The Labour Party talked a big game in opposition, but then let the capital gains tax outcome be determined by opinion poll – and Winston Peters.
And there’s the rub. The CGT has been less a policy with a clear set of outcomes than a belief system.
Rather like Brexit for disaffected Britons, our mooted CGT carried a panoply of aspiration and retribution, little of it based on reliable evidence.
To its supporters, the CGT was a vital catalyst in redistributing wealth and restoring housing.
But the reality is, we simply don’t know what its effects would have been. Given wider global considerations – Australia’s house-price slump, world trade instability and signs of a possible recession – most experts were necessarily reluctant to predict how long either positive or negative effects from a CGT would last, or whether they’d even come to pass at all.
The Tax Working Group itself could not agree to back a comprehensive CGT, with a dissenting trio’s alternative view proving more influential with the Government than the majority report presented by former Labour Finance Minister Sir Michael Cullen. Cullen, although well paid, was a poor choice for the role. It’s beyond irony that he was Minister of Finance for nine years, held his own tax review and did not introduce a capital gains tax, but now has no compunction in politically attacking those who, in a variety of sectors, opposed the proposed CGT.
In attempting to come up with as broadly based a regime as possible – the usual hallmark of good tax policy – the working group in fact maximised the numbers of people whose activities would be caught. That these included share investment, retirement savings, businesses of all size, productive agriculture and people’s often-modest beach houses makes perfect sense to a tax expert.
Most of the effect would have been modest imposts at the margins, not big hits on large new groups of people. But to those who would have been hit, it felt as though they were about to be punished when they’d done nothing wrong. The populist support behind a CGT has always been predicated on socking it to rich individuals overheating the property market – those flipping houses for easy profits, those salting wealth away in tax-free property assets, those sitting on valuable vacant land watching their balance sheet grow for doing nothing. Few proponents foresaw the humble family bach or the tradie’s workshop forming part of the “Greedies” meme.
And with the Government resolved – unusually – to stay out of the debate, a CGT didn’t have much of a defending army. Ardern could see in the opinion polls that public support was heavily conditional, and clearly discerned the dangers of defending a measure conferring guaranteed pain, with no guarantee of measurable rewards, let alone within her electoral timetable.
There’s plenty else the Government can do towards housing affordability, including taxing and/or regulating land-bankers – already in the pipeline – and those with long-empty residential and business premises. The new Housing Urban Development Authority may finally accelerate new builds, easing the supply shortage, and pending stringent regulation of building products will help by averting leaky homes. The extended “bright line” against property traders should also have an effect.
In some senses, Ardern is on unusually safe ground in binning the proposed CGT. Embittered CGT supporters can now only take their vote to the Greens, which would be no net loss to a future centre-left administration. She has also deprived the National Party of a potent electoral weapon.
The real question now, however, is what Labour meant when it talked a big game in opposition about transformational leadership. Similarly, it remains to be seen to what extent Ardern has diminished her own political capital by displaying such expediency about a policy she personally espoused and which many of her now-disappointed followers supported.
Without the usual robust policy debate between a government and opposition, we must accept the conclusion, however unsatisfactory to some, that we simply don’t know what the proposed capital gains tax would have entailed. And it’s just not worth the upheaval to find out.
This editorial was first published in the May 4, 2019 issue of the New Zealand Listener.