Land value tax better than capital gains - economist

News 18/04/2019

The capital gains tax - at least the form proposed by the Tax Working Group - was never going to work, a prominent economist has claimed.

Shamubeel Eaqub says there's a much better way to fix the housing crisis, but it'll involve more than just slapping more taxes on property investors.

On Wednesday, Prime Minister Jacinda Ardern ruled out a capital gains tax (CGT) under her leadership, effectively ending the debate for the foreseeable future.

Coalition partner New Zealand First took credit for shutting it down, leader Winston Peters saying he "heard, listened and acted".

Eaqub said it was never going to happen under the current coalition.

It was never going to work from a political perspective

"If you speak as a purist economist, of course you'd say we should have a broad-based capital gains tax, all tax rates should be low - but that's not what was recommended by the Tax Working Group. They recommended a very high tax rate, I think it was sold very poorly."

Eaqub said the group was hobbled from the very start by not being allowed to recommend a CGT on the family home, and while what the group came up with would have been better than nothing, it was never going to go far enough to have a real effect - except to hurt the Government's popularity in the short-term.

"As soon as you saw the recommendations, you were kind of like, really? Are we really going to do this? No... There is a long-term gain in terms of generational equity, which is fine, but... it was never going to solve our housing crisis...

Besides, we already have a CGT on property investment said Eaqub - the bright line test - which hasn't done much to dampen prices.

Instead, he says the Government should look at a land tax, which would involve revamping how local councils are funded.

"The way we charge rates is the tax is on the improved value of the land"

It should be on the unimproved value of the land, because that would force people to use their land.

The CGT could have made it across the line if the Government had sold it to the public better, Eaqub said, pointing to how former Prime Minister John Key survived raising GST by making it clear income taxes would be reduced.

That was a part of the recent Tax Working Group's recommendations too, but seems to have been missed by much of the public, who overwhelmingly opposed any CGT in a recent poll.

The AM Show / Newshub reporter Dan Satherley