Capital gains tax will help fix savings crisis

A tax on capital gains is one of the necessary components to addressing New Zealand’s savings crisis, Green Party Co-Leader Dr Russel Norman said today.

Dr Norman was responding to the Savings Working Group report which found that changes were essential to remove tax distortions that favour housing and penalise interest income from savings.

“A comprehensive tax on all capital gains except for the family home is the fairest, most effective way to encourage private saving and strengthen the Government’s books,” said Dr Norman.

The Savings Working Group report found that the tax system bias in favour of housing caused about half of the increase in house prices over the last decade.

“A tax on capital gains would remove the bias in our tax system making homes more affordable and help make the dream of home ownership a reality for more Kiwis,” said Dr Norman.

The Savings Working Group report found that without substantial tax increases, total government spending will have to decline each year in real terms for the next 30 years to return debt to sustainable levels.

“Treasury and the Inland Revenue Department estimate that an additional $4.5 billion could be raised from a comprehensive capital gains tax with an exclusion for owner-occupied housing,” said Dr Norman.

“The additional $4.5 billion will broaden the tax base, enhance its resilience, and be used to lower government debt to sustainable levels.

In addition, the Savings Working Group has drawn attention to the fact that our productive sector has suffered at the expense of the property sector due to this investment bias.

“A capital gains tax would address the unsustainable investment bias towards property, helping the New Zealand economy to return to earning its living from productive enterprise rather than speculative property investment,” said Dr Norman.

“Nearly every other country in the OECD has a capital gains tax. Australia has one. America has one. Until we address the property investment bias built in to our tax system, our productive sector will struggle and our savings levels will remain recklessly low.”

Link to the Savings Working Group report:
www.treasury.govt.nz/publications/reviews-consultation/savingsworkinggroup

Link to the IRD/Treasury’s revenue estimations from a CGT [pp46-47]:
http://www.victoria.ac.nz/sacl/cagtr/twg/Publications/3-taxation-of-capital-gains-ird_treasury.pdf