Labour have been embarrassed by their lack of detailed knowledge of one of their flagship election policies, Capital Gains Tax.

This blew up in Tuesday’s leader’s debate and “David Cunliffe was flummoxed and admitted yesterday he was unsure of the CGT policy details – even though he wrote it”.

The information on CGT on Labour’s website was sparse. They added a link to more details yesterday.

Stuff reports in Gotcha politics replaces dirty politics.

The row was sparked by Tuesday night’s Press/stuff.co.nz leaders debate when Prime Minister John Key claimed that under Labour 300,000 Kiwis with homes in family trusts would have to pay a capital gains tax. He also said a Labour-Green government would introduce five new taxes.

Opposition leader David Cunliffe was flummoxed and admitted yesterday he was unsure of the CGT policy details – even though he wrote it.

Labour fired back, saying Key was wrong, and re-issued the policy, first announced in 2011. 

As well as ignorance about their own policy Labour have been misleading (deliberately or through ignorance) about tax and property speculators. They have often claimed their policy will target speculators but that is already subject to tax and Labour’s CGT would actually halve the amount of tax payable by speculators.

Dene McKenzie covers this at ODT in Capital gains policy stumbles.

Labour’s capital gains tax policy is starting to unravel as accountants and politicians take aim at the major party policy following a slip-up by Labour leader David Cunliffe.

Cunliffe was caught out twice in tax questions during a leaders debate on Tuesday with Prime Minister John Key.

Mr Key was adamant New Zealand had a capital gains tax in place and then threw a question at Mr Cunliffe about family homes being held in trusts which the Labour leader could not answer.

The question was whether a family home held in a trust would be subject to Labour’s capital gains tax. Labour advisers later said it was exempt although the policy says: ”We will ensure trusts are not used as a means of avoiding a CGT”.

Mr Mason said an interesting point was Mr Cunliffe seeming to suggest CGT would deal to speculators. If that was true, they would be getting a tax cut. At present, they pay tax on the full profit at their marginal rate of say 33%. Under CGT, the tax rate was reduced to 15%.

”I suspect he just doesn’t quite understand how it works at all, as even Labour’s website says: `Assets currently taxed at the individual’s marginal or at the business tax rate will continue to fall under the existing regime’.”

More from Crowe Horwarth tax principal Scott Mason on the CGT:

As to the detail of Labour’s proposed CGT, who would know, he said.

Despite being Labour’s policy for more than three years, the party had released very little detail, instead saying some experts would design the final policy.

”The policy on their website does specifically say they will attack trust structures, so I can see why Mr Key felt concerned and asked the question. Mr Cunliffe’s lack of response during the debate makes one wonder whether the later clarification was policy on the run.”

Perhaps the party did not want the detail released until after the election, Mr Mason said.

Finance Minister Bill English said nowhere in Labour’s CGT policy did it exclude family homes owned by trusts.

Labour was trying to say the test for whether a capital gains tax applied was not whether a trust owned the property but who lived in it.

That would require Inland Revenue to confirm the living arrangements of householders in deciding whether the law would apply.

Ownerships of trusts and ongoing living arrangements can be complex – but not according to Labour’s housing spokesperson Phil Twyford in a Herald video.

“Our policy is plain and simple, it always has been. If it’s the family home, capital gains tax doesn’t apply.”

Twyford is contradicted by Labours policy detail which states:

Trust law is complex though, so how we manage this will be decided once we get advice from our Expert Panel.

And Twyford acknowledged that Cunliffe didn’t know a key part of their policy, and Twyford admits needing to be briefed about it for the Herald interview.

Why couldn’t your leader answer ‘no’ last night like you just have when I asked you about Capital Gains Tax, why wasn’t he as knowledgable about that and as definite as you’ve been?

Twyford: Well, it won’t surprise you that I got briefed on that very issue before I came in to see you this morning.

It surprises me that Twyford would have needed briefing on a key part of Labour’s housing related tax policy.

Twyford: You know there’s a lot of policy detail here. The fact is that in that debate John Key was wrong. Our policy is clear, it’s in the manifesto.

Detail wasn’t in the manifesto until after Key raised the issue.

It’s excluding the family home.

Twyford: Absolutely. John Key was wrong. Yeah I’m sure David wishes he’d answered ah more quickly...

Cunliffe didn’t answer until after he was briefed after the debate.

…but these things happen in politics.

Being ignorant of a key part of a key policy that you helped write is not a good thing to happen during an election campaign.

Twyford repeated that Key was wrong – but how could Key or anyone else know what Labour’s leader and Labour’s housing spokesperson seem tonot have known. Labour is leaving it up to an ‘Expert Panel’ to advise them on the complexities. How can he expect Key to know what they might decide?

At the time of the debate the flummoxing of Cunliffe was called a mistake but not as bad as Goff’s “show me the money” hiccup in the last campaign.

Key has highlighted two important things.

He has injected a contentious policy into the election debate, one that Labour has promoted strongly but is vulnerable on, especially when serious doubts have been raised about how it might be applied.

It’s not just an issue regarding family homes, a CGT will impact significantly on small business owners and farmers. It may also apply to shareholders including many Kiwisaver account holders.

The flummoxing of Cunliffe was an unexpected bonus.

But there’s another aspect of a CGT that I haven’t seen addressed – how much impact introducing the tax will have on both the housing market and and on business.

Labour promotes and defends the CGT on the basis that most OECD countries have one (and those countries still have problems with housing markets).

But I haven’t seen any information presented on what impact the introduction of a CGT might have on a modern economy. Australia has had a CGT for 25 years and has significant property inflation right now (I know someone in Brisbane who has just had their property revalued)

How many countries have introduced a similar type of CGT in the last decade? How has that impacted on their housing markets and their business environment?

Won’t a CGT be too complicated to understand and complex to administer?
All but three OECD countries have some form of a CGT. There is a wealth of international experience to draw on and we will learn from the work other countries have done. Labour will also get advice from our Expert Panel to ensure the system is easy to understand and to administer.

“We will learn” – Labour are promoting a policy they have had for two elections and they hope to learn about it? Shouldn’t they they had already learned about it before committing to their proposals?

Shouldn’t they have got Expert Panel advice already so they could “ensure the system is easy to understand and to administer”?

What if their future Expert Panel advises them the system they have proposed will be complex, difficult to understand and difficult to administer?

Labour’s ignorance about key parts of their policy, their ignorance of how their policy will be applied and their seeming ignorance of what impact their CGT will have on housing, business, and investments and savings including Kiwisaver is quite alarming.

More alarming than ‘show me the money’ – Labour are showing us their ignorance.