It was hardly a dream debut for Labour’s long-awaited, much-argued-over tax package for Aotearoa New Zealand.

What was meant to be a carefully choreographed reveal of a capital gains tax (CGT) later this week instead arrived early — leaked to RNZ over the long weekend and hastily confirmed by Chris Hipkins this morning.

In his media conference at Parliament, Labour’s leader downplayed the premature release, saying the details had been circulated widely and could have come from anywhere.

• READ MORE: What you need to know: Seven questions about a capital gains tax

He delivered a stern warning to any leaker, but also said he was not interested in pursuing any sort of investigation.

That is sensible. History shows such hunts usually end badly. Just ask National about Jami-Lee Ross.

Still, the leak will be of some concern to Hipkins.

The party’s internal debate over whether to pursue a wealth tax or CGT has been long and bruising, with strong feelings on both sides.

RNZ understands the caucus vote for a CGT plan was near unanimous – but not quite. And the party’s ruling council and policy council were more divided again.

Hipkins needs those proponents of a wealth tax to now fall in behind the selected proposal.

Unity will be crucial if Labour is to sell yet another version of a policy it has repeatedly failed to convince voters to support.

Containing the risk
Labour knows the political peril of talking tax. It’s been burned before — in 2011, 2014, and 2017.

This time, the party has chosen the smallest possible target: a cautious CGT applying only to property sales, excluding the family home and farms.

The rate would be set at 28 percent, in line with company tax, and would apply to profits made after 1 July 2027.

National disputes the description of “narrow” but compared to the other options on offer, it meets the definition. This does not cover shares, KiwiSaver, inheritances, or personal assets, like classic cars or artwork.

In many respects, it’s little more than an expanded bright-line test — closely resembling the minority view of the 2019 Tax Working Group.

The strategy is clear: keep it simple and sellable.

Labour believes a modest CGT will be more palatable to the public than the more novel and ambitious wealth tax. Capital gains taxes are familiar overseas and no longer as frightening a concept as they once were.

Definition complications
But even the narrowest design can have complications. For example, look to the definition of “family home”.

Labour is using the definition used currently by the brightline test which requires a person to be currently living in that house “most of the time”.

It means that a person who owns just one house, but lives in a rental property elsewhere, would still be taxed if they sold that property.

Keeping the scope tight also limits revenue.

Labour’s own policy paper concedes the returns will be “small relative to GDP and total tax revenue” – roughly $700 million a year.

And almost all of that will go straight into Labour’s accompanying health policy.

The sweetener: A ‘Medicard’ for GP visits
In a bid to soften any political blow, Labour has paired the tax with a tangible benefit — a “Medicard” giving every New Zealander three free GP visits a year.

By tying its CGT to the health system, Labour hopes to frame it not so much as punishment for property owners, but more as a pragmatic way to fund something people actually want.

It’s no mistake that the policy touches the two issues named most important by voters in polling: the cost-of-living and healthcare.

Labour has also intentionally made the entitlement universal to ensure the widest possible appeal — even if critics argue the money would be better targeted to those most in need.

Speaking of the critics, government MPs were practically salivating today, having eagerly awaited this announcement as a potential turning point in the polls.

Labour’s rise in popularity has come despite having little in the way of a policy platform and the coalition hopes the tide will turn as voters look more sceptically at the alternative.

Finance Minister Nicola Willis branded the proposal a “terrible idea”, warning it would hit small businesses that own property.

‘Tall-poppy politics’
Act’s David Seymour called it divisive “tall-poppy politics”, while New Zealand First declared the rollout “a trainwreck”.

NZ First’s post on social media included a noteworthy kicker, describing the CGT as merely “a foot in the door” for the Greens and Te Pāti Māori.

Hipkins today tried to shut down that attack, claiming that Labour’s tax plan would be the next government’s tax plan.

But he received no assistance from his purported partners, with the Greens insisting they would not be relinquishing their advocacy for a wealth tax.

Expect more heat on that front as the election approaches.

