A point on capital/capital gains taxes

There are two big themes I’m hearing from people this election:

  1. We need some types of tax, to make people we think should be paying tax pay more tax – lets do this with a capital/capital gains tax
  2. We need to save more as a nation.

FYI, taking capital gains implies reducing the rate of return on investment – it reduces the incentive to save.  Therefore, it will lead to less savings – something we plan to fix by compulsory saving it seems.  This implies to me, that we plan to force people to invest and then take a chunk of the return off them, and we don’t really give a crap whether it is in their interest or not – it will just make our economic statistics look a bit prettier, maybe.

Lets make sure our policies goals are consistent before we start throwing them around … or at least try to figure out what any set of policies really implies.

2 replies
  1. fibby
    fibby says:

    That entirely depends on the design of the tax. Labour’s plan seems to be to incentivise other forms of saving over housing rather than disincentivise savings generally. Disappointingly, the debate about why a preponderance of housing savings might be a problem appears not to have been had.

    • Matt Nolan
      Matt Nolan says:

      Indeed there is an effect on composition as well as levels – my main aim in this post was just to keep the idea that a CGT is a tax on the rate of return available, as its something people often forget about.

      In the case of housing we have to ask how much of a tax wedge in favour of housing still exists?  It appears that the 2010 tax changes on investment property had a pretty damned big impact – and it is not clear whether there is a huge artificial incentive to invest in houses instead of other things anymore.

      It would be nice if we could get the tax system treating all forms of investment equally – and as you say doing this requires stepping back from a specific policy band aid and thinking about how such a system would look.

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