Saturday, July 9, 2011

Fran bucks the trend

Ever since someone from Phil Goff's media team leaked the story of Labour's tax package earlier in the week, the MSM has been falling over itself to laud Goff for his boldness. But Fran O'Sullivan is made of stronger stuff; she opines:

Phil Goff's aides must be smoking a particularly powerful brand of Kronic if they think a capital gains tax will pull in $4.5 billion for a Labour Government to spend.

It was just February after all when Goff was hosing down suggestions that Labour would embrace a capital gains tax. This week his spin-meisters planted stories that a Goff Government would pull in an extra $4.5 billion a year, all through finally slaughtering the longest-living sacred cow of the Kiwi tax system.

But if Goff throws in compulsory superannuation and says he will bump up the qualifying age for national super to 67 years, he may well get Labour back into the electoral race as a party that is prepared to tackle the big issues.

Sure the Government's coffers will get a rather nifty boost if a capital gains tax is applied to farm sales, business sales, commercial building sales, beach house sales and indeed the residential investment properties sold on by so-called "speculators". Of whom the Labour leader is of course one, given that he owns a "renter" in Wellington.

But it won't have escaped notice that many New Zealand asset classes are struggling to hold value - particularly house prices, which escalated madly during the recent property bubble.


There; Fran O'Sullivan has said it; a CGT is not just about investment properties; Labour is casting its net far wider than that.

The application of a CGT to farm and business sales seems especially punitive. Success in business or farming does not happen by accident; it is the product of planning, of hard work, of learning from one's mistakes, and keeping going when all seems lost. We know that from personal experience.

We've been involved in the ownership of a couple of businesses. We have invested our own money into them, both in the start-up and growth phases. Unlike some business owners we haven't taken dividends, drawings or directors' fees; our sole income has been a salary, taxed at source. It may not be a way to maximise income, but its transparent, and that's important to us. We've also invested our time and our emotional energy; that can't be quantified. As the businesses became profitable, we paid company tax.

That the businesses become successful was not, as we said above, an accident. And yet a prospective Labour government wants to penalise people who have become successful. Is it any wonder that Labour is seen as unsympathetic towards small business?

Let's not be mistaken; this is not Phil Goff's initiative; Fran O'Sullivan explains:

This never seemed to trouble Goff all that much during his time as a senior Cabinet minister in Helen Clark's Government. But it's a fair bet that his newfound resolve to milk the capital gains tax cow is at the behest of ambitious colleagues like the "two Davids" - Messrs Parker and Cunliffe. These are the men who have been in the backrooms developing a new agenda for Labour. Not Goff. Though he will be the beneficiary of their boldness.

What the slow leak of Labour's new tax policy has done is bounce Goff back into the limelight when his lengthy absences from the fray were inviting speculation he was overseas preparing for a post-politics career.


We've heard the "two Davids" theory expounded by a number of people, and there are a couple of variants. One sees Labour coming up with a coherent policy going forward. The other sees the continued instability in Labour's caucus spilling over into election policies which are so waffly that Labour is defeated in November, and the two Davids unseat Phil Goff in the post-election wrangling. The latter scenario is not at all improbable, and the photo below which we spied on a CGT story on interest.co.nz has a prophetic ring to it.


The devil is, as they say, in the detail which will be released towards the end of next week. Labour has already faced much criticism, and the revelation yesterday that borrowing will increase "in the short term" is worrying; what happens if revenues do not meet Labour's expectations?

An interesting week awaits us. But kudos to Fran O'Sullivan for not swallowing the Labour Party line, and bringing some objectivity to the Capital Gains Tax debate; it's been sorely needed. We'll let her have the final word:

One of the delicious ironies in watching Goff grasp for his bold new policy agenda is pondering why he and his colleagues did nothing in Government to avert the property bubble.

Capital gains taxes do not stop bubbles. Nor do they make it easier for struggle street to afford their own homes. Australia and Britain have capital gains taxes - but that did not stop their property bubbles.

The reality is that for much of the past decade the world was "awash with cash". Too much cash chasing too few assets. This is what put the hydrogen into the property bubble, not a bunch of middle-income Kiwis sheltering income from the IRD through setting up loss attributing qualifying companies - LAQCs - to avoid the 39c top personal tax rate that Labour introduced.

The previous Government could have put a dampener on this by wiping the use of LAQCs. Or talking seriously to the Reserve Bank on the need to introduce loan-to-value ratios to stop the "low doc" deals that far too many New Zealanders signed up for to buy houses that they couldn't really afford.

But the Labour Government turned a blind eye - preferring to be the political beneficiary of a so-called economic boom.

35 comments:

PM of NZ said...

