Unintended but Forseeable Consequences

 

Having seen the recent news that Labour supports that idea of a tax on capital, I do wonder about the consequences of attempting to tax wealth, particularly considering the lack of detail. 

Although, that last is scarcely new in politics: put out a very general idea and see what the response is before doing anything more, or letting the idea quietly die. Plausible deniability, anyone?

Being me, I descend in to the particular.

How would a wealth tax be related to ownership of something like a private company? If that were included, why would the most enterprising people stay here? Endless property flipping for profit while contributing little to society is one thing, but building a viable business that employs people and maybe even does something useful is another. Maybe we need to make some value judgements about the way money is made to avoid causing a loss of our most enterprising.

Would we see a haemorrhage of money overseas? The experience of a number of countries that introduced capital tax would suggest so. The French have rolled back their tax after it was estimated that 125 billion Euros left the country between 1998, its re-introduction, and 2006, becasue of the tax. Much of the EU has followed suit to prevent capital flight out of proportion to the revenue gathered. 

How about the size of the bureaucracy required to manage valuation regime, costs to the public and behavioral consequences? Creating asset registers, parasitisation by valuation services, creating and running a functional disputes tribunal of some type (or the courts!), the need for annual revaluations unless the schedules are transparent and just, maintenance cost tracking on assets (assuming you are allowed to deduct the costs of maintaining an asset's value), the creation of new criminal charges like assets inconsistent with income, an explosion in concealed assets and the cash economy (is anyone apart from the public service and banks actually keen on digital currency?), calculating imputations of income...the list gets very long, very fast. Under Labour I'd guess a brand new department, and under National an over-loaded division of the IRD: neither bodes well for the public.

While private trusts are being pursued, how about asset rich charitable trusts and simliar entities like the Churches and Iwi organisations? Would that advantageous tax status stay like that, considering the highly visible inequity involved might be very hard for the public to tolerate? Which political party would want that conversation?

Perhaps Labour need to start with something else that's politically achievable: a Capital Gains Tax on the sale of properties other than the family home, designed so it can't be easily avoided and can't be used to do things like offset debt that turns it into a piggy-bank for owners of multiple properties. The numbers are real and highly visible on sale, and it it's a lot easier to sell to the public.

The Australians did that - admittedly in a flawed manner we shouldn't directly copy - along with transaction taxes like stamp duties that are really only a problem for high volume flippers. 

The world did not end across the ditch, but given past performance of the major parties I don't like the chances for meaningful change here.