Greens will push Labour to advance CGT

James Shaw has just said that the Greens would push Labour to bring forward a Capital Gains Tax in post-election coalition negotiations, in an interview on Q+A.

This came just after Jacinda Ardern reiterated her back-flip on pushing any possible CGT out until after the next election in 2020.

Shaw said that the CGT would be one of a couple priorities in coalition negotiations.

This won’t help alleviate uncertainties about what a Labour led government might do on tax next term.

This also highlights the uncertainties voters face when presented with individual party policies when what we end up getting is negotiated compromises – or small party policies are potentially used as an excuse to sneak in different policies.

In a following interview Winston Peters stated that CGT would be off the table as far as NZ First was concerned.

Seeing through Labour’s tax transparency

One of Labour’s biggest weaknesses in the last three weeks of the campaign is tax – what they may or may not tax, especially regarding Capital Gains Tax.

Just after she became Labour leader Ardern spoke on Q+A (6 August):

JESSICA MUTCH: Capital gains tax – yes or no?

JACINDA ARDERN: I will not be campaigning on that this election.

JESSICA MUTCH: So no for a capital gains tax.

JACINDA ARDERN: But let me be transparent, though, here. I won’t be campaigning on it in the next seven weeks. I don’t think anyone would expect us to generate a policy like that in seven weeks. But I’m very clear on is that we are giving a mandate to a tax working group, as we’ve always been clear that we will, to look at the way we tax assets and wealth in New Zealand. 

JESSICA MUTCH: So laying the groundwork for post-election?

JACINDA ARDERN: Yeah. That work will be done after the election. We do not tax assets and wealth the same way as other countries do. If we want to look at inequality, then it is necessary that we do that. But I will not be doing that in this seven weeks.

Ardern has pretty much stuck with this line, repeating ‘transparency’ often but always deferring to a future tax working group.

On one hand it is understandable that Ardern doesn’t want to be rushed into making significant policy decisions when she has been suddenly thrust into the heat of an election campaign. Theoretically decisions like this have to be run through the party policy development system.

But on the other hand this lack of certainty leaves Labour wide open to claims and confusion. Even her deputy was confused.

Yesterday from Stuff: Jacinda Ardern tells Kelvin Davis off over capital gains tax comments

In a confused interview with the AM Show, Kelvin Davis appeared to know little of the detail of Labour’s tax stance and seemed to resile from that comment in the next breath.

Labour has faced tough criticism over its decision to establish a tax working group after the election, but not reveal to voters beforehand whether they intended to implement a capital gains tax or any other taxes.

This election, the party is refusing to rule in or out the possibility of capital gains tax at all.

It was the weak spot for Ardern in Thursday night’s first TVNZ leaders’ debate

Ardern said she was “absolutely clear” on the fact Labour would hold a working group, but refused to answer how far Labour was intending to go with its conclusions and suggested tax changes were more likely to occur in the first term.

“I’ve absolutely maintained our right, and my right as leader, to make sure when that tax working group reports back that I am able to act in Government in the best interests of New Zealand to try and address the housing crisis.”

Apparently not clear to Davis though.

Davis was asked during an earlier interview if Labour would put the outcomes of its tax working group to the country at the following election – Davis replied: “I can’t answer that”.

Pressed again he said: “my understanding is we’ll campaign on it in the next election”. Asked to firm up that answer, on whether Labour would slip it during their first term or take it back to voters to decide, Davis reverted.

“Look, I’m not going to answer that question,” he said.

“Because right now I don’t know, we’ve got to have the working group make their decisions and we’ll come to the country with whatever they produce.”

Ardern said she had not seen the interview, but Davis was “now very clear on our position”.

Like the voters, as clear as mud.

And Ardern is likely to get hammered on this over the next three weeks unless she finds some different lines. Ones that demonstrate transparency rather than just claiming to be transparent.

As transparent as treacle.

Duncan Garner: Hey Jacinda Ardern, what’s your secret tax plan?

They’ll also tax. Tax, tax, tax. And repeat. On water, petrol and tourism. And maybe on capital gains.

If Ardern wants to be PM, she must tell voters more about this capital gains tax (CGT). Would it start in her first term? Would she seek a fresh mandate by putting it in front of voters in 2020?

Whatever she does she should keep her deputy, Kelvin Davis, away from talking about it. He’s a liability. Labour needs to get him up to speed quickly.

So, when, why, what? Would a CGT cover the sale of small businesses and farms?

Voters have every right to feel like there’s a secret agenda on tax.

Sam Sachdeva: Ardern again under gun over CGT

“I’ve been absolutely clear and have absolutely maintained my right as leader to make sure when that tax working group reports back that I am able to act in government in the best interests of New Zealand to try to address the housing crisis,” Ardern said.

Asked why she would not take the issue to another election for a mandate, Ardern cited National’s example when it came to power in 2008 and commissioned a tax review, ultimately leading to an increase in GST. “He [Bill English] saw fit to act on that as he saw fit in the best interests of New Zealand. The difference is that he wasn’t quite as open about intent before the election.”

