February 18, 2016 2:00pm by David Farrar

CGT good if income tax rates cut

Documents released last week under the Official Information Act show Treasury in 2013 proposed lowering the personal tax rate and suggested replacing the lost revenue with a number of alternatives.

And Treasury says cutting corporate tax rates could mean our high level of overseas ownership would see the benefits go overseas.

“Personal income tax cuts may have greater economic benefit than corporate income tax cuts in New Zealand” the paper said.

“ This is primarily because most of the benefits of personal tax cuts would accrue to residents, whereas a larger proportion of the benefits of corporate income tax cuts ’leak’ overseas to non-residents given New Zealand’s high level of foreign capital ownership. “

And Treasury proposes a capital gains tax to replace the revenue lost from the personal tax cuts

“The resulting loss in revenue would need to be offset by base broadening such as a capital gains tax, which would address weakness in current system and reduce the tax advantage towards housing.

I agree with Treasury.

Lowering income tax rates and having a capital gains tax would be a better tax system for New Zealand that would lead to higher economic growth.

But under no circumstances should we bring in a capital gains tax, without a reduction in income tax rates. That would just be a massive new tax impost on New Zealanders.