CGT – Lunacy much?

Just this Sunday, Labour’s David Cunliffe was on Q+A lambasting a tax regime that hands out tax free capital gains to property speculators as nothing but pure lunacy.  And he would not be wrong. 

Problem is, he is wrong.  In a press release issued yesterday, the New Zealand Property Investors’ Federation Executive Officer, Andrew King, rightly pointed out, ‘Those who buy and sell property are already taxed on the income from this activity,’ whereas the majority of rental property owners are investors not speculators – a distinction that Mr Cunliffe’s Labour Party seems to have failed to grasp if their leader’s frequent interchange of the two labels is anything to go by.

Property speculators are those who derive a living (i.e. an income) out of selling appreciated assets (i.e. properties) which had increased in capital value.  They are driven by capital gains which are already captured by our income tax regime each time they are made.  In essence, New Zealand already has a capital gains tax in all but name.  

Property investors are driven by reasons that are far more diverse:

• Providing a passive income stream to supplement our retirement;

• To have total control over the value of our investments (rather than investing in shares, currencies or finance companies the value of which investors cannot affect); 

• To invest in an industry (accommodation supply) that continues to have strong demand (housing); 

While any incidental capital gains made throughout would not be un-welcomed, they are only illusionary (because they will be exhausted the moment investors buy back into the market).  

‘So,’ you wonder, ‘where does a CGT leave investors?’  But perhaps more pressingly for me, ‘Where does a CGT leave tenants?’  With or without a CGT, demands on the Auckland housing market will always make properties a realistic prospect for investors.  A tax raising scheme designed to dis-incentivise investors will only result in the increased costs be passed on to the tenants who, ironically, are the ordinary Kiwis Mr Cunliffe set out to protect.