I think someone got the numbers MAJORLY wrong on this story. Today it was leaked (probably by the Labour Party) that Labour will introduce a Capital Gains tax policy as part of its election campaign sometime next week, as reported in the NZ Herald.

While all speculation at present, the details appear to be:

  • a 15% capital gain tax
  • excludes the family home
  • excludes property purchased prior to when it is introduced (so around 2012) (this has to be the case, since Govt’s cant pass retrospective laws).

The article reports it will raise around 4 billion.  I think that’s wrong, and here’s why:

  • The tax workging group sais a FULL capital gains tax, on ALL property at the marginal tax rate of 33% would raise around 9 billion (around 2007/8) (they admit this is a very rough figure).
  • It’s estimated that around 15% of property is investment property (ie not the family home).  So 15% of 9 billion = 1.35 billion
  • At a marginal tax rate of 15% this would raise $613 million

Now many of these figures are rough.  Many will even be wrong, but my point is that its VERY hard to raise any large amount from this tax without making either the tax equal to the marginal tax rate (ie 33%) and/or putting it on the family home too – a sure vote killer.

In addition this tax only raises money when property prices are rising.  At present they aren’t ( by any large factor).  So the value from this tax in 2012 might be closer to zero.  In 2013 I would doubt it would raise $100 million.  This si going to create issues for Labour, since none of this helps with paying for their billion of dollars of already announced policies (remember GST off fruit and veges which will cost almost a 1/4 billion alone?)

Now I would also add that I am in favour of some sort of capital profits tax, but not of this sort.  Its too watered down to be effective, and too forced on “tax the rich” to actually do anything other than piss a bunch of people off.

Of course that last point isn’t a worry for Labour – they have so few supporters at the moment they need bold initiatives like this to give it a go.

Black and White Version: Capital gains taxes aren’t all bad – but the one proposed by Labour just wont work, because it wont raise much money.

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