Govt’s bright-line in the sand — is it set to move?
Robertson seemed to rule out changes 12 weeks ago, and now he hasn’t We’ve realised that the world did not turn out as expected with Covid-19. Finance Minister Grant Robertson
On the day Labour announced its new tax policy, it was clear, there would be no changes beyond the increase in income tax for those earning over $180,000 a year.
At a press conference on September 9, over and over again, the party’s finance spokesman Grant Robertson said the change was the sum total of the changes the party would make in government.
Later in the afternoon, appearing on NewstalkZB, Robertson was asked by Heather du Plessis-Allan about existing taxes, such as corporate tax. Would Labour hike them? Robertson was clear.
“What the policy says, there’ll be no other changes to tax beyond what we’ve announced today,” he said, adding the narrow caveat that excise on tobacco and alcohol would continue to be assessed annually as part of the Budget process. “But nothing in terms of those other taxes.”
De Plessis-Allan needed convincing. What about the brightline test?
“No,” Robertson responded. Not the rate, and not the years? “No,” Robertson said, point by point, laughing.
He had spent much of the day ruling things out, and much of the election campaign, as National claimed Labour would move to change New Zealand’s tax settings, whether it be capital gains or the adoption of the wealth tax proposed by the Green Party.
‘New Zealanders expect us to respond’
A little over two months later, Robertson appears to be clearing the ground for a u-turn.
On November 24, amid rising political pressure to address rising house prices, Robertson announced the Government was reviewing housing settings.
As well as writing to the Reserve Bank suggesting a possible way to consider house prices when setting interest rates, Robertson confirmed he had “sought advice [from Treasury] on further demand-side measures that can add to the initiatives that we have already taken”.
Since then he has confirmed that an extension to the bright-line test is one of the measures which will be considered.
This, he said, was a reflection that most economists had predicted house prices would be falling in New Zealand by now, while the opposite was happening.
“We’ve realised that the world did not turn out as expected with Covid19. We have to recognise the world is not what we expected and we have to react,” Robertson said, again in an interview with du Plessis-Allan.
Robertson explicitly denied that the settings contradicted what Labour had said, without addressing whether he was contradicting his earlier statements.
“New Zealanders expect us to respond to what’s in front of us,” Robertson said when the audio of his September 9 comments was replayed.
“We’ll take a look at the policies that are in place and we’ll make our decisions on the advice that we get,” Robertson said, by now claiming that talk about changes to the bright-line test was “speculative”.
On Monday evening, Robertson refused to answer a direct question on whether he had already ruled out changes to the bright-line test back on September 9.
“Labour’s tax policy remains the Government’s position on tax changes. Last week we asked the Treasury to review the settings in relation to housing.”
National’s finance spokesman, Andrew Bayly, said Robertson appeared to be definitive back in September.
“He does seem to have ruled it out, but some of the comments he made subsequently have been fuzzier,” Bayly said, adding that he planned to use Question Time to see if Labour were “absolutely crystal clear that they have ruled it out”.
“We just think that increasing regulation and tinkering with tax is not going to build more houses.”
Is the test a tax?
The nature of the bright-line test and what it represents depends on your point of view. The former National Government likened it to the application of a type of capital gains tax in substance, while Revenue Minister David Parker described it as more like an income tax in an interview with the AM Show last week. Robertson denies it is a tax, which is correct.
The test is simply a way of applying an existing tax law, the socalled “intention test”, which involves the principle that anyone who buys an asset with the intention of selling it for profit should pay tax on the gains.
“It has always been the case that anyone who buys a property with the intention of reselling it for gain is subject to income tax on the gains,” lawyer and commentator Liam Hehir wrote recently.
“The bright-line test is therefore an enforcement mechanism that creates a strict assumption that anybody buying or selling an investment property within a specified time did so with the intention of making a profit on it [and so should pay tax].”
Sell the house within the time period prescribed by the test and the onus is on you to prove why you should not be taxed on the gains.
National brought in a two-year period, which was lengthened to five by Labour.
But whether or not it is a tax, Robertson appeared to directly rule out changes less than 12 weeks ago.