On The Government’s Bizarre Hostility To A Capital Gains Tax

Oyez oyez, CEO Antonia Watson, CEO of the biggest bank in New Zealand has come out in favour of a capital gains tax! Actually, this is not a daring new idea. Over the past three decades the IMF, the World Bank, the expert Tax Working Group and most mainstream economists have all treated our lack of a capital gains tax as a globally unusual flaw in our tax system, and harmful to this country’s prosperity.

So what has been the reasoned response from our Prime Minister ? Well, it's been a variation on “Banks are bastards, yah boo Aussies, Quade Cooper sucks.” Here's what Luxon said: “I love it that the CEO of a big bank from Australia wants to take more money off New Zealanders.”

Right. Luxon has reduced a serious issue to a Donald Trump level of personal invective. Shouldn’t income earned from capital gains be taxed for the very same reasons that we tax the earnings from wages and salaries? Shouldn’t income be taxed equally regardless of how it is generated? If we did so, we could even use some of the revenue to reduce the tax take from wages and GST.

More to the point, a capital gains tax would channel investment away from housing speculation and into productive enterprises, just as it does elsewhere in the OECD. Finally, such a tax would also promote greater fairness and equity in the tax system. None of which Luxon wants to address.

Nor does Finance Minister Nicola Willis. Yesterday, she added her contribution: “If [Watson] really worried about the wellbeing of New Zealanders, then there's a lot the bank could be doing". Right. And if Nicola Willis really cared about New Zealanders she wouldn’t have thrown 6,000 of them out of jobs without giving a toss about the consequences.

Willis is now blaming people working from home for the impact that the loss of those 6,000 jobs and pay packets have been having on inner city foot traffic, and on the spending in city cafes and restaurants. Since she is also suggesting that Watson and her fellow bankers are making excessive profits, then what – if anything – does Willis plan on doing about it? Nothing, of course.

Footnote: On RNZ this morning, Willis tried to justify her hostility to a capital gains tax - because of the impact a CGT would have on small business owners who (cue violins) have worked hard all their lives and just want a little tax free nest egg when they retire. Besides, Willis added, they have paid other taxes all their lives.

Hello? Wage and salary earners work hard too, and they too would like to amass an untaxed nest egg for their retirement. No sympathy from Willis for their plight. (Wage earners pay other taxes as well, such as income tax and GST.) Nothing unusual in Willis reserving her crocodile tears for small business owners and for real estate magnates. Why should we expect anything else from the party of property? National’s disdain for people who earn their living from wages is palpable.

Back to, back to the office

The “back to the office” directive has nothing to do with enhancing productivity. People who skive off while working from home will be the same people who skive off at the office. Arguably, people forced back into the office will be less productive - in that they will have to spend hours commuting to the office, then battle to find a hot desk space once they get there, and then have to waste more time in unproductive mandatory meetings and white board strategy sessions. In many ways, the operations of the modern office are anathema to productivity.

Ironically, much of the debate has also focused on the need to revive our inner cities by sending workers back into urban office spaces. Around the world, major cities are reviving their inner cities by doing the exact opposite: they’re converting a lot (not all, but a lot) of their inner city office space into apartments, and using the advances in digital technology to promote either (a) entirely work from home options or (b) hybrid work solutions that combine work from home with trips to scaled-down office spaces only if, and when, that is necessary. This tends to be on a “once weekly” basis, at most.

Here's a list of the current 15 office-to-residential conversions being carried out in New York City by one real estate developer alone. Goldman Sachs is converting its old offices into apartments. In Germany, a research study has found that office conversions related to working from home could create 60,000 new apartments in Germany’s seven biggest cities.

Working from home is changing the way offices are used in the long term. The proportion of people working from home in Germany has been stable for almost two years at a quarter of employees and over two thirds of companies. The study expects that this will reduce demand for office space by around 12 percent by 2030. [My emphasis.]

According to the German study’s co-author Simon Krause:

..... “One in four large service providers is reducing its office space, and 20 percent are relocating at least one office location. Working from home will further increase the vacancy rate and the risk of office buildings without subsequent occupation...’ [Again, my emphasis.]

In sum, the working from home trend is threatening the income streams of major property companies. Is this what is driving the directive for public servants to return to the office? In almost every way, the trend of a ‘work from home’ spate of office conversions has the potential to revitalise the inner city 24/7, and not merely leave the inner city as a ghost town on weekends. It also boosts the housing supply – true, at the luxury end of the market – while cutting down on urban road congestion and the need for lengthy, emissions-generating commutes.

This historical perspective on the evolution of urban office space, sees it as a progression driven by significant events, and by advances in technology. In cases where recent calamities have seen firms relocate away from the inner city – eg 9/11, the GFC, the Christchurch earthquakes, Covid – the smart response has not been to rebuild and re-occupy office monoliths in the inner city, but to lease offices out in the suburbs where (in many cases) the workplace will be situated closer to where much of the workforce lives. (Another trend in favour of the hybrid model.) Inner city offices that do survive are expanding the space for temporary uses, such as hot desking, and for the only occasional meeting spaces.

No such luck here though. In line with its fixation on promoting 20th century solutions to 21st century problems, the coalition government is forcing reluctant workers back into their old offices – many against their will – in order to prop up failing hospitality sector businesses that are unwilling or unable to adapt, and also in order to prop up the income streams of their landlords.

The same landlords who are killing inner city small businesses by charging extortionate rents to struggling firms also want workers back in the offices that they rent. For example, see the shift of the Ministry of Social Development from their old lodgings on Bowen St to the 56 The Terrace location that they rent from the massive Kiwi Property Group, on an 18 year lease not due to expire until 2034.

Having signed up to such long term commitments, what flexibility really exists for government departments to downsize their office spaces, escape their leases and embrace the hybrid model? Not much. Job cuts yes, but working from home? For the wrong reasons, this will become the exception in New Zealand, not the rule.

Bottom line being: empty office spaces would trigger a race to the bottom on rents, and harder times for landlords. And if we know anything about this government, we know it is remarkably attentive to the needs of landlords, and will do anything to plump their pillows, and their wallets.

Bad self images

Although some Cabinet Ministers would benefit from looking in the mirror more often, there’s a flipside: it can be painful, as this early 1970s country classic from the great Lefty Frizzell goes to show:

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