PM throws doubt on capital gains tax

John Key says the capital gains tax is inefficient and failed to stop housing booms overseas. Photo / Sarah Ivey

Prime Minister John Key has cast doubt on the likelihood of a capital gains tax, saying it would take "meteoric evidence" to persuade him it would work.

The tax on property is being investigated for the Government by a top-level review, and Labour leader Phil Goff opened the way for an accord on the contentious issue by saying it was open for talks.

But Mr Key shut that down yesterday, saying he would take "an awful lot of convincing". He said the tax was inefficient and did not achieve the objective of stopping a housing boom. He said it had not worked that way in the United States, Australia and the United Kingdom.

"It's been my longstanding view capital gains taxes are inefficient and don't work. Unless there was some meteoric evidence out the [tax review group] I would not vote for one."

Mr Key has previously refused to rule out a capital gains tax, so as not to place any limits on what the review group comes up with.

He has said he does not favour one, but strengthened his opposition yesterday after Mr Goff's comments raised the possibility of a "grand coalition" of the two parties introducing the tax.

Mr Goff said the party's bottom line would be that the tax would not apply to family homes.

A capital gains tax on property investment is seen as one way to reduce the tax advantages of rental housing, curb house price inflation and send investment into productive sectors of the economy. The review group is due to report back this year.

Mr Key said he would be open to other proposals to "beef up" methods of taxing property investment.