The highly anticipated Tax Working Group’s final report, to be unveiled on Thursday, is expected to propose a broad-based capital gains tax, possibly along with an inheritance tax. Policy wonks and commentators typically say the devil will be in the detail (particularly the exemptions, if any).
Both the Labour Party and the Green Party have supported a capital gains tax and few doubted – when the Ardern government named Sir Michael Cullen as head of the Tax Working Group – he would lead the charge in favour of extending whatever forms of taxing capital gains (the brightline test) apply at present into a much more broadly based framework.
Cullen has been a staunch believer that the “rich pricks” don’t pay their fair share of tax and he’s an enthusiast for rebalancing the tax structure.
The Ardern government, buoyed by its current high polling, may be emboldened to accept the Cullen Group’s report, even if there is a strong minority report opposing the plan.
Ardern and her colleagues have insisted any move on a broad-based CGT would not come into effect until after the 2020 election. The question is whether they can ‘sell’ the concept to NZ First, whose leader, Winston Peters, has in the past been vocal in his opposition to a broad-based Capital Gains Tax. And if Peters swallows it, doesn’t it present a stick which National can use to devastating effect in the election campaign?
Cullen said earlier, when commenting on opinions surrounding a capital gains tax, that he was “actually quite perplexed”.
“The majority of the population favour some form of capital income taxation but it is not necessarily clear you can win an election on that basis.What people oppose motivates them more than what they support. That is why all American politics is now negative.“
But there could be a cunning plan in the collective mind of Labour ministers.
Labour has said the plan should be “revenue- neutral”. This implies whatever new revenue flows from it will be applied to revision in the overall tax structure. It would certainly be easier to sell it on the hustings if it were combined with tax cuts across the middle and low ranges of the income structure. .
But if it is made more politically palatable in that way, can it still be successfully presented to the NZ public? Many New Zealanders who vote Labour won’t be happy if their beach bach or their hard-won savings become subject to a CGT.
And of course there is another hard issue at the root of a CGT being applied. Will it be just another barrier in the way of New Zealanders accumulating capital for investment in the productive activity which the country so badly needs?