National response to Tax Working group final report

Simon Bridges set the National tone to the Tax Working Group final report prior to it’s release.

NZ Herald:  National Leader Simon Bridges says a capital gains tax would lead to Kiwis leaving NZ for Australia

Speaking to media this morning, Bridges came out swinging and said such a tax would come at the detriment to middle New Zealand.

“[It would be] a recipe for more people buggering off to Australia.”

Interest.co.nz:  Bridges says a capital gains tax would cause people to leave for Australia (where there is a capital gains tax)

That point was hammered on Twitter as well.

Bridges’ initial response to the release of the report yesterday:

That has also been widely ridiculed.

A Labour friendly report that is likely to be watered down substantially by Winston Peters is not exactly an all out assault.

A prior tweet is closer to the mark:

One distinct possibility is Peters demanding a farm exemption. And possibly a small business exemption. And a hobbled CGT quickly becomes a crippled CGT, if it gets NZ First approval at all.

Regardless of this, National have been hammering the report.

Simon Bridges: More costs as tax monster unleashed

The Tax Working Group has gone much further than a Capital Gains Tax with a raft of new taxes targeting hard-working New Zealanders, National Leader Simon Bridges says.

There are eight new taxes including; an agriculture tax, a tax on empty residential land, a water tax, a fertiliser tax, an environmental footprint tax, a natural capital enhancement tax, a waste levy and a Capital Gains Tax.

“This is an attack on the Kiwi way of life. This would hit every New Zealander with a Kiwi Saver, shares, investment property, a small business, a lifestyle block, a bach or even an empty section,” Mr Bridges says.

“For farmers, who are the backbone of our economy, this is a declaration of war on their businesses and way of life. They would pay to water their stock, feed their crops and even when they sell up for retirement.

“Labour claims this is about fairness, but that’s rubbish. The CGT would apply to small business owners like the local plumber, but not to investors with a multi-million dollar art collection or a super yacht who won’t pay a cent more.

“The TWG has recommended one of the highest rates of Capital Gains Tax in the world. The Government would reap $8.3 billion extra in its first five years from ordinary Kiwis – small business owners, farmers, investors, bach and lifestyle block owners. After 10 years it would be taking $6 billion a year from Kiwis.

“It will lead to boom times for tax lawyers and accountants and even Iwi advisers, given recommendations for exclusions that include Māori land in multiple ownership.

“We believe New Zealanders already pay enough tax and the Government should be looking at tax relief, not taking even more out of the pockets of New Zealand families.

“National says no to new taxes. We would repeal a Capital Gains Tax, index tax thresholds to the cost of living and let Kiwis keep more of what they earn.”

Amy Adams: Massive tax grab will hammer NZ economy

New Zealand might have been expecting a capital gains tax to be announced today but the full suite of taxes proposed by the Tax Working Group would threaten the very viability of large swathes of the NZ economy, National’s Finance Spokesperson Amy Adams says.

“The new taxes proposed today will create a compliance mine field, massive distortions in the market and weaken our international competiveness at the very time the Government acknowledges the international economic risks are growing,

The proposal from the Government’s handpicked Tax Working Group doesn’t line us up with other countries as has been claimed, instead it would impose one of the most onerous capital taxation regimes in the world with 100% of the gain taxed at full marginal rates, limited relief for capital losses, no inflation adjustment and limited rollover relief.

“The Capital Gains Tax proposed by Sir Michael Cullen and the Tax Working Group will hit every small business owner, KiwiSaver account, farm, family bach, lifestyle block and investment in New Zealand. It will act as a massive disincentive to save, invest or build a productive business.

“There is nothing fair about saying owners of baches and lifestyle blocks will face a tougher CGT than corporates.

“It would add significant complexity to our relatively simple tax system, likely exempt Iwi assets, require all eligible assets to be re-valued within five years and further drain New Zealand’s already shallow capital markets.

“New Zealand doesn’t need a Capital Gains Tax and the Government has to date failed to confirm this would be a revenue neutral package. The CGT alone would raise an additional $32 billion over ten years and there is no evidence any offset will be of the same magnitude.

