It’s the status quo, not a capital gains tax, that needs defending

Saturday, 1 November 2025

Labour leader Chris Hipkins, with his finance spokeswoman Barbara Edmonds, announce the party’s policy for a capital gains tax to pay for GP visits.

Josie Pagani is a commentator on current affairs and a regular opinion contributor. She works in geopolitics, aid and development, and governance.

OPINION: No one likes to pay tax. We don’t like income tax, we don’t like paying GST on everything, we don’t like paying rates to the council, and we don’t like new taxes.

The interesting question isn’t, “do you like” capital gains taxes? It’s: “How else do you want to pay for the services we need, and is it fair?”

If someone pays less tax, then someone else has to pay more. That is mathematical certainty, and it applies no matter what the overall level of tax is.

The government is running enormous deficits. We will not be paying down any of our large debt before the end of the decade. The runaway shortfall between what we spend and what we earn is causing inflation and raising interest rates.

As finance minister in Helen Clark’s Labour government of the early 2000s, Michael Cullen demonstratedthe benefits of paying down debt, writes Josie Pagani.

US President Bill Clinton showed in the 1990s that reducing the fiscal deficit reduces interest rates and helps the economy to grow faster. Michael Cullen copied that policy here, and we enjoyed fiscal surpluses so big the press gallery called them embarrassing. The economy grew faster over nine years than in any other decade in the past five. Paying for stuff we want is good economics.

“Ah,” you’re thinking, “but we can cut spending.” Perhaps. But Nicola Willis is having a go, public servants are striking, everyone is complaining about the state of our health system. I would agree with you if you said we can make our public sector radically more effective at delivering services we need, but if you think there are great depths of fat to cut, I don’t believe you.

Treasury doesn’t believe you either.

It points out the consequences of getting older as a population, with higher spending on retirement incomes and much higher health costs. Defence spending is doubling and about once a decade we have a massive disaster that costs about 10% of all our economic output.

Today we have $34,600 of public debt for every New Zealander. If we make no changes, then by the time my adult kids retire that will increase seven-fold, to $246,500 - in today’s dollars.

That’s a seven-fold increase in debt servicing costs, instead of paying for stuff we need, in an economy that by then would have fallen far behind the world.

Don’t want a Capital Gains Tax? Treasury offers alternatives: increase the age of eligibility for superannuation to 72, or halve welfare.

None of that is going to happen.

So their other idea: increase GST to 32%.

Finance Minister Nicola Willis responds to Labour’s capital gains tax proposal. Despite her and her Government’s condemnation of such an approach, they are yet to come up with a better solution, argues Josie Pagani.

If you don’t want to double GST in a cost of living crisis, then a fair capital gains tax is going to be part of the solution.

The Beehive has no answer for the fiscal problems Treasury identified. It says everything is working fine. We just need to wait for growth. As a fiscal strategy, that damages their credibility. Cross your fingers and wait won’t win elections either.

Not a single sensible person outside the Beehive thinks that current tax settings are fair or sustainable. It is the status quo, not the capital gains tax, that needs to be defended.

One in 10 people will pay capital gains tax. Nine out of 10 won’t. All the noise is coming, as always, from individuals protecting their privilege. We should avoid the logical problem of using the status quo as a baseline, from which any change must be justified, because the few who perceive they will be worse off always complain bitterly, while the many who would benefit don’t make the same political waves.

Labour says it is going to campaign on a capital gains tax - excluding the family home and farms.

The Beehive’s line of attack is to pretend a capital gains tax is impossibly complex. But it lands in exactly the same way as income tax. Both are complex, but responsible people do not shy away from problems just because solutions are hard.

The Government’s defenders say capital gains tax makes no allowance for inflation. If your second home goes up by 30% over 10 years in nominal terms, and that is all inflation, you would pay capital gains tax on that increment. And yet, if your income rises by 30% nominally over 10 years, then you pay income tax on the nominal figure.

There is no fair reason why income from work should be taxed harder than income from owning an investment property.

The Government splutters about capital gains tax scaring overseas investment. Most countries have a capital gains tax. We are the outlier. Not having one hasn’t filled our coffers, has it? The idea that capital gains tax will scare off investment contains an illogicality: to pay tax, they have to make gains.

Trickle down economics, in which economic returns are supposed to flow from investors paying a lower rate of tax than working people, to families struggling with bills and the cost of living, has never worked.

What works are fair tax policies where everyone pays according to their ability, and receives according to their need.

Capital gains tax is not a magic bullet. It’s a sensible tool in an economic armoury.