NZ government scraps capital gains tax

The Prime Minister of New Zealand, Jacinda Ardern, has ruled out the introduction of a capital gains tax (CGT) under her leadership, despite being one of the main issues she campaigned on with the view that it could make the nation’s taxation system fairer.

The CGT was recommended in February by the Tax Working Group, which the government spent $2 million on to review inequities in the nation’s taxation system. The proposed capital gains tax covered assets such as residential rental homes, investment properties, land and buildings, business assets, intangible property and shares.

“I genuinely believe there are inequities in our tax system that a capital gains tax in some form could have helped to resolve. That’s an argument Labour has made as a party since 2011,” Ms Ardern said.

But due to no consensus being reached within the Coalition government and poor public support, the CGT proposal was abandoned.

“After almost a decade campaigning on it, and after forming a government that represented the majority of New Zealanders, we have been unable to build a mandate for a capital gains tax,” the Prime Minister said last week.

“While I have believed in a CGT, it’s clear many New Zealanders do not. That is why I am also ruling out a capital gains tax under my leadership in the future.”

However, Ms Ardern suggested that other steps could be taken to address inequities in the tax system.

“As such, the Coalition government has agreed to tighten rules around land speculation and work on ways to counter land banking,” she said.

Finance Minister Grant Robertson said that while the government has canned capital gains tax, other recommendations from the Tax Working Group would be considered for inclusion in its tax policy work programme.

“We intend to direct the Productivity Commission to include vacant land taxes within its inquiry into local government funding and financing,” Mr Robertson said.

BusinessNZ CEO Kirk Hope welcomed the government’s decision, saying that a CGT would have adversely impacted businesses, reducing funds available for investment and job growth and adding to their compliance burden.

“Our members have been very clear that they did not see the justification for an expensive new tax that would have reduced the competitiveness of the New Zealand business sector for no discernible gain,” Mr Hope said.

One of the arguments against introducing a capital gains tax was that it had not worked in overseas markets.

Across the Tasman, the Australian Labor Party’s proposed housing affordability plan to limit negative gearing to new housing and reduce the capital gains tax discount from 50 per cent to 25 per cent has been met with strong criticism.

New modelling from the Property Investment Professionals of Australia (PIPA) found that by limiting negative gearing and reducing the CGT discount, the government would lose $32 billion in revenue over 10 years.

PIPA chairman Peter Koulizos said that the research found that Labor’s assertion that their policy would save $32 billion over a decade was a “flight of fancy”, claiming that the reverse would be true if investors are driven out of the market.

“Investors already pay almost four times in capital gains tax what they receive in negative gearing benefits over a 10-year period, so the government is already ahead financially,” Mr Koulizos said.

Industry pundits have also warned that Labor’s proposal would exacerbate the fall in dwelling values, with the data from property research group CoreLogic revealing that national home prices fell by 7 per cent per cent in the year to 31 March 2019.

Speaking on a panel at NAB’s annual budget breakfast on Wednesday (3 April), Jonathan Pain, economist and author of The Pain Report, observed: “I’m afraid to say that there’s only one consequence of [changes to negative gearing].

“If Labor wins and that comes in, clearly the sliding house prices are going to slide even further until we get to a new equilibrium. I’m not quite sure where that is.”

[Related: Attack on ‘housing tax’ renewed amid recession fears]