The “Property Investors Pay Tax Already” canard

Capital gains tax is back under discussion, with the Governor of the Reserve Bank practically pleading with the government to do something about absurd property prices in Auckland (one, two).

A capital gains tax is not the only measure that can be taken to help cool an overheated property market, and it’s not even the only possible tax measure. There are other tax based steps that could be taken. Nevertheless, on cue, up popped the Minister of Housing to claim that property investors are already subject to tax (interview on Morning Report, at 6.48). The unspoken conclusion is that therefore, no other tax based measures are required.

So is it true that property investors are already taxed?

Well, yes. But it’s not quite as true as Nick Smith and the Property Investors Federation would like it to be.

Residential property investors pay tax on rental income, much as any other business pays tax on their sales income. They get to claim expenses, such as interest, rates, repairs and maintenance, insurance, management fees, and so on. That’s all regular and routine, and it’s not really the focus of the discussion around capital gains.

What is really at issue is whether property investors pay tax on the gain on sale of the houses they own. We see this issue when people say things such as, “New Zealand already has a capital gains tax.

So do property investors pay tax on capital gains?

Yes, and no.

Under New Zealand tax law, if you buy something with the intention of resale, or if you are in the business of trading in something (eg. electrical goods, baked beans, cars, whatever), or you’re in business in general (architects, lawyers, plumbers, whatever) then you are caught in the income tax net. (Income Tax Act section CB1,, CB2,. There are some specialist rules around buying and selling land (section CB6 ff) but the major effect of these rules is to reinforce the basic rules: you get taxed on gains on sale if you acquire something with the purpose of resale, or you’re in business.

For example, if you hold a portfolio of shares, and you acquire them for the purpose of dividend income, and you hold onto each parcel for a long time, and you don’t engage in buying and selling shares on a regular basis, then those shares will look like a capital investment, and any gain on sale won’t be caught in the income tax net, should you sell any of them. On the other hand, if you regularly buy and sell shares on the stock exchange, then chances are you will be regarded as a trader, and you will end up paying income tax on any gains on sale.

A more down to earth example: imagine that you spend your time scouting around garage sales and second hand stores, spotting bargains and snapping them up, and then reselling them on Trade Me. That might look pretty much like acquiring something with the intention of resale, or being in the business of buying and selling, and IRD will be asking for its share of your gains, or profits.

So when people claim that New Zealand already has a capital gains tax, they’re sort of right.

But really, they’re wrong. We have a tax on people who are in business, or who acquire something intending to sell it. What we don’t have is a tax on the gain on sale of assets like rental houses and farms and business premises that were NOT bought with the intention or resale. So there is no thorough going tax on capital gains in New Zealand.

You might try to argue that of course, if someone buys a rental property, then obviously they intend to sell it at some time in the future, and so the gain on sale will be taxable.

But, it’s not so obvious. If you buy the property, and hang onto it for a long time, and you find tenants for it and rent it out, then it very much starts to look as though you bought the house with the intention of earning rental income from it. And that means that although the rental income is assessable, the house itself gets classed as capital, and so any gain on the sale of the house is not subject to income tax.

You could even try arguing that the property owner’s real intention was resale, and holding the property and renting it out was just a cover-up. But in order to police that, IRD would need the ability to get inside people’s minds. Thankfully, they don’t have that power. IRD has to go on what people actually do, based on documentary evidence. And the evidence in this case points to the house being a capital asset, and so not subject to income tax on sale.

So if you’re a property investor who buys and sells houses regularly, then yes, you will be subject to income tax on those gains on sale. But most property investors buy and hold and rent out their properties. The properties are capital assets, and so any gains on (long delayed) sales fall out of the income tax net.

And that’s why it’s just a bit disingenuous to claim that property investors pay tax already. Yes, they do. Just not on the huge capital gains they make that comprise the bulk of their increase in wealth.

Posted in Economics, NZ Politics, Taxation | Tagged , , | 1 Comment

Dear Zoo, or why charging GST at the border won’t change anything

Dear Zoo, by Rod Campbell

Dear Zoo, by Rod Campbell

My all time favourite book to give to new babies is Dear Zoo, by Rod Campbell, preferably in the board book version, which is much easier for tiny hands to manipulate.

I bought a copy from my local bricks and mortar independent bookshop last year for my cousin’s daughter’s new baby, for $16.95. However, at the time I could have bought it from Book Depository and had it delivered right to my door for about $10. Right now, Book Depository is selling the board book version for $12.25.

If I bought the book on-line today, I would save about $4.70, or 28%. Even if 15% GST is added at the border, the cost to me would be $14.09, and I would still save $2.86, or 17% off the retail price.

