[afinno]

I would hate to be agreeable on the internet but I think you've covered this from an Australian perspective fairly accurately.

Simply removing the capital gains tax discount would help to prevent speculative investments.

There has been much talk of negative gearing being the issue but those with a short memory don't realise it has been around since the 80s and operating with out much fuss. It was the CGT discount combined with negative gearing that really got the property snowball rolling.

Further, I believe a land tax would help to cool the market in perhaps a more controlled manner.

[photojosh]

Just one element missing, it's CGT + neg-gearing + low interest rates.

Not that I can really complain, as we just managed to do really quite well for ourselves off a single year's speculation. But I still think the system's broken.

[ioquatix]

I talked to my accountant and he suggested CGT + lower personal income tax.

So, someone who owns O(1) house, pays CGT, but that's compensated by O(1) less income tax.

Someone who is flipping houses is paying CGT but in the end, it's not offset by less income tax if they are flipping lots of houses. They pay tax O(N) on it just like everyone else, and they gain O(1) less income tax.

Would something like this work?

(Forgive my bastardisation of the O-notation :)

[hotcrossbun]

+1 just for the bastardisation of the O notation

[elyobo]

Why allow the compensation at all?

[ioquatix]

Currently when you sell a house, you are not taxed on the profit that you make.

It's one of the few forms of income which is not taxed. Everyone else pays income tax.

I think the point of introducing CGT is to tax people who are buying and selling houses as their sole form of income.

Given two people, if one person earns 100k through hard work, and another earns 100k through flicking property, the first person would be at a major tax disadvantage, currently.

However, introducing CGT would essentially mean less money in everyone's pocket. It's possible by reducing income tax, that in the above scenario, hard work is encouraged over being a property middle-man while still maintaining some semblance of balance. I guess you could leave income tax where it is at, but that would make it even harder for people to climb up the property ladder after CGT was introduced, IMHO.

[elyobo]

> However, introducing CGT would essentially mean less money in everyone's pocket.

On board with you up until this point, but this is where I disagree with you; by smashing property prices you'd actually end up with more money in (almost) everyone's pocket. By pushing prices down and implementing policies that keep them there you're having no impact on most home owners and massively benefiting all non home owners (which is all future generations), as well as stimulating the economy by pushing money away from non productive real estate speculation and into other areas.

Putting income tax and CGT on the same level seems like the sane place to start to me. A CGT should be assessed annually on paper gains at the marginal income tax rate, then any corrections should be made when a transfer of ownership is made by calculating the total profit over the number of years held. This would mean that income from capital gains would be treated the same as income from other means and seems like a fair way to start.

[ioquatix]

I agree with you. Thanks for taking the time to reply with something meaningful. It's not an area I'm really familiar with so it's great to hear other opinions and learn about different perspective.

I think by adding CGT, you increase everyones tax liability a bit, so by reducing income tax, you'd ensure that everyone was basically in the same place, except for people who were abusing the system in the first place.

I'm not an accountant so I should just defer to those who know better :)

[elyobo]

Yeah, that's a fair enough approach. I don't necessarily want to increase the overall tax burden, just distribute it more fairly. Ideally the policy mix should put such downward pressure on prices that people end up paying very little in capital gains taxes.

I don't think offering an offset for capital gains tax is the right thing to do though; you're still essentially taxing capital gains at a lower rate, e.g. someone that earned a 100k from their job would pay more than someone that earned 50k from their job and 50k from capital gains. Instead the income tax brackets could be adjusted to account for the new income stream such that the total tax take remained the same, then both 100k earners would pay the same rate but on average nobody would be paying more.

Not sure if you're Kiwi or not, but TOP had a very interesting tax policy this election - http://www.top.org.nz/top1 - along those lines, no increase in tax take but a massive change to where it comes from, which would have meant large income tax reductions.