Kiwi Polemicist

June 4, 2009

• Treasury recommends capital gains tax

Filed under: Economics/Classical Liberalism, Tax — Tags: , , , , , — Kiwi Polemicist @ 7:12 pm

The comments button is at the bottom right of this post.

This is from the NZ Herald:

…Treasury Secretary John Whitehead told an Institute of Directors function yesterday. “And at the risk of being chased down by an angry crowd with pitchforks and flaming torches, yes this should include consideration of moving the boundaries to tax more capital gains – for example on investment property – and shifting more of the tax base towards consumption,” he said.

Without changes to the tax system, there was a real risk that the Government’s revenue base would be unsustainable in the medium term, given growing international competition for capital and skilled labour, and an ageing population.

“A key priority has to be reducing effective marginal tax rates and increasing the rewards for effort. There is a growing view that the high mobility of our skills base means high personal income taxes are especially harmful for New Zealand’s growth and productivity,” he said.

[…]

“I know there is a lot of passionate debate on this matter, but capital gains or property taxes would be beneficial for encouraging investment in productive activity.

[…]

Such a shift would be challenging. “But now, when hopefully we are at the bottom of the business cycle, is the most propitious time to make these changes.”

If Whitehead’s salary is $1 per annum it’s far too much, judging by this pile of nappy filler.

I have four comments to make, and the colour of the comment corresponds to the part of the article that’s in the same colour:

1) as I said in my earlier post, the percentage of the GDP that the government steals is far too high and this is having a negative effect of the economy. Yet the journalist is pushing the government line here, i.e. “We must maintain the tax take”.

2) Incredible: he got something right.

3) Economics 101: you need cash – capital – to start and run a business. Investments are one way of generating that capital, and therefore a capital gains tax reduces the amount of capital available for starting and running various forms of “productive activity”. A capital gains tax reduces the amount of available capital in two ways: by stealing some of that capital and by discouraging investment. Therefore, despite what Whitehead says, a capital gains tax discourages investment in “productive activity”.

Whitehead is also an implying that investments aren’t a productive activity, which is nonsense because they’re producing wealth.

4) The patient is on the floor writhing in agony and fighting for survival, yet Whitehead wants to give him a solid kick in the gonads. Well done that man.

Here’s a specific example of the harms of a capital gains tax, from your local supermarket. I spoke to the owner of a supermarket, who told me that the tax-home pay of supermarket owners was often less than what their department heads get. Naturally I asked why he bothered owning a supermarket when the pay was low, and he said that it was all about the capital gain when he sold up. Surely a capital gains tax will discourage people from making such investments, which generate wealth for many employees. Supermarket owners also have the option of increasing their prices to cover the capital gains tax, in which case you will be bearing the cost of the capital gains tax.

I understand that many farmers are also in it for the capital gain, so a capital gains tax will have a direct effect on a huge chunk of our economy. Again, the cost of that effect may be passed on to you.

Socialist/Marxist doctrine, under which our present government operates, says that businessmen are bad because they exploit the workers; that’s why the government likes taxes that target the rich, e.g. a capital gains tax. Businessmen actually put their capital (cash) on the line and carry the risk involved in starting businesses; those businesses then employ people and make those employees wealthier, whilst the businessman’s profit is his reward for taking a risk (and his reward for risking death by a thousand regulations). Therefore the way to make everyone wealthier is to encourage entrepreneurs, and a capital gains tax is precisely the wrong thing to do.

The government should stop this nanny-state economic micromanagement, bring in a flat personal and corporate tax rate of 5-10%, and scrap all other taxes. That’s the equivalent of giving the poor patient a dose of morphine.

What to do you think about the prospect of a capital gains tax?


Related post:

Graduated income tax, rates, and the Communist Manifesto

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2 Comments »

  1. Good post. The last thing we need is this sort of stupidity.

    Comment by Mr Dennis — June 5, 2009 @ 10:31 am


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