assumptions have not been tested, but it should be easy to test them.

Most developed countries, and many others, have a capital gains tax. Did they encounter these problems in practice?

For example, South Africa adopted a capital gains tax in 2001. There is much about South Africa that New Zealand wouldn't want to emulate.

But its tax system is one bright spot in its recent history, earning praise from the International Monetary Fund and Organisation for Economic Co-operation and Development. South Africa's experience is that the three key criticisms levelled against capital gains tax have been largely myth.


At 1/2/11 10:09 pm, Blogger sdm said...

A few questions

1) When you tax something, the flip side is often to allow a loss to be carried forward to mitigate any future gains. Will you do this with the introduction of a CGT?

2) How will you compensate people for an increase in rents, given that the primary motivation will switch to yeild. Yes there may be some downward pressure on house price, but one would think a better return would be sort by investors

3) Would such a tax be retrospective, or only apply to future acquistions?

I am not against the idea per se, but would like more details of the ramifications of such a new tax.


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