Labour’s tax bungle
The Government’s decision to give up on major tax change is more ‘‘clanger’’ than conspiracy. The first person to have convincingly forecast that the Government would abandon the idea of introducing a capital gains tax appears to have been British tax expert and former Tony Blair adviser Chris Wales.
He predicted more than a year ago that the Tax Working Group would recommend a capital gains tax, only for Prime Minister Jacinda Ardern to turn it down.
‘‘If I was the prime minister I would want Sir Michael Cullen to recommend a broadly-based capital gains tax. I would also almost certainly not be intending to introduce a capital gains tax,’’ he told Stuff in March last year.
He viewed that as a clever policy. Setting up the Tax Working Group kicked the thorny tax issue into touch at a convenient time.
Then not seeing through its main policy recommendation was likely to be a good political outcome for Labour that would
prove popular with the public and show that it had listened, he argued then.
That seems too cynical, though. Instead, ruling out a CGT represents a political failure for ministers, and Finance Minister Grant Robertson in particular.
They got off on the wrong foot by promoting a capital gains tax as a solution to housing affordability problems, when the evidence was that it would have raised rents and done little to reduce house prices.
The Government then found itself trapped by the process it had established to pave the way for what could have been the biggest tax change in a generation.
The wobbles were starting to show in November, when serious doubts began emerging that Labour would see through a broad-based CGT. While critics sniped from the sidelines, ministers had to watch and wait supposedly with a open mind until the ‘‘independent’’ working group reported back with its recommendations in February.
Pro-business lobbyists, who had legitimate concerns about the Tax Working Group’s proposals, found they could grab more attention by peddling misinformation.
An estimate by BusinessNZ that a CGT would cost $5 billion over five years in compliance costs and ‘‘deadweight costs’’ was to all intents and purposes ‘‘made up’’.
The business group funded and promoted skewed polling to create the impression that opposition to a CGT was in most respects almost universal.