Par­ties align with Labour’s tax plan

Kapi-Mana News - - OPINION -

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.

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