Fair enough criticising National’s change of stance on increasing GST – but pointing out another party’s campaign deceit and subsequent u-turn is hardly a good way of giving voters confidence that Labour won’t do likewise, a similar somersault.

“I don’t want to be in a position where that working group comes back and there’s some ideas in there that could make a difference for that next generation to get into housing and to deal with some of the inequity in our tax system and to have to sit on that for another couple of years just doesn’t feel right to me.

“My view is though that certainly voters still get a way to feed back to us whether they think we are right or not. There will be another election probably 18 months within us acting on that review and if they don’t agree with what we’ve done, I’m sure they will tell us that.”

She denied it was a way of introducing a capital gains tax without having to say she was going to do so. “No, because I’ve been really clear with people. I expect to get scrutiny over that but I would rather be transparent around our direction of travel than say nothing at all.”

It was a government’s prerogative to act on the information a tax working group would give it. “But of course I’m setting out a few values, a few expectations going in; my expectation that it would never be on the family home and our major driver for this that it be around affordability issues, particularly in Auckland.”

Ardern is being clear in advance on the aspects of tax that suit her to be open about now, but refuses to be clear on others. This is cherry picking transparency.

Last week Alex Tarrant wrote about ‘Labour’s exclusion of family homes and income tax change aversion isn’t fit for a party wishing to fairly tax assets, wealth and income’

On Three’s The AM show on Thursday, Robertson was drawn into his views on whether New Zealand needs a better capital gains tax regime.

“I personally support a better balance in our tax system and I’m going to wait till we see the expert working group. But I don’t believe at the moment that someone who goes to work every single day, pays tax on every dollar that they earn, is being treated fairly compared to someone who flips an investment property and makes a profit on that.”

Robertson keeps repeating that. He must know that selling an investment property for profit is already taxable as income.

Take Robertson’s comment that the main cause of inequality growth in New Zealand over the past few years has been to do with asset inequality. Well, I’m sorry Grant, but New Zealand’s housing stock is worth $1.03 trillion. It’s the major component of our net worth. And about two-thirds of that housing stock is owner-occupied (which is the non-political way of saying ‘family home’).

If we want to ensure fairer tax treatment across assets, wealth and income, then you cannot just rule out capital gains or imputed rents made/unpaid on two-thirds of a trillion dollars’ worth of residential property holdings from the debate.

Perhaps Ardern needs to show some leadership and come out and be clear about Labour’s intentions on tax, some real transparency.

Otherwise she risks getting hammered on this in the remaining three weeks of the campaign, when voters start to look past her charisma and consider what a Labour led government would actually mean for them.

Claiming transparency when it is clear she is fobbing us off may be what ends up defeating Ardern and Labour.

Ardern has had a huge challenge stepping up in the heat of a campaign. I think many voters will be evaluating whether they think it is too soon for her to be Prime Minister or not.

Seeing through her claims of transparency could make the difference.

Labour’s ‘tax working group’

Labour have been saying for some time that in government they would set up a ‘tax working group of experts” to examine options for reforming our tax system.

Grant Robertson on 29 March 2017: Speech to launch the Budget Responsibility Rules

We recognise that the best taxation systems have three key characteristics – they are fair, simple, and collected. The current taxation system fails this test and needs reform. In government we propose to establish a tax working group of experts to examine how best to deliver tax changes that are positive for the economy and New Zealand taxpayers.

On 13 May 2013: Grant Robertson speech to Congress 2017

We need a fresh approach.   If we want a fair share of prosperity for all New Zealanders then we need a better, more balanced and fairer tax system. We are determined to get this right.

That is why we are establishing a tax working group in government.  It will not be the random and unfocused undertaking we saw from National.  It will have a mandate.   A mandate to develop a system that has the values of simplicity, fairness and collectability.  A system where multinationals pay their fair share, where income, assets and wealth are all treated fairly, and where the new and different world of work is recognised.

In advance of that review we have made some decisions that give a clear indication of our thinking.  We are cracking down on tax loopholes for property speculators, including through taxing anyone who flips an investment property within five years.  We are also saying that with the changing technology it will be possible to more accurately assess your tax obligations- and therefore we can get rid of secondary tax.

Labour have been criticised for not being up front on what they will do on tax if they get into government. Deferring to their proposed tax working group is seen as a way of avoiding saying what they intend to do, especially regarding Capital Gains Tax.

Under Jacinda Ardern’s leadership there have been more decisions made, so while they are using the tax working group as an excuse for not being clear about some plans there are a number of things that they have already specified

RNZ:  They were PREFU fighting, Dunne dusted & when minors attack

Labour’s standing by its decision to set up a tax working group should it become government and take advice from it on how to reform the tax system. Jacinda Ardern and Grant Robertson claim the current tax system isn’t fair, but won’t openly campaign on what they think a fair system looks like.

While it’s widely assumed Labour is inclined towards introducing a Capital Gains Tax (they campaigned on one in 2011 and 2014), Ardern insists she won’t make up her mind until she’s seen the tax group’s recommendations.