“On top of the Capital Gains Tax, other new and increased taxes, include a vacant residential land tax, a water tax, a fertiliser tax, an environmental footprint tax, a natural capital enhancement tax, extending the waste tax.

“It is quite simple, a country can’t tax itself to prosperity.

“New Zealanders already pay enough tax and National believes if you want New Zealanders to succeed on the world stage the tax burden should be reduced, not increased.

“National has promised to repeal the Capital Gains Tax, index tax thresholds to inflation, repeal the Regional Fuel Tax and not introduce any new taxes in our first term. Our full tax package will be released closer to next year’s election.

“The longer the Government dithers over its response to this report, the more our economy will be hurt by the fear and uncertainty these recommendations will rightly cause.”

Labour will likely have predicted and prepared for this sort of over reaction.

And what Labour ends up getting NZ First to agree to is likely to take much of the sting out of these attacks.

Peters the elephant in Labour’s CGT room

Labour told the Tax Working Group what they couldn’t do, and the Tax Working Group final report seems to be largely a Labour prescription. It even uses Labour-like terms such as Future of Work as well as Future of Tax. This isn’t all that surprising given the involvement of Michael Cullen.

But while the Group’s recommendations, especially on Capital Gains Tax, may look like a Labour wish list, the elephant in their room is Winston Peters and NZ First. With National saying they are against the CGT Labour will need NZ First support to get anything done.

Greens have already said that the Government won’t deserve to be re-elected unless they introduce a CGT – see James Shaw slams tax timidity, calls on Labour, NZ First to be bold with CGT.

An exchange in Parliament yesterday after the release of the report gives a good indication of where Peters is at on the CGT.

Question No. 2—Prime Minister

2. Hon PAULA BENNETT (Deputy Leader—National) to the Prime Minister: Does she stand by all her Government’s statements, policies, and actions?

Rt Hon WINSTON PETERS (Deputy Prime Minister) on behalf of the Prime Minister: Yes.

Hon Paula Bennett: Does she agree with comments by the Rt Hon Winston Peters in regards to capital gains tax that, “They won’t work in this country. They won’t work in any other country. They never have worked.”?

Rt Hon WINSTON PETERS: On behalf of the Prime Minister, the responsibility of the Prime Minister is for comments made by Ministers when they were Ministers, not beforehand. And, on behalf of the Prime Minister, I should not have to tell that member that.

Hon Paula Bennett: Does she agree with comments by the Rt Hon Winston Peters that, “You can’t possibly go into an election saying, ‘My tax policy will decided by a committee.’ “?

Rt Hon WINSTON PETERS: On behalf of the Prime Minister, for the second time now, I am not responsible for comments made by members of Parliament before they held a ministerial warrant under my premiership. That’s the substance of the matter and whether she agrees or not here’s the fine point about a democratic constitutional Government: that is, we’re going to consult with the people of this country in the next two weeks. [Interruption] I tell you what we can trust: somebody that hasn’t got a massive vested interest in this case, somebody that hasn’t got a massive vested interest in property, and is not now thinking about the country but just her narrow, selfish, egotistical self.

SPEAKER: I am going to remind the Deputy Prime Minister that he is speaking as the Prime Minister.

Hon Paula Bennett: No, no, let him go. Does she agree with the comments by the Deputy Prime Minister just yesterday who said, “The farming community, they are in for the long haul and there is no way a capital gains tax would have any effect on them at all.”, when today’s report says it will cost farmers $700 million a year?

Rt Hon WINSTON PETERS: On behalf of the Prime Minister, I have read the Deputy Prime Minister’s comments on the farming show. I know that he comes from a seriously agrarian background and understands the long-term ownership aspirations and intergenerational aspirations of farming families around this country, and not one of them who aspires to that will be affected by any capital gains tax.

Hon Gerry Brownlee: That’s not right. That’s not right. Read it.

Rt Hon WINSTON PETERS: No, I’ve done some work in my time, son, not like you.

SPEAKER: Order! The pair of you.

Hon Paula Bennett: If the Prime Minister is correct in her comments, then why on earth would they be saying that it would cost $700 million a year if a capital gains tax is applied to farms?

