New Zealand Needs a Capitl Gains Tax

April 28, 2011 New Zealand Taxation

New Zealand Capital gains taxNew Zealanders invest too much in the property market, leading to an imbalance in the capital market and an over-reliance on foreign debt.

According to the latest Economic Survey of New Zealand released by the Organization of Economic Cooperation and Development (OECD) on April 27th, the government needs to instate a comprehensive capital gains tax into the tax system, in order to address inefficiencies and imbalances in the economy.

The report suggested that for the last ten years New Zealanders have relied on easily accessible credit to invest in the housing sector, as the tax system contained strong bias to property as an investment vehicle. This behavior has left the country’s capital market “shallow”, spurning an even greater number of people to further invest in real estate, due to a lack of other options. Such behavior has resulted in under-investment in the traded-goods sector, and structural shortcomings throughout the economy. Currently New Zealand is facing an overvalued currency, high external debts and unbalanced growth. In combination, the factors have combined to stall the country’s economic growth and put it in a risky financial situation.

In order to correct the over-reliance on property investment, the OECD has called for the government to instate a comprehensive capital gains tax on profits arising from the sale of any properties other than the primary home. Such a decision should significantly improve the investment landscape without damaging the opportunity to own a house. As an alternative the government was recommended to examine the feasibility of instating a system of increased land and property taxes.

Photo by thinkpanama