Opinion: Capital gains tax 'will hit many New Zealanders'

Lawrence Yule

When it comes to a capital gains tax, very few New Zealanders will not be affected.
The Government's Tax Working Group's recommendations reach deep into our lives for a bigger clip of the ticket.

New Zealand is well respected for having one of the simplest tax systems in the world. Despite this there are still aspects that many people are unaware of.

Most people don't know that 40 per cent of Kiwi families actually pay no tax after consideration is given for the state entitlements they receive to support them.

The proposed new regime is the latest twist to amend tax law but it is also the most profound.

The recommendations would impose one of the highest rates of capital gains tax in the world at 33 cents in the dollar, allowing the Government to reap $8.3 billion extra in its first five years from ordinary Kiwis. Very little escapes its net - small business owners, farmers, investors, bach and lifestyle owners would all be hit.

Even the family home could be carved up for tax purposes, with Inland Revenue taking an interest in your boarders, your flatmates and how you run a business from home.

The capital gains tax will act as a massive disincentive to save, invest or build a productive business. The Government would literally be taxing our prosperity.

There is nothing to say this is tax neutral even from those who argue for a fairer system. The Prime Minister claims this tax is about fairness. That doesn't cut it.

It is misleading to claim that only the wealthy will pay a capital gains tax. In reality, it is the wealthy who can afford good accountants, who can move their investments offshore. I am already hearing people discussing possible work around solutions.

For me the biggest damage will be done in the small business sector.

In Hawke's Bay there are thousands of businesses who have Mums, Dads and families working incredibly hard trying to carve out a future for their family. In many cases the net profit is small compared with the wages of their employees.

The risks in this sector are high with 80 per cent of start-up business failing in the first 5 years. Equally, every business and farming entity will understand how hard it is to plan for succession.

What the Tax Working Group fails to acknowledge is that most small business people aren't greedy or wealthy.

At the end of their working life they want enough to live off, independent of the state and proudly wish to pass the business to the next generation. Taking 33 pet cent of increase in the value of the business over a lifetime will kill this dream.

I also do not support CGT being applied to a family who may have one or two rentals to support their children or their future retirement. There are thousands of people who own a second property as part of their financial plan. They have purchased the extra property by using money they have already paid tax on and they may wish to use this equity to help their children into a first home or business.

Kiwis are rightly worried that a capital gains tax will affect their KiwiSaver, their retirement savings, their small rental properties and their farms. It will affect all Kiwis in some way.

The National Party believes in rewarding Kiwis who are working hard to get ahead. Those people who risk their own money to employ others and start a business should not face a new massive obstacle to that success.

Sometimes ideological decisions don't make sense or end in very perverse outcomes. In an attempt to make a perceived fairer system thousands of families and normal hard working Kiwis will be sent all the wrong messages and this will ultimately be very damaging for New Zealand and our way of life.

Lawrence Yule is Tukituki MP