Sir Michael Cullen outlines the proposals for the now-jettisoned capital gains tax.
With the demise of the CGT, business leaders expect little movement on tax reform, writes Fran O'Sullivan.
Chief executives believe the Coalition has lost its appetite for substantive tax reform other than tinkering with rates and thresholds.
Some 77 per cent felt the opportunity had gone in the wake of the jettisoned Tax Working Group report on Capital Gains Taxes.
"They have taken it off the table," said Chris Quin, CEO of Foodstuffs.
There was scepticism from an auto firm boss who believed that though there was an opportunity for reform, he doubted that "Jacinda could manage her team [including Winston] to deliver on a well thought-through policy".
"The capital gains tax review was poorly managed and will inhibit their ability to do further major changes unless they take a very different approach," agreed an innovation sector head.
Among the menu of tax changes business leaders would like to see were:
● Policies to tax internet-based trade to put international firms on a level playing field with what domestic businesses have to pay — tech services firm boss.
● Address the corporate tax rate: "It harms our competitiveness and is high by international standards" — Don Braid of Mainfreight.
CEOs were critical about how taxation revenue was being spent.
"It's clear that tax is increasingly being used as a tool to influence public and social policy outcomes, beyond simply collecting revenue," said a primary sector chief.
Said an energy boss: "People have less of an issue paying tax if they know it is well spent.
"Centralisation will not deliver this."
There was also concern that the Government might look to slap higher-income earners with a higher tax rate to drag in more revenue.
"This is especially frustrating when anyone proposes that increased rates be applied to higher income where we are already paying the lion's share," said an agribusiness head.
"Expect a pre-election bribe to increase top threshold taxes and redistribute to middle and lower thresholds," scoffed a media chief executive.
Asked if it was well understood that a small percentage of the population pays the lion's share of all personal income tax (12 per cent pay just under half and 3 per cent pay just under one quarter) before taking account of transfers such as Working for Families, 84 per cent of those surveyed said no.
A former banker put it pungently: "The narrative has been tax the rich 'pricks' because they aren't paying their share. Which is bollocks."
"Media prefer to focus on the wealth disparities and rich business people," chimed a government relations firm boss.
"And it's politically convenient that this is not understood," agreed an innovation firm head.
Some 89 per cent of CEO respondents also felt it was not well understood that around half of all households pay no net tax (income tax, GST and ACC) and are in fact net recipients after transfers such as Working for Families.
"New Zealand's social welfare model is antiquated and abused," said a tech services head. "Additionally when people have no motivation to work it lowers the national productivity level and leaves the potential for more social harm and unrest.
"This area of NZ society needs a genuine and urgent rethink. People who genuinely need help must always receive it but the current system is flawed in so many ways."
Just 34 per cent felt that wealth inequality should be more overtly addressed through the tax system; accepting that a small but generally a different group of households hold the greatest levels of assets, and derive the greatest income (both from labour (taxed) and capital (which may not be taxed).
"Capital gains taxes have not assisted with a reduction in wealth inequality elsewhere in the world," said BusinessNZ CEO Kirk Hope.
"For NZ it would simply tax an already scarce resource [capital] and redistribute to government expenditure — which is a very low-quality outcome. It would be better to develop and execute policies that increase wealth and asset accumulation for lower socio-economic households."
"Outside of taxing capital gains, wealth inequality is not something that equitably can be addressed through tax," said Deloitte CEO Thomas Pippos.
"Unfortunately the media haven't done their job in investigating the facts," said a chair. "The current levels of income inequality are the lowest in history and more people have been lifted out of poverty by capitalism than any other economic or political system."
"There are other much smarter ways of addressing this. Let's start a more intelligent, transformative and genuine national conversation. Every Kiwi wants to see life improving for all citizens but increasing tax burden on innovators, entrepreneurs and others is NOT the way forward," said a CEO.
"There will always be wealth inequality ie 'haves' v 'have nots', but addressing the needs of the 'have nots' is more important than transferring value between the groups," said a media boss.
"The ideal outcome is to achieve 'haves' and 'super-haves'."
A banker noted that official data suggests that in New Zealand, unlike the US, there has been no significant increase in wealth inequality over the past 20 years.
"What has happened is that the huge increase in the price of housing has put very substantial economic pressure on the bottom two quintiles of the income distribution in recent years."
The 34 per cent of respondents who felt wealth inequality should be addressed through the tax system were asked to rate options: 63 per cent ticked more progressive personal income tax rates; 88 per cent were against increasing the corporate tax rate; 67 per cent felt it worthwhile to persevere with measures that tax capital gains (like more bright line type tests); just 19 per cent agreed with some form of comprehensive death duty or inheritance tax and 80 per cent were opposed to some form of annual wealth tax .
Said Dame Alison Paterson: "A CGT would be equitable but should be balanced by reductions in taxation."
"I think a directed property focused tax [Stamp Duty] is the ideal way to curb the infatuation with property. This targets property, and capital," said private equity player.
The 2019 Budget data shows individuals will pay $36 billion in tax for the 2018 financial year and in the 2019 financial year wage earners and individuals will pay an estimated $37.4b, growing to more than $40b in 2020.
And, the Tax Working Group noted, personal income tax is the largest source of revenue for the Government.
Some 55 per cent of respondents to this year's survey supported neither of the capital gains options presented; 34 per cent supported the narrower option targeted at rental property investment; 11 per cent the broader option excluding the family home.
"There are CGT rules on investment properties now," said Panuku chair Adrienne Young — Cooper.
"Rigorously enforce them."
"Most of the estimated revenue to be generated from the proposed CGT was to come from a gradual increase in real estate values. It was an odd assumption from a Government committed to making housing more affordable. If that revenue was not realised, the proposed CGT involved a very substantial increase in compliance costs for little revenue gain," pointed out a banker.
"There is beauty in simplicity, and the bright line test and KiwiSaver goes a long way to achieving the benefits of a CGT i.e. better allocation of capital into the productive economy," observed Sam Stubbs from Simplicity.
Others said:
● "If any nation was starting from scratch, CGT is a great idea. Introducing it to an economy where housing investment has become a vital part of middle New Zealand's superannuation thinking is fraught with problems" —lobbyist
● "I support the principle of a CGT but the practical implementation of this was never going to work" — funds boss.
"I support a CGT, as long as the net tax take is not increased" — education leader
OPINION: Tensions are likely to become more evident next year.