CGT and GST - one too many?
Author: Anton JosephIt was reported recently from across the Tasman that Greens in New Zealand have called for the introduction of a capital gains tax. Incidentally New Zealand is one of rare breed of countries in the OECD that does not have CGT. It is claimed by the Greens that the tax would raise sufficient revenue enabling lowering of income tax rates.
Governments in New Zealand, both Labour and National have been consistently wary of CGT. But will the exploding deficit and expanding stimulus packages spur the Government to take a fresh look at introducing capital gains tax in New Zealand?
The article “ Capital gains tax debate heats up” published in the Sunday Star Times quotes Auckland University tax policy and law professor Craig Eliffe as claiming that a capital gains tax would raise $ 1.36 b. In support of his position the article quotes him as saying that under the present New Zealand tax system, it was wrong that a salary earner would pay $ 38,000 tax on a $ 100,000 salary, while a $ 100,000 realised property gain would pay no tax. Turning to GST, Eliffe draws attention to the regressive nature of GST and expresses concerns about an increase in the GST rate delivering a significant blow to an economy either in , or recovering from a recession. Currently GST in New Zealand is at 12.5% and there are calls by those opposing CGT to increase the GST rate to 15%, which is thought to raise $ 2 b in government revenue. This is as against $ 1.3 b if CGT is introduced.
While in America, a country where capital gains tax is entrenched in the tax psyche , a Republican stalwart and former Speaker of the U.S House of Representatives, Newt Gingrich argues for the repeal of the tax. In an article “ Capital Gains Tax: An Argument for Repeal”, appearing in “The American”( journal of the American Enterprise Institute) Gingrich (jointly written with Emily Renwick) says that the tax is an unequivocal burden on the capital the U.S needs to grow , prosper and compete in a 21st Century economy. In support of its stand the article even refers to the former Federal Reserve Chairman Alan Greenspan as having said that if you want the highest economic growth rate the best capital gains tax rate is zero.
In all this swirling arguments and counter arguments is there is a soothing message for the Australian taxpayer?
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September 7th, 2009 at 11:08 am
Anton
Thank you for targeting a topic that is one of the greatest issues faced today in management of the world economy, especially the impact on it of developments in the U.S. economy. Yes, use of tax and other laws as tools is part of the solution. However, as lawyers recognise in dark quiet rooms amongst each other, law is only a small part of the required solutions.
Surely no one can suggest that a tax rate change alone will resolve the current growing and massive U.S. debt issue?
According to the Wikipedia entry on “United States public debt”, “The debt is projected to nearly double to US$20 trillion by 2015, but is expected to increase to nearly 100% of GDP by 2010 and remain at that level thereafter. These estimates assume real GDP growth (after inflation) ranging from 2.6% to 4.6% annually from 2010 through 2019…”.
These Wikipedia figures are projections, hence estimates. Presumably in part they draw on current statistics which indicate a U.S. GDP of about US$14 trillion. This weighs only slightly more than a U.S. debt of about US$12 trillion. Unless that debt growth is slowed and scaled back in coming years, the U.S. economy will distort like a banana republic.
If that takes place, could domestic demand in China and India arrive sufficiently in time to maintain positive sentiments in the world economy?
So we come, as you have, to the question of what to do, and not just with tax adjustment.
As an intellectual property law and IP commercialisation specialist over 25 years, I would point to wealth creation through innovation, a field in which the U.S. has obviously been among the leaders for more than a century.
But due to U.S. misadventures, improved innovation in the U.S. will not be sufficient to cut back the debt if real change remains stagnant in terms of it policies on war, public transport, health, education, climate change and other hot issues piling up against the U.S. in particular but also other nations.
I believe it’s not overstating it to say that significant cultural change is needed in many nations to tackle the challenges. Unfortunately I don’t see signs of that taking place.
November 23rd, 2009 at 1:47 pm
I’ve been included in taxations for lengthier then I care to acknowledge, both on the individual side (all my employed life story!!) and from a legal standpoint since passing the bar and following up on tax law. I’ve offered a lot of advice and righted a lot of wrongs, and I must say that what you’ve posted makes perfect sense. Please uphold the good work - the more people know the better they’ll be armed to comprehend with the tax man, and that’s what it’s all about.