“In this world nothing can be said to be certain, except death and taxes,” unless, Mr Benjamin Franklin, we’re talking about the proposal of a capital gains tax (CGT) in New Zealand. Here, the forecast looks decidedly unclear.
The Tax Working Group (TWG) presented its interim report last month on its recommendations for the introduction of a CGT – among others – and the debate has divided into two fiercely opposed camps.
Chair of the TWG, Sir Michael Cullen, had this to say about a comprehensive CGT: “Every developed country except New Zealand has a reasonably broadly based form of capital taxation. So, the question is, are we so bright that we are the only people who aren’t doing it, or are we so dumb that we are the only people who can’t manage to do it?”
Deliberately, he left that rhetorical question unanswered, and polemical views on the controversial topic naturally depend on whichever side of the political fence you fall.
The capital gains tax is one of a few election-year hot potatoes – the others include shakeups to the health sector, and law and order. With the strength of the economy in Labour's favour, why dance with the devil on the politically electrifying third rail?
The range of predictions for how a CGT would affect the economy varies between economists, from alleviating New Zealander’s property addiction to cutting into savings.
At present, the country’s tax policy is centred on general tax regulation, offering low rates that are attractive to businesses, foreign investment and landlords. The lack of concrete financial legislation on a CGT means there is no clear legal framework to manage the taxation of gains in general. Where some taxpayers report on capital gains as income, others may consider them tax free.
Another major concern for the government is that the present system is unfair and generates inequality; a problem which could potentially be resolved by introducing varying degrees for different asset classes.
Instinctively, landlords and property investors are against this proposed regime owing to a loss of profit when selling assets. Meanwhile, politicians like National party MP Judith Collins attack the TWG itself as a "load of bollocks," set up as a smoke screen behind which the government can hide as they introduce the unwelcome tax.
Andrew Hoggard, national vice-president for Federated Farmers, said “the main concern is around the potential taxing of capital gains, and what the details of that might look like.” He believes there could be significant implications for farmers and family succession.
While home ownership would be exempt, a CGT could help to wean the affluent off overinvestment in property as it would encompass other residential land holdings including commercial, agricultural, industrial, business-owned assets and company shares.
Earlier this year, the chief economist of Westpac, Dominick Stephens, forecast that introducing a 10 percent CGT could reduce house prices across the country by 10.9 per cent helping thousands to set foot on the first rung of the property ladder.
Head of policy for CPA Australia, Paul Drum, believes the highly politicised tax is unlikely to be implemented this time around. "This is not to say a firm recommendation will not materialise upon publication of the final report… but it will require significant political consideration before being put to the public," he said.
Whatever the outcomes of the TWG report in the new year, the combination of growing wealth inequality and preferential tax treatment for assets like property means the debate around a CGT will remain part of the political conversation for some time to come.
The TWG is open to public submissions until November, and will deliver its final recommendations to the government in February. Any resulting changes to the tax system would not be implemented until after the election in April 2021.