By Lloyd Burr
Labour has announced their economic policy this afternoon and a capital gains tax, as predicted, along with higher tax rates for big earners, no GST on fruit and vegetables and a $5000 tax free zone for income are on the cards.
The capital gains tax means that 15 percent of the profit made on a property when owners sell will be taxed by the Government, if Labour were to be elected.
Family homes are exempt from the tax but farms, shares, inherited properties, intellectual property, family baches and businesses are included.
“Today I am announcing a capital gains tax…the first reason for the changes is to enable us to own our future and safeguard it for future generations…the second reason is that it provides a fairer tax system,” Mr Goff says.
Finance spokesperson David Cunliffe says the capital gains tax “will only cover future gains from the date of the legislation being implemented. It will not be retrospective”.
This means that the gains in value made up until date the legislation is implemented will not be taxed but the gains made after will be.
“Capital gains tax is not a maverick political proposition. The IMF, the OECD, Treasury and The Reserve Bank have said New Zealand need to implement one,” Mr Cunliffe says.
But the plan has not impressed Revenue Minister Peter Dunne, who says the new tax is a “bureaucratic nightmare” and “a massive attack on personal achievement and success…and has nothing to do with good policy or sound economics, but everything to do with satisfying entrenched envy within the Labour left”.
“I doubt it could be implemented easily or quickly; the revenue it could raise is likely to be low for at least the first decade, but compliance costs will be immediate and significant. Certainly it would not raise anywhere near the revenues needed to pay for only one of Labour’s spending promises, exempting from tax the first $5000 of earnings, until at least 2025,” Mr Dunne says.
The key points of the tax, Labour says, are:
- To raise $26 billion over 15 years;
- To pay off debt, cut taxes for most New Zealanders, save assets for sale and pay for the mounting costs of an aging population;
- The tax rate is a flat 15 percent – 85 percent of any gain will get to be kept by the seller;
- Redzone Christchurch properties will have five years before the tax applies to them.
Labour’s economic plan also includes increasing the top tax rate, for those earning more than $150,000, to 39 percent, making the first $5000 for annual income tax free and removing GST from fruit and vegetables.
Finance Minister Bill English agrees with Mr Dunne and says “it’s the last thing the New Zealand needs".
“Labour has clearly learned nothing from its failed policies of the past. Having left New Zealand with forecasts of ever-rising debt and permanent deficits when he was kicked out of office in 2008, Phil Goff now wants to go back and do the same all over again.”
Mr Goff says “New Zealand is drifting without a plan, debt is out of control and selling off our most valuable assets is not the solution. The economy is not performing.
“Labour’s plan enables us to pay off our debt…and the changes are based on the fundamental, non-negotiable principles of fairness, which is basic to our values as New Zealanders”.
But Mr English says “instead of more taxes, New Zealand needs more taxpayers. Instead of growing the Government, we need to grow the economy”.
Green Party co-leader Russel Norman, who has been outspoken supporter of a capital gains tax recently, says ‘an absence of a capital gains tax, the OECD found, has significantly affected home affordability, widening inequalities in wealth, and leading to disproportionate levels of investment into housing [which is] a relatively unproductive sector of our economy.
“A capital gains tax which excluded the family home would benefit the vast majority of New Zealanders through more affordable housing and jobs as investors take money out of housing and invest in the manufacturing and export sectors.”
Prime Minister John Key, speaking from Christchurch, says Labour are “baking a tax cake in Hell’s kitchen”.
“I just doesn’t stack up, that’s the problem with a comprehensive capital gains tax, you either got to have it on everything or operate the way we do at the moment.
“I just don’t think the fundamentals of what they are proposing will actually work. What it will require is a lot more complexity, a lot form accountants. I just don’t think it’s the right outcome for the economy.”
The ACT Party are the most outraged by Labour’s announcement, saying the tax means you are “clobbered twice: once when you create or earn wealth, the second time when you dispose of it”.
Leader Don Brash says Mr Goff has “gambled that pushing the envy button will return Labour to the treasury benches. Every indication thus far is that he’s underestimated the intelligence and common decency of the electorate with this retrograde and unseemly policy”.
The tax changes would be implemented by the end of Labour's first term, should they be elected.
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