Editorial: New tax better late than never

Phil Goff. Photo / Mark Mitchell

The Labour leadership blundered in foreshadowing for so long the formal announcement of its plans for a capital gains tax if it leads the next Government.

Leader Phil Goff referred to "changes in the broad taxation area" and told reporters they would have to wait until Thursday for the detail.

But when journalists reported they "understood" Labour would announce a capital gains tax, it was Press Gallery code for something they had been officially told on condition that they didn't source it.

It is an age-old political tactic to "leak" policy so as to scent the political wind: if an unofficial announcement causes unrest in key parts of the electorate, the official one never takes place - or is amended to fit the public mood.

But if Labour's coyness is a strategy, this was the wrong week to employ it. Trailing so far behind National in the polls, the party needs to look bold, and a capital gains tax, which skewers one of the great sacred cows of our politics, is a very bold move - but not when it is presented timidly.

The problem Labour faces now is that much of the impact will have gone out of the announcement by the time it is made, because much of the debate will be done and dusted.

That tactic works when you are trying to minimise the impact of bad news but not when you are unveiling a strategy that is intended as an election-winner.

There is another problem with a capital gains tax aimed, as Labour's will be, at disincentivising investment in residential real estate: if implemented, it will close a stable door after the horse has not only bolted but has crossed several neighbouring farms.

Median residential property prices have increased by 250 per cent in the past 20 years; in Auckland by 500 per cent. An entire generation has watched the dream of home ownership evaporate before their eyes.

Repeated analysis has attributed much of that rate of increase (inflation over the same period has been 55 per cent) to the absence of a capital gains tax regime, which the US, the UK and Australia all have. An OECD review committee mentioned it and the Government-appointed Savings Working Group lamented the inadequacy of moves to discourage property investment.

The great boom in property prices has plainly slowed, but there is no reason to believe that there will not be another one. Labour's plan may be late, but it is much better late than never.

John Key ridicules the proposal as "hideously complicated" to administer, but that misses the point. A capital gains tax doesn't have to be levied to be successful; it just has to exist. When those who have most to lose amend their investment profile, more money flows into productive investment that will stimulate economic activity and create jobs.

The Government, which has already rejected Goff's call for a bipartisan approach on a capital gains tax, needs to respond to it with more than jeering. Its lead in the polls is plainly encouraging complacency about its chances in November. But the state of the nation means that it owes the electorate a bold vision of its own.

This week, three leading doctors called for the raising of the age of eligibility for superannuation to free up money for helping those at the bottom of the economic heap, including the 22 per cent of children who are living in poverty.

Apart from borrowing money and talking up a questionable programme of asset sales, National is showing no signs of a plan to get us out of the mess we're in.

Labour's idea, even if it is born of desperation, is a challenge to the Government to prove it deserves re-election. Voters should expect - and demand - a meaningful response.