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Friday, January 26, 2007

Why a Capital Gains Tax on Property Would Hurt the Poor

In this post I criticised Alliance Party tax spokesman Jim Flynn for advocating a Capital Gains Tax on property to dampen down the housing market. Jim thinks this will make houses more affordable.

Alliance Party member and blogger, Joe Hendren took me to task.

I said "While there is no doubt that tax free capital gains on property does distort the market, it is one of the few areas in which the average Kiwi battler can make some real money."

Joe said Trev are you seriously making the claim the 'average kiwi battler' owns more than one residential property? That is simply not credible when so many kiwis are struggling to own their first home, let alone an investment property on top of this. Are you sure you didn't mean to say 'average kiwi banker' instead :)

The proposal, may I remind you, is for a captial gains tax on all BUT the family home.

Here's my reply;

Joe-several points. Yes, I personally know many people who leverage off their home to buy a rental property. It is very common. Most of them are not bankers, but wage and salary earners.

A CGT will hurt these people very badly.

Secondly, are you seriously trying to tell me that once introduced a CGT would not be applied to the family home eventually?

If the second house market is hammered, people will indeed invest elsewhere.

Its my bet however that most will put more money into their first home.

They will buy bigger and better, trying to get untaxed Capital Gain in the one area left to them.

Guess what? This will drive up the cost of family homes. It will also decimate the rental market as people dump their second properties.

A shortage of rental properties will arise, having two effects.

Firstly rents will climb and secondly house prices will further rise as some more affluent renters choose to buy a home.

This will bring on calls for applying CGT to family homes as well-to make them "affordable".

Guess what will happen to the low income people, that the Alliance professes to champion?

They will languish at the bottom of the heap, trapped in shit accomodation, with no prospect of ever buying a home.

The rich will find away around the tax, the middle clas will be weakened and the poor will be even poorer.

Is that what you really want Joe?

I've got no doubt that most people on the left really do want to help the poor, but good intentions alone aren't enough.

You need to take reality into account.


Blogger mah29001 said...

Socialists and others who promote such a thing won't care. They want to make everybody equally poor.

1:02 PM  
Blogger Berend de Boer said...

The reason they want it, because it will hurt the poor!

So they can be cared for even more, and become even more reliable voters.

1:13 PM  

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