There was quite a bit of disagreement amongst the community of New Zealanders when the government unveiled its plan of imposing a capital gains tax.
So, what is it?
A capital gains is defined by Wikipedia as a tax on capital gains, „the profit realized on the sale of a non-inventory asset that was purchased at a lower price. The most common capital gains are realized from the sale of stocks, bonds, precious metals and property…“
It is a tax that aims on getting it’s share from equity – a claim for interest – that can be generally spoken anything of value that creates value.
Why do we need it?
Let’s start with one of the major arguments against it: It would make life harder for people who try to make a living – let’s say by saving for years to buy a second house that pays for the first one. Many Kiwis own houses and they could not be labeled rich. And those people who are already struggling financially to make a good living some day will have harder times ahead – so the argument. That could be true but it depends on the aspect the capital gains tax is judged. The core question is not whether this tax should be introduced but merely at what level of private equity it may grab snatch and take…
If it aims rich people we first need a definition of rich. Is anyone rich who owns two houses? Well, not anymore one might argue. Only if owning houses means owning no mortgage anymore you could be titled rich. At this point there is a money-flow from just having assets (rent). This comes quite close to the problem of interest that lead the world economy to nearly desastrous and – surely grotesque – phenomena. Without estalishing a precise definition of wealth we might leave it to common sense and say: As soon as your money or assets generate revenue that allows you not to work anymore then you are rich.
But it is not good – generally spoken – to be rich. Rich people are not good for the economy, because of the simple fact that no everybody can be rich. It’s just impossible. Having said that the consequence is to maintain a level of wealth within a community that does not open gaps between humanity. Rich people spend big money. At least they are not concerned about food prices too much nor prices in hospitality.
Lets look back to 2004 when the first property in New Zealand cracked the $1 million mark in Auckland. Couldn’t that be correlating to the fact that NZ attracted people from overseas that could spent heaps of money? Or another example: Having rich people in the community leads to split markets. If you go to the garage, looking for oil for your car, you might get a 5L container with no special branding on it for $20 bucks. Sliding up to the top row there might be 5L containers with fancy design and the promises of a well known brand that this stuff pampers your engine having it last for ages longer. Price: $55. Inspect the small print on both containers and you might find that the refinery on both oil containers has the same name. I bet you there is are two taps in that refinery leading into one tube behind the wall. But wealthy people can and will afford the fancy container. Another example could be the homebrand-food that will have – in many cases – no lesser quality than the cereals in the nice and shiny packaging.
You could ask now: Who cares about the packagin then when the quality is the same. Right. But apart from the fact that prices are increasing you might have a sad feeling tipping only the unappealing homebrand-boxes in your shopping cart. It’s psychology. It’s the fact that we compare: wages, cars, lifestyle. This is what a split market is about. This is whar capitalism is about: incentives to work, to strive to become more efficient and useful to create profit (that you company – not you – will gain).
Gaining money from work is one thing. Gaining it from assets that just sit there is another. If a fancy house sits in our community then let the community participate from it’s use.