6 Jul 2011

Labour keeping quiet over tax policy

10:22 pm on 6 July 2011

The Labour Party is still refusing to make any public comment about its tax policy despite some details being leaked.

The main opposition party is to officially release its tax policy on Thursday next week. A capital gains tax will be the centrepiece of its economic policy at a rate of about 15%, with the family home exempted.


This type of tax is based on the amount by which a property's value has increased since its purchase.

Radio New Zealand's political staff say Labour will pitch the policy as an alternative to the National Government's plan to partially sell state assets so it could raise money to pay for its other commitments without more borrowing.

Labour has already announced some parts of its tax policy, including no tax on the first $5000 of income, no GST on fruit and vegetables, and tax increases for top earners are likely.

Australia, the United Kingdom and the United States all have capital gains tax but the Government's Tax Working Group ruled out recommending this last year.

Prime Minister John Key says a capital gains tax will take the country backwards not forwards, and was rejected by the Government as it would be very complex to administer.

Mr Key says the tax cannot simply be applied to an investment property because someone who owns one could simply convert it into a company shareholding and then trade the shares.

He says a capital gains tax is not a panacea to rising house prices and people only need to look at Australia for evidence of that.

Labour leader Phil Goff said on Wednesday he will not comment on the tax package until his party formally announces its plans next week.

"What I will say to the Prime Minister is this: he knows the economy is in trouble, he knows he has no plan to fix that.

"Selling assets won't do it and the Government financial statement today showing that debt went up by another $3 billion over forecast shows that we need some bold change."

Political commentator Chris Trotter says Labour's new tax policy could be an election circuit-breaker for the party which has been struggling in the polls.

Mr Trotter told Morning Report the policy targets the traditional Labour voter and will get the party more votes if it is sold aggressively to the public.

However, former ACT Party MP Deborah Coddington disagrees, telling the programme that people who are in the middle are not likely to cross over and vote Labour because of the policy.

Greens support tax

The Green Party supports a capital gains tax, saying it will help more people to own their own homes.

Co-leader Russel Norman says John Key continues to defend a tax shelter that has disastrous downstream impacts on New Zealanders and the economy for purely political reasons.

Dr Norman says a capital gains tax, excluding the family home, would benefit the vast majority of New Zealanders as investors take money out of housing and invest in the manufacturing and export sectors.

Others critical of policy

The head of a Government taskforce that decided not to support a capital gains tax says it would make sense only if applied to all sorts of assets - not just houses.

John Shewan, the chair of accountancy firm PricewaterhouseCoopers, was a member of the Tax Working Group that reported back in early 2010 and backed a low-level land tax over other options.

Mr Shewan told Checkpoint a capital gains tax creates distortion, including fairness.

"Often the case, sadly, is that people get forced into selling assets because they're in financial difficulty and they end up with a tax cost, whereas wealthy people can delay that tax burden by not selling. So there's all kinds of distortions that these things cause."

The Real Estate Institute says ordinary people who rely on investment properties to pay for their retirement will be penalised by a capital gains tax and it is likely such a policy would be very unpopular with Labour's core constituency.

The Property Investors Federation says the policy would disadvantage investment property owners by treating sale proceeds differently to shares, businesses and other assets.