Friday, July 15, 2011

Labour's capital gains tax to punish investors and the economy

Originally from

Lets take a look a Labour's new 15% capital gains tax (CGT) that they are going to impose on New Zealanders should they be lucky enough to be elected come November 26.

We probably need to start from the premise that any tax, whether it be a CGT, GST, income tax or otherwise is counterproductive to growth and always affects the income, asset or investment in a negative way and is therefore anti growth and anti productive.

The country does however need to collect some tax to run the state apparatus (and one may argue how big that should be) and a fairer flat tax system that would incentivise all to work harder and smarter and increase productivity and get the economy moving.

Labour's raft of new taxes across the board for those that earn $150,000 and more and their capital gains tax across all asset classes, except the family home, is not the answer to our current economic malaise or a positive way ahead for the future because if introduced will have the opposite affect to that stated by Phil Goff and his merry henchman David Cunliffe.

What we need to get us out of the economic mess that Labour incidentally spent their way into, is to remove taxes on savings, business investment, stockmarket investment and rental housing and other asset classes and thereby stimulate growth in these areas rather than stifle it with more crippling taxes. Labours 9 years of high taxes, huge spending and backward productivity growth should have been a lesson to them not to repeat the same mistakes but hey they are going to do it all again.

In general then a CGT is going to have a severe impact on investing but let us look at the topic that interests me and those that read this blog the most .

"Will apply to shares for those who trade them "on an occasional basis". Phil Goff New Zealand Herald , 14 July 2011

Lacks detail and needs defining but I will go on.

What the hell will a 15% CGT do to the stockmarket short term if introduced and in the long term?

Obviously before its introduction investors will want to pull out of the stockmarket to crystalise any gains made before the tax is introduced and clearly this will have negative impacts for the markets in the short to medium term. How much is unknown but in my experience it is unlikely to be a small impact and could very well lead to a stockmarket crash of some description.

In the long-term the consequences of a CGT are obvious. Investors are likely to avoid the local stockmarket and local business investment and decide to either spend the money they would have invested or send it offshore where stockmarket and business investments have a fairer tax treatment.

There is no practical, logical, social, ethical or financial reason to impose either the CGT and higher income taxes as whole and specifically a CGT on shares because the desired outcomes are all negative ones.

The only conclusion from that then is this grab for your money is a deeply political one. It is the politics of envy and greed where those that have worked themselves into a position that they earn a good living and have invested instead of spent will be punished for doing so.

You simply don't punish the goose that lays the golden egg and those that Phil Goff are targeting pay the vast bulk of taxes in this country and individuals that would one day want to apsire to being one of those people who have done well are going to be seriously disincentivised by these massive new taxes.

I will end on this quote by Phil Goff:

"Expected to affect less than 10 per cent of New Zealanders"

This is nonfactual because anybody who has a cost imposed on them will simply pass that cost on to those that can least afford them. Its economics 101 and Labour have failed on that test alone.

It will affect all of us, not just business owners, shareholders, rental houseowners and it will impact on those that Phil Goff and Labour say they advocate for and who vote for them. Those at the bottom of the income scale.

These taxes are not positive at all for the economy and risk the country going into economic decline should they be imposed after a Labour win on November 26 or at any latter stage should the party be shown the voters bottoms once again in 2011.

Choose wisely when you vote this year.

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1 comment:

  1. If you missed the full 10 seconds of me on TV One last night (you have to sit through others to get to me) the above is what I wanted to say.


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