Capital gains tax gets tick from most - but not all - Tax Working Group members

Wednesday, 28 November 2018

Sir Michael Cullen forecast in 2018 that it might then be 'now or never' for a capital gains tax.

The Tax Working Group has reached a consensus on a capital gains tax, but it is not supported by all members of the working group, chairman Sir Michael Cullen has revealed.

'We have got to the point where we have a central package around the extension of capital income tax which is supported by a clear majority of the 10-person working group,' he said.

Cullen said the objections among the minority who had not backed its plan were 'mainly about some aspects of how you do it, rather than whether you do it'.

But he indicated there could be water to go under the bridge before any changes were adopted and enacted by the Government.

Jacinda Ardern on talks on whether a capital gains tax will be introduced.

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Labour coalition partner NZ First has yet to comment on whether it would support legislation enabling a capital gains tax before the election, that would come into effect after the election.

Extending taxation on capital gains is popular, but that may not mean it's good election policy, says Sir Michael Cullen.

Finance Minister Grant Robertson said the Government had 'not received the final report yet and no decisions have been made'.

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.

Sir Michael Cullen says the Tax Working Group is set to complete its report a month early.

'What people oppose motivates them more than what they support. That is why all American politics is now negative.'

Speaking at an event hosted by Victoria University in Wellington, Cullen said it was 'last chance saloon' for a capital gains tax because the politics would get harder as New Zealand's population aged.

'There is no point trying to do it in 20 or 30 years' time, when demographic changes have occurred, because the politics of it will be even harder because there will be an older electorate that is even less likely to support changes in capital income taxation.

'This is the 'last chance saloon' in many ways for any significant change in this area.'

Cullen also revealed the group was on track to publish its final report by the end of January – a month ahead of schedule.

Cullen said the working group had discussed an alternative option of an inheritance tax, despite an instruction from Finance Minister Grant Robertson that should be off the table.

'We are not supposed to be looking at inheritance taxes but a majority of my colleagues on the Tax Working Group appear to have a found a partial way around that,' he said.

Council of Trade Unions economist Bill Rosenburg, also speaking at the event, said New Zealand had a problem with inequality that the Government had asked it to address.

'New Zealand's tax and income support systems would need major work to make them capable of reducing New Zealand's high inequality,' he said.

He questioned why income from capital gains should not be taxed when other forms of income were.

John Payne, head of tax at the NZ Super Fund and convenor of the Corporate Taxpayers Group, said he was concerned by the 'collateral damage' that might come from taxing capital gains.

He also questioned the impact on 'productivity, entrepreneurship, risk-taking and aspiration'.

'From what I have seen, compliance costs are going to be very significant.

'The Tax Working Group is likely to be divided. It was prominent this morning the only unanimous thing is the group seems to think there should be some taxation of capital income going forward,' he said.

National Party finance spokeswoman Amy Adams said Cullen had 'clearly worked hard to convince a majority of group members to support the proposed new tax'.

'The Government has already signalled its appetite for the new tax, one of many poorly conceived policies that are driving up rents including extending the bright-line test, ring fencing of losses, more burdensome regulations and the ban on foreign investment,' she said.

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