$2b carrot for capital gains tax a ‘hypocrisy’

Tom Pullar-Strecker

tom.pullar-strecker@stuff.co.nz

The ‘‘carrot’’ for a capital gains tax proposed by the Tax Working Group is likely to be a $735 cut in income tax for almost all Kiwis, costing about $2 billion a year.

But National Party finance spokeswoman Amy Adams said the prospect of income tax cuts would amount to ‘‘a massive hypocrisy’’ if implemented by the Government.

That was because the Government overturned tax cuts in the form of increases to the $14,000 and $48,000 income tax thresholds legislated for by National in 2017 before it lost power, which would also have cost about $2b, she said.

The Tax Working Group’s final report setting out how a capital gains tax could work is expected to be delivered to the Government at the end of next week.

Finance Minister Grant Robertson and Revenue Minister Stuart Nash wrote to the working group in September asking it to recommend a package of measures that was ‘‘revenue neutral’’ overall.

Working group member and Council of Trade Unions economist Bill Rosenberg strongly hinted at a conference hosted by Victoria University in November that the working party favoured two options mentioned in its interim report to achieve that.

These were either a new annual tax-free threshold of $7000 under which people would pay no income tax, or halving the lowest rate of tax on income under $14,000 from 10.5 per cent to 5.25 per cent.

‘‘We discussed whether we should recommend reducing the GST rate. What persuaded us against this was that . . . it was more effective to make changes to the income tax system,’’ he said. National Party finance spokeswoman Amy Adams

‘‘A 1.5 per cent reduction in GST would cost approx $2b a year. But for every decile apart from the bottom one and the top, a change in the bottom tax rate or threshold that cost the same amount is better at reducing inequality.’’

Halving the 10.5 per cent tax rate to 5.25 per cent or creating a $7000 tax-free threshold ‘‘would distribute more to lower-income deciles’’, Rosenberg said.

Either change would have the effect of cutting most people’s annual tax bill by $735 a year, given that middle and top income-earners would also see the benefit.

Adams said the impact would be little different to the tax threshold changes that Labour had cancelled last year, which would have seen the $14,000 threshold for the lowest rate of tax rise to $22,000, and the $48,000 threshold increase to $52,000.

‘‘You can play with those thresholds and rates in a number of ways but effectively you are reducing the tax burden.’’

Robertson would not respond, saying: ‘‘We are not going to preempt what the recommendations of the working group will be.’’

The working group, chaired by Sir Michael Cullen, estimated in its interim report in September that a broad-based tax on capital income could raise $290 million in its first year in 2021-22, steadily rising to just under $6 billion within 10 years.