It's true when advocates say that taxing capital gains on property in the same way we tax income earned from employment is fairer. Of course it is. But why is fairness important? If your boss makes a $100,000 capital gain selling his business, why shouldn't that be taxed like the $100,000 salary earned through working a fulltime job?
If this example has quickened your pulse then I've demonstrated why the equity argument and people believing tax is imposed fairly is important. Why should you pay your tax if someone else is profiting from large untaxed capital gains?
Most people also accept that the tax burden should be increased progressively with the wealthier, who tend to own more assets, paying a larger share of tax and more than those taxpayers who earn and own less. A capital gains tax contributes to more progressive taxation.
The estimated annual revenue from a capital gains tax that exempts the family home could add around $2 billion to the Government's coffers - although it may take 10 years to reach that point. What will governments do with this extra revenue? Will it be used as an opportunity to reduce personal income and company taxes to stimulate economic growth? Or do we risk it funding poor quality spending that will only impose greater compliance costs and tax burdens for little gain?
The question is, do we need another tax?
We know the existing main tax bases of income tax and GST are generating enough revenue to meet the Government's forecast spending commitments (and even start repaying debt).
More taxes increase compliance costs for businesses and individuals and impose so-called "deadweight costs" on the economy. Proponents would reply that, beyond equity issues, taxing capital gains is about encouraging economic efficiency and that taxpayers should be making investment decisions based on overall returns rather than the value of untaxed capital gains.
Surely we shouldn't offer people incentives to tie up their wealth in mansions and second homes instead of investing in shares and corporate bonds that do so much more to create a productive economy and employment.
And this isn't taking into account the impact that tax-free capital gains have on the booming property market and inflationary pressures it adds.
Yet, here's the crux of the capital gains conundrum: even many of those in favour of the capital gains tax agree that the family home should be excluded. Clearly it makes political sense to do that, but with two-thirds of our assets invested in our homes, it would knock the stuffing out of the efficiency and equity advantages of this tax.
So, a capital gains tax is no longer the taboo policy it once was. And this is good. But, the cases for and against are much more finely balanced than the political debate that we are about to have will suggest. It needs more thought and analysis until we are able to decide whether taxing capital gains is right for this country.
Geof Nightingale is a PwC Partner who leads the firm's corporate tax practice.
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