‘Surprise card’ (really?) could help sell CGT

An obvious possible aim with Michael Cullen’s Capital Gains Tax proposals, especially the very high tax rate, was that the Government could adopt a watered down version and sell that as a good thing – this is an old political trick, lead with something terrible and then claim that a half as terrible policy was somehow great.

There are hints that this is indeed a deliberate approach taken, with a more moderate CGT being quietly circulated.

Tom Pullar-Strecker (Stuff): Surprise card could help Labour sell a capital gains tax ‘light’

The Government has a trump card that could make a capital gains tax less unpopular and far harder for any future National government to reverse.

Tax Working Group chairman Sir Michael Cullen has proposed making a tax on capital gains “tax neutral” by handing back the $8.3 billion in revenue it is expected to generate over five years, mostly through income tax cuts and improved KiwiSaver incentives.

But a well-placed source believes the Government is likely to propose slashing the rate of a capital gains tax (CGT) and introducing significant exemptions to get the tax in place, while still offering all the major “carrots” and keeping the change tax-neutral.

That could be achieved simply by declaring that the CGT should be “tax neutral” over a longer period than five years, say 10 years.

A ‘well-placed source’ sounds suspiciously lie a leak strategy is being used.

The Government asked the Tax Working Group (TWG) to come up with tax packages that were tax neutral.

But Finance Minister Grant Robertson confirmed it was the working group that determined that should be over five years, with “no ministerial direction” on the timeframe.

Robertson would not rule out changing the time period, saying only that the Government was “carefully considering the report and all of its recommendations”.

The source suggested that if the Government did shift the goal posts set by the working group it could halve the maximum tax on capital gains from the currently proposed top income tax rate of 33 per cent, to 16 or 17 per cent.

It could also decide “not to touch KiwiSaver” by exempting KiwiSaver funds from paying tax on Australian and New Zealand shares, exclude more “lifestyle blocks” from a CGT, and introduce a threshold under which small business owners would not pay tax on their capital gains.

Together that would address the “four main concerns” with a CGT, including one “which is gaining traction” that it would be unfair to tax capital gains at 33 per cent while not adjusting them for inflation, the source said.

This makes it sound like Robertson may be the ‘well-placed source’. Which wouldn’t be surprising.

It also wouldn’t be surprising if Cullen and Robertson had either planned a strategy of proposing a heavy handed CGT and then switching to a CGT-lite from the start, or have sugested the lite version in response to the widespread negative reaction to the version proposed by the Tax Working Group.

Lengthening the period over which a CGT would be tax neutral could also make it less appealing for any future National government to quickly reverse the tax changes, since many of the benefits from the overall changes would then be more heavily “front loaded”, the source observed.

Chris Wales, a former leader of PwC’s global tax team who has advised prime ministers and finance ministers in several countries, including Britain’s Tony Blair, said the approach could be “wise, sensible and democratic”.

“At a simplistic level, people will, of course, be relieved that the potential breadth of a CGT has been reduced and that the rate is nowhere near the 33 per cent that the TWG has put forward,” Wales said, speaking from Kiev.

The Government could argue it had respected the outcome of the group’s deliberations but listened to the people as well, he said.

It sounds like ‘the people’ are being played here.

There’s not much of a surprise in that.

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9 Comments

  1. David

     /  14th March 2019

    It needs to be noted that that strategy was first posited here at YNZ by a frequent commentator who is nearly always right on the money.
    What is annoying is the TWG was supposed to find something that would achieve Ardens aims and what it did with Cullen as its head is deliver a political solution/roadmap with an outrageous regime supported only by the political appointments to the TWG so it would deliberately give cover to a less brutal regime. The experts on the panel disagreed, it wasnt a unanimous verdict.

    Reply
    • Blazer

       /  14th March 2019

      ‘first posited here at YNZ by a frequent commentator who is nearly always right on the money.’

      Not blood Corky again!…’I’am on record as saying….’

      All unsubstantiated speculation anyway.

      Only the wealthy and property ‘investors’ do not believe a CGT is pragmatic.

      Reply
  2. Gerrit

     /  14th March 2019

    If this is the fall back position…can we get rid of Cullen on a grand a day expenses now?

    No need for him surely?

    Reply
    • Blazer

       /  14th March 2019

      cheap at half the price.

      Mr Body ..here’s $2.3 million to do a confidential report on HNZ stock.
      Thanks, awfully good of you my National friends.

      Reply
  3. PartisanZ

     /  14th March 2019

    @PG – ” … this is an old political trick, lead with something terrible and then claim that a half as terrible policy was somehow great.”

    Well …. NO! What you describe as “a half as terrible policy” is actually a great policy ….

    Given “how obscenely weighted in favour of capital wealth our tax system is” – Vaughan Gunson – Northern Advocate

    Reply
    • David

       /  14th March 2019

      Because taxing capital is complicated, its lumpy and doesnt deliver revenue at the right point in the cycle and always delivers less than what is predicted.
      It slows capital formation and distorts capital allocation in a way that is often sub optimal for example if there is a capital tax on the sale of a business one may be better off keeping it small and stripping it of cash each year rather than foregoing income and growing it and employing more people only to give up 30% to the crown when you sell burnt out at the end of your working life.

      Reply
      • High Flying Duck

         /  14th March 2019

        Capital gains tax is an absolute no-brainer for those who haven’t thought through the consequences and complexities of a capital gains tax.
        It’s a great headline tax, that gets murky and unravels with unintended consequences as soon as you scratch the surface.
        Not having it is a huge part of why NZ’s tax system is lauded as being so simple and effective around the world.

        Reply
  4. sarineal

     /  14th March 2019

    The only way to make a CGT acceptable is tax breaks (including being able to claim back capital investment & mortgage interest against income) and have a CGT levied at a low rate say 5 or 10% on all assets adjusted for inflation as per the CPI. Existing assets should be grandfathered in, meaning the vagaries of valuations are not necessary and the amount of gain is clear and the tax should not act as stealth death duties. Even then, I’m against it because we use tax paid money to purchase, pay tax on income on short-term gains (eg interest, bright line test on property, FIF regime on foreign shares) and with housing pay GST on R&M, rates, insurance and other charges. I’m sick of them pretending it’s all gain and nothing else goes into a business or house purchase in terms of risk, time, and cost. I’m not happy with the distortions to investment they have put in by favouring some assets over others.

    The current situation is the proposal intends to tax inflation and would involve huge costs to levy. It should be ditched, not modified and a better proposal put in if they wish to pursue it.

    Reply
  1. ‘Surprise card’ (really?) could help sell CGT — Your NZ – NZ Conservative Coalition

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