Plenty of talk in the media currently about a capital gains tax on property or even land taxes.
A reader Stan has been mulling this over and asks:
“Could the introduction of a capital gains tax on investment residential properties, make investing in silver/gold, a more attractive scenario to those then put off in taking up a residential property as an investment?”
We generally avoid politics as much as possible. Preferring not to get into the ideas of how much money should be taken from who and given to who.
But what the heck, we’ll wade in and have a crack at this anyway.
What Effect Could a Capital Gains Tax on Property Have?
Labour has been deliberately vague about what they may or may not do. But they have said that any capital gains tax or any land tax would not be on the family home. Obviously so as not to erode support from their voting base who are likely not property investors.
So if a capital gains tax on investment property was implemented or a land tax was implemented would this likely increase interest in precious metals?
At first glance yes it would seems likely that this money may be redirected into other assets. This may include the sharemarket and potentially also gold and silver. Although currently the interest in precious metals is very minimal. So even a tax on another sector may not have that much impact on demand for precious metals.
What Would be Captured Under a Capital Gains Tax
The other thought is what assets would be included under the capital gains tax?
Would it only be investment property?
In the last election the Capital Gains tax labour was touting was intended to be on just about everything. Sale of businesses would have been included. Reading between the lines the sale of precious metals, art, collectables etc likely would have been too.
So in this case the capital gains tax would likely not affect the demand for other assets like gold and silver if the tax was on them too.
Would a Land Tax Increase Investment in Gold and Silver?
A land tax might be a different story. As this tax is specific to land. Effectively a tax on the value of the land. Similar to rates but likely for a higher amount. (See this article for how a land tax may be calculated).
To us if we have to have government and taxes, and were forced to pick one tax, a land tax would seem to be the best. But this would be under certain provisos. The main one being the repeal of all other taxes including income tax. (Check out page 335 in the book The Secret Life of Real Estate, By Philip J Anderson for more on how society with only a land tax could work).
Since when is this likely to happen? It’s (very, very, very) rare for a government to implement one tax and remove another at the same time. Let alone all remove other taxes!
Gareth Morgans The Opportunities Party policies include significant tax changes. But even these are only going to be “revenue neutral”. Meaning you take more off some people and less off others. But the same amount of tax is gathered overall.
Given that such is tax is only on land, then this could well encourage more people into precious metals.
But implementation of a land tax seems very unlikely as retirees would be the hardest hit. And they make up a large portion of the voting base.
So Could a Capital Gains Tax on Property Increase Investment in Gold and Silver in NZ?
We’ve gone a bit off track there. But back to the initial question from Ray.
In summary, no we doubt that a capital gains tax on property would increase investment into gold and silver much. For one, the odds would favour a capital gains tax being implemented on a raft of assets not just property alone.
But secondly, interest in and demand for gold and silver in New Zealand is currently very low. Even a targeted tax on another asset, may not make that much of a difference to gold and silver demand.
So What will Cause Increased Investment in Gold and Silver in New Zealand?
The same thing that does with most assets: The price going up!
That’s why there is so much interest in property – prices have been rising for years.
Whereas gold and silver have just been quietly heading higher for the past 2 years or so.
Unfortunately more people will buy precious metals only once the prices of gold and silver have risen much higher.
But given you’re reading this, you at least have the chance not to be one of those people buying higher! Currently we’ve been saying in our daily price alerts that gold and silver are due a pullback in price. So a buying opportunity is just around the corner most likely. Sign up for those here to stay informed of possible opportune times to buy gold and silver.
You might also be interested in this article: NZ Housing to Gold Ratio Update >>