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Is the Government trying to sink its own capital gains tax proposal?

Sir Michael Cullen: not endorsing a capital gains tax. Photo/Getty Images

As the capital gains tax goes to battle undefended, Jane Clifton looks at the case.

Were the Dark Arts division of a public-relations firm to devise the ultimate game plan to make sure a policy proposal was well and truly routed, it would look a lot like what the Government is doing with the capital gains tax.

Preceded by a stiff invoice from Hooton, Laws, Blarney and Associates, the advice to the Government would read:

Capital Gains Tax (CGT) Liquefaction Schedule

• At the policy’s announcement, stand well back and let every opponent and vested interest group, and most especially the Opposition, have an untrammelled run at it for several weeks.

Macro alias: ModuleRenderer

• Provide no helpful go-to material whatsoever for the media or public in advance that might risk clarifying how the proposals would work. Let opponents supply various half-arsed and sensational predictions instead, and depend on the media to garble those further.

• On no account say anything more specific than, “I’m sure there are some recommendations from the report we will be able to adopt.”

• Chose as the working group leader a former finance minister who, in 17 years as finance portfolio holder, never once endorsed the policy, and who pointedly reminds the media of that fact upon announcing the policy. Then watch as he defends the policy, safe in the knowledge that he will continue to do this without actually endorsing the policy himself, given he as good as publicly warned the Government the day he got the gig not to be so bloody silly as to go down this track.

• Leave plenty of space for your coalition partner to patronise and belittle the policy, leaving a clear impression that whatever is finally adopted will be so diluted as to be homeopathic.

• Let the “debate” drag on as long as possible by insisting on “maximum consultation”, leaving a vacuum into which unlimited fear and loathing can be sucked, worrying as many people as possible for as long as possible.

• Make no attempt to engage with, listen to or even acknowledge the spirited pro-CGT fightback from your core voter base, the Greens and reputable economists – including the Treasury Secretary – all of whom argue this policy is the key to equality and a beacon of hope and justice for all. You don’t want to give the impression you might actually do it.

• Above all, avoid private enquiry as to how the hell you got yourselves into this ridiculous situation, in particular whose damned fault it is, as the answers will only be inconvenient and deeply depressing.

The bitter truth

By now, it’s pretty clear the Government has set itself on a deliberate sleepwalk to defeat and there will almost certainly be no comprehensive CGT. Sir Michael Cullen’s working group’s proposals are, as was always likely, unwanted. Offering to introduce a CGT is our political equivalent of walking into a Glasgow bar and addressing random patrons as “Oi, numpty!” The Government’s inevitable thumping is all the more piquant because Labour’s core voters still expect its MPs to sprint, however bloodied, to the finish line. It has let anticipation build and done nothing to temper the widespread belief that a CGT is the holy grail of equality, able to fix everything from housing affordability to laddered tights.

There was never reliable evidence about what effects it would have, let alone within any particular time frame. Yes, most other countries have it, but most imposed it in bygone days when voters were much more biddable. They’d find it no easier than us to spring it, cold turkey, on a modern, stroppy electorate.

When Labour has finished getting its lame ducks in a row over tax “reform”, its next problem is bitterness among its core voters. A CGT has come to be seen as a defining issue. Balk at this and how is it different from National? This is an absurd situation, but it’s the sort that party politics runs on. It’s easily brushed over that National, in 2015, brought in the CGT-lite “bright line”. It didn’t particularly want to, but its polling showed public resentment at people “flipping” houses for insane profits was becoming a political liability. The bright line codified what was already a provision for capital gains to be charged on transactions deemed to be for trading rather than investment.

Deflect and distract

Given New Zealand First’s heavy hints, and Labour’s attempt at out-of-body Zen whenever a CGT is mentioned, it’s likely a bright-line “recalibration” is going to be about it for our tax revolution. The question is, how much damage to people’s trust in the Government will this phoney war have done by then? It’s a rerun of John Key’s unexpectedly divisive flag debate, only with rather more potentially at stake.

Labour got itself into this mess during the election campaign, when new leader Jacinda Ardern was effectively forced to rule a CGT out, though it was Labour policy, when it threatened to become a media and Opposition harping point. To appease the party, finance spokesman Grant Robertson promised a comprehensive tax-reform package, likely to include a CGT, which people would have the chance to vote on before the following election. Well, it seemed a good idea at the time. Labour was finally resurgent. Perhaps there would be a rising tide of voters ready to take a few lumps for the sake of equality and the greater good? Come 2019 … Not so as you’d notice.

A better bet would be for the Government to accentuate work in the pipeline to reduce petrol and electricity prices, and to stop unfair practices by big companies. These are areas in which the proverbial fat cats have far more effect on people’s daily lives than they do through lack of a CGT. Similarly, the crackdown on loan sharks and truck shops will stop fat cats predating on the many people who will never have a CG to T.

Even the over-ballyhooed Provincial Growth Fund will have more measurable positive effect in a retail political sense than a tax regime, which only some experts believe is essential.

Electorally, even with a softener of tax cuts, polling suggests it’s just too risky.

You have to hand it to the Tax Working Group: seldom does a policy arrive that is as resented by ants as it is by grasshoppers.

This article was first published in the March 16, 2019 issue of the New Zealand Listener.