Top income tax band set to swell after major tax reform put off for '10 years' - expert

Sunday, 21 April 2019

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

It is likely to be a decade before major tax reform comes back on to the political agenda, now that a capital gains tax has been rejected by the Government, Tax Working Group insider and PWC tax expert Geof Nightingale has forecast.

He predicted that could leave the Government with a headache as inflation and wage rises pushed more workers into the top income tax bracket.

Nightingale was one of eight members of the now-disbanded Tax Working Group who came out in favour of a broad-based capital gains tax when the Government-appointed group published its final report in February.

Other supporters of a CGT from the private sector included Air New Zealand tax head and Corporate Taxpayers Group member Michelle Redington, and Nick Malarao, a partner at Auckland law firm Meredith Connell.

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* Labour may be preparing to shelve major tax reform**

'The political risk for the coalition now is will there be enough headroom to deal with fiscal drag? They have backed away from taxing more capital, but remain taxing the labour income of many of their voters at the top marginal rate,' Nightingale said.

'Teachers, police, nurses all pushing past the $70,000 band is going to create real pressure and [with] no new source of revenue to fund a material lift in that threshold. I don't envy their job.'

Tax Working Group chairman Sir Michael Cullen said in November that it might be 'last chance saloon' for a capital gains tax as New Zealand's population aged and became more conservative.

In contrast, Nightingale – speaking after Prime Minister Jacinda Ardern ruled out a CGT under her leadership – believed that the country would need to 'have another go' at some stage, while saying that was 'politically unlikely for a decade'.

'Some of the longer-term pressures that worried the working group – demographic change, increasing reliance on taxing labour income and increasing lack of tax equity – will remain and some future Government will be faced with dealing with these pressures somehow.'

PWC tax partner Geof Nightingale - shown attending a meeting of the now-disbanded Tax Working Group - expected NZ First to oppose a capital gains tax, but not so soon.

Ardern has faced criticism from some commentators after she came out publicly in favour of a capital gains tax for the first time on Wednesday only to announce that the Government had been unable to reach a consensus on introducing it.

But Nightingale said he was not sure the Government could have dealt with the divisive issue any differently.

Like Cullen, he attributed the Government's decision to the policy position of NZ First.

'I'm surprised that NZ First blocked a CGT this early. I thought they would run with a watered down version until four months out from the election and then withdraw support in order to differentiate themselves from Labour and the Greens.'

Nightingale said that while there were valid concerns about a CGT, some of those could have been solved during further consultations and he was 'slightly disappointed' the chance to do that had now gone.