Capital gains tax debate heats up

 

Makhlouf, who took over as Treasury head two weeks ago, said Treasury’s position was based on what was the most economically efficient tax system to have. “Our view is that our current system has slight bias in favour of, in particular, property holdings and we see, and certainly my predecessor [John Whitehead] is on record as saying, capital taxation is way of rebalancing that.”

Makhlouf moved to New Zealand from the United Kingdom where he was private secretary to the Chancellor of the Exchequer. “I worked with capital gains tax system in the United Kingdom and one thing I learnt is you have to be very clear about what you are trying to achieve with such tax.”

Comprehensive taxes were the most efficient, he said. “Generally speaking, taxes that are the most broadly based can be at the lowest rates as well and tend to be the easiest taxes to implement. But I’m not aware of any country in the world that taxes family homes – certainly the UK has an exemption for the principal home.”

Labour will exempt the family home here too in its otherwise wide-ranging proposal to place 15 percent capital gains tax on the sale of property and shares. John Whitehead said there were strong equity arguments and some efficiency arguments for capital gains tax and Turkey was the only other OECD country without one. Prime Minister John Key has said broad capital gains tax would “plunge dagger through the heart of growth”. But Whitehead said if it was well designed it would move investment into more productive areas and that would lift economic growth.

Labour’s proposed tax is forecast to raise $2.27 billion year after 10 years, but will provide little cash early on. Labour will rely on income of about $300 million year from the new top rate of 39 percent, on income over $150,000, to boost revenue in the short term.

 

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