Rt Hon WINSTON PETERS: On behalf of the Prime Minister, there is the rub. Who is saying that and what do they mean by “if”? I mean, the criteria would be whether or not this is an expanded tax, and at this point in time it is not. It’s merely a report with a number of options—all 99—and what I’d like to know on behalf of the Prime Minister is: how come they had only four hours to study this and yet had already put out their views before the report came over their desks?

Hon Paula Bennett: Does she agree with the comments by the Hon James Shaw recently who said, “The only question we should be asking ourselves is: do we deserve to be re-elected if we don’t.” with regards to implementing a capital gains tax?

Rt Hon WINSTON PETERS: On behalf of the Prime Minister, that is a fact, and I’m glad about that. This is the first fact I’ve heard thus far in question time—that Mr Shaw said that. Mr Shaw’s a visionary Minister and is looking to the full debate and discussion that’s going to take place over the next eight weeks. Why don’t we all show some patience and be prepared to consult with the public of this country, the businesses of the country, rather than give your own narrow venal views.

Hon Paula Bennett: Can she confirm that any changes as a result of the recommendations in the Tax Working Group’s report will be revenue-neutral?

Rt Hon WINSTON PETERS: On behalf of the Prime Minister, it’s very difficult to come to a report—

Hon Paula Bennett: Grant just told you to say that you haven’t made any decisions.

SPEAKER: Order!

Rt Hon WINSTON PETERS: Unlike that member, doesn’t need instructions, able to think for himself, doesn’t need a speech writer, not embarrassed by being shown up every day—no. On behalf of the Prime Minister, the Prime Minister and her colleagues are not going to come to a decision until they have had the full consultation. And I must say, the most interested person in this is the Minister of Finance—the consultation process—and when that consultation is finished, we will share with the public our findings.

Hon Paula Bennett: You got that right.

 

Labour response to Tax Working Group final report

Jacinda Ardern not ‘ruling anything in or out’ after capital gains tax recommended by Working Group

Prime Minister Jacinda Ardern won’t commit to any tax reform despite the Tax Working Group report released today recommended a comprehensive capital gains tax.

It’s hardly comprehensive – it is more comprehensive than the current tax on property for developers and speculators, but the recommendations have some significant exclusions.

“We’re going to give the public a little bit of time, we’re going to take a little bit of time to form some consensus around the Government’s response,” she said.

“As you can see in the report there are some areas where everyone agrees, and there are some areas where the group did not, it’s our opportunity as government to go away, take a little bit of time, build some consensus and then come back to the public.”

“We are not ruling anything in or out at this stage.”

But Minister of Finance Grant Robertson and Minister of Revenue Stuart Nash have fronted for the Government  – here is their official response:


Government response to Tax Working Group report

The Coalition Government will take a measured response to the final report of the Tax Working Group (TWG), Finance Minister Grant Robertson and Revenue Minister Stuart Nash said today.

“We welcome the release of the report and thank Sir Michael Cullen and the TWG for their hard work,” the Ministers say.

“The independent report finds that overall our tax system is clear and simple but there is room for improvement. There is some unfairness that we need to address. We will work through ways to do this to make the system fairer and more balanced,” says Mr Robertson.

“The overall findings confirm that there is no need for a major overhaul of the system,” says Mr Nash. “Our response will preserve the key principles of our existing broad-based low-rate tax system. In the words of the Prime Minister, we will not throw the baby out with the bathwater.”

As the Working Group has said, the Government is not bound to accept all the recommendations it put forward. There are options to accept some, and/or to phase or sequence aspects of the packages proposed by the Group. Both Ministers said it was highly unlikely all recommendations will need to be implemented.

“We will seek technical advice on addressing the unfair and unbalanced elements identified by the TWG and make further announcements in April on any measures to enhance the fairness and integrity of the tax system,” Mr Nash said.

“Our aim is to ensure the system is fair for families and businesses and that it offers balance across the wider economy,” Mr Robertson says.

“We look forward to discussing the recommendations with our Coalition and Confidence and Supply partners as we work to find consensus on the best overall package. We will work to get the balance right,” he says.

