It is very likely that another 2008 financial crash will occur very soon, according to Dr Robert Howell. In a presentation to the Fabian Society Dr Howell outlined the evidence, including overseas experts such as Ben Bernanke, former Chairman of the Federal Reserve, and Mark Carney, Governor of the Bank of England, that the causes of the 2008 crash have not been significantly addressed. The ‘too-big-to-fail’ issue has not been dealt with. The expectation that financial institutions can privatise gains and socialise losses encourages excessive private sector risk-taking and can be ruinous for public finances. 

The financial and banking system continues to be unstable due to the accumulation of debt. Dr Howell described the evidence by such authorities as Martin Wolf of the Financial Times, that the role of private banking in money creation, and the fractional banking system, needs changing.  Wolf is associate editor and chief economics commentator at the Financial Times.  He is widely considered to be one of the world’s most influential writers on economics and regarded as “staggeringly well connected” within elite financial elite circles.  

Dr Howell stated that Wolf’s critique of the current economic model that underlines the international trading system demands serious attention. The cost to the funding of public services in particular is excessive. Dr Howell took as an example the cost of interest to the Auckland City Rail scheme to show that changing the privatisation of the money system could reduce interest costs by one sixth.

Dr Howell also looked at the world’s ecological footprint that is running at 150% above the capacity of the Earth to support human life. The current system is predicated on a growth economy and this cannot continue without major ecological and financial collapse.

NZ currently has currently a partial CGT because through accrual rules, and any intentional buying for resale, property gains are taxed.  The notion of intention is not very rigorous.    The Government have proposed that the ‘intention’ clause be replaced by having any property sales within two years, taxed.

A 2010 Tax Working Group stated that the current system is deeply flawed, inequitable and inefficient.  Vertical equity deals with the principal that tax payers earning more should pay more.  Horizontal equity states that people who earn the same should pay the same.  Their recommendations were not accepted, perhaps because it would affect farmers.

The principles for assessing a tax are:

  • Equity
  • Certainty
  • Convenience (low compliance costs)
  • Efficiency (low collection costs)
  • Neutrality (should not restrict options, eg, partnership v company)
  • Meet Revenue Needs
  • Visibility (transparent link between tax paid and benefits)
  • Coherence (tax system as a whole should make sense).

The most compelling argument for a CGT is based on fairness.  Without a CGT there is a lack of horizontal and vertical equity.  Introducing a CGT would also remove the uncertainty between what is capital and non-capital earnings.  Dr Russell stated that there is a large area of uncertainty: she felt that the distinction should recognise that there is short-term and long-term earnings.

Most OECD countries have a CGT.  Dr Russell felt that a CGT (with the family home exempt) would slow down property speculation and rapid rises in prices as currently experienced in Auckland, but other measures were needed.

Summary of Auckland & Wellington Presentations by Dr Deborah Russell, 

Senior Lecturer in Taxation at Massey University 

  1. Earth’s Limits
  2. Nicky Hager on Democracy
  3. Towards a left wing think tank? A response to Sue Bradford by Geoff Fischer
  4. What might social housing become – Alan Johnson
  5. A major left wing think tank in Aotearoa—an impossible dream or a call to action?
  6. Piketty for Dummys
  7. An Economy for a Resilient World
  8. The Land is Still Our Life
  9. Ethics in Finance and the Regulation of the Financial Sector
  10. ARD Fairburn's 'The Land, Our Life' Revisited