It’s only a few dollars, and often enough, I’m willing to pay those few dollars. It’s the price of convenience, or alternatively, the cost of disorganisation. Later on this year this, when Hilary Mantel’s third book in her Thomas Cromwell series comes out, I might buy it on-line, because I should end up saving about $15 on the local retail price (based on what Book Depository charges for Wolf Hall, and a local retail price of about $35). Even if GST was charged at the border, I’d still save $10 or so, or about 28%. That’s worth being organised for.

The real problem for bricks and mortar retailers is not that GST is not charged on goods coming into the country if those goods are worth less than $400. The problem is that on-line retailing is much, much cheaper to operate than running a shop. On-line retailing is a massive disruption to our traditional shopping model, and adding GST to retail goods imported by individuals won’t change that.

We really ought to be charging GST at the border. GST is a tax on consumption in New Zealand, and at present, some consumption is escaping the tax net. If we think about it for the sake of consistency alone, we ought to be attempting to charge GST at the border. However, up until now it hasn’t been clear that it has been worth doing so. There’s only $15 of GST on each $100 of goods imported into country, and it probably costs more to collect the GST than the government would earn in tax revenue.

Except that the total value of goods bought on-line has been going up and up, and now it seems that the government is missing out on something like $300million of GST. That’s starting to look like real money.

I think the government should be attempting to collect at least some of that GST, on the grounds of consistency alone. And to its credit, the government is very clear about its reasons for attempting to collect it. It’s not about small retailers at all. It’s all about shoring up the tax base.

Posted in Economics, Taxation | Tagged , | 2 Comments

Labour leadership: working out how to vote

Every time I’ve talked to a friend or a Labour member or supporter over the last couple of weeks, I’ve asked them who they thought would be the best choice for leader amongst the four people who are standing. People aren’t quite sure, yet. One friend, Ashley Willis, who had a LARGE billboard on his fence during the campaign (thank you, Ashley!) sent me a very thoughtful e-mail, most of which I’m reproducing here, with his permission.

It was good to see you today, I have also been thinking about what you asked about who I would select out of the 4 running for leader of the Labour party well I have really looked at it and I don’t know if this well help you much or not but what I looked at was the following:

  • Which one is capable of not just debating in the chamber but who can be strong and confident and show dominance over John Keys and the opposition parties.
  • Which one has the ability to push and push the opposition for truthful answers and make them accountable for the promises they have made as well as for the consequences to any actions that has been made this includes within Labour too.
  • Which one is able to keep the media such as the reporters in check as you do with a child who is rude and interrupts you or treats you with no respect they must be able to control the interview not let the reporters try and control any interview.
  • I also looked at which one has the right personality to be a leader and which ones are clear followers or are sheep as well as which ones would have the ability to work with other members of the Labour party and will not allow the responsibility of the leader position to change who they are or let the power go to their heads.

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I’ve found this very helpful in terms of thinking about who to vote for.

A few other thoughts. In the course of my conversations with Ashley and with other Labour friends and supporters, different people have offered thoughtful, reasoned support for each of the four contenders. What this tells me is that the leadership of the party is something about which reasonable people may reasonably disagree, and that each of us sees different strengths in the four candidates.

This is why I think it’s good that we are using STV. It means that we will vote for preferences, acknowledging that if my first preference is not elected, then perhaps it will be my second preference. The system encourages me to recognise that each of the candidates has real strengths, and that more than one of them could be a good leader for our party.

But there’s one thing that’s got me a little irked. Each of the candidates has spoken of the need for unity, and of their capacity to create that unity. Sometimes they talk of it with respect to the party, and sometimes the caucus.

With respect, Andrew, Grant, David and Nanaia, the problem is not the party, or at least, not here in Region 3 (lower central Te Ika a Maui – North Island). We worked hard together on the campaign, as a team, and we’ve worked hard together over the last few years, on policy and campaigns and fundraising. Many of us feel just a little dismayed by the vicious infighting and nastiness within caucus, for which caucus must take responsibility. Don’t imply that it’s the party’s fault.

We’ve got a hustings meeting in Palmerston North tonight. 7.30pm at the Community Leisure Centre, 569 Ferguson St. If you’re a party member, I hope to see you there. If you’re not, you can sign up at the door. At this stage, new members won’t be able to vote, but feel free to bend my ear and offer opinions about how I should cast my vote.

A personal note – my eldest daughter joined the party as soon as she was able to (NB: her decision, not mine), and that means that even though she wasn’t old enough to vote in the general election, she’s able to cast a vote in the Labour leadership election. Her voting log-in and PIN arrived a couple of days ago, and she’s very pleased to be able to vote. I have NOT offered her my opinion about who to vote for, and I’m trying to enable her to make a decision very much free from parental pressure. So I have not talked to her about her vote, and she’s comparatively unemcumbered by prior experience within the party.  I’ll be very interested to hear her opinion after the meeting tonight.

