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41. How long for the closing of the tax loophole to take effect and how do we know a future government won’t rescind any tax cuts?

41. How long for the closing of the tax loophole to take effect and how do we know a future government won’t rescind any tax cuts?

Answer

There’s never any guarantees with tax. A government could raise them tomorrow and not tell you they’re going to. The closing of the loophole will not be fully achieved for some time. This is on purpose because we don’t want to collapse house prices, we want to have them tread water so incomes can catch up. The way to do that is to make the deemed taxable income on capital only small to begin with and wind it up over time until fairness is restored. How long would that take? Depends on the reaction of house prices.

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    • Steve Cox
      commented 2016-12-12 19:28:00 +1300
      There are two factors working here: – A phased in Property Tax and matching Income Tax cuts.
      Just for arguments sake lets say the Property Tax is set to rise each year till it reaches a desired level. Therefore every year there would also have to be an Income Tax cut.

      This is going to annoy some political parties that like to wave the possibility of a tax cut come every election time.

      But once the Property Tax has been fully implemented it then decouples from Income Tax. There is no linkage anymore. Say the Property Tax was introduced and incremented over 5 years with your average income tax rate dropping over that same period from 20% to 15%. Then a couple of years later a government puts your average income tax rate back up to 20% with the argument of “No, we haven’t touched the property taxes income tax cuts. This is an increase in the other part of your Income Tax”.