But Ardern has already made up her mind on a number of tax issues. And:

Yet as Guyon and Lisa point out in the podcast, she has confirmed that she and Robertson will appoint the members of the group, so can more or less ensure the result she wants.

Particularly if they have have already decided on many key aspects of tax.

Vernon Small in We were expecting lollies, but the surpluses refused to come to the party

Labour leader Jacinda Ardern and her finance spokesman Grant Robertson followed that up by scotching any plans for a personal tax increase, either now or as a result of the tax working group the party plans to set up after the election.

In fact the agenda for that working group – and the range of tax changes Labour may countenance – is shrinking faster than the forecast surplus.

Ardern on Wednesday also flipped any possible change to GST into the out tray.

So the list of things the working group will not countenance now includes a capital gains tax (CGT) on the family home, a tax on unrealised capital gains, any increase in income tax – including a new higher top rate – and GST.

Labour has already confirmed it would increase to five years the brightline test when capital gains tax is automatically levied on the sale of investment properties – although that could be part of the working group’s mix. It also has in train a royalty on irrigation and bottled water and an levy on tourists.

That seems to leave the working group with a wafer-thin agenda that includes residual issues around a CGT and perhaps the option of a land tax.

  • Labour won’t rule out a CGT (interpreted as wanting to impose one).
  • Any CGT would exclude family homes.
  • Won’t rule out CGT on businesses and farms.
  • No increase to the top PAYE tax rates.
  • Will scrap the currently planned PAYE tax cuts due 1 April 2018.
  • No increase to GST.
  • Will scrap secondary tax.
  • Will put a ‘royalty’ (tax) on bottled water and irrigation.
  • Will put a levy on tourists.

Are there any more to add to this list? This is already a significant number of significant limitations that Labour would supposedly impose on any tax working group of experts.

Ardern seems to have made up her mind about many taxes, but keeps using the ‘tax working group’ as an excuse for not campaigning on a Capital Gains Tax that, if they implement, would be badly hobbled by excluding  family homes, which involve over half property sales.

 

Labour’s capital gains tax plans

Labour’s campaign plans for a Capital Gains Tax seems to be to say how bad a lack of a CGT is, but not admit the intention to introduce one once they are leading government.

Housing spokesperson Phil Twyford on The Nation:

Lisa Owen: So is it Labour’s goal to get it down to that – about four times?

Phil Twyford: We want to stabilise the housing market and stop these ridiculous, year on year, capital gains that have made housing unaffordable for a whole generation of young Kiwis.

Lisa Owen: But in essence, you’re going to drop the value of houses, if you want them to be four times the price of the average income.

Phil Twyford: Well, we’re going to build through KiwiBuild. We’re going to 100,000 affordable homes.

Lisa Owen: I want to come to KiwiBuild in a moment. I just want to talk to you about the price.

Phil Twyford: That will make housing affordable for young Kiwi families. That’s our policy.

Lisa Owen: Well, do you need a capital gains tax to get that threshold down to where you would want it to be?

Phil Twyford: Well, we are going to shift the goalposts by taxing speculators. So under our plan, if a speculator sells within five years—

Lisa Owen: Yeah, that’s the bright-line. I am asking you about capital gains – a bit of a sensitive issue for Labour.

Phil Twyford: Not a sensitive issue at all.

Lisa Owen: So do you think we need a capital gains—?

Phil Twyford: If a speculator sells a rental property within five years, they will pay income tax on the capital gain.

Twyford keeps referring to taxing speculators. He must know that speculators and property developers who by and sell property with the intention of making a capital gain are taxed now.

From Inland Revenue “If you’re selling a residential property and one of your intentions when you bought the property was to sell it, then you’ll have tax to pay on any profit you make from its resale.” – http://www.ird.govt.nz/property/property-selling/selling-property.html

The bright line test (currently two years, Labour say they will increase it to five years) just makes it easier for IRD to enforce taxing capital gains.

Lisa Owen: Yeah, we know about the bright-line. What we don’t know about is a capital gains tax. So do you think that you need a capital gains tax to get house prices down to the ratios that you think are right?

Phil Twyford: Well, we think comprehensive tax reform is overdue in this country, not only to tilt the playing field away from real estate speculation

Lisa Owen: Last chance – capital gains tax?

Amy Adams: Answer the question, Phil.

Phil Twyford: In the first three years, we’re going to do a tax working group that will redesign the entire tax system.

So Labour are campaigning on “redesign the entire tax system” but generally avoid saying whether their intention is to include a more comprehensive capital gains tax.

The lack of pre-election clarity on Labour’s CGT intentions continued on Q+A yesterday. Grant Robertson repeated how ‘transparent’ Labour has been, and said Labour “won’t shy away from hard decisions”, but refused to be transparent about their intended decisions on a CGT.

Grant Robertson: It’s also about cracking down on speculators. We have to make sure that if someone’s flipping their third or fourth property within five years of of buying it then they’ll pay tax on that.

I would be very surprised if that example wasn’t already covered by current tax law and  IRD now. See Property tax decision tree – Is your property sale taxable? “To work out if the property you are buying or selling is taxable”.

