Labour to outdo Nats on debt

Phil Goff's team confident its plans would cut country's borrowing in the long term. Photo / Mark Mitchell

Labour has admitted it would borrow more than National in the short term to help fund new policies but is confident its plans, including a capital gains tax, would cut debt over the long term.

Prime Minister John Key has rubbished the tax as complicated, unlikely to raise much money in a static housing market and a likely handbrake on the economy.

However, Labour sources say the party would not immediately rely on the tax to fund its other policies - such as exempting the first $5000 of income earned from tax, and the removal of GST from fruit and vegetables.

The chief attraction of such a tax, they said, was that it would direct investment away from residential property and into more productive areas.

Leader Phil Goff this week said Labour's tax policy would provide a long-term solution to New Zealand's debt problem. Yesterday, however, party sources acknowledged the plan would see a Labour government borrow more in the short term.

They said that was necessary because it would not generate revenue from the sale of shares in state-owned assets as National planned to do.

Labour has made it clear it believes the sale of even partial stakes in state-owned power companies would prove to be "fiscally negative"' over the long term - that over time the proceeds of the sales would prove to be less than the dividends they pay the Government.

Meanwhile, tax expert Craig Elliffe of Auckland University yesterday welcomed the fact that a capital gains tax was on the political agenda. A former KPMG and Chapman Tripp tax partner, Professor Elliffe argued in favour of the tax in a series of articles in the Herald this year.

He said it was "terribly important" New Zealand considered the tax, which would bring it into line with Australia, the US, the UK and other developed countries.

Professor Elliffe said one of the main attractions of a capital gains tax was that it was extremely progressive, with those most able to pay being the ones most affected.