18 Apr 2019

Mixed reaction to capital gains tax backdown

8:19 am on 18 April 2019

Prime Minister Jacinda Ardern has ruled out enforcing the much-debated capital gains tax. While many business organisations are cheerful, with some commending NZ First, others say a growing wealth gap is a disservice to the country's most vulnerable.

Papers at the release of the Tax Working Group recommendations.

Papers at the release of the Tax Working Group recommendations. Photo: RNZ / Rebekah Parsons-King

The Employers and Manufacturers Association said it was relieved with the decision to not proceed with the tax because it would hamper the ability of small to medium-sized businesses to grow.

"It wasn't something that was going to meet the objectives of reducing over-investment in housing and increasing tax fairness, and it would have been at a significant cost for SMEs," chief executive Brett O'Riley said.

"Dropping the CGT is one less issue for SMEs to deal with, especially with the volume of change this government is trying to introduce in the workplace."

The Road Transport Forum said a new tax would have been a burden on transport businesses.

"For transport companies, a CGT would have covered vehicles, premises, land, equipment and other business assets. The compliance alone would have been extremely onerous," RTF chief executive Nick Leggett said.

"There would be less money to hire more staff, invest in professional development and training, purchase more modern equipment and generally make businesses more productive."

Role of New Zealand First 'pivotal'

Canterbury Employers Chamber of Commerce chief executive Leeann Watson said the decision highlighted the government's commitment to the business community.

"We are pleased that the government has embarked on a strong, robust consultation process with all members of the community ... and ultimately made the right decision to rule out a new tax that could have adversely impacted all New Zealanders - and in particular small and medium-sized enterprises, which make up the majority of our country's employers," she said.

Ms Watson said the chamber had always advocated for a balanced and efficient tax system, and addressing areas that were not working, rather than introducing new measures.

"We look forward to working further with the government to help shape a regulatory environment that promotes business and supports those who seek to create jobs and prosperity for the whole community."

"We acknowledge the role that New Zealand First has played in this outcome."

The decision also went down well with Federated Farmers.

"It seems to us that New Zealand First has been pivotal in this decision, and we appreciate their pragmatism," Feds economics spokesperson Andrew Hoggard said.

He was glad that the government would look at the compliance cost reduction ideas mentioned in the Tax Working Group's report.

"There were a number of these that are worth looking at, including increasing various thresholds (eg for provisional tax) and simplifying depreciation and Fringe Benefits Tax, and removing resident withholding tax on close company-related party interest and dividend payments," Mr Hoggard said.

He was also pleased that there would be no resource rental for water or fertiliser tax - at least in this term of government.

Business NZ chief executive Kirk Hope.

Business NZ chief executive Kirk Hope Photo: RNZ / Supplied

Business NZ commended the government and said it was clear that NZ First has played a "significant role" in a capital gains tax not proceeding, and the business community would thank them for "not compromising their concerns".

Its chief executive Kirk Hope said members did not see the justification for "an expensive new tax that would have reduced the competitiveness of the New Zealand business sector for no discernible gain".

"Business NZ was appreciative of being included in the working group process and commends much of what is in the report, but in the end could not support a capital gains tax."

However he says it made another 90 proposals for the government to consider.

Path to 'persistent wealth inequality'

Richard Wagstaff

NZ Council of Trade Unions president Richard Wagstaff Photo: supplied

However, NZ Council of Trade Unions president Richard Wagstaff said the decision was "hugely disappointing".

"Working people need a fairer New Zealand, a place where we can all thrive. Ensuring that everyone contributes their share is a key part of that.

"A fairer tax system remains part of the solution in building the country we want New Zealand to be."

Mr Wagstaff said the government needed to stop favouring businesses and property owners over working New Zealanders.

Similarly, the Public Service Association (PSA) said it was disappointing that there was no appetite for implementing some form of capital gains tax.

"That was certainly not the opinion of the majority of the Tax Working Group, nor a number of New Zealand's leading economists, nor a large cross-section of community interests and ordinary citizens who were gaining a voice through networks such as Tax Justice Aotearoa New Zealand," PSA national secretaries Glenn Barclay and Kerry Davies said.

They said the PSA was anxious to see what this year's Budget would deliver to underpin how to cover the costs of meeting the wellbeing needs of all New Zealanders - especially those who were "struggling to make ends meet and do not have the luxury of untaxed capital gains".

Today's decision left the way open for "persistent wealth inequality" in New Zealand to go unchecked, they said.

It came as a suprise to some Labour voters, who had been holding out hope for a CGT under her leadership.

Deb Hardwicke, a call-centre administrator in Hamilton, expected at least a watered down capital gains tax would get across the line, and said Labour had let itself down.

"Labour's platform was a very strong moral platform to improve lives for people and to focus on lifting the standard of living for people who were disadvantaged... and there's a huge number of people who are in that boat."

Arran Whiteford, a post-graduate student in Wellington, was hopeful a capital gains tax would be introduced and said it was a missed opportunity to create a more equal society.

"Farmers have a lot of power, those with houses and those in older generations have a lot of power - and maybe it's the fault of younger generations for not doing enough to make their voices heard - but it definitely doesn't support change in trying to bring down increasing ineqaulity and increasing house prices... there's no forward planning for that at all."

Ricardo Menendez March of Auckland Action Against Poverty

Ricardo Menendez March of Auckland Action Against Poverty Photo: Supplied

Auckland Action Against Poverty (AAAP) condemned the government for not fixing a tax system which benefited a wealthy few.

"The government's refusal to implement bold tax reform to address the growing wealth gap is a disservice to our most vulnerable", AAAP coordinator Ricardo Menendez March said.

"Those who are on low-income, homeless, or most impacted by out-of-control speculation were not listened to throughout the Capital Gains Tax debate leading up to this decision."

Instead, he said the government "allowed wealthy landowners to control the narrative" over what sort of tax system Aotearoa should have.

"Wealthy landlords held the debate hostage by threatening to increase rents if their obscene profit margins from speculative gains were threatened."

Because of this decision, housing in New Zealand would continue to be seen as an "investment to make a profit out of instead of a fundamental human right".

Impact on house and rental prices

The Real Estate Institute of New Zealand said the tax wouldn't have helped housing affordability in the country.

Chief executive Bindi Norwell said instead it could have pushed up house and rental prices.

"For a tax system that wanted to be equitable and fair, it really was not fair for people that owned lifestyle blocks. In fact if I was a person that owned a lifestyle block, I'd be breathing a sigh of relief at the moment."

A Wellington tenants advocacy group said the government had missed a chance to tackle a fundamental inequity in the tax system that is contributing to the housing crisis.

Kate Day from Renters United said capital gains tax could have cooled the property market, which would have made it easier for first time buyers to compete.

"Instead, the decision really locks people into renting and landlords can continue to make huge profits.

"When first-time buyers are competing with people with enormous equity, it's just not an even playing field.

"Renters are working, most of them on wages, and in paying that money for landlords. It's only fair that people who make their income and other ways should pay the tax as well."

Ms Day said abandoning a capital gains tax made it more urgent to "fix" renting. The government should be delivering genuine security for renters by getting rid of no-fault evictions and address the affordability crisis.

"Rents are rising anyway, and renters are seeing no benefit for that, and we would like to see the government stepping in to address that.

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