RNZ’s latest Reid Research poll shows the task ahead for Labour: 43 percent in support of a CGT, 36 percent opposed, and 22 percent undecided.

That’s not exactly a decisive mandate – but it’s not dismal either.

After months of indecision, Labour is finally in the policy game.

This may not be how it had hoped to roll out its flagship policy, but the real test will be how well it can sell it over the coming months.

This article is republished under a community partnership agreement with RNZ.

There is a sea change happening in the wider electorate in Aotearoa New Zealand which is counter intuitive to what the polls are saying.

On the one hand the public overwhelmingly support much fairer taxation but the polls tell us we will have an Act/National government in a couple of weeks which will increase unfairness in tax.

The simple answer to this contradiction is that people vote against governments rather than for them and Labour are being punished for failure — a party in policy paralysis — unable to get out of its own way and get anything meaningful done.

• READ MORE: Proving the wealthiest New Zealanders pay low tax rates is a good start – now comes the hard part
• Other NZ election 2023 reports

Spelling this out is a recent poll conducted by Essential Research for the lobby group Better Taxes for a Better Future which shows the big majority of voters want a capital gains tax, a wealth tax, a windfall profits tax and want the wealthy to pay at least the same tax rates as the rest of us. (A survey conducted by IRD earlier this year found the uber rich pay less than half the tax rates the rest of us pay)

Here are the figures:

Wealth tax
A TVNZ poll released last week shows overwhelming support for a wealth tax in line with Green Party policy.

The poll asked eligible voters if they would support or oppose a wealth tax on the assets of New Zealanders with more than $2 million in assets if having the wealth tax meant everyone got free dental care.

A majority — 63 percent — said they would be in support of it, while 28 percent were opposed. The rest did not know or refused to say.

The polls show the ground has shifted dramatically in recent times and has opened the way for Labour’s traditional values (if they have any life left in them) to flourish. The electorate is wanting fairer taxes and have the free-loading rich pay much more.

But Labour under its current and former leaders has been looking the other way. It is out of touch and faces its heaviest electoral defeat in my lifetime.

National and ACT are doing well not because voters want them but because voters are voting against Labour.

The same thing happened in the 1990 election. After six years of brutal Labour policies under David Lange and Roger Douglas the electorate had had a gutsful. They wanted to stop featherbedding the rich at the expense of the rest of us.

National policies even worse
Labour was thrown out and National came in with policies that were even worse than those proposed by Labour.

The same thing will happen this election.

There is a pervasive belief among self-interested politicians that when they are interviewed for opinion polls people will say they are prepared to pay higher taxes but when they get into the ballot box they vote against tax increases.

But this argument can only apply when the individual voter faces paying more tax. In these recent polls the call is for the undertaxed rich to pay a much fairer share. These tax changes the electorate wants will not impact on the 99 percent of voters who go to the polls.

Even National and Act voters want these taxes — but the Labour leadership remain lost in the neoliberal wilderness. They haven’t got the message.

Labour’s failure means we will have to face three years of awful National/Act policies which will deepen the problems we face.

I haven’t kept count but I have personally heard from dozens of Labour members and voters who have told me they have left the party this year and won’t be voting Labour this year — disgust is the dominant theme.

Only hope is reshaped party
After this election Labour’s only hope is to reshape the party around the changed public attitudes to tax and find its roots once more. That is easier said than done for many reasons.

Labour’s activist base is irredeemably middle class and it only has tenuous links with organised workers (less than 10 percent of private sector workers are in unions) who are a small part of the voting public.

Labour leader Chris Hipkins has shown no sign he is capable of leading the rejuvenation policy, thrust and direction the party needs. He is still in the politics of the late 20th century.

All the indications are that the job of Labour renaissance is beyond him.

Hopefully there will be enough good people left in Labour to do what’s needed.

Republished with permission from The Daily Blog.

The Green Party made waves recently when it proposed to tax net wealth more than NZ$2 million for individuals and $4 million for couples. As part of a broad range of actions, the policy aims to “end poverty”.