I see Key grabbed control of the agenda by releasing a controversial ace up the sleeve at 1630 on a Friday. The hoary old 'we want the right to murder our dear old mum'.

That should be at the media forefront for a day or two whilst Phillatio tries to get a grip.

alex Masterley said...

JK's been reading Sun Tzu again.

In between a series of urgent jobs that occupied my time this week I've been giving some thought to CGT.

I'm not entirely opposed to the idea but having said that it won't be the magic bullet that will solve our fiscal woes.

Returns in the first year of it's opperation will be minimal and will only rise slowly over a period of time. Hence the borrowing what will need to continue, if labor retakes the treasury benches, at increased level to pay for their promises to the Chawners of this country.

Inventory2 said...

Like you Alex, I'm not opposed to the concept of a CGT per se, but it needs to be targetted, and it needs to be realistic. What Labour has released so far is neither. The suggestion that business sales be subject to a CGT is especially offensive. We have built businesses up from nothing, created jobs, paid wages, GST and company tax, and sweated blood when things haven't gone so well. That the business is successful enough to one day be sold is compensation for our efforts and the risks we have taken at considerable personal expense; financially, emotionally and health-wise. It would proably be easier just to close our doors and head off into the sunset.

robertguyton said...

"What Labour has released so far is neither."


Matau, aho me maihea.

Anonymous said...

What right does any government have to take say 20% of the profit when a person or organisation sells an asset with capital value to another person or organisation? Have any of the people rabbiting on about CGT stopped to think about the fundamental morality of this?

Goff will soften up the electorate by raising the spectre and will lose the election. Then in the National Socialists' second term the slimy bastard Key will introduce it just like he has adopted and indeed extended many of Labour's other policies. profit when a person or organisation sells an asset with capital value to another person or organisation? Have any of the people rabbiting on about CGT stopped to think about the fundamental morality of this?

Goff will soften up the electorate by raising the spectre and will lose the election. Then in the National Socialists' second term the slimy bastard Key will introduce it just like he has adopted and indeed extended many of Labour's other policies.

jabba said...

maybe Goff should leave the explaining of CGT to the gREENS AS wUSSELL seems to be an expert. Maybe our own Bob can explain its beauty to us all.
with all the flak the Labour super stars have been getting, the twink will be flying around in the backroom.

PM of NZ said...

"The suggestion that business sales be subject to a CGT is especially offensive."

Damned right it is offensive. As you so eloquently put it IV2, the risk and sweat was all yours. Similarly in my case, as one of those evil landlords with a renter or two and hundreds of thousands of my money at risk, Liarbour or feral tree huggers won't bail me or you out if it all goes pear shaped.

All the leftards see is rich prick envy to tax the productive into submission and redistribute to bribe their voter base as typified by the Chawners.

Inventory2 said...

I agree PM; and think of the effort that Ele and her farmer have put in over the years; what's the point of selling up and retiring when the government is going to prune off a chunk of the sale proceeds (and provision for their retirement) in tax?

We've built up two businesses from nothing. We now employ over 30 people. Although we have no plans to sell for at least ten years, the prospect of losing 15% of our retirement income is frightening.

robertguyton said...

Labour's strategy here is impressive. Announce nothing, have the Prime Minister go spastic (have you seen him lately? Worzle Gummige!) then fire out his 'let them take their own lives' red-herring (what do you think of giving people the right to take their own lives Inv2 - is that God's plan?).
Goff must be grinning from ear-to-ear!
He looked in control at the Family First meeting to, while Key looked like he was going to spew!

Inventory2 said...

You're happy with Goff snuggling up to the religious right that you so vilify then Robert? What's next; he meets with the EB?

PS; having a close family member with cerebral palsy, your "Key going spastic" remark is deeply offensive. Save it for the Standard where they don't have any.

Dave Mann said...

IV2, I agree with your sentiments on the CGT exactly and I enjoyed your post.... but don't be so precious about spastics. Being 'deeply offended' is your choice.... its not everybody else's duty to safeguard your sensibilities.

Its just language. Lighten up.

robertguyton said...

I'll not use it again Inv2.
What do you think of Key's support for assisted death/suicide?

Anonymous said...

IV2 I have had a day or so mulling the CGT. The only thing that is certain is that we'll not see its passage for at least 3 years as Goff is a loser and the election is already lost by Labour. If the CGT is applied to the sale or disposal of a business it would appear to be a disincentive to enterprise like nothing we have previously endured. When a business is created and nurtured often for decades, the ultimate sale of it may be the only worthwhile dividend the creator ever sees after years of foregoing a living wage in the interests of self management and aspiration.

