Liam Dann: The Government's Capital Gains Tax masterstroke

COMMENT:

Is this Government going to bet it all on a comprehensive, once in a generation, tax revolution - one that affects nearly every New Zealander via KiwiSaver, small business and the family bach.

Or has it, in a political masterstroke, reset the dial on Capital Gains Tax to the extent that introducing a tougher regime targeting property investors now looks mild-mannered and relatively uncontroversial.

I'm inclined to think the latter.

Consider how hard it was for previous Labour leaders to get any traction at all on proposals to tax property investors.

Now rather than being responsible for devising a harsh new system, the Government's job is to soften and exempt.

The Tax Working Group's has covered a once blank canvas in thick paint which the Government will now scratch away at.

We won't get an official response until April. And even then, I'd be surprised if it was delivered as fully formed election policy.

We'll see some of the least politically workable aspects ruled out and others left open for more assessment.

None of this is simple. There are coalition ramifications to work through and no doubt a bit of ideological soul searching to be done.

But political pragmatism has to win.

Finance Minister Grant Robertson was reluctant to give much away but has already made the point that it's unlikely - given the sheer volume of recommendations – we'll see them all implemented.

His joint press release with revenue minister Stuart Nash was at pains to reassure. It pointed out that the recommendations are non-binding, that the Government didn't see the need for a "major overhaul" of the tax system.

"In the words of the Prime Minister we will not throw the baby out with the bath water," Nash said.

But even the dissenting minority within the working group had rental property owners in its sites.

"In our view the case for taxing more gains from residential rental property is clearest," the wrote.

It seems unlikely that property investors will be spared by the Government.

Those dissenting members expressed concern about what additional tax on businesses and equity investments will do to the productive end of the economy.

Lifting productivity is one of Grant Robertson's core missions and these concerns will have to weigh on his thinking.

Meanwhile, NZ First leader Winston Peters seems set on an exemption for farms.

Then there is the issue of the tax itself which - at the marginal tax rate (28 or 33 per cent) and without allowances for inflation adjustment - would be one of the toughest CGT regimes in the world.

Why has the working group delivered something so hard-nosed?

Sir Michael Cullen has described the group's task as one of weighing up the costs and benefits of any changes.

In the theoretical world of tax policy a more comprehensive system, with less exemptions, is simpler, cheaper to administer and gathers more revenue.

It was simply not the working group's job to weigh political risks.

But given the make-up of the group, and the brief it was given, its hard to believe the Government wasn't well aware of what would be delivered today.

On that basis you'd assume they have a grand strategy at play.