Grant Robertson: “We’re saying that we’ve got to take some action both in terms of cracking down on speculators, building more affordable homes, and we will get better balance in our housing market.

Corin Dann: A capital gains tax. You need to clear up for us what exactly is the position here, because it’s, what’s going? Is there going to be a capital gains tax within side the next three years if you’re elected.

Grant Robertson: So we’ve been absolutely clear. We’re going to this election with a policy that says that if you sell off an investment property, not your family home, within five years, you will pay tax on that. That’s building on a form of capital gains tax that Steven’s government’s introduced.

What we’ve then said, and I’ve been saying since 2015, is that we will have a working group that will look at getting a better balance into our tax system, between how we tax assets, and how we tax income.

Labour wants ‘a better balance’ – that is, a change.

Corin Dann: Would you seek a mandate for that capital gains tax?

Grant Robertson: Just as the working group that Steven had in 2010, didn’t go back to the election and then increased GST, which he’d campaigned against, we will look at the outcomes of that.

It seems clear that Labour has intentions to introduce a more comprehensive CGT if elected (if the working group they appoint recommends it), before the 2020 election.

Corin Dann: That’s a change from Andrew Little.

Grant Robertson: It is a change from Andrew Little.

A significant change. In 2015 Little told The Nation: “Well, we won’t introduce it in our first term, and we won’t introduce any change that significant to the tax system, any material change to the tax system, without going to the people first and getting a mandate to do so.”

Grant Robertson: Let me be absolutely clear about this. We have a housing crisis. We’re not going to sit on our hands for years, the first term of government and not do anything about that. I want the experts to talk to us about that.

Steven, is it right at the moment that someone who goes to work every day, pays tax on every cent of their income, that someone who flips a property after owning it for three years doesn’t tax on that property?

Steven Joyce: Well actually…that’s actually taxed now. So there’s the news for you Grant, if someone actually buys a house, gets an income…

Grant Robertson: Why did you put a bright line test on it then?

See Govt to tighten tax on capital gains (RNZ)  on the budget announced in May- “Capital gains on residential properties bought and sold within two years will soon be taxed by the Government. Unlike the current regime, the new test will not rely on proving a seller’s intent to make a capital gain.”

Steven Joyce: That’s the absolute minimum, under the New Zealand law right now if you’re buying and selling houses for profit you must pay tax.

You know that’s not happening…

Steven Joyce: Well actually it is happening now, that’s the truth, if you go and have a look at Inland Revenue that’s the case.

But coming back to your point. So you’re saying a capital gains tax, is that on unearned capital gains? So when the value of somebody’s business goes up, or somebody’s farm goes up, this us why you don’t want to talk about it…

Grant Robertson: This is why we’re doing a working group.

Steven Joyce: I get that. So that’s why you don’t want to talk about it.

Grant Robertson: This is why…because we’re not going to shy away from the tough challenges.

Steven Joyce: So it could be on the business.

Grant Robertson: We’ve been absolutely clear. If we ever put a capital gains tax on it would not apply to the family home, but right around the world people do this to stop speculators in the housing market.

Turning to Joyce.

Corin Dann: Is it an equity issue, is it a fairness issue? People have made an enormous amount on capital, and income earners, the vast bulk of the population who are earning wages are not seeing anywhere near the gains of capital.

Steven Joyce: In terms of capital gains tax the answer to that question is it depends on what it is. If it’s an unearned capital gain, which is actually what a comprehensive capital gains tax is, ie if your house price goes up in value the tax man sends you a bill, or if it’s your business goes up in value the Tax man sends you a bill, or if your farm goes up in value the tax man sends you, that’s what a capital gains tax is about, that you get taxed on capital gains.

Corin Dann: So how is it that the OECD, the IMF, Treasury, the Reserve Bank, just about every mainstream economic organisation you can think of says New Zealand has needed a capital gains tax for years.

Steven Joyce: Yeah but they want it on the family home. That’s what they want.These are the theoreticians saying tax the family home, and tax them on the unearned capital gain every year, so you should get a bill at the end of the year, if your house has gone up a hundred thousand dollars you should get a bill for thirty thousand dollars or whatever your tax rate is for that unearned capital gain.

That’s never going to fly, Grant’s acknowledged that, but what he isn’t telling people…

Grant Robertson: exactly because we’re not proposing that.

Even if Labour’s working group recommends it.

Steven Joyce: …he’s not telling people whether it would go on their business or on their farm or on their second house…

Corin Dann: Well lets clear that up because it will come up.

Grant Robertson: What we want to do is to address the fact that we’ve got a huge imbalance in our tax system between hardworking people who go to work every day and pay their taxes and people who are speculating in the property market who don’t. We’re going to get the experts in. We’ve been transparent about this…

Steven Joyce: Have you ruled out small businesses?

Steven Joyce: Are you going to rule out small businesses?

Grant Robertson: …we’ve been transparent about this from the very beginning. In 2015 I announced that we were going to be having this working group. What we’re not prepared to do is shy away from hard issues, and that’s what Steven and his Government have done for nine years.