“I am also happy to reaffirm the commitment made when the TWG was established that no changes arising from the report will be implemented this term. We also set out some clear bottom lines. In particular, the family home, increases to income tax and GST, and an inheritance tax are off limits and this remains the case,” says Mr Robertson.

Mr Nash also confirmed that tax reform initiatives separate to the work of the TWG will continue in the meantime. “We remain vigilant to ways the current tax system fails to address global economic and social forces which affect economic activity. These deficiencies are being acted on through our existing programme of reform.”

The Ministers noted that the Coalition Government has already moved to restore fairness and balance through a series of business-as-usual reforms:

  • Digital Economy. As announced earlier this week we are taking steps to ensure companies in the digital economy who do business across borders pay their fair share of tax. A discussion document on the options for a design of a digital services tax will be released in May, and we continue to work with other countries for a global solution;
  • Multinationals. The aggressive tax planning of some multinational companies who do business here has been tackled through the Base Erosion and Profit Shifting (BEPS) legislation which came into force in 2018;
  • Bright line test. The previous Government’s bright-line test that determines whether you pay tax on residential property investments sold within two years of purchase was extended by this Government to include those sold within five years;
  • Ring fenced losses. Losses on residential investment properties are to be ring-fenced, to remove the ability of property investors to pay less tax on other income;
  • Research and Development. We are encouraging innovation and investment by business with a package of R&D tax incentives that come into force from 1 April 2019;
  • GST on offshore suppliers. Domestic retailers will finally be on a level playing field with foreign companies who sell low value goods into NZ and don’t collect GST;
  • Double Tax Agreements. The ability to detect and prevent tax evasion involving taxpayers who operate in both NZ and offshore jurisdictions is enhanced by DTAs. We have updated the DTA with Hong Kong, a major financial centre in Asia. Updated DTAs with China, Korea and Fiji are also on the Government work programme;
  • Hidden economy and tax evasion. We increased the ability of IR to go after tax cheats, especially in the hidden economy, with more funding for compliance and enforcement;
  • IR Business Transformation. The BT programme of modernisation within IR makes it easier to eliminate punitive secondary tax for those who hold down more than one job, and to automate tax refunds each year;
  • Families Package. Measures in the Families Package targeted low and middle income families including changes to Working for Families;
  • Business Advisory Council and Small Business Council. The PM’s Business Advisory Council and the Small Business Council have been tasked to come up with a strategic approach to supporting business across central agencies.

Timeline:
Ministers expect to release the Government’s full response to the Report in April 2019 following detailed discussions with officials and consultation between Government parties.

As previously indicated, it is the Government’s intention to pass any legislation to implement any policy changes arising from the report before the end of the Parliamentary term. No policy measures would come into force until 1 April 2021 – giving New Zealanders the chance to vote on any decisions made by the Government.

 

 

Tax Working Group final report

The final report from the Tax Working Group has been released. It’s a long report, with a long summary so I won’t post even that.

The bottom line for me seems to be that I would benefit from the tax cuts (about $1000 per year for the household),  the CGT would have little or no effect, but the environment taxes could have an impact.

That is, if the Government adopts the recommendations. Labour seem to be distancing themselves from the report, and Winston Peters has strongly opposed a CGT in the past.

Capital Gains Tax is the big talking point. Stuff: Capital gains tax: Tax Working Group announces support for capital gains tax, cuts to income tax

KEY FACTS

– Capital gains to be taxed through income tax.

– Family home (one per person) to be excluded from tax, within some limits

– Gains to be taxed from date tax comes into effect on assets people already own

– Tax generally to apply when people sell assets, with limited “rollover” relief if proceeds are reinvested

– Rollover relief to apply on death/inheritance

– Capital gains won’t be adjusted for inflation

– Investors to have up to 5 years to have some assets valued.

– Personal possessions, including artworks that may be held as investments, to escape net

– Capital losses could “generally” be offset against other taxable income.

– Income tax breaks worth between $420 and $595 a year to almost all taxpayers

– Low and middle-income KiwiSavers to benefit from reduction in tax on employer contributions

– Wealthier KiwiSavers to lose out from taxation of funds’ Australian and New Zealand shares

Funnily, the pop up video advertisement accompanying this was on ‘How to boil and egg”.

