Capital-gains thoughts

Press, 22 June 1989, Page 27

Capital-gains thoughts

Personal assets should be exempt from any capital-gains tax, rather than exempting specific items such as houses, the Associate Minister of Finance, Mr Neilson, said yesterday. Signalling that the Government was still some distance from having a firm capital-gains tax policy, Mr Neilson told an Auckland tax seminar the main problem was avoiding the problems other countries had with their capital taxes. “There are very many question marks over how wide or narrow a base this tax should spread,” he said. "There would no doubt be strong arguments for exempting the family home, since a house is the major asset owned by people. “But if the family home is exempted from capital-gains tax, then we can

expect that housing will be more expensive as a result. “An exemption from capital-gains tax for a level of personal assets, indexed to inflation, may be the way to avoid some of these problems,” he said. A capital-gains tax was also unlikely to raise much revenue unless it taxed unrealised gains. And if it taxed unrealised gains, many people would find it hard to pay the tax, unless they sold the asset in question. It was also unclear whether a tax on capital gains should be matched by tax write-offs for capital losses. The big downturn in urban property values since the sharemarket crash would have cost the Government revenue, had such a tax been in place, said Mr Neilson. “Should we therefore ring-fence those

losses, before introducing a capital-gains tax?”

There were problems, too, with locking people into their investments rather than pay tax on their sale. In addition, such a tax was only worth at best $2OO million a year. The Australian capital tax, based on a population five times larger than New Zealand’s, collected only $BO million a year. “The more one looks at a capital gains tax, the more ‘what ifs’ appear,” he said. “The Government is committed to one for eauitable reasons.

“But it wants to make sure it will work well and fairly before any legislation is drawn up. “Its introduction and the final form are still some way off,” he said.