Death of Capital Gains Tax: What it means for the property market

Ashley Church on how the rental sector has dodged a bullet

COMMENT: And just like that, the Government has abandoned plans to introduce any form of Capital Gains Tax - and all of the pent up anger, marshalling of opposition and energy building up to take on the proposal, head on, has evaporated.

To most of us – including me – it came as a complete surprise. Following the earlier circulation of a Report from the Tax Working Group, chaired by ex Finance Minister Sir Michael Cullen, which recommended a heavy-handed Capital Gains tax on investment property, shares, business and some intangible assets, the Government was expected to adopt a watered down version of the report – possibly only applying the tax to investment property.

Instead, they've dumped the idea, altogether, with the Prime Minister acknowledging that "all parties in the Government entered into this debate with different perspectives and, after significant discussion, (were) unable to find a consensus".

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To the extent that it was a voluntary decision – the Government is to be applauded although the wording of the Prime Minister's short statement is almost certainly an admission that NZ First refused to accept the proposal to introduce any form of Capital Gains Tax and that, without that support, the Government didn't have the numbers to pass it into law. So it would appear that the nation has Winston to thank for bringing an early end to this madness.

Regardless – the decision is a victory for common sense over ideology and an end to any attempt to introduce a Capital Gains Tax – which has been a staple of Labour policy since 2011 – for the foreseeable future.

Prime Minister Jacinda Ardern. Photo / Mark Mitchell

For the record – and despite claims by the Prime Minister – this was never about "reform of the tax system". Indeed, even if you accept that the tax system needs reform, that position lost any validity the moment the Government decided to exempt the family home from consideration for no reason other than political expediency.

From that point onward, it was simply an envy tax designed to reward the hardcore left in the Labour Party by punishing those who have tried to provide for themselves.

Had the tax proceeded, the implications on the rental sector would have been devastating and would have included:

• The further erosion of confidence in rental investment – leading to a reduction in the number of properties available for rental;
• A commensurate increase in the cost of renting;
• A substantial erosion in the value of the retirement nest egg of hundreds of thousands of Kiwis who have worked hard and gone without in order to provide for their future, and reduce their burden on the state; and
• A requirement for the state (you and I) to step in and build thousands of additional rental properties to make up the shortfall created by the abandonment of the sector, by Mum and Dad investors, over time.

The proposed Capital Gains Tax wasn't the Government's only attack on the private rental sector of course. Ringfencing of tax losses is still underway and proposed for introduction in the 2019-20 tax year with serious implications for the supply of rental housing. But the end of this particular idea will provide some relief for a sector which has been demonised by the Left and unfairly characterised by those who should know better.

For once, pragmatism and hard graft have won out over mediocrity and bullying. One suspects that the Red Flag will be flying at half mast tonight.

• Ashley Church is the former CEO of the Property Institute of New Zealand and the Auckland Property Investors Association. He has been a regular media commentator on property matters for more than 20 years and now writes on behalf of OneRoof.co.nz