Parties align with Labour’s tax plan
It isn’t often that the Labour Party, the Greens and Treasury line up on one side of a political debate, while the Government and its Maori Party ally take the other.
Yet Labour’s endorsement of a broad-based capital gains tax that exempts the family home is shaping up as a defining feature of this year’s election.
Suddenly, the election contest could be about something more substantial than the likeability of the major party leaders.
For the best part of two decades, commentators here and overseas have remarked on New Zealand’s unusual lack of a tax on capital gains.
In almost every other country in the OECD, such a tax is commonplace, for reasons of fairness and efficiency.
The fairness rationale – which we are bound to hear a lot about in coming months – is that since wages gets taxed, then wealth earned by shares, bonds or property speculation should be treated in the same way for tax purposes.
In New Zealand this isn’t the case for such investments lasting longer than a year, and ordinary wage-earners have borne the consequences.
The efficiency argument is that such a tax might usefully channel investment into more productive enterprises than, say, the housing price bubbles that periodically afflict the New Zealand economy.
As then Treasury head John Whitehead said in 2009: ‘‘Capital gains taxes would be beneficial for encouraging investment in productive activity.’’
To be politically acceptable, of course, any new tax would need to be balanced by reductions elsewhere.
Therefore, Labour will be packaging its proposal as an alternative to the partial asset sales programme unveiled earlier this year by the Government.
Originally, Treasury threw its support behind a capital gains tax in the context of shifting New Zea- land away from its unusual reliance on income tax, and towards consumption taxes, such as GST.
So far, the Government has boosted GST, yet refrained from introducing a capital gains tax, a move that might have allowed it to cut corporate and income taxes even further – in which case, even the Act Party could well have joined in the chorus of support for a capital gains tax.
So far, the Key Government has attacked the credibility of the revenue estimates likely to accrue from such a tax, and painted it as a typical ‘‘ tax and spend’’ measure.
It has not yet engaged in debating a capital gains tax as an alternative to asset sales, as a fairness issue or as a deterrent against price bubbles in residential housing.
As for its Maori Party ally, co-leader Tariana Turia has argued that the Maori middle-class she knows in Whanganui should be left to pursue housing speculation free of any tax on their capi- tal gains – a freedom unavailable to the income of Maori wage earners, or beneficiaries.
David Lange once described a capital gains tax policy as one likely to lose you not merely the next election, but the next three – which was his way of acknowledging just how addicted we have become to housing speculation as a fast lane to wealth.
If nothing else, the fact such a tax is finally being seriously advocated could be taken as a sign of how far the country has come since then in addressing the gaps in its economic framework.