Is time on the side of a capital gains tax?

Sunday, 24 March 2024

IMF mission head Evan Papageorgiou says he is confident in Kiwis’ ability to have “adult conversations”.

ANALYSIS The late Sir Michael Cullen said it might be the “last chance saloon” for a comprehensive capital gains tax when he chaired the former government’s Tax Working Group in 2018.

An ageing population and a tendency for capital gains to grow faster than wage income would make it more and more difficult to get support from voters for a tax reform that he believed was “the right thing for the long-term good of the country”, he forecast.

The changing population mix brought about by rapid immigration, led by arrivals from Asia rather than Europe, means there may be a higher proportion of Kiwis more familiar with Singapore, where there is no capital gain tax, as an economic model, than say Sweden, compared to when Cullen spoke.

But the New Zealand mission chief of the International Monetary Fund, Evan Papageorgiou, was undaunted when Prime Minister Christopher Luxon flatly dismissed the repeated call from the IMF to introduce the tax on Wednesday.

Papageorgiou made clear he thought time was on the side of the IMF’s advice that the country again looked at a comprehensive tax on capital gains.

“I am aware that the current Government and previous governments have turned down the idea, but at the same time, I know there's been a lot of good advice with a lot of good people participating in the public debate over bringing this off,” he said.

“I think there is a very deep bench of intellectual capacity in this country, traditionally and now, that allows for very adult conversations about the pluses and minuses of reforms.”

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

He forecast the debate over tax reform would “become a question of ‘how do we fund the lifestyle and the services we want from our government and what role do we want the productive parts of the economy to play in the long-term growth of this country?’”

Speaking to RNZ last month, the Labour Party’s new finance spokesperson, Barbara Edmonds, appeared to send a very clear signal that she supported comprehensively taxing capital gains, after Labour’s aborted consideration of a wealth tax last year.

“If a person earns a dollar through one means and they're taxed, but then another person earns a dollar through another means and they’re not taxed, the question for Kiwis is, ‘is that fair?’,” she said.

“There’s a case for re-examining all the different revenue bases that we need to look at, because we do have some really long-term pressures on our fiscal position.”

If any doubt remained about where she herself stood, Edmonds appeared to remove it when speaking to the The Post.

“I look at it and think of a South Auckland cleaner who works for a company from which every dollar of the wages is taxed,” she said.

“A person who owns three or four homes who sells a home, pays no tax on the capital gains they achieve unless that falls under the bright-line test. I think of that cleaner and I think ‘is there a way to make this fairer?’”

Edmonds said many tax practitioners would agree Labour’s alternative, shelved proposal for an annual wealth tax would have been compliance-heavy.

“That's where my practicality comes in, having worked in that space for a long time.”

Labour finance spokesperson Barbara Edmonds: “If the public are ready for it, then they'll make the judgment when we come to the polls”.

Edmonds worked in the insurance industry and later for Inland Revenue, before embarking on her political career.

She indicated she would support an exemption for capital gains on the sale of people’s main home, noting that was exclusion that the Tax Working Group had supported.

“It’s a cultural thing. If Labour were to design something in the future that was along the lines of a capital gains tax, I think there is a ‘sacrosanct thing’ around your own home.”

That is still a big “if”, she insists.

“Labour might say ‘actually, in the current climate we're just going to leave things as is’. That could be where we get to — we don't know.

“If we don't bring Kiwis with us, then we won't get voted in. If the public are ready for it, then they'll make the judgment when we come to the polls.”

Either way, Edmonds promises Labour won’t leave its decision until “the night before the election”.

It would then come down to the art of persuasion, and that would be her job, she said.

“This requires planting the seed basically, nurturing it and allowing it to grow.

“To bring Kiwis on a journey like that — if we do make a substantial change — we need to make sure we give people time to process that, and it's going to be a judgment call, it really is.”