Tax Working Group throwing CGT football back at Labour?

It is reported that the Tax Working Group may throw the Capital Gains Tax football back at Labour, deeming a decision on it being too political for them. Perhaps it is more of a hot potato.

While the CGT was a prominent part of Labour policy the WTG was limited in what they could recommend. For example they were instructed to exclude family homes from any CGT recommendations, which complicates things substantially.

And it appears that, again, the Government is asking for (forcing?) amendments to media articles after they are first posted.

Tom Pullar-Strecker (Stuff): Capital gains tax debate not over, Grant Robertson suggests

The Tax Working Group is understood to have stopped short of recommending a broad-based capital gains tax, in an interim report due out within days.

The working group chaired by Sir Michael Cullen was tasked with designing a capital gains tax for consideration by the Government, but is expected to push back any firm recommendation to its final report which is due to be published in February.

It had been widely expected that the Tax Working Group (TWG) would recommend a broad-based capital gains tax on the likes of sharemarket and property investments as the centrepiece of tax reforms on which Labour would fight the next election.

However, doubts began creep in earlier this year that the Government would ultimately back the plan, amid concerns the new tax would be unpopular and would cause rents to rise without delivering much in the way of extra revenue for at least a decade.

Paul Drum, chief executive of accounting body CPA Australia, said in a newspaper column that “a close reading of the tea leaves” suggested the “highly important and politicised” issue of the capital gains tax “is probably to be parked for further consultation and input”.

Sir Michael Cullen hinted that was on the money, saying he had “not reacted strongly to that comment”.

Interestingly, the headline was changed some time after that article was posted online. The original article name:

CGT in doubt as bid to outsource political decision hits snags

Now:

Capital gains tax debate not over, Grant Robertson suggests

Some content was also changed. Earlier:

The Tax Working Group is understood to have stopped short of recommending a broad-based capital gains tax, in an interim report due out within days.

Now:

The Tax Working Group is understood to have stopped short of recommending a broad-based capital gains tax in an interim report, but Finance Minister Grant Robertson has played down the report’s significance.

I think this has been added:

Robertson confirmed the Government had received the interim report which he said would be released soon.

But he said the work was “always supposed to be a two-stage process” and commentators were “getting a bit ahead of themselves”.

And some content has been edited out.

It looks like Labour is a bit sensitive about the Tax Working Group in relation to the Capital Gains Tax.

Considering their obvious influence over media coverage (the Prime Minister’s office jumped into media coverage of Jacinda Ardern’s misleading over the Clare Curran resignation last Friday), I wonder how much Robertson and Labour may be trying to influence Cullen and/or the Tax Working Group?


Also, from Newsroom:  Capital Gains Tax looks less likely

Prime Minister Jacinda Ardern said on Monday that she had not “set expectations” about what the working group currently considering tax reform would recommend to the Government.

Ardern and Finance Minister Grant Robertson established the working group in March with terms of reference including, “whether a system of taxing capital gains or land (not applying to the family home or the land under it), or other housing tax measures, would improve the tax system”.

But Labour’s plan to de-politicise the CGT appears to have failed, with reports now circulating the working group intends to push a recommendation on a CGT back to the Government.

Ardern said she would allow the group to do its work and would not prefigure what it would produce — outside of the parameters established in its terms of reference.

But Robertson is actively trying to influence the reporting.

Newsroom understands the interim report has recently been handed to Robertson and Revenue Minister Stuart Nash. Officials will then digest the report before releasing it to the public.

So the ‘leaking’ of the CGT information could have come from a number of places, for a number of reasons.

The group’s final report is due in February. Labour will then choose tax proposals from the report to take to the electorate in the 2020 election. Should they win, the proposals would be implemented in April 2021.

So the Tax Working Group looks like a policy development exercise for Labour in Preparation for the 2020 election..

