14 Sep 2009

PM sceptical of capital gains tax despite Labour move

9:05 pm on 14 September 2009

The Prime Minister remains sceptical about a capital gains tax on property despite Labour leader Phil Goff saying he is open to approaches from the Government on the proposal.

During Labour's annual conference in Rotorua over the weekend, delegates were told spending on property must shift to investment in export industries if the country is to become wealthier.

Mr Goff says Labour is open to discussing capital gains tax but will not support any tax on the family home.

Tax expert John Shewan, a member of the Government's tax working group, says it has been impossible to get political agreement on the best course of action, and Mr Goff's concession opens the way to a bipartisan agreement.

However, he says Mr Goff has still played politics by ruling out family homes being subject to the tax.

A poor way of using the tax system - Shewan

Prime Minister John Key says he would take some convincing because a capital gains tax is so complex.

Mr Shewan agrees it's not simple to introduce and says it's a poor way of using the tax system to promote fairness and equity. It hasn't worked well overseas, he says.

Mr Shewan says that excluding the family home rules out two-thirds of the estimated $600 billion that's invested in the housing market, thus reducing the tax's effectiveness.

A better approach in his view might be a low annual levy on property, similar to the rates charged by local authorities.

The current tax system is unsustainable, he says: rather than being based on taxing income and capital, it needs to be based on taxing consumption and wealth.