RNZ – Capital gains tax recommendations: What you need to know

The group, chaired by Sir Michael Cullen, has recommended the following:

  • Tax the capital gain on sale of land, shares, business assets, intangible assets such as intellectual property.
  • Tax to be imposed when the asset is sold, and levied at the seller’s marginal tax rate.
  • The tax would NOT apply to the family home, and personal assets such as cars, paintings, jewellery, and household appliances.
  • A holiday home WOULD be taxed on sale.
  • No change to GST and no exemptions for certain types of products, such as food and drink.
  • The capital gain on shares in companies would be taxed but in some circumstances capital losses would also be able to be offset against other income.
  • The capital gain on the sale of a business would be taxed, including the goodwill.
  • No changes to income tax rates, but a recommendation to raise the income threshold for low and middle income groups.
  • Environmental taxes: changes to the emissions trading scheme to be more like a carbon tax.
  • Dirty taxes on solid waste to reduce volumes to landfills.
  • Taxes on water pollution and water extraction.
  • Taxation of fertiliser use. Consider congestion charges to tackle traffic issues.
  • The government’s full response, including any planned new taxes, is expected in April.
  • The intention is to have legislation passed ahead of next year’s election, but changes won’t come in until 1 July, 2020.
  • National would have the opportunity to repeal the legislation if it wins the election.

It is all here:

But these are just TWG recommendations. The Government say they will decide what if anything to implement, and any changes would not take effect until after next year’s election.

Tax Working Group report today

There is a lot of speculation on what the tax Working Group report will recommend today. Some of that may be well informed, but I think there’s a lot of guesswork.

Most attention is on what sort of Capital Gains Tax will be recommended, but there should be plenty of other things of interest.

I’ll just wait to see what comes out (and I probably won’t get a chance to comment on it until tomorrow).

But I’m sure that regulars here will feed this thread with news and discussion points through the day.

 

Tax reform and capital gains tax still unresolved

According to media claims the Cabinet has received copies of the Tax Working Group recommendations, but it could take some time to find out what they are going to decide to run with. – or what the are allowed to run with by Winston Peters.

Group chairman Michael Cullen has suggested that tax changes could be decided in Parliament this term ready to come into effect in April 2021 providing Labour gets a mandate in next year’s election. But Grant Robertson has warned that it could take some time to work through the recommendations with Labour’s partner parties in Government.

Audrey Young (in Major challenges for ‘exasperated’ Ardern):

Robertson played Robin to her Batman at the post-Cabinet presser, initially fronting on the Government response to the insurance industry inquiry.

The subject quickly changed to the final report of the Tax Working Group and its promised capital gains tax which is due to be handed to the Government this week.

Robertson patiently continued his mission to change the language over the tax by calling it a “capital income tax” rather than a “capital gains tax” — an attempt to equate it to all other income.

Ardern became impatient when questions turned to the undisputed veto that NZ First will have on any capital gains tax — the Greens have been unequivocal supporters and NZ First longstanding opponents.

Apparently a capital gains tax is just like every other issue the Government debates, and requires the agreement of all three parties.

Not just apparently. Tax reform is far from a done deal. It is a Labour only promise, but with no public agreement with either NZ First or the Greens.

Stuff:  Decision on capital gains tax will take a wee while, Grant Robertson warns

There will be no quick decision from the Government on whether to implement a capital gains tax, Finance Minister Grant Robertson has signalled – noting Labour would have to work that through with its coalition partners.

The Tax Working Group (TWG) chaired by Sir Michael Cullen is understood to have completed its report for the Government, with a “clear majority” favouring subjecting capital gains from the sale of property, shares and businesses to income tax.

But Robertson told RNZ the Government would need to take its time to read the TWG’s report “work through the details of it and work out what package we can agree to as a coalition government”.

Remarkably the Labour-NZ First coalition agreement did not mention the Tax Working Group, nor CGT, and neither did Labour-Green Confidence & Supply Agreement, so the recommendations of the TWG and what Labour would like to do will all need to be negotiated with Winston Peters and NZ First, as well as with the Greens. This alone is likely to take time.