27 Comments

  1. Alan Wilkinson

     /  September 11, 2018

    Cullen had eight years to implement a CGT himself if he thought it would fly. He’s not silly enough to be made into Robertson’s scapegoat now. In fact, he may be quietly forcing Robertson out of hiding on thr issue with this leak.

    • I thought it looks a bit like a carefully calculated leak. What the aim is though is a bit harder to know.

      • David

         /  September 11, 2018

        Business confidence is already beaten to death and a CGT would hurt, it will have to apply to shares as well as farms and businesses being sold.
        They dont tend to raise a lot of money so its a big political hit, they are horribly complicated to administer.

  2. Blazer

     /  September 11, 2018

    you shouldn’t have long to wait to find out .

  3. Patzcuaro

     /  September 11, 2018

    The Wiggles would have come to the same conclusion,. Hot potato hot potato.

  4. PDB

     /  September 11, 2018

    This govt needs quick cash to cover the financial hole that is wider then even Joyce predicted, even more so as they slow the economy – a CGT won’t start seeing some returns for years so it’s likely they won’t bother.

  5. High Flying Duck

     /  September 11, 2018

    The only reason for a CGT (and it is a good reason) is fairness. The problem is that getting that fairness baked into the tax system comes with the addition of significant and ongoing complexity.
    Everyone is for “fairness”, but no one wants to have to go through huge extra compliance to achieve it.
    And that is before you go into whether the CGT should be imputed like current international investment rules, whether it should be on realisation only, whether it should be broad based or have exclusions – family home, Kiwisaver etc, whether businesses or farms are affected, how mixed use assets are treated, whether there are thresholds and on and on.
    On a simplistic level the CGT is hard to argue against. From a practical perspective it is hard to argue for.
    This is why it is kicked down the road every time it is promoted. The fact we are currently in a very high asset price environment limits the value to be gained by implementing it so there are unlikely to be any meaningful offsetting tax reductions available elsewhere to soften the blow.

    Personally I would push for inheritance taxes instead, imposed on asset values above a threshold. Parents assets are not earned by children and having a tax on death is a good method of having a final tax wash-up on assets on passing.

    Trusts have defined “lifetimes” so as long as trust re-settlements were included it would be possible to deal with loopholes.

    • Alan Wilkinson

       /  September 11, 2018

      Inheritance tax is a great way to chase wealth out of the country.

      • High Flying Duck

         /  September 11, 2018

        All taxes drive investment somewhere. The UK and USA seem to do OK with 40% taxes on estates (albeit with high exemption thresholds).
        I prefer them to a CGT. ‘No tax’ is always the best tax as long as public services can be funded.

        • David

           /  September 11, 2018

          Death taxes are a terrible idea, the money has already been taxed and the state shouldnt be able to have another go.
          My folks have been gifting money (UK based) for a decade now which costs a fortune in professional fees, its money that is better left invested somewhere in the UK economy for long term benefit not shuffled around enriching tax lawyers. Dad,s marginal tax rate in the 70s pre Thatcher was 92% and gradually reduced but was always over 45% so he figures he has paid his bit.

      • Blazer

         /  September 11, 2018

        wealth is secured in complex trust arrangements and overseas tax havens anyway.
        Only the little people pay a fair share of income tax.

        • PDB

           /  September 11, 2018

          “Only the little people pay a fair share of income tax.”

          Interesting wording as of course the largest earners still pay the vast majority of income tax in this country whilst ‘the little people’ (as you put it) tend to claim more money back off the taxpayer then they pay.

          As always it’s the middle income workers (stuck between paying taxes and not being eligible for govt support) that get hit the hardest.

        • High Flying Duck

           /  September 11, 2018

          The proportion of people who can do that is tiny. The majority of people pay taxes, and high earners pay the vast majority of taxes.
          Those with the “complex financial arrangements”would also be paying eye watering amounts of tax. Just as little as they can based on their extreme wealth.