Steven Joyce: Are you saying that you won’t be taxing small businesses on their capital gains?

Grant Robertson: We are focussed on the speculation in the housing market.

Steven Joyce: Is that saying you won’t…

Grant Robertson: We’re focussed…because I actually want to listen to the experts

Steven Joyce: …so you won’t do farms?

Grant Robertson: I don’t want to shy away from these tough issues…

Steven Joyce: …will you do capital gains on farms?

Grant Robertson: This is about speculation in the housing market.

Steven Joyce: No I don’t think it is, because he’s refusing to rule it out.

 

 

Robertson keeps pushing for tax on property speculation, which is already taxable, but keeps refusing to say whether they will widen tax to capital gains on businesses.

Despite Roberton’s assertions that Labour is being transparent and won’t shy away from ‘the hard issues they are very shy about saying what sort of capital gains tax they want to introduce next term if they are in government.

I expect this to keep coming up through the campaign. Jacinda Ardern will need to be well prepared on this or Bill English will hammer her and Labour on CGT.

 

Labour’s Clayton’s Capital Gains Tax policy

Labour have a Clayton’s Capital Gains Tax policy – the CGT policy you have when you don’t want one before an election.

And Jacinda Ardern can claim clarity and transparency all she likes, but that won’t make her sound clear and transparent.

Labour needs a way of funding additional spending signalled in their policies (and that’s before policy demands and costs from NZ First and Greens are taken into account).

For the last election they proposed a Capital Gains Tax. When he took over the leadership after the election Andrew Little ruled a CGT out, saying it was unpopular (that’s debatable, Labour leaders had been unpopular).

This campaign new leader Jacinda Ardern won’t rule out a CGT, saying one would be considered if their proposed Tax Working Group recommended one

“I think we’ve given a huge amount of clarity and transparency over this. We’ve made it very clear we’re not campaigning on a Capital Gains Tax, and we do not believe on Capital Gains tax or  anything similar applying to a family home.

“But at the same time we’ve also acknowledged that we don’t think there’s fairness in our taxation system. We’ve proposed a review which we hope to hold in government, which we will hold in government.

“I’m not pre-empting what that review will find, in the same way that the Government when they campaigned in 2008 did not pre-empt the work that their 2010 taxation report would find.

“But I am maintaining our right and ability to act on it’s findings and do the right thing when we’re in  government.”

So if Labour lead the next Government and appoint a taxation review group that recommends a Capital Gains Tax then they may act on that.

“We’re yet to know what that will be though.”

Not exactly clarity for now.

“I’ve been very, very transparent on this. We do not think that assets are treated fairly, relative to other forms of taxation in New Zealand. The fact that someone can go out and work a 40-hour week and pay tax on that, someone can own multiple homes, flick them off for capital gain and is often not treated in that same fair manner, is something that needs to be addressed.

“Most countries have. New Zealand sits on its own in that regard. But I’m not going to pre-determine what that working group will find, and how it suggests we resolve that.

She clearly supports a CGT. And makes it fairly clear what she wants the working group to recommend and not recommend.

Question “What if the working group finds that the capital gains tax should apply to the family home, haven’t you just pre-determined that?”

Ardern: “Oh we’ve set out some expectations, and any government would say that there are particular values and things that it holds important and dear, so it’s good that we be clear with that group before we go in what our expectations are.”

That’s waffle that can be taken to mean that Labour want a CGT to be recommended by a Tax Working Group, they want family homes exempt, but don’t want to campaign on implementing a CGT this election.

More from interest.co.nz: Labour leader Ardern maintains ‘right and ability’ to introduce Capital Gains Tax if working group suggests it next term; Would exempt ‘family home’

 

recent study by economist Andrew Coleman would indicate that not imposing a CGT on the family home would continue to encourage home-owners to invest in lifting the value of their property by renovating for value uplift and building larger homes, rather than potentially putting that money into other savings schemes that currently face greater tax hits than property.

A CGT exempting family homes is also a tad Claytons – the CGT you have without having a comprehensive CGT.

 

Tax is likely to be a key election issue

There have been major distractions in politics over the last two weeks, with the fall of Andrew Little followed by the euphoric rise of Jacinda Ardern, plus the self destruction of the Greens which included the end of two MPs and the effective end of Metiria Turei’s political career.

Amongst that earlier this week there were two polls that showed a shrink in support for the greens and NZ First, and the likely return of a head to head battle between National and Labour.

And in a debate on The Nation yesterday between Steven Joyce and Grant Robertson the battle lines were drawn.

Robertson: So, under Labour’s package, every family earning $62,000 or less will be better off than under National’s package. What I don’t want is for Steven and me to get a $1000 tax cut when we’ve got families living in cars and garages, when we’ve got a health system that’s not coping. What we’re saying is we’ll get the money to the families in need, but we’ll get the money that Steven wants to give to us as tax cuts – to wealthy people like us – we’ll get that money, and we’ll make sure it’s invested in public services that have been run down.