Posted in NZ Politics, Parenting | Tagged , | Leave a comment

What really makes a difference in education

SAT originally stood for Scholastic Aptitude Test. But parsing the results by income suggests it’s also a Student Affluence Test.

On average, students in 2014 in every income bracket outscored students in a lower bracket on every section of the test, according to calculations from the National Center for Fair & Open Testing (also known as FairTest), using data provided by the College Board, which administers the test.

SAT Scores and Income Inequality: How Wealthier Kids Rank Higher

Posted in Economics, Education | Tagged , | Leave a comment

Thank you

Thank you, to my team, and to my family, and to people who’ve supported me, and to people who hollered encouraging words out of their car windows, and to people who voted for me.

Sign waving in Feilding

Sign waving in Feilding

I think the results from Rangitīkei are creditable: nothing flash, but perfectly respectable given the history of the electorate. Back when I wrote my campaign plan, I noticed that the party vote for Labour in Rangitīkei always trails the overall party vote for Labour by about 7%: if Labour polls at 30%, then Rangitīkei polls at 23%. Last night, Labour got 25% of the party vote, and in Rangitīkei, we got 18% of the party vote. So the party vote result in Rangitīkei is about what we’d expect it to be.

The vote for me as a candidate is not too bad at all – 27% on election night, in a blue electorate. This is the first time I’ve run for public office at all, and I’ve never even worked on a campaign before (I joined the party after the last election) so I’m completely new at this. I know that I did some things right on the campaign trail, but there are other things that I would like to do much better next time around. I think I’ll be able to do that.

I am so grateful to my team. Three core people, Elayne, Ian and Karen, did a huge amount of work. They got critical tasks done, and they gave me so much emotional support. Other people who worked hard too: Heather and Pam and Wayne and Colin. Thank you.

So many other people chipped in, Bob and Jim and Adam on hoardings, Debbie in Bulls doing so many leaflets, Jessica in Marton, Ray and Lynne in Feilding, Mark Patrick in Feilding and in Taihape, Jill and Karl and Dianne in Summerhill, with some help from Larraine too. Karen’s parents in Summerhill: talk about roping everyone in to help. Other people hosted hoardings, or came along to meetings, or helped with the big red bus. Debbie and Stephanie and Olive and Elayne and Pam spent all election day working the phones. People from Palmerston North helped with a couple of intensive days of leaflet delivery.

With Angus, Rayden and Ruth

With Angus, Rayden and Ruth

Rayden in Taumarunui turned out to be an absolute champion on the megaphone. He and I had a great day there, doing street corner meetings in the rain. Rose and her mum Angie and her sister Aria were brilliant! Rose came in through the main party volunteer page, and within hours of me contacting her, she was onto leafletting all about the electorate, and her mum and her little sister got thoroughly involved too. They are tremendous people.

Other friends chipped in with donations for the campaign. That was marvellous. I needed the money, and it was so good to know that people support me, and believe in me. Another friend brought meals to our house, and had our daughters over to stay when we needed to be out of town for the night. Lisa, thank you. Tangible, practical support.

Sometimes it was the little things that helped. Thank you to everyone who sent me txt messages and e-mail messages, and called me to wish me well, or commented on my Facebook posts, and clicked “like” and reminded me that I have a whole network of people who care. All those messages helped. Especially the messages from family members who usually vote the other way.

With Leonie, in her Barbed Wire Gallery in Raetihi

With Leonie, in her Barbed Wire Gallery in Raetihi

Family and friends put me up, or put up with me, in Raetihi and Taumarunui. Thank you to my beautiful and much admired cousin Leonie, and my friend Anna. That friendship is quite special: Anna was my student a few years ago, and I liked her very much.  When I was selected, I wanted to contact her, but I knew I couldn’t, because I had been the lecturer and she had been the student. But as soon as an article about me ran in her local paper, she contacted me, and from there our friendship has grown.

Dad held signs for me.

Dad held signs for me.

And my lovely family – my husband, and our beautiful daughters, who came campaigning with me. My mum and dad came and stayed for the last week of the campaign: my dad drove me everywhere and even though he supports a different party, he held signs for me at street corner meetings. Mum cooked meals, and ferried the girls about, and put the washing through, and kept our home functioning in that last frantic week.

Over in Palmerston North, Iain Lees-Galloway MP and his team were so very helpful and supportive. They shared their knowledge freely, they patted my shoulder, they came and helped out when it was clear that our small team needed a few hours help from a bigger team.

