Olly Newland’s column March 2013

No matter how often the argument against a Capital Gains Tax is put forward, the subject is still popular among those who, it seems, fail to realise that implementing such a tax will solve nothing. The suggestion comes up again and again, and it has almost become an article of faith for ‘the left’ some of whom seem to imbue a Capital Gains Tax (CGT) with mythic powers to right all social wrongs.

When the Labour Government of the 1970s brought in a version of the tax to curb rampant property speculation, the result was a further rapid rapid rise  in property prices — on top of the 50% rise up until then! Sellers rather withdrew their properties from the market than pay the tax. It follows that Less stock = Higher prices. (This ain’t rocket science.)

The ’Property Speculation Tax’, as it was then called, was abolished a few years later by the Muldoon government, and I am proud to say that I was partly instrumental for that. It was in those days that I first organised public meetings, wrote newspaper articles, gave interviews on TV and radio to quietly and logically explain that that sort of tax would not work. (Well, OK, I argued and lobbied hard against the tax.)

A master stroke in the PR war was a stunt where I ‘sold’ a property to a near destitute Pacific Island family on $10 down and the balance interest free — with a condition of sale that no Property Speculation Tax was payable due to the transaction. If the tax was levied the needy family would be evicted immediately. (Yes, I said it was a stunt.)

This was all over the news, breathlessly, and culminated in a call to Wellington to meet a red-faced and embarrassed Minister of Finance, Bill Rowling. From that chilly meeting flowed changes over the next few months which saw some of the draconian aspects the tax modified. (I’ve written more about this episode in chapter 3 of Climbing the Property Ladder.)

Perception versus reality

There is no doubt that the idea of a Capital Gains Tax becomes at times popular, as the article below ‘Frustrated home buyers want investors to be discouraged’ and myriad others suggest. This is understandable.

Ordinary folk who find themselves locked out of the market by rising prices feel angry. They have a right to be angry. But if they believe the propaganda that a CGT will solve the problem, they’re wrong. It won’t.
It would make it worse. Here’s why:

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Olly Newland’s column May 2012

Almost on a daily basis websites are full of angry people accusing ‘speculators’ of ramping up the price of property — supposedly pushing it out of reach for ‘the poor’ and first home buyers.

'The Tax Gatherer' 1540 - Marinus Van Reymerswaele (click to enlarge)

‘Bring in a Capital Gains Tax!’ is the cry, or there are calls to ‘restrict’ lending for property purchases, or to ‘punish’ investors by removing tax advantages, or to flood the market with more undeveloped land. Some even want the government to tax gains that have not even been realised.

This cacophony of shrill envy aimed towards property investors is almost exclusively driven by those who cannot comprehend this market reality: where someone has actually taken the plunge, bought a property of some kind and then — whether immediately or over time — made a profit.

However let me tell you that it’s not ‘speculators’ who are driving up the price of property. Indeed, they are more likely driving *down* the price of property! For speculators can only really thrive by fierce haggling in order to buy at bargain prices.

Read the rest of Olly’s column at www.OllyNewland.com

Olly is one of the contributors to Commercial Real Estate Investors Guide — Making money as a commercial property investor in New Zealand — available here.