Joyce: Well, it’s not actually about me – or about Grant, actually. It’s about those people who are on the median wage who are currently facing a 30-cent-in-the-dollar tax rate, and we have to change that. And the only way we change that is shifting the thresholds. Now, Grant’s allergic to actually reducing taxes and allergic to adjusting thresholds. He’s about increasing taxes.

Labour have pushed the anti-tax cut for rich people since National’s tax cut package was announced in the budget in May.

But it doesn’t just reduce tax or ‘rich people’, it reduces tax for all workers who pay PAYE:

Increases the $14,000 income tax threshold to $22,000, and the $48,000 threshold to $52,000. This provides a tax reduction of $11 a week to people earning $22,000 or more rising to $20 per week for anyone earning $52,000 or more.

https://www.budget.govt.nz/budget/2017/family-incomes-package/index.htm

That’s $1,000 less tax per year for everyone earning over $52,000 (affecting ‘rich people’ of course but also the majority in wage earners).

Of all the polices announced this one directly affects me the most. Labour would scrap it, and that has to be a significant factor in deciding who to vote for.

More on possible tax changes;

Lisa Owen: Capital gains tax — are you ruling it out in the first term absolutely, if you’re in in the first term?

Robertson: We’ve got a tax working group. I can’t pre-empt what they’re going to come back and decide.

Lisa Owen: So you can’t rule it out? Could come in the first term?

Robertson: I can’t pre-empt what that group says, but here’s the important point — right now today we have something called the bright-line test that the National Party brought in. It says that if you sell a house that’s not your family home within two years, you’ll pay tax on it. Steven has a form of capital gains tax.

Lisa Owen: I’ll give you the chance to talk about your policy, Mr Robertson. So a capital gains tax is still on the table? You’re not taking it off?

Robertson: What we’re going to the election with is a commitment that if you sell a property that is not your family home within five years, you’ll be taxed for that.

Robertson clearly avoiding stating a position on a Capital Gains tax, something he has favoured in the past but Little took off the table. It appears to be under consideration again.

Joyce: I think there’s a problem there for the Labour Party, because they’re dodgy on tax. They’re refusing to say about the capital gains, they’ve mentioned a water tax last week, but they won’t tell us how much it is, and then, of course, they’ve got a regional fuel tax they won’t talk about where it goes beyond Auckland.

Expect National to hammer the uncertainty over what additional taxes a Labour government could implement.

Labour are trying to avoid details by deferring to a future tax working group (on CGT) and an ‘expert panel’ (on water taxes).

Lisa Owen: So top tax rate — can you rule out lining yourselves up with the Greens and having 40 cents over 150 grand? Are you going to go for that?

Robertson: No, I don’t think we will be going for that, but what we will do…

Lisa Owen: …but you are not ruling out raising that tax rate.

Robertson: I’m not ruling it in; I’m not ruling it out.

On a water tax:

Lisa Owen: What about your water levy? What’s that going to be?

Robertson: The water levy? Look, what we’ve said there is for every thousand litres of water that’s used in irrigation, perhaps one or two cents.

Lisa Owen: One or two cents. There you go, Mr Joyce. That’s not going to make a huge difference, is it?

Joyce: This is the problem is that he’s not telling.

Robertson: One or two cents, Steven. How big a difference?

Joyce: Well, hang on. Don’t ask me; ask the farmers, because I’ve seen some figures that even at those levels, you’re talking about 50,000 a year per farm. So I think it’s beholden on the Labour Party to actually come a bit more clean on their tax stuff, because they’re being very dodgy.

Robertson: We’ve been completely upfront.

Joyce: You haven’t, actually. So you’ve got a water tax that you won’t tell anybody—

On the Panel discussion on The Nation:

Patrick Gower: I actually think that Grant Robertson probably got in a few more jabs in…however in terms of actual overall damage I think some of the talk about tax there that Steven Joyce, in terms of long term damage beyond the debate, in terms of that capital gains tax is back on the table.

The capital games tax is back baby. Labour were going to go to the next election with that, but that could come in next term.

Lisa Owen: Jane, are they doing themselves a disservice by not putting numbers on stuff now.

Jane Clifton: Absolutely. They’re their own worst enemy. This week alone with the water tax issue, because finally we’ve got a figure for irrigators and wineries and so on of one to two cents, although David Parker said three.

…but yeah, just get your ducks in a row, announce them all, don’t leave room for speculation about $18 cabbages and $70 on a bottle of wine…

The Newshub video cut Gower off at the end, but he pointed out a significant power shift in Labour. When Andrew little took over the leadership in 2014 he put a number of Labour policies on ice, including the CGT.

But with Little dropping to the ranks and Ardern taking over the leadership Gower said that this meant also a significant rise in influence of Robertson – he and Ardern have been close allies for a long time. We are already seeing glimpses of what that may change in Labours tax policies.

Gower followed up on Twitter:

So expect tax to be a prominent issue in the election.

It may have a significant effect on the outcome of the election. Labour will need to be much better prepared for the inevitable attacks from National.

