‘A mangy dog’, ‘an assault on the Kiwi way of life’ and ‘yesterday’s cold porridge’: Business groups and opposition politicians are less than flattering about the proposed new tax.
The business community is unsurprisingly less than impressed that the Tax Working Group (TWG) has recommended by a majority of eight to three that New Zealand should implement a wide-ranging capital gains tax.
Group chair Sir Michael Cullen says there’s a clear weakness in our tax system caused by our inconsistent treatment of capital gains.
“New Zealanders earning just salary and wages are taxed on their full income but we have several situations where you can earn income from gains on assets and not be taxed at all,” he says.
All members of the group agreed that capital gains tax should apply to sales of rental properties. The majority went further and said it should also apply to all land and buildings, business assets, intangible property and shares.
The TWG points out that, even excluding owner-occupier housing, the top 20 per cent of New Zealand households are more than three times wealthier than the rest of the country put together.
Business groups and right-leaning politicians are leaving the country in no doubt today about how much they hate the idea that those they represent may have to pay more tax. National Party leader Simon Bridges is calling the TWG report “an assault on the Kiwi way of life”.
This Tax Working Group report is an assault on the Kiwi way of life. I will fight it every step of the way.
— Simon Bridges (@simonjbridges) February 20, 2019
ACT’s David Seymour agreed, lambasting an “envy tax” that was “offensive to New Zealand values”.
But the prize for who hates it most must surely go to Federated Farmers, which calls capital gains tax (CGT) “a mangy dog”.
The tax will add unacceptably high costs and complexity, vice-president Andrew Hoggard says.
“Federated Farmers believes that the majority on the Tax Working Group have badly underestimated the complexity and compliance costs of what they’re proposing, and over-estimated the returns,” he thunders.
Trying to look for positives, if farmers have to swallow the “CGT rat”, at least farms passed on through the family won’t be taxed. But as soon as they are sold out of family ownership the tax will kick in, he grumbles.
Canterbury Employers Chamber of Commerce is all for fairness. “However, there is very real concern that taxing both shares and business assets under a comprehensive capital gains tax regime would create double taxation,” says chief executive Leeann Watson.
“This could disadvantage New Zealanders owning shares in New Zealand and create inconsistencies around overall taxation on investment.”
The Employers and Manufacturers Association (EMA) says the cost of implementing a capital gains tax will outweigh any benefits.
“Fundamentally the proposed capital gains rules don’t address the Tax Working Group’s objectives of reducing over-investment in housing and increasing tax fairness,” chief executive Brett O’Riley says
Deloitte tax partner Patrick McCalman warns that a CGT is not a panacea for tax fairness.
“At one level, there is an attractiveness in the argument that a ‘buck is a buck’ and everyone should bear the same tax burden on every dollar earned. However, when one delves into the detail of the design, other issues of fairness emerge,” he says.
“For example, is it fair that property could pass on death without an immediate CGT cost, while gifts made during one’s life would be taxed? For family businesses, wouldn’t it be more productive to be able to pass assets from generation to generation before death?”
Business Central says the proposed new tax is “fatally flawed”.
It will penalise business owners and create costly complexity in our tax system, chief executive John Milford says.
“A capital gains tax is just another cost on business, nothing more,” he says.
“It is inescapable that SME owners, farmers, and families saving for their retirement will face significant extra costs should this tax go ahead. All of which will lead to lower investment and growth of New Zealand’s economy.”
Property developer David Whitburn says it should not be assumed that it is a problem that New Zealand does not have a capital gains tax while others countries do, and picks quite a metaphor to make his point.
“We don’t have nuclear ships here. It’s okay that we are different from other countries,” he says.
Meanwhile the Social Credit party (yes amazingly they still exist) says the TWG’s proposals are “about as innovative and forward looking as a bowl of yesterday’s cold porridge”.
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