NZ currently has currently a partial CGT because through accrual rules, and any intentional buying for resale, property gains are taxed. The notion of intention is not very rigorous. The Government have proposed that the ‘intention’ clause be replaced by having any property sales within two years, taxed.
A 2010 Tax Working Group stated that the current system is deeply flawed, inequitable and inefficient. Vertical equity deals with the principal that tax payers earning more should pay more. Horizontal equity states that people who earn the same should pay the same. Their recommendations were not accepted, perhaps because it would affect farmers.
The principles for assessing a tax are:
- Convenience (low compliance costs)
- Efficiency (low collection costs)
- Neutrality (should not restrict options, eg, partnership v company)
- Meet Revenue Needs
- Visibility (transparent link between tax paid and benefits)
- Coherence (tax system as a whole should make sense).
The most compelling argument for a CGT is based on fairness. Without a CGT there is a lack of horizontal and vertical equity. Introducing a CGT would also remove the uncertainty between what is capital and non-capital earnings. Dr Russell stated that there is a large area of uncertainty: she felt that the distinction should recognise that there is short-term and long-term earnings.
Most OECD countries have a CGT. Dr Russell felt that a CGT (with the family home exempt) would slow down property speculation and rapid rises in prices as currently experienced in Auckland, but other measures were needed.
Summary of Auckland & Wellington Presentations by Dr Deborah Russell,
Senior Lecturer in Taxation at Massey University