Saul Eslake: Australian independent economist on the claims that the Budget is turning NZ into an Australian tax haven

Following the release of last week's Budget, there's growing claims that Australians are looking across the Tasman with 'genuine envy'.

A recent article in The Australian claimed that with no capital gains tax, no stamp duty or land tax, and the opportunity to negatively gear, business owners and property investors have taken more interest in New Zealand as a result.

Australian independent economist Saul Eslake says this is likely just wishful thinking as a response to the recent Budget.

"People look over the ditch and see that New Zealand's top rate of 39 is lower than our top rate of 46...and that you don't really have a capital gains tax, other than on assets that are held for less than two years, so they might think that looks more attractive than Australia."

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Episode Transcript

Speaker 1 (00:00):
So a recent headline in the Australian newspaper declared budget
increases New Zealand's appeal as a tax haven. To talk
us through whether this is really happening or not, we
have sowles, like an independent economist in Australia high.

Speaker 2 (00:11):
Saul KERA, thank you for having me on the program.

Speaker 1 (00:15):
Thanks for joining us. Is this real or are we
just trying to make this happen.

Speaker 2 (00:19):
A I think it is probably wishful thinking on the
part of some people in Australia who'll be adversely affected
by the changes announced in our budget last week. That
is to say that I'll have to pay more tax
on their capital gains and may not be able to
negatively gear, as we say over here, their investments in
residential property. And you know, people look over the ditch

(00:41):
and see that New Zealand's top rate of thirty nine
is lower than our top rate of forty six or
forty seven if you include our medicare levy, and that
you don't really have a capital gains tax other than
on assets that are held for less than two years.
So they might think that looks a lot more attractive
than Australia. But it's not as if people can decide

(01:06):
that they shift their domicile to New Zealand unless they
actually physically move, which of course Australians can do quite freely.
But they would still be liable to Australian tax on
capital gains that they earn on assets in Australia, and
they get a credit for that against any tax they
might have to pay in New Zealand, which would probably

(01:28):
wipe that out. Alternatively, if they wanted to stay in
Australia but move their investments to New Zealand, say they
might decide to sell properties in Australia and invest in
property in New Zealand. They would need to be confident
that property prices, for example, would rise more rapidly in

(01:49):
New Zealand than they will in Australia, which hasn't happened
for quite a long period of time, given the success
that you over there have had, increase in increasing housing supply,
especially in Auckland, which we're struggling to do, and Australians
would still be subject, i think to Australian tax on

(02:10):
capital gains that they've made overseas. They get a credit
for any tax they paid to the New Zealand government.
But if that was less than the tax they would
pay on an equivalent investment in Australia, then the Australian
Taxation Office would slug them for the difference if they
were resident in Australia.

Speaker 1 (02:28):
Okay, so not quite the tax haven that we might
have thought we were. Has it taken you by surprise
how badly this budget has gone down with the average punter.

Speaker 2 (02:38):
Well, I'm not sure whether it's gone down badly with
the average punter who doesn't pay capital gains tax because
he and she doesn't have capital gains. I mean, only
about seven percent of Australians reported taxable capital gains in
the most recent year for which we have data, that's
our fiscal year twenty twenty two to twenty three. And

(02:59):
while quite a lot of Australians a bigger proportion of
Australians property investors. Almost one in every five tax paying
Australians has at least one investment property. Those investors aren't
going to be adversely affected by these changes because they've
been grandfathered. It's prospective investors in property who will have

(03:22):
to invest in a new build if they want to
continue to get negative gearing concessions and favorable capital gains
tax treatment. They won't get it for investing in property
we've already got and that's the point of the exercise.
You know, the government wants to discourage people from bidding
up the price of property that we've already got out

(03:44):
competing would be home buyers and thus increasing the demand
for rental housing as much as they're increasing the supply
of it. We want less of that investment and more
investment in the construction of new housing, which actually genuinely
does add to housing supply. There's a lot of noise
being made by people who may have to pay more
tax as a result of these changes, and because they

(04:07):
tend to be better off than the average punter, they
have more ways of making their views heard by wider audiences.
But that doesn't mean to say that the average punter
is annoyed. I think the difficulty our government will have
is that this does break an explicit election promise. You
the Labor Party, who are now the government here, they

(04:27):
went to elections in twenty sixteen and twenty nineteen promising
that they would do what they announced last week. They
lost both of those elections, albeit narrowly. They won the
election in twenty twenty two and again in twenty twenty
five by a very big majority, promising that they wouldn't
do these things, and now they've done them. As I

(04:49):
think has happened in New Zealand as well, when governments
do things that they have said they wouldn't do, that
tends to get people's backs up, even if they're not
particularly fussed about the policy. I don't like being what's
perceived as being liked.

Speaker 1 (05:04):
As a fair affair point that you make, Soul, It's
been very good to talk to you. We'll get you
on the show again and chat about some other stuff
when we get the chance. That's aw this like Australian
Independent economist.

Speaker 2 (05:12):
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