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Capital Gains Tax looks less likely

Jacinda Ardern says she is not concerned whether or not the Tax Working Group recommends a capital gains tax, but observers suggest landlords should not consider themselves off the hook just yet, Thomas Coughlan reports. 

Prime Minister Jacinda Ardern said on Monday that she had not “set expectations” about what the working group currently considering tax reform would recommend to the Government. 

Her comments came as media reported the group is unlikely to recommend a capital gains tax (CGT) in spite of the fact it was arguably conceived to introduce one. 

According to stuff.co.nz, the Tax Working Group’s interim report, due out within days, will stop short of recommending a broad-based CGT.

Paul Drum, chief executive of accounting body CPA Australia, wrote in an op-ed for the New Zealand Herald that the “tea leaves” indicated the idea of a CGT had been quietly dropped. 

Drum told Newsroom that of the three tranches of background papers released by the group, none had yet paid serious attention to a CGT, while other proposals had been discussed in great detail.

He said it was possible the working group would call for more information on a CGT, including detail on what it might look like, before choosing to recommend it in a final report. 

Handling a political poison

Bringing in a CGT has been Labour policy since the 2011 election, but former leader Andrew Little kicked the proposal into touch by saying Labour would outsource its tax policy to a Tax Working Group if elected in 2017. Ardern, on succeeding Little, initially said such a tax could be introduced before the 2020 election, but decided a week out from last year's election to rule out a CGT until after 2020 because of intense pressure during the campaign.

Those decisions were widely acknowledged to be an attempt to neutralise the political unpopularity of a CGT. A Herald ZB Kantar TNZ poll undertaken before the election showed people relatively divided on capital gains taxes with 35 percent in support compared to 26 opposed and 32 percent neutral.

National’s then-finance spokesperson Steven Joyce said the working group was a cover for getting Labour’s long-standing, but potentially toxic CGT policy across the line.

Ardern and Finance Minister Grant Robertson established the working group in March with terms of reference including, “whether a system of taxing capital gains or land (not applying to the family home or the land under it), or other housing tax measures, would improve the tax system”.

But Labour’s plan to de-politicise the CGT appears to have failed, with reports now circulating the working group intends to push a recommendation on a CGT back to the Government.

Ardern said she would allow the group to do its work and would not prefigure what it would produce — outside of the parameters established in its terms of reference. 

There's always the land tax option

Terry Baucher, director of tax consultancy Baucher Consulting said the media reports shouldn’t be understood to mean landlords were off the hook. 

He said the report would give a “bird’s-eye view” of the tax system.

“That report is going to be much chunkier than people realise,” Baucher said. 

“You’ve got to expect something fairly substantial.”

He said if a CGT was not recommended, the group would likely propose an alternative.

“For property owners thinking they might dodge a bullet —  I would say they might find things coming back the other way, there’s a land tax, which I’ve been supportive of,” he said. 

A land tax could involve an annual payment on landholdings. This would encourage owners to put their land to productive use and discourage land banking and encourage development.

The timetable

Newsroom understands the interim report has recently been handed to Robertson and Revenue Minister Stuart Nash. Officials will then digest the report before releasing it to the public. 

The group’s final report is due in February. Labour will then choose tax proposals from the report to take to the electorate in the 2020 election. Should they win, the proposals would be implemented in April 2021. 

This article was first published on Newsroom Pro on Monday, September 10 at 1:15pm. Subscribe to Newsroom Pro here.

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