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Chye-Ching Huang
Chye-Ching Huang
Craig Elliffe
Craig Elliffe

Last night Chye-Ching Huang and Craig Elliffe of Auckland University Business School delivered a lecture entitled 'Is New Zealand Smarter than Other Countries or Simply Special? Reconsidering a Realisation-based Capital Gains Tax in light of South Africa's Experience' to an attentive Fabian audience.

Their presentation tested the assumptions about Capital Gains Tax (CGT) regimes that seem to underpin each of the numerous dismissals that CGT proposals have received. By analysing international evidence and examining the South African experience of implementing a CGT, they clearly demonstrated how little serious consideration has actually been devoted to this option in NZ.

An executive summary of their presentation follows and may also be downloaded here. Their full paper may be found here.

Executive Summary

“Is New Zealand Smarter than Other Countries or Simply Special? Reconsidering a Realisation-based Capital Gains Tax in light of South Africa’s Experience”

Chye-Ching Huang and Craig Elliffe


The benefits of a Capital Gains Tax (CGT) are well known; the reason New Zealand does not have one has more to do with three persistent assumptions about how CGTs would work in practice. South Africa’s experience adopting a CGT in 2001 shows these assumptions are not supported by the evidence.

Assumption 1: CGTs are too complex to administer and comply with.  

South Africa’s experience adopting a CGT in 2001 shows that:

  • Careful design can keep a CGT simple.  South Africa’s CGT has been designed for simple implementation and administration, and includes features that effectively exclude low- and moderate-wealth taxpayers from the CGT net. These concessions to practical reality have been designed to limit their efficiency and revenue costs.
  • South Africa’s Revenue Service (SARS) implemented CGT in 2001 with minimal fuss, despite SARS being in a woeful state post-apartheid.  SARS annual reports do not portray CGT implementation as particularly burdensome (indeed they hardly mention it).
  • World Bank/PwC studies show that in recent years South Africa has reduced overall tax compliance times for corporations (the taxpayers thought to bear the biggest burden of CGT). In 2010, the study found that “South Africa’s ease of paying taxes takes a top ranking in [the] global economy” and that “The time taken to comply... place[s] South Africa in the same league as developed countries such as Germany and Spain, and ahead of other emerging countries such as Turkey, Indonesia, and Korea ...”.

Assumption 2: CGTs don’t generate enough revenue

  • SARS and the South African Treasury seem satisfied that CGT – along with other base-broadening measures – enabled significant reductions in corporate and personal income tax rates in South Africa.
  • The IMF attributes the increase in South Africa’s average effective corporate tax rate between 1996 and 2007 largely to the CGT and better tax collection efforts, saying that these changes funded and more than offset the decrease in the statutory corporate tax rate over the same period.
  • Assertions about CGTs not generating enough revenue often ignore that CGT raises revenues in two ways: (1) CGT collections themselves; and (2) increasing income tax collections by reducing the incentive and ability for taxpayers to reclassify income into tax-free capital gain.
  • Available OECD data do not support the assumption that CGT revenues do not pay for their administration costs.

Assumption 3: CGTs become a “Swiss cheese” of exemptions over time

It has been asserted that any benefits of a CGT inevitably erode over time because CGTs are subject to more legislative change (particularly the addition of new preferences and exemptions) than other taxes.  However South Africa’s experience shows:

  • It CGT has been amended, but no more so than other tax types (the income tax, VAT).
  • The amendments have not been of the type (i.e. significant new exemptions and preferences) that critics of CGT are concerned about.

Further, as seen in New Zealand, due to the constant need to clarify and protect the capital-revenue boundary, a system without CGT is subject to frequent ad-hoc amendment.

If not smarter, is New Zealand special?


If unfounded beliefs about a CGT’s practical problems do not make New Zealand policymakers smarter than policymakers in countries that have adopted a CGT, then is New Zealand special in some way that means that a CGT would not be beneficial here, even though it has been in South Africa and other countries?  The paper concludes no:


  • New Zealand’s tax administration is internationally lauded, suggesting that the IRD is in a better position to administer efficiently a CGT than many other revenue services
  • To date, no evidence has been offered in debates about CGT to show that New Zealand’s economy is somehow less susceptible than other countries to the inefficiencies created by not having a CGT.
  • New Zealand’s economic performance suggests that New Zealand cannot afford to be any less concerned than other countries are about those inefficiencies.
  • As a latecomer to CGT, New Zealand can cherry-pick the best features from the CGTs of other countries.
  • Income inequality is not as high in New Zealand as in South Africa.  Nevertheless, income inequality in New Zealand is higher than in many other OECD countries, and the inherent progressivity of a CGT is attractive to those favouring greater tax progressivity in New Zealand. For those favouring the status quo or decreased progressivity, CGT revenues CGT could be distributed accordingly by using them to fund cuts to other taxes.



Prior to 2001, South Africa like New Zealand had considered and rejected CGT over and over again. The same objections to CGT raised in New Zealand have been raised in South Africa: assumed complexity, lack of revenue, and a tendency for CGTs to degenerate over time.

In 2001, South Africa’s policymakers got off this hamster wheel by looking carefully at the international evidence, and finding that the common practical objections to CGT were not supported by other countries’ experiences. New Zealand policymakers have yet to look at the international evidence as carefully.