Why oh why do you allow Guyton and his lack of manners/logic/rationality near this site? His glib negativity is truly tiresome.

Cadwallader

PM of NZ said...

Hear, hear Cadwallader. Truly tiresome just like D4J used to be spraying his toxic messages everywhere on blogs. Every utterance confirms why tree huggers should be ignored and nowhere near the reins.

ploughboy said...

i not opposed to a cgt and am looking forward to seeing the detail and what they plan to spend this tax on.it would not be a vote changer to me

Carole said...

INV2 your entire blog is stereotypical 2008 twaddle, just as your contributor from yesterday pointed out.
You, of Paul Henry retard fame, is offended by the word spastic because it affects YOU. God you're a hypocrite. This place has no credibility save for those who question your flawed doctrine.
You are the laughing stock, not the keeping stock.

robertguyton said...

Is that true Inv2? That you supported Henry's use of 'retard'?

pdm said...

pm - from my experience a number of `tree huggers' are quite genuine people . RG is not.

Carole - you don't have to come here but when you do why don't you be like most people - RG excepted - and contribute something constructive.

baxter said...

I see John Roughan says he is thinking of voting Labour because of the CGT otherwise he would have voted for National because he likes John KEY.Bloody LIAR he has always supported Labour in every column he has written. He is as Labour as Robert GUYTON and of similar intelligence.

robertguyton said...

"He is as Labour as Robert GUYTON"

Baxter!

You slay me!

robertguyton said...

pdm -

"from my experience a number of `tree huggers' are quite genuine people"

That's beautiful pdm.

Beautiful.

Inventory2 said...

Just go home, so will deal with some comments:

To the best of my memory Robert, I made no comment about Paul Henry's use of the word "retard". You may remember though that last year I critcised comments with regard to GG Anand Satynand, noting they were "crass even by his standards".

Cadwallader: The temptation to ask Robert to sling his hook is at times almost too much to resist. As Oscar Wilde said once "I can resist anything but temptation". However that would make me no better that Lynn and his mates at The Standard whom I criticised yesterday. I believe that it's far better to leave comments visible, and let people make their own judgment on the motives of those who make them.

Carole: "Stereotypical 2008 twaddle"? I'm not sure quite what makes 2008 stereotypical. And whilst Paul Henry often makes me laugh, that doesn't mean I endorse his every utterance; who's stereotyping now?

Dave Mann: Point taken; RG to his credit has responded, and that is appreciated.

Baxter: RG is a Green mate! He hangs from anyone's coat-tails if he thinks that it might give the Greens some influence, although he has yet to commend National for working constructively with the Greens to advance a couple of issues.

Thanks all for entertaining one another while I've been over in a windswept Palmy!

robertguyton said...

Happy with Key's stance on euthanasia Inv2?
Do you support his stance?

Inventory2 said...

In all honesty Rob, I'm conflicted. I'm sympathetic to both sides of the debate.

robertguyton said...

I te reo Maori - ka noho koe i runga i te te taiepa.

Inventory2 said...

Rob; Gravedodger has a worthwhile perspective

http://nominister.blogspot.com/2011/07/euthanasia.html

robertguyton said...

You're a commentator Inv2.
Not willing to make the call?
I can see why you don't stand for office.

Inventory2 said...

No interest in standing for office Rob. I have personal reasons for supporting euthanasia and I have personal reasons for opposing it, hence the internal conflict.

robertguyton said...

The decision should lie with the most affected party, despite any downsides.
Sitting on the fence Inv2, is a sell-out.

robertguyton said...

I take it then, you don't support Key's position.
Interesting.
What does your church say?

Inventory2 said...

So be it; it's a complex issue on many fronts. Probably worth having the debate though.

G'night!

robertguyton said...

You awake yet Inv2?
Can you tell us/me - what is the position of your church on the euthanasia issue?
Thanks

Suz said...

Not being a church-goer, I have no such internal conflicts regarding euthanasia, although can sympathise with Inv's position. Having been witness to my mothers horrendous and agony-ridden demise that went on for some months more than anticipated, it seemed odd to me as a teenager, that our family dog was put out of his misery, humanely with love, way before he reached the depths of our darling mum.

robertguyton said...

That's a poignant comment Suz.
Inv2 - what's you church's stance?

Inventory2 said...

I would imagine that the Presbyterian Church would oppose euthanasia Robert, and I doubt whether that would surprise you. Suz's experience makes a strong case in favour though. On the other hand, my friend who died a few weeks ago had a pretty awful end, but never once expressed a wish for his suffering to be terminated; his faith was strong right to the end.

It's not an issue on which I will rush to make a decision, so take that as a signal to stop pushing :)