So it looks like, after all the impending malice, that the CGT is properly dead (at least for another decade or two, but one never knows in NZ politics). I must say, it’s a huge personal relief for me, not because I am ‘rich’, but because the consequences and sheer complexity of such a system would have made my life harder.
As such, I think it a good idea to recap what would have happened:
DIRECT: The people owning certain types of assets (which would have become a political football) would have more complex affairs. We’d have seen a growth in the tax avoidance industry, with increased fees and costs for lawyers, accountants, and valuers. You’d end up with a decade of disruption, as people got their heads around it, and the necessary labour was trained up to handle this (as we simply wouldn’t have enough people to administer such a tax).
INDIRECT: I would have likely changed our saving arrangements away from shares (both inside and outside of KiwiSaver) towards paying down our mortgage and bank deposits (depending how flexible I need the cash). I would have considered switching part of our finances to an offset mortgage (again, a good means to avoid tax). These changes wouldn’t have been particularly helpful to the NZ economy, but they would have been personally sensible (along with many other people). We would have seen more money moving towards the banks and a return to bank focused finance (compare with money being invested in other areas, particularly equity finance).
ECONOMIC: The organisation of our economy would have changed. The proponents blew this sort of thing off under the slogan, ‘But other countries have CGTs, so don’t worry’, but that doesn’t really explain the situation. We have a market which is both very small and which is persistently under-funded in equity terms. The desire to tax equity investment, whether it be in larger companies or small businesses, would have been economically problematic for us. There are reasons NZ’s economy struggles to achieve the levels of output commensurate with our macroeconomic policy settings.
So it’s a rather good win, but it’s also very worrisome how close we came to a catastrophe. The lack of intellectual rigour on the part of so many people, and politicians, was truly astounding. The campaign against the CGT was about principles and simple points, which is heart warming in the sense that NZ still has debates about principle, but it didn’t even have to get into the real details (just simplified points). The real harm the CGT would have caused, the sheer complexity and structural problems that would have arisen, weren’t even really touched.
So I am very grateful, as I’ve seen the bloody things in action and do not want to suffer such nonsense again.