The Labour Party has outlined its alternative direction for New Zealand’s economy that it will implement, should it get in to power this year – and if it does, farmers will be paying a lot more tax.
The party has announced the first details of its economic package which, it says, will save New Zealand from having to sell off its state assets.
The plan includes making the first $5000 of income tax free, a new higher personal top tax rate, a capital gains tax of 15 percent, and no GST on fresh fruit and vegetables.
Labour says that while wage and salary earners pay tax on every single dollar – those who sell businesses and investment properties, pay no tax at all.
While family homes and the main farm residence are exempt from the capital gains tax – farmland, businesses, investment properties, trust assets and the family bach, would all be taxed at 15 percent of the gain.
It is believed farmers will end up paying about one third of the total revenue gathered, and investment property owners, another third.
But Labour agriculture spokesperson Damien O’Connor says a capital gains tax is vital for New Zealand farming’s future as it incentivises the right type of behaviours.
"This clearly indicates that we need to get back to a focus on productive returns and income, rather that hoping for capital gains at the end of a long and hard farming life, which many farmers have unfortunately depended upon for too long."
Mr O’Connor says a capital gains tax will ensure land prices don’t continue to escalate, because of land-value speculators outside of farming.
"Because if we continue has we have been then we will become uneconomic as a farming nation and we cannot afford to let that happen.
"If you look at the US and many other countries their cost of farmland is far less than ours and we rely on that viability a lot more, so this is a very important issue for us.
And the fact that we are perhaps the only country without a capital gains tax means we are out of step with the rest of the world and this readjusts the incentives for where investment should occur in our economy and this is very important."
However, Federated Farmers president Bruce Wills, says a capital gains tax is inefficient because of its complexities and will be a nightmare to administer.
"We see this as a complicated difficult tax to implement, costly to collect and certainly questionable as to how much money will be collected by this regime.
"Our focus has always been growing the productive sector and not putting obstacles in the way of entreprenurialship, obstacles in the way of young guys getting that first herd of cows, or getting that first block of land and building up progressively to farm ownership, which is a dream a lot of young Kiwis have."
But many economists say the lack of a capital gains tax in New Zealand is one of the key contributing factors behind property and farm prices having increased so rapidly here, in the last decade.
These high prices are a massive barrier for young Kiwis owning their own properties, and buying their first farms.
Bruce Wills says New Zealand is not alone in experiencing the housing and farm price bubble.
He points to the United States and other western nations, all of which have capital gains taxes, that are in the same situation as us.
Mr Wills says there are many factors that come into play, including bank’s lending policies and levels of indebtedness and commodity process, too.
"We think the focus should be much more on what can we do to grow the business and grow farming and farmers are like anyone we pay tax on their profits.
"If we can establish profitable successful farming regimes you know the government will collect plenty of tax through that profitability."
Economist Bernard Hickey says the devil is in the detail, and it’s too early to tell what impact a capital gains tax could have on farming.
While it could potentially change some farmers approach to farming for capital gains, as opposed to income, he says it’s hard to tell what impact it would have on land prices.
