Tax Working Group, CGT – PR and promises

Through the week there has been a lot written about the released tax Working Group report, in particular about to CGT or not to CGT.

It looks very Labour. The scope of Michael Cuilen’s report was limited by Labour, but includes significant Labour terminology, like fairness and wellbeing.

But I get the impression  that Labour is backing off  introducing a CGT, either because they know they can’t get NZ First support, or they know it is too electorally toxic. Perhaps both.

Or else we are being played.  It proposes a high rate of tax, and includes farms and businesses. This could be an old trick of threatening something more harsh than is intended so the real aim looks acceptable in comparison. There is plenty of scope for  Labour and NZ First to come out with lower tax and a farm and small business exemption and claim they have listened to concerns.

NZ Herald Editorial: Pity if capital gains tax too hot for Labour to handle

If the Labour Party had any illusions about the fight it will face to bring in a capital gains tax, it knows now. Within 24 hours of the public receiving the recommendations of Sir Michael Cullen’s tax working group the hostility was almost drowning out support for the proposal.

The governing parties had the report weeks ago — plenty of time to time to form a response for announcement with the report’s release as often happens. But only the Greens greeted it enthusiastically.

The week before the report was released Green co-leader made a statement (in parliament) – he said that if the Government didn’t introduce a CGT they didn’t deserve to be re-elected. Labour didn’t seem to prepare, and didn’t seem to have a response organised – unless they deliberately left it open to National to attack the proposals.

Heather du Plessis-Allan: Big tax shake-up or big PR job?

It’s been dubbed the biggest tax shake-up in a generation. But it’s all talk. There’s no chance it’s going to happen. At least not to the full extent the Tax Working Group is recommending.

Some of the shake-up will happen. Maybe enough to qualify as a low-level tremor. Maybe it will include capital gains taxes, maybe it won’t. Yup, maybe none at all.

It’s all too early to say. And that’s for three reasons: Winston Peters, us and Labour’s own self-interest.

A CGT was a Labour election promise. It’s all about making the tax system fairer. It’s a Government looking after the poorest Kiwis. Robertson and Ardern have both spent too much time repeating that message to now walk away from their one chance to fix the system.

This is where Peters comes in. If he continues to oppose a capital gains tax, he might be their get-out-of-jail card. They might be able to happily drop a CGT and blame it on him. They could trot out the old you-win-some-you-lose-some argument. They’ve used it before.

It’s of course true that coalition governments require compromise.

But will the Peters excuse be good enough? Ardern and Robertson will have to use all their charm and communications skills to sell that message.

Either this will be the biggest tax shake-up of a generation, or the most convincing PR campaign to explain why it never happened.

We will have to wait a couple of months for the Labour-NZ First decision making and the PR to reveal which way this is going to go.

It’s hard to see how NZ First would support the introduction of a CGT. Winston Peters has condemned it in the past, notably during the last election campaign. The future of his party is at stake, and u-turning on a CGT could be a big nail in NZ Firt’s coffin.

I think Labour have created a dilemma for themselves here.

If they manage to get CGT legislation passed in time for the election they are at major risk of being thrashed by voters.

If they backtrack and pull the plug on CGT they will annoy core left wing support who have bought the promise.

 

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21 Comments

  1. David

     /  February 24, 2019

    Cullen has done what exactly what you put in your 2nd paragraph.
    I think this thing will get way watered down, it wont go on shares because we are to save for our retirement, it wont go on businesses because thats where productive investment is to be driven to, it wont apply to farms so possibly we are left with the evil folk who own more than one house.
    The property owning folk have been hit with new taxes, regulations, insulation, restrictive borrowing, a 5 year brightline test, foreign buyer ban and the market is flat and now falling in Auckland so pretty much no revenue from it for a lot of getting kicked in the face. CGTs generally raise little revenue and during tough times result in tax losses being claimed on stretched public purses and they are bloody horrid to administer.
    I see further tweaking on property and nothing else from a government in surplus who in its first 100 days sprayed money around to the less well off. If they want more fairness stop giving middle class kids free tertiary education.

