The long road to no
One July day eight long years ago, then-leader of the opposition Phil Goff presented the country with a deal. Tax capital gains at 15 per cent, add a new top tax threshold, and cut income tax for those at the bottom, allowing the country to take the GST off fruit and vegetables without selling off its public assets.
‘‘These changes won’t be easy and some people won’t like them,’’ Goff said.
This was quite the understatement. Labour went on to lose the next two elections while holding tight to the policy, then almost lose another when it looked to waver on it.
Yesterday, Prime Minister Jacinda Ardern put an end to that, promising not only that this Government would not implement a capital gains tax, but that any party she led would never implement or campaign on one.
The road to this remarkable captain’s call began during the heat of the 2017 campaign, when Labour looked to be losing the ground Ardern had just won thanks to an onslaught of attack ads on tax. Labour was not campaigning on a CGT, but instead on implementing the recommendations of a ‘‘tax working group’’. As the attacks mounted, Ardern promised that any changes would be legislated into law quickly, but wouldn’t actually come about until after the 2020 election – meaning Labour would go into a fourth consecutive election defending the law.
This made sense at the time,
but presented an immediate problem for the coalition partner they would likely need to govern, NZ First. NZ First, who had long opposed a CGT, had a history of going into every election with no promises about which side they might govern with. It would be extremely awkward for them to pass a law they clearly disagreed with and then go into an election saying they might side with National, who would be promising to immediately abandon it.
Tellingly, the CGT and the tax working group were not mentioned once in the coalition agreement between Labour and NZ First. The problem was again punted down the road until after the working group delivered its report in February of this year.
From the outset it was clear NZ First had little interest in the full-bore CGT suggested by Sir Michael Cullen.
Meanwhile on the other side of the coalition, Green Party coleader James Shaw had planted a big stake in the ground just before the working group returned its report, telling Parliament his Government wouldn’t deserve to be re-elected if it did not implement a CGT.
Late last week, a Cabinet paper formalising the decision not to go ahead with the CGT was circulated. Ardern rang Shaw to break the news.
Needless to say, the Greens were furious – especially once the decision was made public, and NZ First rolled out an email to members and branded social media posts that had clearly been prepared long in advance.
It was in these past few weeks that Ardern by herself made what would be a much more consequential decision – that a party led by her would never again campaign on or implement a CGT. She might support it herself but had decided it was never going to be worth the pain. This decision was circulated to her Labour caucus on a Wednesday morning conference call. For the first time this decade, Labour would go into an election not having to defend a CGT.