Inland Revenue said on Tuesday morning that the report had not yet been delivered to the Government, and no date has been set for it to be made public, but sources said the report was being read in the Beehive.

Robertson said he expected to get the report by the end of the week but he and Prime Minister Jacinda Ardern did not rule out a coalition partner vetoing any legislation.

“There is a wee ways to go before the final decisions about this report will be made,” Robertson said.

“As we do with all these reports, we will take a look at it and put it out with a few interim comments from us,” he said.

So it could be some time even before the report is made public. Labour want to work out how to try to sell it before they advertise it.

Cullen said in December that he believed Parliament would have time to pass legislation paving the way for any proposed tax changes before the election, so those changes could take effect from April 2021.

Theoretically Parliament may have time, but Labour won’t want to take any tax changes to Parliament without agreement from NZ First, and the Greens.

Politik: And now the hard part; getting Winston to agree to a capital gains tax

Prime Minister Jacinda Ardern confirmed yesterday that iot was still the government’s intention to bring forward legislation for any tax changes before the end of its current twerm though those changes would not come into effect until after the enxt election.

But whether it will propose a capital gains tax will now depend on whether it can persuade NZ First to agree.

Ardern and Finance Minister Grant Robertson were coy yesterday on whether they thought they could win that derbate.

Meanwhile NZ First Leader, Winston Peters, is not saying much beyond repeating his 2017 assertion that we already had a capital gains tax.

“What i tried to point out then was that we had a cpaital ghaimn tax and that we had had one for a long time,” he told POLITIK last night.

“Now the question is are you talking about broadening it.

“The position of New Zealand First is that we will wait for the report, we will evaluate it and then we will give our view.”

Tax reform has already limited by Labour in their terms of reference for the TWG. They will presumably also want any changes to fit within their wellbeing agenda.

It will only happen if it also fits with the electoral wellbeing of Winston Peters and NZ First

Labour, Capital Gains Tax, ‘fairness’, 2020 election

Labour have promoted a more comprehensive Capital Gains tax for years, and set up the Tax Working Group 14 months ago with a CGT as a major focus. However they have ruled out some capital gains from being taxed, particularly ‘family homes’.

Labour seem to be caught between two forces – a stated desire to reform the fax system and make it ‘fairer’ (which in reality means taxing some people less and some people more), but also an obvious wish to get re-elected next year. They have said they will campaign on whatever tax changes they come up with in the 2020 election to get a mandate to implement them.

Labour’s tax policy: https://www.labour.org.nz/tax

Hamish Rutherford (Stuff):  Is capital gains tax a hill that Labour is willing to die on?

National wants Labour to go into the next election proposing a capital gains tax because the Opposition believes such a move will be something close to political suicide.

After close to a decade in the wilderness, during which Labour continuously preached about the inherent unfairness of New Zealand’s tax system, the largest Government party must ask itself: is this a hill worth dying on?

Although supporters tend to oversimplify the case, there is a strong, possibly compelling, argument for capital gains to be taxed.

If a person is taxed for what they earn from their work, it seems only reasonable that they also be taxed for what they receive from their assets.

Equality writer Max Rashbrooke went so far as to suggest capital gains tax should be called a “fairness tax”.

But the problem is, no-one is proposing the type of tax which this implies.

Labour has already ruled out a capital gains tax on the family home, and  an inheritance tax. Both exemptions have massive implications for how much the tax would raise and the extent to which the wealthy can manage to avoid it.

Both are also political promises which have implications for whether the tax is, indeed, fair.

Whatever is promised by the Tax Working Group report will leave Labour in an invidious position.

Capital gains taxes are inherently complicated and New Zealand’s existing tax system is designed around not having one in place.

During the election campaign in 2017, Labour was constantly on the back foot amid an intense campaign by National’s “let’s tax this” attack advertising.

Jacinda Ardern was eventually forced to rule out major changes before the 2020 election, but, according to pollsters, the damage was done.

Unless Ardern and Finance Minister Grant Robertson are ready to continually make the case for whatever changes are proposed, the Government’s proposed capital gains tax will be whatever National says it is.

So far NZ First has remained silent on its policy on capital gains tax, but if Winston Peters can be convinced to support it at all, he is certainly unlikely to do so without extracting some tangible win for the party to promote to his supporters.

