Labour hasn’t given up on tax reform
Opinion: Don’t write off a capital gains tax just yet, says Tom Pullar-Strecker.
There are signs Labour may already be preparing to shelve a capital gains tax worthy of the name. But Tax Working Group chairman Sir Michael Cullen doubts that it really is ‘‘last chance saloon’’ for such a big change to the tax system.
The working group appears to have been set up with the expectation it would design a capital gains tax (CGT), and that was pretty much spelt out by Finance Minister Grant Robertson after the group published its rather inconclusive interim report in September.
Yet when Cullen announced a ‘‘clear majority’’ of the working group had agreed on a ‘‘central package’’ setting out how such a tax could work and that it was on track to complete its work a month early in January, Robertson did not appear to be celebrating.
His solitary comment was that the Government had not received the final report ‘‘and no decisions have been made’’.
Labour is unlikely to say much more than that now.
But there are many plausible explanations as to why its mood may have changed.
Perhaps it has concluded that coalition partner NZ First won’t support legislation paving the way for a CGT, which would be zero surprise given what a powerful election differentiator that could be for the minor party.
It may also believe Labour ‘‘going it alone’’ would be a major vote-loser.
Labour’s will may have been chipped away by criticism that a CGT risks pushing up rents, would force bach owners to sell up and cost billions to implement. Since the Government can’t hit back until the working group publishes its final report, much of that criticism has gone unanswered.
If Labour does ‘‘give up’’ on major reform, it will have to face the wrath of core supporters.
Each failed attempt to change the tax system probably makes it a bit harder next time around. Cullen argued at a recent seminar that it might be now or never for a CGT, because it will get harder as the population ages and becomes less likely to vote for such a change.
But it is not that simple.
It is true that older people tend to be richer and derive a greater proportion of their income from investments than younger people, so might be less likely to vote for a CGT.
But it does not necessarily follow that if the population as a whole ages, people would derive more of their income from investments than work.
Can we as a nation expect to sit back, earn more money in real terms on investments and do less paid work as we age, while maintaining the same standard of living?
That appears to be Cullen’s vision but it seems implausible to me.
Certainly, if the global population aged at the same rate as in New Zealand, it would make no sense to argue we would all automatically get richer from our returns on savings and investments.
Separate to that, if the mild trend towards greater income and wealth inequality continues, it may be that pressure for a more redistributive tax system will grow – rather than decline – even as the population ages.
Any drop in real incomes that flows from our efforts to battle climate change and other environmental woes could be expected to add to that pressure.
France has more older people than New Zealand, but in Paris activists have been rioting for – among other things – the toughening-up of its wealth tax.
The tax debate in New Zealand has been more restrained than on the streets of Paris, assisted by the approach of the working group whose members have gone about their task with a high degree of transparency and good humour in the face of the inevitable flak.
If they end up writing a report that is destined to sit on a shelf, it will no doubt be dusted off and lessons learned, soon enough.