Budget submission: Inflation and the taxation of investment returns

Brendan Burgess

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Deposit interest
Depositors pay DIRT of 33% even though they are getting a negative rate of interest after inflation is taken into account.

Let's say that the interest rate was 5% with 0% inflation, then charging 33% on the 5% would seem reasonable.

But with interest rates at 1% (max) and inflation at 10% - a loss is being taxed.

Deposit rates don't keep up with inflation over the longer term, so is there a case for abolishing DIRT completely?

If, at some stage in the future, real interest rates are paid, then tax could be reintroduced.

Investments
We had a CGT rate of 40% on real gains, because the costs of the investments could be indexed for inflation.

Then CGT was reduced to 20% and indexation was abolished.

Then CGT was increased to 33% but indexation remains abolished.

Indexation should be a feature of any taxation regime so that only real gains are taxed.

The government of the day can decide what the fairest rate of CGT should be.

Brendan
 
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