Once again the topic of capital gains tax (CGT) has reared its ugly head. Speculation is that Labour will unveil a property investment targeted capital gains tax when it announces its tax policy in the next two weeks. The Greens have thrown their not so considerable economic muscle behind the proposed tax.
In light of this, let's examine some of the arguments that proponents of CGT put forth:
Some other points of concern in relation to the introduction of a capital gains tax include the fact that it is inevitably complex. Once you move to exempt private homes or other classes of assets (for example, farms?) you exponentially increase the complexity of the proposed law. You create incentives for people to structure their affairs to work around the capital gains tax. There is also the issue of an immediate impact on property values. This point often raised how desirable would it be for property values to take a material hit when off the back of a global recession many property owners are already heavily geared and would end up with negative equity. What would be the knock on effects for lenders?
In the end, I can't see how a capital gains tax will produce the outcomes that its proponents seek. However, one outcome which I do see as a certainty is defeat for Labour at the ballot box if they proceed.
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