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Jesse Mulligan on The Project
Jesse Mulligan on The Project

PoliticsOctober 4, 2018

At war with angry #nzpol Twitter on the need for a capital gains tax

Jesse Mulligan on The Project
Jesse Mulligan on The Project

Jesse Mulligan walks us through some of the spittle-flecked feedback he received for making the case that a capital gains tax is obviously a good and necessary idea.

What is it like to be a woman? I don’t know, but they tell me it involves a lot of being corrected, patronised and explained to by men who don’t necessarily know what they’re talking about. I endured a bit of that recently and I have to tell you, ladies, that I did not care for it.

Yes, when I spoke in favour of taxing capital on Twitter and The Project I heard from some of the dumbest people in the country. Addressing their objections on social media is a bit like yelling underwater so I decided to surface for a week then go back through them in a calm and orderly fashion. Here are the most common and loudest complaints I heard:

We already have a capital gains tax!

This nonsense was easily dispensed with.

But in fairness to Hamish he was probably talking about the fact that you already have to pay tax on the money you make on an investment property, if you intended to resell it when you purchased it. Of course it’s almost impossible to prove what somebody’s intention was, so government revenue in this area is … low. That’s why they introduced the “Bright Line test” which says that if you flip a property quickly you are assumed to be in it for the cash and you have to pay tax on the profit.

Unlike someone who earns their money through a wage or salary, you are still free of tax obligations in New Zealand if your money comes from the sale of shares, or a business, or intellectual property, or property you hold onto for longer than one Olympiad.

(Extra for experts: our rules do allow for taxation of capital gains in some other circumstances but in practice that rule is difficult to enforce and so rarely enforced, leading us to the situation we are now in, which is that we don’t tax capital gains in many circumstances when a good argument could be made that they are taxable. This needs fixing.)

Think of the mums and dads!

Mums and dads came up a LOT. Given that the family home is not under consideration by the Tax Working Group (though Danyl Mclauchlan makes a great case for why it should be), I guess the mums and dads we’re talking about are the ones who’ve made tax free profits on their own house but also don’t want the profit taxed on their one or more investment houses.

Boohoo. It’s worth reminding you at this stage that we’re not talking about taking their profits, just taxing them in the same way we tax other forms of income. It’s also worth adding that most of the people making this argument did not look like mums and dads, they looked like the sort of people mums and dads would leave in the woods and hope for the best.

We don’t need a capital gains tax!

Allan on Twitter was the best on this:

This argument says that a tax on capital (I use this phrase because it covers the working group’s two alternative suggestions, only one of which is a CGT) will not achieve whatever I think it will achieve, or that it will be net bad for the world because it will discourage brave risk takers from investing in the things society needs. But my only claim was that a capital gains tax would make things fairer. Sure the economist for Westpac recently decided it would cut house prices by 10% but, look, I just want everyone to be playing by the same rules.

I can’t understand how anybody could in clear conscience object to one tax law for all, but perhaps that’s why the people arguing hardest against it have no profile picture, no real name and no biographical information. If I was defending a status quo where, according to the Working Group, “the wealthiest members of society benefit the most from the inconsistent taxation of capital income”, I’d be too embarrassed to use my real name on Twitter too.

You’re taxing people twice!

“Once,” so the argument goes “when you pay income tax and a second time when you invest it in a rental property and make a profit.”

A guy I don’t know on Twitter called Chris was doing God’s work dealing with stuff like this; here he is in the thick of it:

And he could have added, to quote my smart friend Geoff Simmons (who likes the Group’s second recommendation, by the way), that “it’s the same with bank savings, and shares, and Kiwisaver. We tax when you earn the income you use to invest and tax again when you get benefit from the investment. The problem is inconsistent treatment of investments because we don’t tax the benefit of owning housing. If we can cut all tax on bank accounts, shares and Kiwisaver then all good! Except for inequality …”

Yeah, inequality is so annoying. Here’s a chart which shows how well we do at using the tax system to address inequality.

Of the 36 countries in the OECD, 27 are ahead of us. Even if you blame inequality on the poor you should still admit that choosing not to tax capital is a policy that benefits rich people most. See Max Rashbrooke for more on this.

There are two extra considerations: that every year our aging population is relying more on income earned from capital investments, and that 21st century business too is moving away from labour and towards capital – if we don’t start taxing it then income tax is going to increasingly be bearing the revenue strain.

It’s a left wing conspiracy!

“Jesse’s a leftie” … “he’s sticking up for his mate Jacinda” … “it’s communism by stealth!”

I’ve seen the worst of #NZpol twitter these last couple of weeks and the most depressing stuff comes from the people who think this is an ideological battle. But if you’re approaching questions like tax from an evidence-based perspective then left or right are meaningless terms.

We should remember that the recommendations we’re debating come from a Tax Working Group chaired, yes, by an ex-Labour Minister but comprised of people from across the political spectrum – you would presume the head of Business NZ is not a socialist, and pinkos don’t tend to do too well as senior partners in law and accountancy firms either.

We need to resist the loud voices in these debates who try to score points by herding people who disagree under a convenient banner then encouraging their own tribe to attack. The right and left disagree on the way to achieve certain goals, but if you think that “fairness” is a left wing concept then you’re not on the right wing, you’re just an arsehole.

You’re saying everyone who disagrees with you is acting out of self interest!

This is an accurate analysis of my position

Stick to comedy! You’re abusing your platform!

This is a related objection, that only people from a certain club are allowed to talk about the way tax is collected from the rest of us.

Look, here’s blogger John Drinnan

and some other person

 who got increasingly upset the more I didn’t reply to him

I got a long, angry text in the middle of the night from a good friend of mine in the money business similarly dismayed that I was spruiking for a tax he thought was wrong. The thing is, I’m not exactly going out on a limb. For the record I do have good qualifications in this area and my opinion piece was (as this one has been) fact checked by an economist. But in the end I’m only endorsing the view of an apolitical expert group who had (unsurprisingly) come to the same conclusions every other comparable country has come to before us: that if you’re going to tax anyone you should tax everyone. That if you’re going to tax income, you should tax all income.

If you don’t, then you should expect inequality, expect unfairness and expect people to load all their money in the lowest risk, least taxed alternative. So feel free to argue that a tax on capital won’t change the housing market. But while New Zealand’s investment options continue to look like this…

… you shouldn’t act surprised that Kiwis can’t stop themselves bidding high at auction.

Keep going!