New Zealand Shuns Capital Gains Tax

April 28, 2011 Taxation in New Zealand

Capital gains tax in New ZealandInefficiencies in New Zealand’s tax system played a major contributing factor to the stall in the country’s economic growth last year, and several changes need to be carried out in order to correct the situation.

The Organization of Economic Cooperation and Development (OECD) has completed its annual Economic Survey of New Zealand, advising that the country needs to instate a capital gains tax and overhaul the tax system to encourage savings and investments in sectors of the economy, other than property.

The new report suggested that the country’s capital markets are “shallow”, resulting in over-investment in the housing sector, and excessive dependence on foreign debt via bank mortgages. It is expected that as New Zealand’s economic growth increases, consumer demand for real estate investment will also rise, leading to even greater levels of foreign debts. The OECD suggested that any further growth in overseas borrowing will put the country in an even riskier economic position.

In order to address the over-reliance on property investment, the government needs to instate a comprehensive capital gains tax on profits earned from property investment. Such a move would greatly reduce the investment bias towards private housing. In lieu of a capital gains tax, the government should investigate the possibility of designing a system of increased land and property taxes.

The government has already repeatedly state that it will not introduce a capital gains tax into the New Zealand tax system. Earlier in April Prime Minister John Key said that recent changes to loss attribution rules will be enough to address the country’s level of housing investment.

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