Tapu Misa: Goff's tax plan a start to a fairer society

Phil Goff. Photo / Sarah Ivey

New Zealanders have been given a viable alternative to selling off the family silver.

At a health symposium last week, the words "fair society" were bandied about so often it was easy to assume we'd all agree on what such a thing might look like.

But I doubt Auckland landlord David Whitburn's idea of a fair society would look anything like mine.

The Auckland Property Investors Association president was a picture of petulance and entitlement when he declared in last week's Herald that Labour wouldn't be getting a cent of his capital gains. "That's because I'm not selling, ever. My children will inherit these places."

He sounded like a spoilt child who hadn't been taught to share his toys.

Mr Whitburn, a multimillionaire thanks to our lopsided tax system, had turned "$7000 and a handful of shares" into an investment portfolio of six houses and five minor dwellings from which he earns the rent that, in two years, will leave him "debt-free with lovely views of Rangitoto and the Sky Tower".

He'd done very well for himself and his family, and fair enough.

So was it really too much to expect that he wouldn't begrudge a modest 15 per cent tax on any capital gains he makes from the sales of his investment properties?

Or that he'd be just a little bit grateful for the huge break he's had thus far from the New Zealand tax system, which is one of only two in the OECD not to have a comprehensive capital gains tax?

Apparently. "This is a nasty tax that discourages those who want to get ahead and not be a burden on fellow taxpayers in retirement," he told the Herald's Anne Gibson.

"It's not aspirational ... Why punish those making an effort to provide for themselves?"

I don't mean to quibble, but isn't not paying tax on income gained through capital gains freeloading on other taxpayers?

Contrast Whitburn's reaction to that of a Tongan mother of six, Mele Peaua, who, as the Dominion Post reported, takes home $434 a week from her 36 hours as a cleaner at two Hutt Valley schools.

Labour's tax policy, which makes the first $5000 of income tax-free, will mean $10 extra a week for Mrs Peaua. It sounds like crumbs to me, but she told the Dom Post she'd use that to buy more fruit and vegetables for her children, which would be cheaper under Labour's plan to make them GST-free.

"How can we have a better life if the children are not healthy children? I work two jobs and have no time at home for the children ... Ten dollars more per week would give me great joy." As would the $15 minimum wage promised by Labour.

Of course, not all property investors lack the ability to look beyond narrow self-interest. Not every landlord is in the rental market for the capital gain, and many seem to be driven by a genuine fear of being caught short on retirement savings.

I met a hairdresser last week who told me buying and selling houses for capital gain was the only way she and her builder husband could make enough money to save for their retirement. She wasn't ready to hear that retirement security bought through property speculation probably wasn't a sustainable solution, or good for the country.

It's hard to argue with the fairness of treating all income equally, and the wisdom of moving away from a vicious cycle that hurts the productive, job-creating economy. A capital gains tax won't solve all our problems, especially given the exceptions Labour's included to make the policy palatable. But it's a start.

Labour has pitched its tax package as a credible plan to pay down debt without having to sell state assets, which it argues will end up in foreign ownership, sucking up dividends which could be better used here.

A capital gains tax is only half the revenue Labour is conservatively budgeting for. The other half comes from raising the top tax rate to 39 per cent at $150,000 - still lower than Australia's, and affecting the top 2 per cent of earners.

It's a tough sell, but Labour is staking its chances on voters "doing the right thing".

Whether they will or not, voters have at least been presented with a viable choice. Investment in jobs or houses? A capital gains tax or state asset sales?

As the Productive Economy Council points out in a statement, both National and Labour "know we need to repay debt and the money has to come from somewhere".

"With gains from the CGT taking a long time to kick in, Labour has turned again to the top income earners. National for its part sees asset sales as the answer.

"Neither plan is desirable, but Labour's leaves us with the assets. While you can alter a tax rate at a later date, you cannot buy back state assets once sold, and the history of state asset sales in this country is undoubtedly one filled with regret."