Conventional wisdom says you can't sell a new tax from opposition, which is why John Key said before the last election he would not raise GST, then went ahead and did it anyway.
There are better ways to fix our economy than increasing the price of everything. So it will be good for the economy next week if Labour confirms this morning's story that it's planning a capital gains tax.
Here are three main advantages of a tax on capital profits:
1. It lets most people pay less tax.
The government can use the money it gets from taxing profits on capital gains to reduce tax on income earned other ways.
Say you make part of your living by buying a second house, doing it up and flicking it - you pay no tax at all. A bloke on the TV last night said his housing speculation helps to create jobs for builders and plumbers and the like. He's right about that - but so do other businesses, and they have to pay tax on their profits.
What he needs to tell us is not why his business is good, but why his particular form of business should be subsidised by everyone else.
2. We have to do something about the deficit.
A tax on profits from capital gains means we can pay down the deficit without having to sell assets like our power companies.
Selling assets is a mug's game: the Government gets a dividend from owning the power companies, and the divvy is higher than the interest we are paying on debt. So if we sell them we lose some of our future ability to earn an income. It's like selling the house and renting it back.
Cutting your income is no way to deal with debt. A capital gains tax makes more sense.
3. It helps to grow the economy.
This one's the biggie. Many advantages of a capital gains tax take years to show up.
But from day one, people will begin to change their behaviour in ways we need as an economy. If someone has some extra cash to invest, they will ask themselves - should I buy a second house, or should I invest in a growing, exporting business?
We need more investment going into productive business, instead of into housing speculation.
As an extra benefit, this means young families trying to buy their first home won't have to compete in the market against speculators. That makes home ownership more affordable.
Overall, extra investment in business helps the economy to grow. That's one reason Australia has been growing fast for the last 25 years with its capital gains tax, while we haven't.
It's not all a one-way street. Opponents will highlight the disadvantages, too.
The prime minister says its complex and people will spend more time with their tax accountants. But those individuals already spend time finding ways to convert income to capital profits to avoid income tax.
The other claim is that people hold on to assets longer, instead of selling them and paying the tax. I am sceptical of this one, since people are going to have to pay it eventually anyway.
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