John Armstrong: Goff may win the political debate, but a tax is still just that

Phil Goff. Photo / Natalie Slade

Is Labour's capital gains tax a solution looking for a problem? That seemed the case yesterday as the party's efforts to sell its new tax partly on economic grounds ran into unexpectedly strong growth figures.

Phil Goff and his colleagues may well have cursed their luck.

Not only that, but the tax policy launch was nearly upstaged by the tiresome antics of Hone Harawira.

Statistics New Zealand released figures showing strong growth in the first three months of this year - even though the period took in the second Christchurch earthquake.

That presented an opening for Finance Minister Bill English to warn that the last thing that was needed was more taxes, just as the economy looked to have finally picked up.

In fact, a capital gains tax should speed the very thing English has long been arguing for - shifting investment away from speculative assets such as housing and into more productive export-generating ventures.

National would argue, however, that Labour's version falls disproportionately on productive ventures such as farms, businesses and the share market, because just about everything else is exempt. That includes the family home, personal possessions, inherited assets, collectables, payments from retirement savings schemes and, with certain provisos, even a big hunk of the gains on the sale of a small businesses.

Labour now argues there is a clear contrast between the two major parties - that the choice in November is between "flogging off" state assets and the "fairness" of a capital gains tax.

But Labour wants to have its cake and eat it too.

A "soft" capital gains tax allows Labour to argue New Zealanders do not have to sell portions of state-owned electricity companies to pay off public debt. That can be done through a capital gains tax that very few of them will actually have to pay.

If this attempt to cash in on voters' antipathy to asset sales seems too good to be true, Labour's numbers do seem a bit rubbery here and there. National's focus will be on the $265 million Labour says it will reap in ending the off-setting of losses arising from rental property investments against other sources of income, as well as a further $300 million Labour says it will make from that hardy annual - a crackdown on tax avoidance.

Labour, however, has been ultra-cautious in compiling its fiscal projections knowing National will probe for weak points - especially as Labour has projected tax revenues over a 10 year-plus period which does not allow for changing circumstances.

But Labour is damned if it does and damned if it doesn't offer such projections. It is on those calculations that its "tax switch" redistributing from the wealthy to the less well off stands or falls.

In that regard, some will read the push for a capital gains tax as nothing more than shoring up its core support.

However, it is more a case of reaching to the centre by trying to marginalise John Key and National as only looking after the well-off.

In terms of the economic logic for and fairness of a capital gains tax, Labour is winning the academic argument - and National knows it.

However, appealing to people's better judgement when it comes to paying an extra tax is risky stuff.

Voters may accept the arguments for such a tax, but any prospect - even a distant one - that they might have to pay it may not be regarded so favourably.