Editorial: No to capital gains tax shows lack of faith

18:50, Jul 15 2011

Prime Minister John Key's decision to rule out a capital gains tax is timid and short-sighted.

Having engineered last year's GST "tax switch" with no damage to National's runaway popularity, Mr Key should have more confidence in Kiwis' willingness to consider matters of taxation and economics traditionally regarded as off limits.

National insisted last year's change – implemented without a mandate from voters – was necessary to discourage consumption and encourage savings and investment. Similar arguments can be made in favour of a capital gains tax, which, properly implemented, would steer investors away from speculating in property and into more productive areas of the economy.

It is a central argument advanced by Labour leader Phil Goff for the capital gains tax his party will introduce if it wins November's election.

The 15 per cent tax would apply to profits on the sale of all assets and investments, though family homes, personal items, collectables and the first $250,000 of businesses owned for more than 15 years by people within a decade from retiring would be excluded.

It is part of Labour's own tax switch, which includes a new top income rate of 39 cents, no tax on the first $5000 and removing GST on fresh fruit and vegetables.


Figures prepared by Labour, including forecasts modelled by economic analysts Berl, show the capital gains tax would raise $78 million in its first year and more than $2.2 billion a year by 2013. Together with the other changes, Labour would return to surpluses and retire debt in the same time frames as National, without selling holdings in state-owned energy companies and Air New Zealand.

However, Finance Minister Bill English says Mr Goff would forego the $5b to $7b National planned to raise for infrastructure projects from partial asset sales, leaving a big hole in Labour's accounts. Clearly, then, there is a substantial debate still to be had on whether the numbers stack up.

There are also questions about the exemption of collectables, such as art, classic cars and stamps. Labour says it would be too cumbersome to police that area, given the likely small returns, but it could also lead to some distortions.

A capital gains tax would make the tax system more equitable. It is not fair that a worker earning $50,000 is taxed on every cent while someone who sells an investment property for a $50,000 profit pays nothing.

Above all else, it is vital that steps are taken to remove tax from the equation as much as possible when investors decide where to put their dollars.

Labour's plan may not be perfect, and Mr Goff may be motivated as much by the need to find cash to fill the hole left by canning National's asset sales as creating an economic step-change, but at least he is prepared to get the debate rolling.

In praise of ... the space shuttle

At 9.56pm on Thursday (New Zealand time) the space shuttle Atlantis is due to touch down at the Kennedy Space Center. It will be the last space shuttle landing after 30 years and 135 missions.

It also marks a retreat by the United States from the manned exploration of space. For the next few years, if the US wants to send astronauts into space, it will have to buy seats on Russian spacecraft. It's a far cry from the glory days of a US programme that put a man on the moon 42 years ago, and from the ambition that the space shuttle would make space travel ordinary.

Soaring costs, and the devastating destruction of two shuttles in fiery explosions soon after launch costing the lives of 14 astronauts, were a reality check, a reminder that spaceflight remains anything but a mundane commute. Despite the two failures, the technology remains impressive.

A shuttle set for launch with its rocket boosters and fuel tank contains about 2.5 million moving parts. By the time Atlantis touches down shuttles will have travelled more than 870 million kilometres and carried out more than 2000 experiments.

But it is the ambition behind the shuttles that is as worthy of praise: the desire to push boundaries, and to look to the stars. That should not be grounded, even if the shuttles are.

The Dominion Post