National crows over CGT doubt

The National Party has been proved right that a capital gains tax (CGT) makes ‘‘no sense’’ and is not a magic bullet for housing affordability, its finance spokeswoman Amy Adams says.

The Tax Working Group established by the Government to look at possible changes to the tax system is understood to have stopped short of recommending a broadbased CGT, in an interim report due out within days.

The working group chaired by Sir Michael Cullen was tasked with designing a CGT for consideration by the Government, but is expected to push back any firm recommendation to its final report, which is due to be published in February.

Adams said that would not be surprising. ‘‘We have been saying all the way through that a CGT would not achieve what the Government is setting out to achieve,’’ she said.

‘‘It would be very interesting if the Government’s own handpicked tax advisory group was not able to deliver to the Government the one thing that the Government has been suggesting is the panacea to all ills.’’

The working group had been widely expected recommend a broad-based CGT on the likes of sharemarket and property investments as the centrepiece of tax reforms on which Labour would fight the next election.

However, doubts began to creep in earlier this year about whether the Government would back the plan, amid concerns the new tax would be unpopular and would cause rents to rise without delivering much extra revenue for at least a decade.

Paul Drum, chief executive of accounting body CPA Australia, said in a newspaper column that ‘‘a close reading of the tea leaves’’ suggested the ‘‘highly important and politicised’’ issue of the CGT ‘‘is probably to be parked for further consultation and input’’.

Cullen hinted that was on the money, saying he had ‘‘not reacted strongly to that comment’’.

British tax expert Chris Wales, a former adviser to former British prime minister Tony Blair, forecast that the working group could face difficulties with its final recommendation.

One problem was that there was ‘‘no money’’ in the medium term for any government from introducing a conventional CGT – if it was assumed that house prices and stockmarkets were close to reaching a plateau.

‘‘The only way to raise any revenues from it would be to tax unrealised gains that have accrued to date. That would be bad policy and suicidal politics.’’

It is expected that the model for a CGT floated for consideration by the working group would only tax assets that were bought after the new tax came in.

‘‘Without a clear political steer, it will be difficult for the group to make a recommendation even in its final report,’’ Wales forecast. ‘‘It will be a political decision.’’

Adams said a CGT would be a ‘‘complicated and expensive tax’’ on New Zealanders’ savings, investments and businesses.

She denied the lack of an interim recommendation would show the TWG was independent.

‘‘I suspect what it is more likely to show is that for now they are kicking it for touch and leaving it for the Government. We will wait and see if it still shows up in the final report.’’