Abstract:
This article tries to find a new way through old arguments about whether or not New Zealand should have a realisation-based Capital Gains Tax (CGT). Instead of revisiting the first-principles analysis of the costs and benefits of adopting a CGT, it starts with the observation that many countries have already examined and weighed those costs and benefits, and concluded that having a realisationbased 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) other countries that implemented a CGT made the wrong decision that they secretly regret; or (2) New Zealand is different to those countries in some relevant way. This article gently tests both of these justifications. It tests the first by examining the experience of a jurisdiction that relatively recently decided to implement a realisation-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 is different from South Africa (and most OECD countries) that might plausibly suggest that a realization-based CGT would be not worth doing here even if it is elsewhere. None of these differences give New Zealand a compelling reason to reject CGT.
