Will a Capital Gains Tax be introduced?

In the Reserve Bank’s latest press release they have effectively asked the government to step in and impose a Capital Gains Tax (CGT) to slow down the property value increases in Auckland, and all of the potential risks that it could bring.

My opinion is that a CGT won’t happen anytime soon for the following reasons:

  1. Currently the market is on a high, and if the government were to introduce a CGT then it would likely work against them. A fall in the market would mean that a lot of investors might realise a tax loss, which in turn affects the government’s back pocket. The government is therefore more likely to introduce a CGT when the market is flat or down.
  2. One of National’s election promises was to not introduce a CGT. Even Labour have now pulled it from their policy too.
  3. The government are likely to highlight that a CGT hasn't done anything to reduce the house price increases in Sydney.
  4. All of the growth has happened in Auckland and Christchurch, but a CGT would negatively affect the wider regions.

In saying all of the above, I think that it’s prudent to start considering your own position if there is a correction in market. It doesn't hurt to be prudent and keeps some cash reserves for a rainy day.

If you have any questions about what I’ve discussed this month, just let me know.

Nick

0211 9444 24

nick.kotze@loanmarket.co.nz