Why the Capital Gains Tax Needs to Stay on the Political Agenda

When I heard that the proposed Capital Gains Tax had collapsed, my first thought was that Jordan Williams would be popping the cork on some champagne.

That is exactly what he did.

But it’s important to think about what this means. Who are the ones celebrating? The Real Estate Institute of New Zealand. Federated Farmers. Simon Bridges. That’s fair – this is a political win for all of them. This kind of coalition disagreement – especially given New Zealand First’s power to decide government in the last election – is the kind of thing that Labour will not want to dwell on. New Zealand’s voters, however, absolutely should dwell on it.

So, what is a CGT? A capital gains tax is a tax on the income gained from capital – so properties, for example. It’s effectively an income tax. The CGT proposed by Labour was aimed at people with multiple properties, and would not affect the ‘family home’. Multiple property ownership is a pretty rare thing in New Zealand, but the few people who do own multiple properties are making significant income. Income should be taxed. It’s a relatively straightforward notion. People earning wages are getting taxed for doing the hard yards – taxing capital gains sounds like fairness, because it is.

It’s fairly straightforward why the CGT plan failed. The constraints Labour placed upon itself, through its Budget Responsibility rules, refusal to bring in any new taxes in its first term, and through the approach to the CGT itself were the downfall of the tax. If the consultation is one-sided, and the power – and here, as always, money is power – is one-sided, then there isn’t a debate to be had. Labour’s proposition was about as holey as the Swiss cheese the Government idly snacks on in the Beehive lobby during book launches. This allowed opponents to criticise the execution and form of the tax, rather than thinking about the principle of reducing the wealth gap. National didn’t have to oppose fairness to oppose Labour’s CGT – it had to oppose a messy, unclear approach.

The consultation process was also flawed. Crucially, the dominant voices consulted by the Government weren’t representative of the poor. But the entire point is that these are tax dollars that can build both state housing and genuinely affordable homes for first-time buyers. Funds in tandem with the policing of landlords and property managers. Funds that mean tenancy isn’t a 1-to-10 scale between nightmare-ish and “character-building”.

It’s also important to hold the Green Party accountable. It’s all too easy to see the Greens as limp spinach in the salad of government, but they are still part of the majority, and their support for a CGT is central to their economic policy. If the Government were to get a second term, the Greens should stand their ground on economic issues in any confidence-and-supply or coalition agreement.

By the time we hit the ballot boxes in 2020, the Government will have plenty of positive rhetoric ready. The news cycle may well pick up the CGT again, but there will also be plenty more to grill politicians about. Even so, remember that Labour promised fairness, and that NZF told us that the failures of capitalism needed to be addressed. If Labour are going to stay in power, they need to be put under pressure to deliver on this rhetoric. Labour can win these sorts of fights with clear policy and a political backbone.

Let’s keep economic fairness on the political agenda for the 2020 Election.