        • David

           /  September 11, 2018

          Blazer few people in NZ have complex arrangements because our system is very uncomplicated and the top rate is pretty low. I deal with 3 accountants and it just doesnt come up in any meetings any more, used to when the 39% rate was in but Billy English changed the system with depreciation which stopped most shenanigans and dropped the rate to 33.
          He estimated an extra billion a year in tax after changing the property tax laws, it was open to rorts before that.

          • Blazer

             /  September 11, 2018

            Why are there so many tax havens around the world do you think?
            When the laws for registration were tightened up, interest in NZ evaporated.
            It was a good earner for a handful of connected cronies for a few years though.

            • David

               /  September 11, 2018

              Blazer most of the NZ connection was it used to be too easy to set up a company online here and use it for all sorts of purposes so we were attractive for foreign dodgy buggars. We were a 3rd party it wasnt 10s of thousands of Kiwis but we did by being lax play a part for all sorts of dodginess.

    • PDB

       /  September 11, 2018

      HFD: “Personally I would push for inheritance taxes instead, imposed on asset values above a threshold. Parents assets are not earned by children and having a tax on death is a good method of having a final tax wash-up on assets on passing.”

      Do you need a lie down? Ignoring the fact an inheritance tax is essentially ‘a tax on money already taxed’ the mega-rich can always avoid paying it and the middle class (above your threshold) would end up bearing the brunt of it. Not to mention it’s a costly tax to administer, and doesn’t in fact make a lot of money overall.

      • High Flying Duck

         /  September 11, 2018

        As above, I prefer it to a CGT which is hugely complex and difficult to administer.
        I should have been clear I was speaking of an either / or situation.
        I’m a big fan of the current NZ tax system compared to overseas regimes and don’t think they need to be dickering with it at all.

        • PDB

           /  September 11, 2018

          I just question what implementing a inheritance tax is actually solving?

          • Trevors_elbow

             /  September 11, 2018

            Jealousy

          • High Flying Duck

             /  September 11, 2018

            It is a proxy for the more complicated CGT regime.
            There is an anomaly in that you get taxed on personal exertion but can reap tax free gains from land and property investments. The fairness argument is compelling. It is only the complexity consequences of actually enacting it that puts me firmly in the “against” camp.
            If the argument is inequality than an inheritance tax helps achieve it to some extent. That said, any taxation outside direct income or sales taxes is always problematic.
            My actual preference is for tweaking status quo.
            But on the assumption the government is going to push something upon us come hell or high water – which Grant Robertson’s comments would indicate then either inheritance tax or land tax would be the best of a bad bunch of options.

            • Blazer

               /  September 11, 2018

              One thing I give Labour Govts credit for…they at least look at areas that need attention and attempt solutions as opposed to the Nats default= maintain the status quo and leave it to someone else to deal with.

            • High Flying Duck

               /  September 11, 2018

              That presupposes there is a problem.
              Labour have “looked at the problem”a number of times now and been told what they want to hear by every working group. But they won’t implement the policy.
              Now even the working groups are baulking.
              National have made a number of changes to taxes over the years, mostly to good effect. This includes thin cap rules, shifting GST and income tax rates (tax neutral), adjusting what can be claimed as an expense and more.
              There is a reason the surpluses were so big and getting bigger when Labour got in.

    • alloytoo

       /  September 11, 2018

      @HFD said “The only reason for a CGT (and it is a good reason) is fairness.”

      With respect, it’s not a good reason, taxes are already unfair by simple virtue of the fact that we tax wealthy people more for the same level of service (exponentially more).

      Taxes should be efficient, not fair, and priced right.

      • Blazer

         /  September 11, 2018

        ‘not fair’…Inland Revenue-‘its our job to be fair’.

        • Alan Wilkinson

           /  September 11, 2018

          If you believe that I’ve a bridge to sell you.

  1. Tax Working Group throwing CGT football back at Labour? — Your NZ – NZ Conservative Coalition