Comment

Dunne: Time to step back from capital gains tax

Jacinda Ardern needs to recognise the depth of public opposition to a capital gains tax and reject the Tax Working Group’s recommendation outright, or risk rejection herself at the next election, writes Peter Dunne.

The campaign for the capital gains tax is getting more enfeebled by the day. The emergence of Tax Justice Aotearoa, a rather predictable collection of left wing social advocacy groups, bordered on the pathetic, with its spokesperson unable to string more than two coherent words together, including claiming during an extraordinary radio interview that he had no idea of the campaign’s budget or how it was being funded, and only ten people turning up at Parliament later that day for the formal launch.

It hardly suggested a cause with a strong groundswell of public interest underpinning it.  

One of many unanswered questions about this group is what role, if any, the Labour Party played in its establishment.

As most of the organisations involved have strong Labour credentials or sympathies, it would not be unreasonable to assume that the Labour Party was at least aware, and presumably encouraging, of its formation, if not actively involved in the process.

But, given the ineptitude shown by Tax Justice Aotearoa so far, it begs the question whether this motley group of fellow travellers is the best the Labour-led Government can do to muster support for the recommendations of the Tax Working Group.

To make matters worse, the launch of Tax Justice Aotearoa coincided with the release of a public opinion poll commissioned by Business New Zealand, a group clearly opposed to the capital gains tax. However, the survey was carried out by the independent Reid Research polling group.

Not surprisingly, its findings totally contradicted the claim by Tax Justice Aotearoa that most New Zealanders actually supported the idea of a capital gains tax. According to Reid Research, 65 percent of respondents do not think a capital gains tax should be a priority for the Government; and almost half (nearly 48 percent) consider the debate so far had definitely harmed the Government’s standing.

Most tellingly, while about 54 percent of those polled said the outcome of the debate would have no effect on the way they voted,  almost 25 percent said they would change their vote at the next election if the capital gains proposal was implemented. 

Unless the Government is excessively blinkered on this issue that figure along should be ringing major alarm bells in the Beehive. After all, the people threatening to switch their votes because they are opposed to it are unlikely to be National voters!

If 25 percent (or even as few as 5 percent for that matter) of the three Government parties' support base desert them at the next election, the Government will be heavily defeated. If 25 percent of Labour’s support base was to desert it, the party would be looking at its worst ever result under MMP, and many years ahead wallowing ruefully in Opposition.

The Government itself is quite divided on the issue, and faces the reality of at least one of its three parties being severely embarrassed, whatever decision is eventually reached.

While a swing of that magnitude is quite unlikely, the depth of feeling against the capital gains tax suggests strongly that the Government could, if it proceeds, face realistically the prospect of the loss of about 10 percent of its previous voting base, which would still leave the chance of a strong single party majority National Government taking office as a more than likely election outcome. And, it would seem, not even the Prime Minister’s beatific status would be enough to save her Government.

On the face of it, therefore, it should be a no-brainer, and the Government would be quickly forgiven for cutting and running from the Tax Working Group’s plan as swiftly as possible. But it is not quite as simple as that. The Government itself is quite divided on the issue, and faces the reality of at least one of its three parties being severely embarrassed, whatever decision is eventually reached.

The Greens have already gone far out on a limb, stating that in their view the Government would not deserve to be re-elected, if it failed to introduce a comprehensive capital gains tax.

Meanwhile, New Zealand First, has been pouring cold water on the capital gains tax idea ever since the Tax Working Group’s report was released. It has raised doubts about not only the scope of the Tax Working Group’s proposals, but also has queried whether the Government should, or even could, legislate for such a tax in advance of the next election.

This brings it into direct conflict with the Labour Party whose election commitment was to legislate for, but not implement, a capital gains tax before the next election, so that voters would have the final say. Moreover, a comprehensive capital gains tax has been a long-held Labour dream, so being forced to walk away from it now, for whatever reason, would be a major blow to its credibility and would disillusion many of its activists, the last thing a party needs the year before a General Election.

Now, Labour, New Zealand First and the Greens cannot all get their own way, so it is a fair bet that whatever the eventual outcome, there will be discontent within the Government itself, not to mention the voting public as well if the proposal proceeds at all, even in some more muted form.

All this will of course will be welcome relief for the National Party, which has been virtually shut out of day to day politics since the Christchurch terror attack, and has been desperately looking for a way back into the game. A decision to go ahead with some form of extended capital gains tax would at last provide it with a legitimate reason to begin attacking the Government again, assuming of course it is able to develop a coherent response to whatever the Government finally adopts as policy.

It would be a great pity for New Zealand to see such a promising Prime Ministership founder on the stubborn pursuit of a  measure the public has been so strongly opposed to.

And there are many potential prongs of attack: the lack of credible arguments in favour of a comprehensive capital gains tax; the emerging realisation of the additional complexity a full capital gains tax would impose on an already stretched tax administration; the likelihood that it will not be the revenue cash cow some have predicted; and the reality that because of an inherent unfairness in the way capital gains tax is imposed from a quite arbitrary date, there will be distortions that will compromise the intent of any reforms.

Add to that strong, stubborn public opposition and even the most blinkered of Governments should appreciate that this proposal is going nowhere, and that it is time to exercise some leadership.

The Prime Minister showed New Zealand and the world during the shocking events in Christchurch that she can act with impressive clarity and decisiveness. On the issue of firearms control, she showed she could step above politics as usual and take difficult decisions calmly and with equanimity.

The capital gains tax debate and the strong public opposition the idea has aroused require the same sort of leadership once more. Notwithstanding her own strong feelings in favour of a comprehensive capital gains tax, she needs to recognise the depth of public opposition and reject the Tax Working Group’s recommendation outright. Otherwise, as the Reid Research poll shows, she risks the real possibility of the public rejecting her just as forthrightly.

It would be a great pity for New Zealand to see such a promising Prime Ministership founder on the stubborn pursuit of a  measure the public has been so strongly opposed to.

While there are times when Prime Ministers with considerable political capital can afford to spend some to push through some visionary change they feel strongly about, this is not one of those. The continued pursuit of a  comprehensive capital gains tax is just not worth it. The sooner it is buried, the better - for the country, and for the Government.

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