Guyon Espiner: Politics punches holes in the tax net

by Guyon Espiner / 27 February, 2019
Opinion
What does a Capital Gains Tax mean for you? Photo: Photo NZ

What does a Capital Gains Tax mean for you? Photo: Photo NZ

It's our job to be fair, went the old ad campaign from the IRD. It's my job to be kind, goes the on brand message from the Prime Minister. So we're heading for a kinder and fairer tax system then? Some even suggest, given it pays for much of civil society, that tax is love.

But when it comes to making changes to a tax system, tax is politics. And that's where we find ourselves with the capital gains tax (CGT).

You know those two months in New Zealand politics when, having listened, deliberated and voted, we then sit back, speculate and wait for Winston Peters to tell us what is actually going to happen?

Well, turns out that's not only the post-election period. Halfway through the election cycle, here we are again. And the same strategies are at play.

The Greens showed their cards before the game started, saying that the government didn't deserve to be re-elected unless it enacted a CGT. Reveal your hand, lose your leverage.

So guess who holds the whip hand? Actually, no you don't get extra tokens for that answer.

Already Jacinda Ardern is buckling. On Monday she opened her press conference with a long plea not to listen to opposition attacks but her main goal was to soften the ground for exemptions.

Farmers and small business people would be top of mind when preparing the government's response, she said, going some way to alleviate concerns recently expressed by Peters.

And yes you can argue that's MMP in action. But we can run into real trouble by granting concessions in the tax system in order to please constituencies.

Fairness and kindness are subjective concepts so tax systems have to have strong and consistent principles underpinning them. That's why GST works. No exceptions. Even drug dealers pay GST, as David Lange famously observed.

Australia's GST system is messy because of its exemptions and our own politicians routinely attempt to win votes proposing them.

Labour wanted to exempt fruit and vegetables in 2011 but eventually ditched the policy.

New Zealand First policy at the 2017 election was to exempt 'healthy food' from GST. "Ask your grandmother" was the response from Peters when asked which foods would qualify.

Needless to say, grandma was not called for during the coalition negotiations. The policy was shelved, presumably next to the items your grandparents would recognise.

We are heading into that territory now with the CGT where you puncture the IRD's net with such large holes that it becomes useless. In fact, it started before the Tax Working Group even got underway.

There are about 1.8 million homes in New Zealand. More than 1.2 million are owner-occupied and about 600,000 are rentals. But 'the family home' was ruled out of a CGT from the get-go. Why? Not out of fairness or kindness but because it affects 1.2 million households, making it a giant vote loser.

Sell an Auckland villa and get $3 million tax-free to live in South America? No problem, as long as it's the 'family home'. No one believes that is 'fair'. But no government wants to lose an election over it.

Of course, if you leave out most of the homes in New Zealand from a CGT then it's not going to have much impact on housing affordability.

I don't know about you, but nearly every conversation I've ever had about CGT - usually with friends in Auckland frustrated about how hard it is to enter the market - has focused on housing affordability.

But according to the TWG report, backed up in media statements by Grant Robertson, its proposal will have only a minor impact on housing affordability.

At that point, you have to ask, what is the point? Raise more revenue so we can pay for schools and hospitals? That might be nice but we're also told it will be revenue neutral, meaning tax cuts balance out any tax increases.

It sounds as though after all the pet constituencies are protected we may end up with a CGT on residential investment properties only.

Will that mean a ban on BBQs, boil up and beach cricket? No. I think the Kiwi 'way of life' will continue.

But after all the agony Labour has been through over the CGT that outcome means ending with a whimper rather than a bang.

It might be kinder on the coalition's constituencies and fairer for Labour's re-election chances but it's not the transformational government we were promised.

This article was first published on Radio NZ.

Latest

How to enhance your dining experience – with water
103174 2019-03-22 00:00:00Z Dining

How to enhance your dining experience – with water…

by Metro

A stunning dining experience isn’t just about food and wine. Water plays a big part too.

Read more
Facebook won't give up its insidious practices without a fight
103856 2019-03-22 00:00:00Z Tech

Facebook won't give up its insidious practices wit…

by Peter Griffin

Facebook came under fire for its response to the live-streaming of the Christchurch terror attack, but it's digital nudging that's also concerning.

Read more
In photos: The world unites in solidarity with Christchurch
103800 2019-03-21 15:36:46Z World

In photos: The world unites in solidarity with Chr…

by Lauren Buckeridge

Countries around the world have put on a show of solidarity for the victims of the Christchurch terror attack.

Read more
The tangled path to terrorism
103777 2019-03-21 09:59:55Z Psychology

The tangled path to terrorism

by Marc Wilson

The path that leads people to commit atrocities such as that in Christchurch is twisting and unpredictable, but the journey often begins in childhood.

Read more
If 'This is not New Zealand', let us show it
103768 2019-03-21 09:31:27Z Social issues

If 'This is not New Zealand', let us show it

by The Listener

The little signs among the banks of flowers said, “This is not New Zealand.” They meant, “We thought we were better than this.” We were wrong.

Read more
Extremism is not a mental illness
103785 2019-03-21 00:00:00Z Crime

Extremism is not a mental illness

by The Mental Health Foundation of NZ

Shooting people is not a symptom of a mental illness. White supremacy is not a mental illness.

Read more
PM announces ban on all military-style semi-automatic weapons and assault rifles
103805 2019-03-21 00:00:00Z Crime

PM announces ban on all military-style semi-automa…

by RNZ

Ms Ardern pledged the day after the terrorist massacre that "gun laws will change" and would be announced within 10 days of the attack.

Read more
No mention of right-wing extremist threats in 10 years of GCSB & SIS public docs
103770 2019-03-21 00:00:00Z Politics

No mention of right-wing extremist threats in 10 y…

by Jane Patterson

There is not one specific mention of the threat posed by white supremacists or right-wing nationalism in 10 years of security agency documents.

Read more