All of this comes amid high uncertainty about what a capital gains tax would raise in the coming decade, in an environment where low interest rates have pushed asset valuations to levels which may not be sustainable, especially if the economy slows.

For all of its belief that there is a major problem in the tax system which could be fixed through a change in mindset, the reality is likely to be dawning that the tax will be politically challenging unless major changes are made, which will undermine how much is raised as well as how much “fairer” the tax system will become.

It will also be so easy for its opponents to demonise that the Government must wonder whether it’s worth the risk of trying.

But if Labour decide that progressive tax reform is ‘not a priority’ they will be demonised as well, for talking up tax reform and a CGT and then backing down. They have to come up with something substantive on tax reform.

John Cuthbertson (Stuff) – Capital gains tax: What’s fair for one person may hurt another

In the 14 months since the Tax Working Group terms of reference were published, there has been a lot of talk about fairness, particularly the fairness of a capital gains tax (CGT), but not much talk about balance.

Fairness means different things to different people. It can mean a different thing to an individual at different times depending on their situation.

To keep as many people as possible happy, and tax revenue flowing, over millennia, tax authorities have come up with a number of, often competing, tests of a “good” tax system, including fairness, efficiency, certainty, minimising avoidance and compliance costs, coherence and last, but not least, raising enough cash to meet the Government’s needs.

At the same time, taxpayers have developed one simple principle – not in my backyard. If the tax collector is to reach into my backyard, then the pain and the gains should be equally shared relative to ability to pay.

That expectation gap – as old as tax itself – is one the working group is hoping to balance with its proposal to tax capital gains on assets not already caught by the tax net, what some are calling a new capital gains tax.

Its interim report warns that inconsistent taxes on gains from sales of capital assets, which favour the wealthiest, make our tax system less fair and risks undermining public acceptance of the system.

So consistently taxing capital gains will make our tax system fairer, right?

Well, it might not be that clear cut.

A truly fair approach would be to tax all asset classes, however, as the Government has told the working group that the family home must be exempt, this broad approach is hamstrung from the get-go.

Chartered Accountants ANZ’s view is that if introduced, a CGT should include land, residential investment, commercial property and farms, shares and business assets.

The Government has told the working group to have specific regard to housing affordability. If this is the case, we question the outright exemption of the family home given the strong prevalence (65 per cent) of owner-occupied housing in the overall housing market.

An alternative approach would be to include a dollar-value exclusion threshold and only tax gains above this threshold – targeting overcapitalisation. This approach has been used successfully overseas and would minimise distortions.

The working group’s key question is whether “the fairness, integrity, revenue and efficiency benefits outweigh the administrative complexity, compliance costs and efficiency costs” of introducing a CGT.

A CGT is a particularly complex issue and CA ANZ’s recommendation to ministers and to the Tax Working Group is to ensure policy designers have enough time to strike the right balance between what assets are included and what roll over relief is available when the asset changes hands and, at the same time, fully integrating changes with existing income tax legislation and stakeholder systems.

Our tax system has got to be perceived by taxpayers as broadly fair to achieve their buy-in.

It must be easy for people to comply with and difficult to avoid. It also must ensure the tax base is sustained and broad enough to support our health system, national infrastructure, schools and social assistance.

Labour has to try and balance the tax system so that taxpayers see it as broadly fair. But taxpayers are also voters, and next election may come down to how fair they see Labour’s tax proposals, versus National’s.

Q+A – Michael Cullen on the Capital Gains Tax and TWG

Chairman of the Tax Working group, Michael Cullen, was interviewed on Q+A last night on Capital Gains Tax and water.

He was also interviewed on the Nation on Saturday.

