12 Jul 2023

Hipkins rules out capital gains tax, wealth tax if Labour re-elected

1:08 pm on 12 July 2023
Prime Minister Chris Hipkins

Chris Hipkins (file photo) Photo: RNZ / Angus Dreaver

Chris Hipkins has ruled out introducing a wealth tax or capital gains tax if Labour is re-elected in October.

"I'm confirming today that under a government I lead there will be no wealth or capital gains tax after the election. End of story," Hipkins said in a statement.

Currently attending NATO in the EU, Hipkins in a statement said with many New Zealanders struggling with the cost of living it was "simply not the time" for big changes to the tax system.

"New Zealanders I talk to want certainty and continuity right now, and that's what I'm delivering with this policy," he said.

Speculation over a Labour tax policy has been rife since Hipkins became prime minister, with his predecessor Jacinda Ardern's promise not to introduce a capital gains tax during her leadership coming to an end.

That was only fuelled by Revenue Minister David Parker commissioning a study from Inland Revenue which found the wealthiest families paid less than half the amount of tax compared to other New Zealanders.

The pledge conflicts with Green Party policy - who, polling has consistently showed, Labour would need to form a government - to introduce an "income guarantee" of a tax-free bracket for all earnings under $10,000. It would be funded by a new tax bracket of 45 percent on income over $180,000, and a 2.5 percent wealth tax on assets.

Labour would also likely need Te Pāti Māori, which has also spoken about plans to "tax the rich" in the wake of the IRD report.

Hipkins said details of Labour's tax policy would be released soon.

Hipkins shut down 'tax switch' proposal in 2023 Budget

Hipkins also said work had been under way on experimenting with a wealth or capital gains tax as part of a tax switch in the Budget, but decided instead to only adjust the tax rate paid by trusts.

"I ultimately made the call not to proceed with [the tax switch]. We simply didn't have a mandate to implement those," he said.

Hipkins' pledge came alongside the annual release of documents relating to the Budget, which confirmed a tax switch had been looked at.

A Treasury briefing to Finance Minister Grant Robertson in March showed plans to phase in a tax-free threshold for earnings up to $7500 from 1 April 2024, rising to $10,000 the following year, but it was never progressed.

It would have been paid for with a 1.5 percent tax rate on net wealth above $5 million.

"Work was undertaken on a range of proposals for a tax switch, particularly based on a revenue-neutral switch that would have seen a tax-free zone created of up to $10,000, funded by increased tax on the wealthiest New Zealanders," Robertson said in a statement.

"This work began in 2022, but ultimately the decision was made not to go ahead with it given the significance of the change in difficult and highly uncertain economic conditions.

"We also considered a levy on the excess profits of banks in order to assist with the rebuild costs from the North Island weather events. There are many pros and cons with a proposal like this, but ultimately we did not progress this idea as there was enough space in the government accounts to manage the recovery and rebuild without it."

Officials noted that with the lower tax take expected as a result of decreased GDP, for the package to remain fiscally neutral would also have required no change to main benefits; cutting student allowance rates so they would not benefit from the tax cuts; and the removal of the up-to-$520 Independent Earner Tax Credit.

Scrapping the IETC would have meant a boost of $120m to $130m a year for the government - and was an option the previous National Party also explored ahead of the 2017 Budget.

Another document laid out how the package's start dates could also be delayed "in response to 'economic conditions'," because of the short-term risks to inflation and returning to surplus.

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