Reactions ranged from endorsement to accusations it was fuelled by envy, but the debate signalled what could become a major election issue: the wealth gap and how to fix it.

The claim it amounts to an “envy tax” assumes all wealth has been fully earned and fully taxed in the first place. But we know that’s not the case.

• READ MORE: Proving the wealthiest New Zealanders pay low tax rates is a good start – now comes the hard part
• New Zealand’s tax system is under the spotlight (again). What needs to change to make it fair?
• Cutting GST on fresh produce won’t help those most in need – a targeted approach works better

A good portion of the wealth accumulated at the top is attributable to fortunate circumstances generating significant tax-free gains.

Inland Revenue’s recent survey of the wealthiest 311 New Zealand families revealed an average net worth of $276 million. At the same time, we know many households are struggling with the rising cost of living.

According to Stats NZ, around 155,000 households feel their incomes aren’t sufficient to meet everyday basic needs. Foodbanks report ever-rising numbers of families unable to feed themselves.

The major source of this lopsided wealth is the housing market. New Zealand has seen the biggest housing boom in the Western world. Property owners have ridden the wave to make large tax-free capital gains, while others languish in substandard emergency housing or are forced to live in garages and cars.

Far too much of our scarce labour, building materials, imported fixtures and land have been diverted to unproductive high-end housing, leaving too little to meet the real housing need. Because it isn’t taxed properly, investing in housing has been encouraged as a way to accumulate wealth.

Right now, there is enough money tied up in untaxed wealth to lift every single family in this country out of poverty.#nzpol pic.twitter.com/f3ODNOK9hH

— Green Party NZ (@NZGreens) June 12, 2023

The trouble with a wealth tax
While the Greens’ wealth tax is a useful start to a wider discussion about inequality, it inevitably creates obstacles that in the end may be too difficult to overcome.

Probably the biggest hurdle is that this kind of tax can be incredibly complex and would provoke endless debate about what should be included.

The Greens’ proposal, for example, would capture business assets, shares, art above a certain value, and cars above $50,000. But what if you have two cars worth $49,000 each — why should they be excluded when one valued at $80,000 is included?

And how is debt factored into calculations of net wealth? House mortgages may be straightforward, but what about credit card debt, car finance or borrowing to finance overseas travel?

Not a capital gains tax
For all these reasons, it’s time to get away from debating notions of a confiscatory wealth tax and make the issue simply one of treating all income the same for tax purposes.

Instead of a complicated net wealth tax on everything, let’s start with the biggest culprit — housing. This would address the under-taxation of income from holding housing as an asset.

This is not the same as a capital gains tax — those days are over. Numerous tax working groups have failed over 30 years to make headway on this. Politically it is a dead duck.

Besides, the real problems — inequality and misallocation of resources — wouldn’t be touched by a capital gains tax. Such a tax can only apply to gains made on houses sold in the future, not the accumulated gains over many years, and it will always exempt the family home.

Tax specialists warn over intricacies of capital gains tax https://t.co/YqzhInWjBW

— RNZ News (@rnz_news) April 26, 2023

How a house tax works
Instead, let’s take the total value of all housing held by each individual, subtract registered first mortgages, and allow a $1 million exemption to reflect that everyone is entitled to a basic family home.

Then we treat this net equity as if it was in a term deposit generating a taxable interest return. When houses are held in trusts and companies, in most cases the income would be taxed at the trust or company rate with no exemption.

Calculated annually and pegged to the capital value of properties, this effective income would be taxed at the person’s marginal tax rate. It would affect those with second homes, multiple rentals, high-value properties — but without significantly affecting the great majority of homeowners who have much less than $1 million of net equity.

Thus a couple living in a $3 million house with a $1 million mortgage would fall under the threshold.

This approach would help put investment in housing, after a basic home, on the same footing as money in the bank or in shares. Better choices for the use of scarce housing resources should follow.

