Gareth on Capital Gains Tax

Gareth MorganTax and Welfare

Video Transcript:

Interviewer: Gareth, can you tell us in simple terms, what is a capital gains tax?

Gareth: It’s a tax on the increase in value of a piece of capital. Now, in this context a piece of capital can be a property, whether it be a farm, commercial property, rental house, is what they are talking about. It tends to be property is the context they are putting it in, and it’s the change in value. Now you can either pay that tax every year. So they come around and measure how much a thing has gone up. That’s pretty onerous. Or you can pay the tax when you sell. That’s called on alisation. That’s the sort of tax they are talking about.

Interviewer: If Labour’s proposal doesn’t cover the family home, boats, jewellery, antiques, and payouts from retirement savings, what exactly does it cover?

Gareth: The Labour’s version of this is really targeted at rental properties and farms. They would be by far the two biggest components of this, this tax,  yeah so they don’t always go up, in value these things. Sometimes they go down. So, if they go down, that will be tax deductible. I don’t know if they’ve thought about that. But anyway, if they go down, it will be tax deductible. So it’s a very volatile tax flow.

Interviewer: Does the capital gains tax proposed by Labour feature in your tax and
welfare master plan book, “The Big Kahuna”?

Gareth: I mean, it’s similar to what we’re talking about in the book. Just to the extent that it’s a tax on capital. They’re taxing capital gains when you sell. We’re levying a far lower level of tax, but every year on the capital, whether you sell it or not. And we don’t exempt the family home either, because it’s a big one. So, if you exempt that from your tax, you’re sort of knocking yourself over before you start running really.

Why do we tax capital? I think that’s a really important thing. It’s because the whole principle of taxation is called vertical equity, is the technical term. What it means is that those, from each according to their means, to each according to needs. But the people with the most means aren’t necessarily the people with the highest income each year. It’s the people with the most wealth. I mean I, for example, have a very low income, but man I’ve got a big wealth. So my tax load under our current regime is really quite low, compared to the next guy who has got the same income as me, but that’s all he’s got. He’s got no assets. So the whole burden of tax in New Zealand has lost the plot. That’s what Labour’s trying to readdress. I think we’re doing it in an infinitely better way in the book.

Gareth on Capital Gains Tax was last modified: December 15th, 2015 by Gareth Morgan
About the Author

Gareth Morgan

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Gareth Morgan is a New Zealand economist and commentator on public policy who in previous lives has been in business as an economic consultant, funds manager, and professional company director. He is also a motorcycle adventurer and philanthropist. Gareth and his wife Joanne have a charitable foundation, the Morgan Foundation, which has three main stands of philanthropic endeavour – public interest research, conservation and social investment.