CathNews New Zealand

The Tax Working Group chaired by Sir Michael Cullen is due to produce its interim report this month.

This will consider the issue of whether New Zealand should continue not to tax most capital gains (tax the fruit from the tree, but not any growth in the tree that bears the fruit).

The Labour Party, however, has already indicated its strong commitment to a capital gains tax, following countries such as Australia that has had a capital gains tax since 1985.

It is important that New Zealand gets this right. Unfortunately, Labour has said it intends having any capital gains tax enacted before the next election – late 2020 – to come into effect 1 April 2021.

That means legislation into Parliament in the first half of next year, soon after the Working Group’s final report in February.

In reality, the Working Group will need to all but finalise its February report by the end of this year, with legislation soon after that.

Not much time. No time for proper consultation. No time to think through the consequences.

A capital gains tax would mark a sea change in the New Zealand tax system.

We have, over the past 30 years, established a world class tax system that is relatively simple, has low compliance costs, and stays in the background.

Unlike Australians, most New Zealanders do not face the annual nightmare of complex income tax returns. When I was Minister of Revenue, I strongly supported the view that the need for tax returns should be rare, not standard.

A capital gains tax is likely to change all that. Capital gains tax is known to require some very complex rules, have high compliance costs, involve filing lengthy tax returns and be very intrusive.

If you do not believe me, ask any Australian what they think (except of course Australian tax accountants and lawyers who earn mega fees from their complex rules).

Taxing capital gains would impact on all areas of the economy.

A particular concern to me is the housing market. This is where much of the revenue will come from.

The Government has said the family home will not be taxed. Fair enough. But this excludes most housing and means no increase in affordable homes. The rich will invest in mansions, putting further pressure on urban house prices. And what if the home is partly used for rental, a homestay or Airbnb? Is the increase in value of the family home then taxed?

The impact on the most vulnerable – those living in rentals could be disastrous. Continue reading

• Judith Collins is a New Zealand politician. She is the National MP for Papakura and is the National Party’s spokesperson for Housing.
• Image: Newshub

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News category: Analysis and Comment.