Monday, September 14, 2009

LAQCula

I wish the MSM would stop saying that the purpose of a Capital Gains Tax is to help prevent housing bubbles. It's not. It's like saying the purpose of journalists is to cure cancer. CGT, like journalists, have their uses but neither are miracle cures.

CGT is one way of widening the tax base to include more forms of wealth creation. The hard yard at present is being done by labour taxes (PAYE), capital (company and witholding tax), and consumer consumption (GST). One way or another, land and buildings will have to be included in tax reform to stop distortionary effects on NZ investment. Land tax is another angle on the same CGT skim.

NZ must stop bingeing on residential property development without paying their dues. I know it's hard to make a living in this country, what with the small domestic market and all. With the red tape, risk and tax on other forms of small scale investment, buying rental accommodation to pay off their mortgages seems perfectly reasonable.

However, it's domestic cannibalism. It's turned the Mum and Dad investment funds into Loss Attributable Qualifying Company vampires feeding off those who cannot afford to own the roof over their head. Heck, they've even bred the property management leeches that, for a discreet premium, allow the owner to wash their hands of actual live tenants.

That cash should be going into enterprising companies earning their bread and butter on the offshore markets. But between the volatile dollar, dodgy companies, lousy management, etc, it's all a bit too much like work. Perhaps those seeking low-risk, low-yield returns could be more helpful and stick it in the bank. Oh yeah, they get taxed on that interest more than on residential property. That's not right.

PS.

Another thing that's not right, Phil Goff on excluding the main home from CGT. Exclusions breed distortions, and the whole point of introducing a CGT is to flatten the system out not add to the bumps. Ask Bill English about the loopholes surrounding the definition of a main place of residence. Somewhere overseas, I forget where, there's a CGT exclusion on uncompleted houses. Unsurprisingly, there's whole neighbourhoods of houses with unfinished chimneys that have been lived in for years without paying CGT. No loopholes, OK?