Landlords would no longer need expensive accountants to minimise taxable rental income. And it would reduce the blight of “ghost houses” and residential land-banking.

A circuit breaker
The simplicity of this income approach means the government can build on the existing tax system. It lives up to the mantra of a “broad base, low rate” tax system and affects only the very wealthy and those whose tax rates are highest.

Moreover, it is possible to implement quickly, using existing property valuations and registered mortgages, unlike a net wealth tax where the devil is in the contentious detail.

The effect should be positive for those struggling in the housing market, as more housing for sale or rent is opened up. Good landlords should welcome the greater simplicity.

In the longer term, the extra taxable income could produce revenue for redistribution and social investment. Critically, however, it would start to give the right price signals to reduce the over-investment in luxury housing and real estate held for capital gain.

The approach is essentially a circuit breaker that can simply and quickly address the accumulation of wealth by a small group of people.

Crucially, it has a sound economic rationale. By taking the first step and including luxury and investment housing returns that are currently under the radar, it reduces the advantages of holding housing rather than more productive investments.

Dr Susan St John, honorary associate professor, Economic Policy Centre, Auckland Business School, University of Auckland. This article is republished from The Conversation under a Creative Commons licence. Read the original article.

One of New Zealand’s wealthiest people says he supports a capital gains tax, as new research lays the groundwork for a fresh tax debate.

A two-year investigation by Inland Revenue has found New Zealand’s ultra-rich pay tax at less than half the rate of the average person.

The findings come as no surprise to many, including one of the 311 richlisters who responded to the government survey.

• READ MORE: Other reports on NZ economy

The man, who did not want to be named, made his fortune on untaxed capital gains but supports taxing those gains — saying it was only fair to bring New Zealand into line with other countries.

However, he said a more broad-brush approach — like a capital gains tax on all properties beyond the family home — would do more for the government’s revenue.

“You could take all the money off [rich listers] and it would fund the government for a day. The government spends about $100 billion a year and taxes about $100 billion a year, so anything that happens needs to materially contribute to the revenue side of things. Otherwise, it’s just the politics of envy.”

In a speech on Tuesday, Revenue Minister David Parker described the report’s findings as “ground-breaking” but would not venture any suggestions as to how the government might respond.

Answers – for the future
“What, if anything, do we do about that [disparity] here in New Zealand? We’re not providing the answers today. That is for the future.”

Other political parties have split down ideological lines with National and ACT on one side and the Greens and Te Paati Māori on the other.

National leader Christopher Luxon on Tuesday came to the defence of New Zealand’s uber-wealthy, arguing they already pay their fair share of tax.

“It’s not the wealthy that are the problem here… this government has pumped up asset values and the wealthy have done well,” Luxon told reporters.

“The top 2 percent of New Zealanders are paying about 26 percent of all our income taxes and I think that is entirely fair.”

Luxon said National would deliver “middle working-class New Zealanders” a tax cut, while Labour was “softening us up for a tax grab”.

ACT leader David Seymour criticised the study as a “politically-driven fishing expedition to find people with money and take it from them”.

‘Fishing expedition’
“[Parker’s] fishing expedition wasn’t about gathering information,” he said. “It was about creating a narrative that he can ride to more taxes on Kiwis.”

On the other side of the argument, Green revenue spokesperson Chlöe Swarbrick put up an empassioned argument for a comprehensive capital gains tax or wealth tax.

“The super rich in Aotearoa are much much richer than we thought them to be,” Swarbrick said.

“To allow millionaires to continue to not pay their fair share after this explosive evidence is a political choice. Poverty is a political choice.”

Te Paati Māori co-leader Rawiri Waititi told RNZ there was no excuse for inaction.

“It’s just absolutely shocking, cruel and very unkind. Until they do something about it Labour, National and ACT will continue to be the bullies at school picking on the poor people.”

The government was yet to announce a new tax policy but is promising to bring one to this year’s election campaign and Parker has signalled it will be informed by this latest research.

This article is republished under a community partnership agreement with RNZ.