Productive Economy Councils incensed by PM's Remarks.

The Prime Minister's comments on Capital Gains Tax has brought into sharp focus his leadership style says Selwyn Pellett, spokesman for the Productive Economy Council.

"It is totally inappropriate to make these comments before the tax advisory group has officially released its findings," says Pellett. "The Prime Minister has essentially said that the tax advisory group is wasting its time, because he is highly unlikely to listen to their findings if it involves a recommendation for any type of Capital Gains Tax. It looks like John Key is telling the advisory group and the rest of New Zealand that he doesn't need to listen to advice from either experts or those economically affected by property speculation. That's an enormously arrogant position for any Prime Minister to adopt so early in his term as Prime Minister."

Pellett says the PEC was never hopeful of the findings of this group given the lack of representation from the productive sector but that John Key's comments indicate this group has no real teeth.

"If we needed a Minister of Status Quo then John Key would surely be a front runner right now and that's a problem for decent hard-working New Zealanders and especially for exporters," he says.

"The spin around CGT from the Prime Minister is both indefensible and ideologically misplaced for National, unless the goal is to protect property speculators at the expense of the economy."

"A Capital Gains Tax would certainly not be required if we had tax laws that ring fenced losses on investment property. If the losses were isolated to the assets that generated them then there is no need for Capital Gains Tax. That would be an appropriate solution," says Pellett.

"But if you allow speculators to take losses against their PAYE then you have created a destortionary "Poverty Tax". The speculator gets to reduce his tax at the expense of all other tax payers and then when he liquidates the asset he gets to keep the capital gain along with the reduced tax portion and associated interest savings. Put simply, a portion of the non speculator's wages end up in the speculator's bank account, tax free. That really is a Poverty Tax, as it makes everyone but the speculator poor including all the exporters." says Pellett.

"What we have now is a government subsidy on private investments that doesn't create a single sustainable job or deliver any tax revenue but drives up national debt, interest rates and the New Zealand dollar (via the OCR) and that's how it kills our export sector."

"We have flushed our economic sovereignty down the toilet through this pyramid selling of property and now must face the stark reality of gross debt to GDP approaching 150%," he says.

"Attempting to kill the debate on this subject, where the consequences affect so many people is dangerous when you are already ignoring advice from treasury, the Governor of the Reserve Bank, NZMEA, BERL and PEC," says Pellett.

"His statement that: "It's been my longstanding view that capital gains taxes are inefficient and don't work" isn't supported by the Housing Index graph below.

Source: Compiled by NZMEA from RBNZ house price index, Australian Bureau of Statistics house price indexes, UK Land Registry house price index. US index produced by Yale University Economics Professor Robert Shiller.

"Mr Key was voted in for his perceived leadership and vision to create a better New Zealand. So why is he at pains to come out in support of a destructive process that doesn't even line up with National's ideology? Why has he attempted to pre-empt the Tax Advisory Group by essentially dismissing any findings it may make?"

"We can all name Prime Ministers of this country on the left and the right that have been similarly perfunctory in their dismissal of others' advice but we didn't expect this from Mr Key," says Pellett.
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