Capital gains tax: Flip-flop of the century?
In its finance policy manifesto for the 2014 election, the National Party warned voters not to 'put it all at risk' with Labour and the Greens who would 'impose extra taxes' on New Zealanders, including a capital gains tax (CGT). National warned us that a CGT would be 'expensive and complicated', and that such taxes, as proposed by their opponents, 'would stall our economy and cost jobs'.
Labour meanwhile was promoting a CGT on the grounds that it was fair to tax such gains, that it would shift investment away from housing, and that it would cool the Auckland property market. That was the most prominent point of policy differentiation that Labour took to the election. John Key, however, ridiculed Labour's CGT proposal, for instance arguing that it would be too hard to determine what exactly is a 'family home' and what is an investment property.
Needless to say, Labour lost the election. They gained 25% of the party vote. But, ironically, the idea of a CGT was more popular, according to pre-election opinion polls, than the party that was promoting it.
According to a Herald-Digipoll in June 2014, almost 41 per cent of respondents were either strongly or moderately in favour of the CGT, up from just under 38 per cent in July 2011. Just under 35 per cent were strongly or moderately opposed. Labour has since distanced itself from this otherwise quite popular policy.
The National government's pre-Budget announcement of a tightening up of the CGT rules came as a surprise. So, after all, they do think the CGT is effective, fair and not too complicated? But the policy is not a copy of Labour's more comprehensive one. Arguably, it only targets investors, including foreign investors, who try to avoid the existing CGT for the first two years of ownership. It's 'just a tidy up of the tax laws', according to Mr Key. If that's all it is, why make a big pre-Budget announcement, rather than bury the policy in Budget-day press statements?
One way to knee-cap a political opponent is to dominate their policy territory. Hence, National has just run the CGT banner up its flagpole. And that leaves Labour floundering around to find the right words to oppose National's new initiative. Andrew Little can now attack the Prime Minister for his previous lack of concern about the Auckland housing boom and the effect that foreign investors may have been having on it. But he can hardly oppose the policy itself, even though Labour has resiled from its former CGT proposal. Labour left that 'property' vacant, and National have occupied it.
Debate rages at present over just how effective the government's new policy will be in taking 'some heat out of Auckland’s housing market', as its own press statements have put it. And, by the next election, we will most probably have forgotten about the big U-turn taken by National in 2015. It's possible that the CGT will become 'the new normal' in New Zealand's taxation laws, like it is in many other countries. Will political parties contesting the 2017 election be competing over who has the best CGT policy?