We had a great time working with Adrian Rurawhe and his team. I admire Adrian, and his sisters Christine and Gaylene so much. And they’re great fun! Some of our best days on the campaign trail were the days we spent with them. I’m so pleased that Adrian has won his seat, and will be one of our new MPs in this coming term.

With Adrian, Ian and Dave, at the RSA in Taumarunui

With Adrian, Ian and Dave, at the RSA in Taumarunui

A final thank you, to Ian McKelvie (Nat), Rom Rudski (NZF), Roy Brown (Conservative), and Neil Wilson (ACT). It was fun.

Thank you, everyone.

I’m taking a few days off, and then I’m going to start working on plans for helping the party in Rangitīkei to grow, and on the 2017 campaign.

IMG_0493

Posted in Rangitikei 2014 | Tagged | 2 Comments

This is very gratifying

The local paper has handed out some campaign awards.

Manawatu’s pre-election awards

Best campaign:

Deborah Russell, Labour. Faced with the unenviable task of taking on National’s Ian McKelvie in Rangitikei Russell has thrown everything at the campaign. She’s been all over the vast electorate with a small team of volunteers giving it everything. Whether that will translate into a seat in Parliament is uncertain, and probably unlikely, but Labour should reward her in 2017 for her efforts with an easier route to Wellington.

Nice to see Iain Lees-Galloway and Adrian Rurawhe getting awards and mentions too.

Posted in NZ Politics, Rangitikei 2014 | Tagged , | Leave a comment

Working hard for Rangitīkei

It’s hard to believe that this election campaign is nearly over. My team and I have been working hard for months. We’ve visited every town and village in the electorate, knocked on doors, held street corner meetings, attended festivals and markets, done our best to connect with voters all the way from Taumarunui to Himatangi Beach, from Raetihi to Shannon, and all the places in between.

Street corner meeting in Kimbolton

Street corner meeting in Kimbolton

The street corner meetings have been great fun. Because there are only a few of us working in Rangitīkei (this is a traditional blue electorate after all), I took on most of the work for street corner meetings myself. That means that I’ve walked for three or four kilometres delivering flyers announcing each meeting, and then turned up the next day to actually hold the meeting. Easy enough to do in the southern end of the electorate where the towns are all in a radius of 40 or 50km or so, but a bit more challenging when it came to Taihape, and especially so holding meetings in Ohakune, Raetihi and Taumarunui. But we did it! We even held meetings in tiny places, like Pohangina and Kimbolton, and people turned up to talk and listen.

Doreen and the big red Labour bus

Doreen and the big red Labour bus

We had two visits from the big red Labour bus, one in Feilding, and one in Taumarunui. Great fun in Feilding, and a blast in Taumarunui, where the local Young Labour people came along to help, alongside our three most senior members there, who are all in their eighties.

Along with my team, I’ve delivered flyers in Ashhurst and Marton and Bulls and Feilding and Taihape and Summerhill. Because everyone else has been holding down jobs as well as campaigning (I’m on unpaid leave), I covered every street in Taumarunui myself, delivering leaflets, and talking to so many people as I went.

I’ve been working hard for Rangitīkei, and #forabetterNZ. That’s the kind of hard work and energy and commitment I will bring to being Rangitīkei’s MP.

I’ve made some great friends during the campaign, and met so many impressive people who are working hard for their communities. I’m thinking of people like my lovely cousin Leonie Cadman in Raetihi, and Raewyn West in Taumarunui, and Cath Ash who runs Project Marton, and Dr Dave Baldwin of the Flying Doctor Service in Bulls. I’ve been so pleased to connect with and form a real friendship with a former student of mine who lives in Taumarunui.  Anna, it’s so good to be friends with you, and to have met your friends and your family – all lovely people, even if some of them have very different political views to me (I’m thinking of Anna’s father who once stood for ACT).

I think that I have connected well with all sorts of people in the electorate, from wage workers and beneficiaries to farmers and business people, that I am approachable and friendly, as willing to prop up a table in the pub at Ashhurst, or in the Cossie Club in Taumarunui, as I am to talk with senior business people and academics in very formal settings.

It’s a great part of the country, and I want to turn my commitment and energy, and all the skills I have in business and in government, and my particular skills in taxation and policy, to working for people in Rangitīkei and in New Zealand, as a Member of Parliament.

So if you’re in Rangitīkei, then on September 20 I’m asking you to vote Russell for Rangitīkei, and give your party vote to Labour.

At the Sanson markets

At the Sanson markets

Posted in NZ Politics, Rangitikei 2014 | Tagged , | 2 Comments