Ok yes I am disappointed.
But probably no more or less than the members of the 2001 and 2008 tax reviews who also recommended greater taxation of capital. So it was always on the cards.
And to be fair the New Zealand tax system has never had a formal capital gains tax but has been taxing capital gains since whenever. All by deeming them to be taxable income.
IMHO this really hasn’t been the end of the world from a social cohesion point of view until that is – land prices went insane and somehow my generation extracted value from our children.
Now yes it would be awesome to tax that value extract – but what would be more awesome would be land prices falling. Coz something has gone gobsmackingly wrong when yopros need government intervention to buy their first home.
But back to tax.
Personally though I am surprised there wasn’t something. After all even the minority felt their was a very strong case to tax gains from residential rental and for those who were worried about valuation issues there was always the CGT lite option aka grandparenting.
But this is not to be.
So what is happening? Possible vacant land tax, cracking down of speculators and tax dodgers.
The former I am quite comfortable with as I think it has merit as a corrective tax. Needs to be better than Australia though. And yes local government is the best placed for that. Maybe a targetted rate or something.
Cracking down on speculators. Right.
Now there is the small matter of the brightline test which taxes sales within 5 years which – I would have thought – well included any speculation period.
And then there is the existing provision since whenever – bought with the intention of resale – which didn’t work very well so the Nats brought in the brightline test.
Unfortunately though compliance with these rules is a bit average and enforcement is a bit hard. (1)
And there will also be cracking down on tax dodgers. Not quite sure I know what that means.
There are our friends the closely held companies and dividend stripping . Which is essentially winding up to extract an untaxed capital gain and setting up a new company. Rather than just getting a taxable dividend from the original company.
Taxing these capital gains would have helped the issue.
And so instead strengthening enforcement for closely held companies (2) will be considered a high priority area for the next work programme.
Except enforcement is operational and the work programme is policy so not quite sure how that will work. But maybe I should get over myself, go with the vibe and wait for the actual new work programme.
But the Charities (3) stuff is all looking good.
The things I am most saddest about though are some of the more innovative obscure issues that aren’t being even considered for inclusion on the work programme. Which really only means – ‘will get to it if have time’.
They are the :
- Tax Advocate service (4) which would have helped small business and given an additional source of advice to the Minister;
- Overarching purpose clause (5) to say what the point of taxation is;
These are all potential neutral unpolitical improvements to the tax system. But didn’t hear Jacinda ruling them out – so maybe still hope.
So I might write some more about these. Oh and the OECD work on digital services. But once I have processed all this.
(1) Annex on compliance.
(1) Paragraph 17 Executive Summary
(2) Recommendation 66
(3) Recommendation 78-82
(4) Recommendation 73
(5) Recommendation 77b
(6) Recommendation 66. Although to be fair there is a suggestion this could be handled differently.