The clamour for a capital gains tax is pure political theatre

Otago Daily Times

08-06-2025

Being successful is no reason to be taxed, Gerrard Eckhoff writes.
The pure theatre of Budget Day has passed, but not the predictable demand for more spending from the political left.
These political parties are planning to rob Peter to pay Paul, courtesy of a capital gains tax (CGT) as they will effectively lock in the support and vote of Paul.
Demanding money with menace usually results in jail time, unless you are a political party. In that case you get sentenced to an all-expenses-paid, three-year term in Wellington.
It needs to be explained by the Left why it is so wrong to be able to sell your main asset untaxed after a lifetime of work and retire with some discretionary spending money.
It is very clear the advocates of more and more tax believe that a CGT is needed to offset what they see to be the original sin of being productive and successful. At a time when productivity is so desperately needed, nearly 50% of our parliamentary representatives want to further tax the already productive — even more.
The impact of a CGT on the elderly will be profound as the government takes another 30% of their retirement income but it is the young and their future that a CGT will ultimately destroy.
The young will all be eligible for CGT on their assets at the end of their working life. Their assets such as land or a building in 50 years' time will be worth a few thousand percent more than its value today due to government-inspired inflation, so a $3m home will be commonplace.
One particularly false belief is that all capital gain is unearned income. Not so. So many small businesses owners (70% of New Zealand businesses) invest in their enterprise to grow its base and resilience rather than pay themselves an income commensurate with the hours of work, the dollars invested, not to mention the risk involved.
Paying staff, GST, rates, insurance and income tax etc takes first call on company expenditure as does the task of ensuring the business stays afloat. If a lifetime of work is to be taxed on the sale of the business, why bother to grow the asset, employ staff, pay GST, ACC levies and all manner of costs associated with business development?
The hope for a comfortable retirement is rendered inert by a CGT, imposed on those who risk everything, by those who risk nothing.
The much-vaunted Tax Working Group led by the late Sir Michael Cullen did not appear to fully understand the social upheaval a CGT will impose. Despite the vast number of reports promoting this tax, it is rare to read of the inevitable capital losses or how the benefit of more tax and spend by government, stimulates the economy.
Nor is the impact of any capital gain being taxable ever openly discussed. Once this tax is invoked on the very wealthy — the less wealthy will also then be in line for promotion into the upper echelons of defined wealth and so on down the line — due to inflation.
A CGT therefore will ultimately destroy the incentive to work, take risk and grow assets. The family farm or the urban family business face a very similar situation. So many families farmed their land or ran their business for little financial reward, drawing basic living expenses in order to grow the business — so why bother when a CGT is the major beneficiary of your years of hard work?
A CGT will also ensure corporate farming replaces the family ownership of the business and highlights an inherent fault within our social structures — that of how to achieve an equitable succession within a family which is difficult enough without a CGT.
A CGT is a racecourse certainty as soon as "the tax and spend gallery of the envious" get voted back in.
Few members of the Left have ever owned and run a business so simply do not understand the implications of extra taxation on small businesses.
Even if the spending power of the government is enhanced, the opportunity and advancement of the less well-off is not.
Why is that? Socialism inherently wants success to fail and independence to become dependent — on the state. It is about power and control.
It is incomprehensible that so many who contribute to society, are likely to watch the things they gave their life to lost to excessive taxation. They will not.
Society functions due to two things — incentive and sanction. Incentives actually shape the future.
Political silence over this issue can be taken as tacit approval of a CGT and its numerous close relatives — the land tax, the wealth tax, asset tax, inheritance tax which all hover over those who choose to take a risk to benefit themselves and their family.
And that is why we all — but especially the young — face a very uncertain future under the politics of envy.
— Gerrard Eckhoff is a former Act New Zealand MP.