Is this the capital gains tax Labour finally gets across the line?

Saturday, 1 November 2025

Every iteration of Labour’s capital gains tax policy has died a fiery political death, will its latest version meet the same fate? Stuff Political Editor Tova O’Brien reduces the argument to a simple red versus blue, Labour versus National, political point scoring exercise.

Timing

John Key assassinated two versions of Labour’s CGT during election debates. First against Phil Goff in 2011 (“show me the money!”), then again with David Cunliffe in 2014, who was unable to say whether the tax would apply to family homes owned by a trust.

Getting the 2026 version of the policy out now, nice’n’early, gives Labour and Chris Hipkins plenty of time to not only school up, so they’re not caught out like Goff and Cunliffe, but also to plug any significant holes that the Government is able to pick in the policy before the campaign and debate season begins in earnest next year.

There is always a risk because there are seemingly endless variables when it comes to case studies National might throw at Labour and demand to know whether a CGT would apply - like the dairy owner who lives above their shop or someone who AirBnbs their house some off the time - but the 2019 Tax Working Group prosecuted a lot of those examples already.

Labour wins on timing.

Scope

The 2019 Tax Working Group - which Labour had hoped would both make its case for a CGT and buy it time to avoid the topic during the 2017 election campaign - recommended a broad-based tax including land, shares and business assets.

By opting for a narrower capital gains tax on commercial and residential housing excluding the family home and farms, Labour has made its policy a smaller target for the Government and critics on the right.

It gives Hipkins a ready response for most of his critics that this tax will only hit 1 in 10 New Zealanders, that 90% of New Zealanders don’t even need to think about it.

And whether their concerns are valid or not, property investors arguing that they are being “marginalised” probably isn’t going to make a lot of hearts bleed.

In fact, most of the criticism of the new CGT has come from the left which argues it doesn’t go far enough.

Labour gets a point on scope.

Coalition

Politically though, National can capitalise on that.

With Labour’s coalition partners the Greens saying the new CGT is “watered down” and “falls far short”, and other potential coalition partners Te Pāti Māori likely to say similar if only they could get their proverbial together enough to comment on such things, National has a strong hand to make a ‘left coalition boogieman’ argument.

The Finance Minister is already spruiking the concern that this is just the start, that “the door will open wider and wider under a Labour, Te Pāti Māori, Greens coalition”.

With Te Pāti Māori on such a determined kamikaze mission at the moment, any opportunity for the Government to remind people of what their alternative government will look like has the potential to hurt Labour’s chances.

So on coalition politics, National wins this round.

Revenue

Implementing a capital gains tax is more of an ideological attempt to address inequality than bring in the big bucks. That being said, Labour needs the cash raised to pay for a sweetener designed to get the deal - and therefore themselves - across the line with the public.

In the past, the party’s gone for a tax switch: you let us tax you on house profits, we’ll give you a tax cut via a tax-free income threshold. This time round they’ve opted for a far more popular and digestible pay off - free doctor visits via a Medicard. Remember Labour’s free prescription policy was a near-universal hit with the public and made National look a bit miserable when they reinstated the $5 fee.

Labour’s predicting about $700m a year from the tax, most of which would go towards the Medicard giving everyone three free GP visits a year.

That’s not a lot of cash for such a historically fraught political gamble plus a CGT takes a good while before the money starts rolling in and is predicated on house prices going up.

The point Labour would have got for making enough revenue for the Medicard is neutralised by the fact - fast raised by National - that it’s hard enough as is to get a doctor’s appointment, let alone when everyone’s rushing to get them for free. Also, given Labour broke its 2017 promise for cheaper doctor visits, people would be justified in scepticism about pulling this one off.

No points given.

Fairness and house prices

Something has to give to address the discrepancy in our tax system between money earned from assets versus that which is earned from wages. IRD research showed the wealthiest 300 New Zealand families pay an effective tax rate of less than 10% while the average salary earner pays twice that rate.

Whether or not Labour should get a point for making inroads on that issue probably comes down to whether you think this policy goes far enough, see ‘Scope’.

The proposed CGT isn’t adjusted for inflation, so as house prices go up relative to everything else - wages, food etc - people selling their houses are effectively being taxed on inflation.

The Taxpayers’ Union says that makes this policy “unfair” by taxing people on phantom gains: “It means someone could sell a property for the same - or lower - real value they bought it for but still get hit with a 28% tax bill.”

That being said, income tax brackets aren’t automatically indexed for inflation either so that’s consistent.

Labour will be more concerned with making it clear that the tax isn’t retrospective and that it only applies to profits made after valuation day, July 1, 2027.

No points given. Life isn’t fair.