Scoop: On Newshub Nation: Simon Shepherd interviews Tax Working Group Chair Michael Cullen

  • Sir Michael Cullen says there’s currently under-taxation at the top end of the income and wealth scale, and under his working group’s recommendations “people who have substantial capital assets in one form or another” would end up paying more.
  • Sir Michael disputes the effect Labour’s capital gains tax policy had on the party’s 2011 and 2014 election losses: “There was no real sign, actually, that that had any great impact in shifting votes around.”
  • He says some charities getting tax breaks might not be using their income for charitable purposes: “Some of those charities – at least on first examination – appear to not be passing on much of their income out to the supposed intended beneficiaries.”
  • Sir Michael says proposed environmental taxes on things like waste dumping would be aimed at changing behaviour, not increasing revenue: “Hopefully behaviour changes, so that the amount of money that you collect at the end of the day may not be much more… there’s just a lot less waste going to landfill.”
  • He says tax cuts for lower income earners would be an effective way to offset increased user-pays charges: “Actually reducing the bottom tax rate, or having even a tax-free area at the bottom, is more effective in compensation.”

Full transcript (Scoop)

The Q+A panel on Cullens interview and tax.

 

GDP and Tax Working Group announcements today

Hamish Rutherford (Stuff): Prime Minister’s mix-up could have led to a much more brutal economics lesson

Jacinda Ardern’s confusion over two sets of figures is understandable, given the volume of material crossing her desk, as well as never-ending negotiations with her governing partners.

But with her control of the Government coming under scrutiny, it was exactly the kind of simple mistake she did not need.

On Tuesday, Ardern was asked a clear and straightforward question about her expectations for “the GDP numbers on Thursday”, economic growth figures due out in two days

Although her answer hinted that she and host Mike Hosking were not exactly on the same page, she acknowledged “the GDP numbers” – listeners would probably believe she was giving a hint that the figures were good. “I’m pretty pleased.”

Instead, she was talking about the Crown’s financial statements – the Government’s books – which are not due to be released for about three weeks, and which few people outside Parliament or bond trading circles care much about.

To some it will seem like a meaningless mistake, but the integrity of market-sensitive information is critical to New Zealand’s reputation as a transparent economy.

No-one gets the inside word, or at least, no-one should, even though lots of people want it. Ardern’s comments left the impression that she not only knew, but that she had not kept the secret.

Whatever the economic growth figures do show this week, they will almost certainly move the currency and other parts of the financial markets, amid speculation that new Reserve Bank governor Adrian Orr is prepared to cut interest rates if the economy slows.

The speed with which Ardern’s office acknowledged the mistake underlines how important it was that the comments were not amplified without clarification.

Peter Dunne: It’s time to bury the capital gains tax

All of which raises the question as to why the capital gains issue keeps getting raised, especially since the arguments in favour from both a revenue gathering and efficiency perspective are not that strong.

After all, given both the long and variable lead times involved between the purchase and sale of taxable assets, a comprehensive capital gains tax is at best likely to be a somewhat unreliable and unpredictable contributor to annual revenues. Advice I received when Minister of Revenue was that it could be over a decade from the time of introducing a broader based capital gains tax until it produced any significant revenue gain for the Government.

Also, it has been long accepted that the family home would have to be exempted from any such regime, further diminishing its likely impact. Even in the rental sector, the impact would likely be negative for tenants, with landlords boosting rents to offset any negative tax impact when those properties are sold.

 

Cullen confirms CGT will not be addressed in interim TWG report

Michael Cullen, chairman of the tax Working Group, has confirmed that the interim report due to be released this month will make no recommendations on a Capital Gains Tax.

Stuff: Absence of tax recommendation means ‘more uncertainty for longer’, says National

The Tax Working Group will not recommend whether or not New Zealand should get a broad-based capital gains tax, in an interim report due out this month, chairman Sir Michael Cullen has confirmed.

Stuff had previously reported that any recommendation on the controversial tax would be deferred until the working group publishes its final report in February.

Cullen said on Wednesday that he was “happy to confirm that”.

Finance Minister Grant Robertson has played down the implications, saying the work the Tax Working Group was involved in was “always supposed to be a two-stage process”.It seems remarkable that one of Labour’s most prominent policies and their big tax policy, CGT, would not be addressed on the first report.

Surely for a tax package to make any sense it would include the major components, in general terms at least.

As Amy Adams says, this won’t do anything to address uncertainty in the business community.

It seems to confirm that what the TWG would like to recommend on a workable CGT is outside the parameters given them, or Labour have indicated is not something they want to hear at this stage.