Windfall gains should be taxed

A109 Light Utility Helicopter flight with mayor Gisborne City from the air in November 2023.

Opinion

And so the stalls go up for the 2020 election — vote Labour for a fairer tax system, vote National to protect the Kiwi way of life.

While it is understandable that National is arguing against a comprehensive capital gains tax in the strongest possible terms, and has wide backing for its stance, Labour is on the right side of this argument. For now, anyway.

Sir Michael Cullen’s tax working group has proposed a relatively simple and efficient tax on the sale of a broad range of assets, at the taxpayer’s marginal rate — which in most cases would mean 33 percent. It has suggested the revenue, estimated at $8 billion over five years, be used to deliver income tax cuts for low and middle earners.

New Zealand needs fundamental tax reform, and done right this can both make society fairer and boost economic growth.

Windfall gains are an obvious source of tax revenue, and New Zealand is an outlier globally in not having a comprehensive capital gains tax — although most tax systems have so many loopholes that they are not comprehensive.

Property taxes in developed countries average just 6 percent of government revenues, despite the massive gains so many have received from escalating house prices in big, global cities, which have also frozen young people out of home ownership. This is far from just a New Zealand problem.

While economic theory says all income should be treated the same for tax purposes, political reality has kept owner-occupied houses out of the capital gains mix. There is a good case for business sales to be exempt too, in the New Zealand context where there are chronic issues with limited capital and low productivity. At the very least there should be a carveout for business investment.

A two-week consultation period is under way amongst a great deal of heat and light, although the big question is what will emerge from negotiations between the three Government coalition partners over the next two months.

It is highly unlikely that the legislation they eventually propose will include a capital gains tax that is broad-based and comprehensive, thanks to the power that Winston Peters wields behind the throne.