Despite her personal inclination and the recommendation of a committee to implement a capital gains tax (CGT), New Zealand Prime Minister Jacinda Ardern said April 17 that her government has decided to scrap the idea.
On February 21 a tax working group commissioned by the government to brainstorm ways to improve the structure, fairness, and balance of the country’s tax system recommended the implementation of a CGT. There was significant pushback against the proposal, even from within the ruling coalition, with opponents claiming it would depress property prices, hurt business confidence, and curtail investments.
Ardern, head of the Labour Party, said the parties in the governing coalition were unable to reach a consensus. “I genuinely believe there are inequities in our tax system that a capital gains tax in some form could have helped to resolve,” she said. “That’s an argument Labour has made as a party since 2011. However, after almost a decade campaigning on it, and after forming a government that represented the majority of New Zealanders, we have been unable to build a mandate for a capital gains tax. While I have believed in a CGT, it’s clear many New Zealanders do not. That is why I am also ruling out a capital gains tax under my leadership in the future.”
Ardern said other things can be done to improve the fairness of New Zealand’s tax system, including tightening the rules on land speculation and finding ways to counter land banking. The latter is a real estate investment scheme used by speculators who buy large tracts of undeveloped land, which they hold on to until approvals are in place to proceed with development.
The tax working group proposed that sales of capital assets be taxed at the seller’s marginal income tax rate, with no adjustment for inflation. The tax was to apply to sales of investment property, land, securities, business assets, and intangibles like intellectual property. Sales of family homes and personal property like cars, boats, and works of art were to be excluded.
Radio New Zealand said Ardern denied having been “bullied” into rejecting a CGT by New Zealand First, a nationalist party that, along with the Green Party, is part of the governing coalition. The decision represented mixed-member proportional representation, she said, adding, “Ultimately, we had to form consensus among three different parties, some of which took different views."
New Zealand First’s leader, Winston Peters, on April 17 reiterated his opposition to a CGT. “New Zealand First’s view is that there is neither a compelling rationale nor mandate to institute a comprehensive capital gains tax regime,” Peters said.
Kirk Hope, chief executive of advocacy group BusinessNZ, congratulated the government on its decision to not propose a CGT, saying it would have reduced funds needed for investment and job growth and increased the compliance burden on the private sector. “Our members have been very clear that they did not see the justification for an expensive new tax that would have reduced the competitiveness of the New Zealand business sector for no discernible gain,” Hope said.