It was with considerable interest that I spent half an hour watching the streamed online broadcast from thedailyblog recently. Bomber Bradbury and Selwyn Manning were interviewing the new Labour leader David Cunliffe.
For a while I was very excited. Here was a man who was head and shoulders above his predecessor. His replies showed his high intelligence, considerable knowledge and a lot of political wisdom. Yes he would come down hard on tax evasion, he would reform the trust law, focus on exports and jobs. He showed he had a very good grasp of climate change, talked about extreme weather events and said there must be a price on carbon. When asked about the meltdown of unregulated financial markets it was clear he knew about Consolidated Debt Obligations and explained how the world came to be awash with phony debt. He wanted re-regulation of financial markets and described the kiwi dollar being a “speculative plaything of international markets.” He said nobody ever gets pinged for trading the NZD but it drives up the dollar and is bad for exporters.
Asked about FTT he said “If you hear a giant sucking noise it will be overseas money leaving New Zealand”, that will be the global capital would leave in a rush. He said in a borderless and internet-enabled world economy a financial transaction tax has to be imposed by the whole global community rather than going it alone. Interesting.
On the TPPA he wants the text released so we can have a mature public debate. How refreshing that was. He was good on the GSCB and showed a lot of insight on our role in the Pacific.
Like a good Labour Party stalwart he advocated a living wage, raising the minimum wage and said that Labour was working on fine tuning Working for Families so that all children benefit.
But there were two questions which put a halt to any thought he might be the saviour of New Zealand. When asked “Would you find yourself in a position to reduce GST if you are putting up the top income tax rate?” the answer was “I hate to disappoint you but no” he said it would take five years to get the Capital Gains Tax to the stage where it raised revenue, and with all the programmes they wanted to introduce, the Crown balance sheets would be stretched thin. Well this is a huge slap in the face to working poor to keep GST, the most regressive tax of all.
So I looked up Capital Gains Tax and found most countries have it in some form. Wikipedia gives good information. Oh yes there are a few like us who don’t have it, Jamaica, Kenya and Singapore being three of them. But most countries have it in some form or other. It is sending the right signal to property investors. Australia’s and Canada’s seem similar and I guess the Labour Party is modelling theirs on Australia’s. That means they get the capital gain, divide it by two, and apply the marginal tax rate to it, which is 43%. So here we are, all these properties rise in value in Auckland 18% a year. If you sold a rental and made a capital gain of a mere $100,000 you would pay 43% of $50,000 or $21,500 in CGT. The other $78,500 you can keep for yourself. Nice. That is rightly public money, as it is society which creates the extra value on land. The whole of it should be publicly captured.
And if you sell your home and make $300,000 don’t worry you won’t have to pay a cent of that to society. So for just investment properties (and commercial and industrial properties?) you will pay 21.5% back to society and capture the rest yourself.
Capital Gains Tax in its present form doesn’t stop at gains on property. Several websites go into it at length and one is left with two impressions. The first is that there is apparently no apparent understanding of the difference in genre of land and its gifts and capital. Land and capital are collapsed together. One is a gift of Nature and one is the combination of labour and resources.
The second impression is that CGT is so complex that it will be extremely expensive to administer. Already the Inland Revenue Department has to spend $1 billion over the next ten years upgrading its IT systems and CGT will make it worse.
Neither Bomber Bradbury nor Selwyn Manning asked him exactly how he would ensure that jobs were created. And of course jobs can’t be created under this scenario. The CGT is weak and relatively ineffective and the progressive tax means that the tax burden is greater. A currency overburdened by tax and issued by private banks as interest bearing debt will surely not circulate fast enough into productive enterprise.
Only when there is a working moving currency will jobs be created. And the currency must be relieved of its burdensome and illogical taxes on work and enterprise. A lack of awareness of currency theory, linked with a lack of understanding of the difference between the gifts of Nature and the work of humans are two important blindspots. Until then wealth will continue to accumulate with private banks and landowners. It is disappointing that policy shaping up to be about redistribution, rather than creation of wealth. It is so much more important to understand the role of currency design than to artificially prop up wages. Currencies can be designed to be abundant and flow, rather than pool with the wealthy.
So are we to see a Labour Government that showed much promise yet failed to deliver on jobs? Of course. Expensive social welfare programmes, a complicated and burdensome tax regime with a very regressive GST and a money system which perpetuates the status quo will see to that. The tax avoidance industry will have a heyday. Sadly I forecast the only jobs that will be created are jobs as accountants, tax lawyers, WINZ and IT specialists in the Inland Revenue Department.