    Reply
  2. artcroft

     /  February 24, 2019

    I can’t understand Labour’s reasoning here. Politically if you go down the road of change like this then you really should know before hand what you want and whether you can get it. They know neither of these things. Because of this they have lost control of the narrative and can let other speculate to fill in the blanks. Will Winston let them do it, or will he block them?
    If they do introduce it, it’s on a very rushed time frame, with the opportunity for lots of mistakes and unexpected consequences. Yet if they ultimately decide against it they look either stupid or weak. This is just not well thought through.

    Reply
    • David

       /  February 24, 2019

      The whole thing happened because Ardern stupidly made a “captains call” and then rapidly walked it back, why she thinks its different mid term is beyond me. The election campaign is when she has to sell it she should think about that.

      Reply
  3. PDB

     /  February 24, 2019

    Regardless of what the govt end up doing the whole tax working group has been an expensive farce in delivering a pre-determined outcome not helped by the govt narrowing the scope of the tax review before they even started.

    In the end they have essentially said lets bring all income generated from assets into the personal tax regime using those rates but we’re not sure how that will go so ‘pick and choose’ what assets you want to tax as it doesn’t really matter, after all we couldn’t even agree with that issue amongst ourselves. That lack of conclusion & insight could have been reached in a day-long workshop.

    Reply
  4. A very good question. Does Labour think that voters will gradually realise this and support the CGT? Or is a CGT that unpopular support can’t be bought?

    Reply
    • artcroft

       /  February 24, 2019

      A tax cut isn’t Labour’s intention and everybody knows it.

      Reply
      • Gezza

         /  February 24, 2019

        Some amount of Income tax cuts at the bottom & lower middle ends probably are, because taxing rich pricks like Dr Cullen & Helen Clark is still a good seller to the not so well off. But I would expect various additional taxes & levies – especially if they’re beholden to The Greens – to take back a good deal of any income tax cuts.

        Reply
    • Gezza

       /  February 24, 2019

      Plenty of Kiwis who don’t own multiple properties have designs on doing so one day, via inheritance or leveraging a loan on their own home.

      The ones who already do are extremely well represented in the media, and they vote. It might not be the Kiwi way of life, but it sure is the Kiwi dream. NZ First may not be bold enough to puncture that.

      I considered leveraging a loan on mine when several colleagues were all talking about the fortune they expected to make from doing it. In the end I decided I wasn’t interested in being a landlord, managing another property, organising repairs, looking after a place tensnts won’t because they don’t own it, or sifting through prospective tenants. Nor was i interested in paying some property manager to do it all for me.

      How many others here, apart from those who’ve already made this their way of earning a crust & first class air travel to waste their money in Vegas, have dsigns on owning multiple properties?

      Reply
    • Corky

       /  February 24, 2019

      Because like the UN refugee compact deal, it’s a first step. Already some Kiwis are thinking it won’t be too bad because it’ll be watered down..and they don’t own properties.

      Not so, idiots.

      Let’s hope we can rely on those voters with forked tongues. They say they are for a CGT when interviewed. But privately they hate the idea.

      That’s the dark horse Labour must contend with.

      Reply
    • Pink David

       /  February 24, 2019

      ” Does Labour think that voters will gradually realise this and support the CGT? Or is a CGT that unpopular support can’t be bought?”

      Perhaps they have more foresight than Cooke gives them. A trivial tax cut in exchange for higher rents and potential taxes on property many aspire to own. The vast majority of rental properties are bought by people trying to provide for their retirement.

      Reply
      • Kitty Catkin

         /  February 24, 2019

        It’s impossible to know that someone means the opposite to what they say, unless one knows the person.

        Reply
  5. David

     /  February 24, 2019

    Expect another drop in business confidence in the next survey.

    Reply
    • Duker

       /  February 24, 2019

      Business confidence ? Its became as useless as horoscopes since it had a huge drop right after the election and stayed there- of course the real confidence in the economy shown by the numbers hasnt changed at all, but the doomsayers were wrong.
      Cant cry wolf twice!

      Reply

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