Is New Zealand Smarter than Other Countries or Simply Special? Reconsidering a Realisation-Based Capital Gains Tax in Light of South Africa’s Experience
New Zealand Journal of Taxation Law and Policy, Vol. 16, No. 3, pp. 269-306
37 Pages Posted: 22 Jul 2010 Last revised: 4 Mar 2011
Date Written: July 20, 2010
This article tries to find a new way through old arguments about whether or not New Zealand should have a realization-based capital gains tax. Instead of revisiting the first-principles analysis of the costs and benefits of a capital gains tax, it starts by observing that many countries have already done that calculation, and decided to adopt a realization-based capital gains tax because they concluded that having such a realization-based CGT is better than not having one. In believing differently, New Zealand sits apart from the OECD norm, and apart from many non-OECD countries. New Zealand’s outsider position could be reasonably justified on two bases: (1) the countries that have implemented a capital gains tax made the wrong decision which they secretly regret; or (2) New Zealand is different to those countries in a way that is relevant. (New Zealand policymakers have relied often on the first justification, but have presented no compelling international evidence for it.) This article gently tests both of these possible justifications for New Zealand not having a CGT. It tests the first by examining the experience of a jurisdiction that relatively recently decided to implement a realization-based tax, namely South Africa. The evidence suggests that South Africa was correct to do so. The article tests the second justification by identifying ways in which New Zealand differs from South Africa (and from OECD countries) that could suggest that a realization-based capital gains tax would be not worth doing in New Zealand even if it is elsewhere.
Keywords: tax reform, New Zealand, capital gains tax, South Africa, evidence of costs and benefits, realization based capital gains
JEL Classification: K34
Suggested Citation: Suggested Citation