Ardern will need to be well prepared for the leaders’ debates with Bill English. She will likely have a ready response to a ‘show me the money’ type line (Key used that to devastating effect against Phil Goff in 2011), but she is likely to get challenged over and over if she remains vague of what taxes a Labour government may impose or increase.

And tax could also have a significant impact on the outcome of coalition negotiations. Both Labour and National will have to try and find enough partners to support their tax (and spending) plans.

Personally a water tax or a CGT or a fuel tax in Auckland won’t affect me.

But I will be seriously taking into account whether National’s income tax cuts might be reversed or not when I decide who I will vote for.

Hickey’s housing slant

The official description of ‘Bernard Hickey’s Opinion’ column says that  ‘Bernard is an economics columnist for the NZ Herald’.

In his column today, Use that power, renters, Hickey has strong words about Auckland’s housing problems

Finally, Auckland’s Generation Rent has found someone who is talking about the elephant in the room – rampant speculative demand for housing by landlords.

Everyone worried about Auckland’s astonishing house prices should read Reserve Bank deputy governor Grant Spencer’s speech.

He spelt out in the plainest language yet that property investors are taking advantage of tax incentives to use cheap debt to buy as many houses as they can.

The Reserve Bank has exhausted its toolkit, having put up interest rates and set limits on high loan-to-value ratio (LVR) lending. It is looking to increase capital requirements for landlords’ mortgages, but it knows it’s not enough.

Exasperated, the Reserve Bank has asked for help to control the risks to New Zealand’s banking system, which relies on house values to back 60 per cent of its loans.

Spencer called for the Government to revisit the tax incentives for landlords.

Fair enough listening to and quoting the Reserve Bank Governor.

The Government’s top economic adviser has said landlords’ tax incentives should be reduced and central Auckland apartments should be built in defiance of the Nimbys controlling Auckland politics.

Council and Government politicians are refusing to take that advice.

What I find interesting about this is the apparent one-sidedness of Hickey’s column. It seems that he has used the Reserve Bank Governor to support a hobby horse.

Now this column may have been written before yesterday morning.

But at 9 am yesterday Hickey participated on a Twitter discussion for The Nation about their interview with Treasury Secretary Gabriel Makhlouf who has different views on housing than the Reserve Bank Governor.

Join our Twitter panel and at now!

Those alternatives weren’t mentioned at all in Hickey’s column – and he should have been well aware of them before listening to the Makhlouf interview.

On the panel Hickey displayed what looked like a pre-decided slant. He has a clear preference to Reserve Bank advice to Treasury Advice.

Here’s another view on China for ‘s Gabs Makhlouf to read after

He tries to educate Makhlouf on his angle.

Big gap there between @nztreasury & @ReserveBankofNZ. Gabs Makhlouf sceptical about CGT just 3 days after bank called for debate.

But Hickey doesn’t seem \want debate, he wants to promote his views which happen to side with the Reserve Bank advice.

Got a feeling the @ReserveBankofNZ would have liked a bit more support from @nztreasury on housing taxation than that.

Ok, he has ‘a feeling’ he and the reserve Bank are right.

In Muldoon era it was the @nztreasury offering the freest and frankest and most critical advice. Now it’s the @ReserveBankofNZ

Is that because it’s the freest and frankest? Or because it’s ‘most critical advice’ that happens to fit his opinion?

For #nationTV3 viewers wanting an alternative housing view, here’s the speech from @ReserveBankofNZ’s Grant Spencer http://www.rbnz.govt.nz/research_and_publications/speeches/2015/action-needed-to-reduce-housing-imbalances.html … …

Diverting viewers to something he prefers to the Nation interview.

Another example here of how NZ’s leaders today are pushing the costs of current consumption onto their kids/grandkids http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11433784

He’s not discussing the Makhlouf interview at all, he dismissed it and is linking to alternatives he agrees with.

Counter-factual for a CGT is what happened to Auckland house prices post-election after buyers realised no CGT. Up 20%

Has Hickey got any evidence supporting that ‘counter-factual ‘? House prices almost certainly didn’t go up 20% solely because the election result meant no wider Capital Gains Tax. Did it have any effect at all?

Unless Hickey can produce facts I will remain very dubious about that claim.

And I’m very disappointed he simply dismissed Makhlouf  and made no attempt to lead any discussion. In his The Nation panel tweets and in his Herald column he looks more like an economic activist than a balanced economic columnist.

Treasury Secretary – Capital Gains Tax won’t help Auckland

The Treasury Secretary Gabriel Makhlouf was interviewed on The Nation yesterday and said he doubted a capital gains tax would help the escalation in property prices in Auckland.

A CGT isn’t a quick fix and it won’t address the current problems.

Well, just this week the Deputy Reserve Bank Governor, Grant Spencer, is calling for a capital gains tax, or some kind of tax on investment. What do you make of that?

Well, I think what Grant Spencer was talking about was the need for us to address the housing issues in Auckland, and at the heart of the housing issue in Auckland is that we’re not building enough houses, and the Productivity Commission said a few years ago when it looked at this issue that building more houses is the answer. Looking really carefully at our planning regulations is the single biggest thing that will make a difference to how we build— how many houses we build in Auckland.

