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James Shaw: Capital gains tax key to fixing wealth gap

James Shaw said untaxed capital gains was a fundamental reason for the wealth gap in New Zealand. Photo: VNP / Phil Smith

The week before a major tax report is released, Green Party co-leader James Shaw has again challenged his government partners to back a capital gains tax.

The Tax Working Group is due to present its final report to Cabinet ministers on Monday.

Earlier this week, Mr Shaw urged MPs to consider whether the government deserved to be re-elected if it didn't introduce a tax on capital gains.

He told Morning Report today it would be up to voters to decide whether government parties had kept their promises.

"We were elected on a platform of change - really significant change. And all three parties of government campaigned on a platform in particular of cleaning up our rivers and ending child poverty in this country and so on.

"You cannot do that without significant change to the tax system."

The tax system was a cause of the growing wealth gap in New Zealand, he said.

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"Under the current system someone who earns the median wage, about $45,000 a year, over 10 years earns about $450,000 pays about $70,000 in tax.

"Someone who managed to buy a house 10 years ago can sell that for $450,000 - as much as that other person has earned in 10 years and pay no tax on that.

"Fundamentally that is why we have a wealth gap in New Zealand."

"We were elected to address that wealth gap and that involves fundamental reform of the tax system.

"The question is, should we be re-elected if we don't introduce the reforms we have promised. Ultimately that's up to the voters to decide."

When the Tax Working Group group released its interim report, there was no straight capital gains tax or set rate in it. It presented two other options for taxing capital; taxing gain from the sale of assets at roughly the marginal income tax rate and taxing a portion of the value of certain assets, for example rental properties, annually.

Mr Shaw also outlined a case for dropping the government's strict spending and borrowing rules after the next election.

The Greens would not pull out of the so-called Budget Responsibility Rules before 2020 but it was possible they would not campaign on them again, he said.

"Given that we now have the lowest government cost of borrowing in at least a generation, there is an argument that can be made that says given that we have this infrastructure deficit and given that we need a whole new generation of infrastructure ... that now would be a good time to be borrowing to invest in that future."

This article was first published on Radio NZ.