How can we pay off New Zealand’s public debt, keep our valuable public assets, give everyone a tax cut, and fund needed investments in growth and our children?
Under Labour’s recently released economic plan, that is exactly what Indian Newslink readers can expect.
New Zealand’s debt is too high, way too high to manage.
The current Government is borrowing $380 million a week! This year’s deficit alone is $17 billion.
Our opponents want to sell off your key assets, like power companies, dams, our bank, and our airline. But that would cover less than six months deficit, and we would be far worse off from the loss of dividends and the prospect of faster rises in electricity costs.
The alternative is a fairer tax system – one that that will enable us to keep those income producing assets and grow a surplus that will keep New Zealand strong.
What does a fairer tax system look like?
The first thing we would do is put the top tax rate for people earning large sums of money, over $150,000 (indexed for inflation) back up to 39%. This will enable GST to be taken off fresh fruit and vegetables, improving affordability and quality of life.
The second part of the package is to make the first $5000 a person earns tax-free.
That will make a big difference to families facing a rising cost of living.
We believe something else has to change.
At present, the major tax burden falls on individuals through wages and salaries. People on low and middle wages and salaries are taxed, but capital growth is not taxed at all.
For example, Trade Me was sold for $700 million but the owners paid no tax on the gain made on the sale. Founder Sam Morgan said he thought that was wrong.
The Government’s Tax Working Group found only half of the wealthiest 100 New Zealanders pay the top tax rate.
That is also wrong.
The Tax Working Group also estimated $200 billion is invested in property in this country – but property investors together paid no tax.
So lack of Capital Gains Tax not only allows the wealthy to legally avoid tax, it also distorts incentives so that investment does not flow where it does the most good – to productive businesses that innovate, employ and export.
So how would CGT be applied here?
The family home or primary residence will not be taxed.
CGT will be set at a low 15% flat rate – that means everyone keeps 85% of their capital gains.
It will only cover future gains from the date of the legislation being implemented. It will not be retrospective or capture any past gains on existing assets.
CGT will only ever be paid on what you actually make when those assets are sold. It will not apply to unrealised gains.
The Kiwi CGT will be a two way street – you will be able to carry forward losses on assets and count those against future capital gains on those assets.
It will be broad based and fair to all.
It will cover (non-primary residence) property, shares, and business investments.
It will not be intrusive.
It will not apply to personal property or collectibles.
It will not be an inheritance tax and will not be payable on death.
The Capital Gains Tax will recognise the special status of long-held, owner- operated small businesses. A shopkeeper or market gardener over 55 years of age, who had held their personal business for 15 years or more, would get a tax-free exemption on their first $250,000 of capital gains.
The economic impact of this fairer tax system is very important.
Our debt is paid off without selling our assets. It enables us to reduce net debt to zero and build assets over the medium term.
New Zealand keeps the long-term value of our assets and dividends, rather than seeing them captured by foreign corporations and ticket-clippers.
We can pay for fair tax cuts that mean the first $5000 everyone earns is tax free, and there is zero GST on fruit and vegetables.
The revenue generated would start modestly but build to a level that would sustain our future needs and enable us to invest in our communities and our children’s future.
That is why nearly every other country in the developed world already has Capital Gains Tax. The International Monetary Fund (IMF), the Organisation for Economic Cooperation & Development (OECD), the New Zealand Treasury and The Reserve Bank of New Zealand have said that there is a need for a similar tax in our country.
Therefore, rather than a one-off, short term fix that opens up our best assets to foreign ownership, Labour’s plan is a long-term, balanced approach that will help us build our economy, not someone else’s.
Make no mistake – this is not a fight just for this election or for the future of the Labour Party. This is a long-term vision about who we are as a people and for our country.
This is a fight is for the future of New Zealand – and our future is not for sale.
David Cunliffe is Member of Parliament elected from the New Lynn Constituency and Labour Party’s Finance Spokesman. Indian Newslink occasionally invites political leaders and thinkers to write its editorial but does not necessarily endorse or subscribe to the views therein mentioned. This publication also affords a fair chance to both sides of the political divide.