So you don’t think a capital gains tax or a tax like that is part of the solution?

I’m quite sceptical. If the issue that people are talking about is house prices, London and Sydney have got capital gains taxes and they’ve got similar issues as us. This is a phenomenon that’s actually playing out in large urban areas which are successful, right? And New Zealand is successful, Auckland is successful, so one of the consequences of that, as in Sydney and London and in Vancouver, is the current phenomenon, house prices. But we need to build more houses to actually meet the needs that we’ve got.

So in your view, it’s a supply side problem, then?

That’s the principal issue, is the supply side problem. And it’s not just my view; it’s the Productivity Commission’s view as well.

A Capital Gains Tax would do little or nothing to address the soaring property prices in Auckland.

A CGT (as proposed by Labour last term):

  • It would phase in very gradually so would have little immediate impact
  • It would not tax capital gains already realised
  • It would affect the whole country, not just Auckland
  • It has proven to not limit property inflation in other countries

So it’s a solution to a different problem, the broadening of the tax take. That’s a different debate with varying views on it’s worth.

Capital gains are already taxed on property speculation – where property is bought and sold with the aim of capital gain (according to IRD rules). Capital gains on share trading is also taxable.

Makhlouf is correct saying “building more houses is the answer” – building more houses in Auckland where the biggest demand is. For this to happen more land must be made available more easily. It’s land inflation that’s the problem, and that’s happening due to a shortage of supply and too many restrictions on higher density use.

Video: Interview: Treasury Secretary Gabriel Makhlouf

Full transcript (Scoop): Lisa Owen interviews Treasury Secretary Gabriel Makhlouf

Cunliffe trips over CGT and IRD

Labour leader David Cunliffe has been exposed again, apparently making things up incorrectly about something he should have known about.

On Radio Live yesterday Cunliffe claimed that Labour had discussed with Inland Revenue that they could handle a Capital Gains Tax.

Not only has IRD denied they discussed anything it’s been known for years – including to Labour – that the aging IRD computer system was unlikely to be up to handling it.

Did David Cunliffe tell me the truth yday when he said the IRD had told Labour it could handle a new Capital Gains tax? Drive

A little later later:

Cunliffe said to me he had run CGT past IRD to see if they could cope with it. IRD told me today NO discussions have occured.

Back in 2011, prior to the last election on interest.co.nz Government still eyeing savings tax break, but complexities and poor IRD computer systems stand in the way:

IRD systems in need of hundreds of millions – could be a problem for Labour’s CGT

Labour’s Revenue spokesperson David Clark in 2012 on Labour’s blog – IRD computer crisis:

The Inland Revenue Department has been pleading for a new computer system for years. Its current one (known as FIRST) was built in 1992 when the Internet was still in nappies. 

In February this year, the Prime Minister said tax policy was being held back because the computer systems “can’t actually support radical changes from Government.”  He also said “You don’t want to be in a position where Parliament is held hostage to a lack of technology.”

But New Zealand is being held hostage to this technology. Well placed sources tell me that the Government couldn’t currently implement a capital gains tax…

So two years ago Labour thought IRD’s computer coudn’t handle it.

NBR in May this year – Why a capital gains tax will be off the agenda

Despite the policy purity, it’s widely recognised a CGT will only raise revenue of any substance after an estimated at 15 years. One should also read between the lines; until Inland Revenue’s first mainframe computer system is finally upgraded, such a significant policy change would likely be the last straw to a full collapse of the current computer system.

Transcript from yesterday’s interview:

Duncan Garner: Inland Revenue’s, and you’ll know this because you’ve been a Minister, their tax administration system, their computer, is getting old and it’s aging…

David Cunliffe: Very old.

Garner: …and it’s being replaced. Can it actually handle a Capital Gains Tax, because my understanding is that it may not be able to?

Cunliffe: Um, it will be part of the rebuild and redesign that’s allowed for in the policy on-ramp. Um, and that’s why we’ve paced it as we have.

Garner: But has anyone asked the IRD if the can handle that tax, because it’s quite complex?

Cunliffe: Um yes that it was discussed ah when we first designed it, and ah we’ll update if we necessary if we need to when we’re in Government.

Garner: Right so has the IRD said they can handle the Capital Gains Tax to you?

Cunliffe: Yes, in principle they have.

Garner: They have personally said that to you?

Cunliffe: Ah well not in person to me I don’t work at that level of detail, I’m a party leader so I’m I don’t get down in the weeds like that but we have worked that through not only with um ah with the IRD folks but with Treasury folks when we were designing the system.

Cunliffe wasn’t party leader “when we were designing the system”, it has been said he was involved in designing the system.

It looks like Cunliffe has again been caught out making things up about something he should have known about.

Basic stuff. Balls up, again.

RadioLive Intervbiew – DAVID CUNLIFFE WHAT’S ACTUALLY HAPPENING WITH THE CAPITAL GAINS TAX?

Labour’s alarming ignorance about their CGT

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.