The Government has abandoned plans to impose a capital gains tax recommended by the Tax Working Group in February.
Prime Minister Jacinda Ardern ruled out a capital gains tax under her leadership, saying that no consensus was able to be reached within the Government.
While she still believed it would make a difference, she acknowledged that Labour had now campaigned on it for three elections, and it seemed there was a lack of mandate among New Zealanders for the policy.
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Sir Michael Cullen, who chaired the Tax Working Group, said he was disappointed but “not in the least surprised”.
A capital gains tax had been vetoed by Winston Peters, leader of Labour’s coalition partner NZ First, he said.
The Tax Working Group recommended a broad-based tax on capital gains from rental homes, second homes, business assets, land and shares, in February.
“I always thought there was a high probability that NZ First would veto any legislation,” Cullen said.
Cullen said he believed “the biggest losers” would be Simon Bridges and the National Party.
“This is how they were hoping to ride to victory and Mr Peters has shot it out from underneath him.”
Bridges had forecast the Government would dial the tax back to an additional tax on property investments, in keeping with the recommendations of three members of the TWG who dissented from its consensus recommendation for a broader tax that would also apply to business assets and shares.
But Ardern ruled out a capital gains tax under her leadership.
The Tax Working Group gave the Government and the country an opportunity to look at the fairness of our tax system and debate options for change,” she said.
“All parties in the Government entered into this debate with different perspectives and, after significant discussion, we have ultimately been unable to find a consensus. As a result, we will not be introducing a capital gains tax.
Anuja Nadkarni asked people on Auckland’s Queen Street if the proposed capital gains tax is fair.
“I genuinely believe there are inequities in our tax system that a capital gains tax in some form could have helped to resolve. That’s an argument Labour has made as a party since 2011,” she said.
“However after almost a decade campaigning on it, and after forming a government that represented the majority of New Zealanders, we have been unable to build a mandate for a capital gains tax. While I have believed in a CGT, it’s clear many New Zealanders do not. That is why I am also ruling out a capital gains tax under my leadership in the future.”
Ardern said there were other steps that could be taken to improve the fairness of the tax system, pointing to steps the Government had taken to “tighten rules around land speculation”.
Cullen had said in November that he believed it might be “last chance saloon” for a major change to broaden the tax base.
“The problem we have is New Zealanders seem not to want an inheritance tax, or a wealth tax, or a land tax or a capital gains tax but they still want to complain about growing inequality of wealth.
“Clearly that is a political position that has to be recognised, but it is not a satisfactory one,” he said.
Peters welcomed what he described as Cabinet’s decision not to implement more taxes on capital gains.
“This decision provides certainty to taxpayers and businesses,” he said.
“New Zealand First’s view is that there is neither a compelling rationale nor mandate to institute a comprehensive capital gains tax regime.”
In contrast, Green Party co-leader James Shaw had questioned in February whether the Government deserved to be re-elected if it didn’t implement a CGT.
BusinessNZ chief executive Kirk Hope said a CGT would have hit businesses hard, reducing funds available for investment and job growth and increasing their compliance burden.
“Our members have been very clear that they 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.”
Bridges said the Government had dropped its “flagship tax policy” but still had a range of taxes on the table.
“They include a vacant land tax, an agricultural tax and a waste tax,” he said.
“After 18 months of waiting and a $2 million tax working group, National’s relentless opposition to a capital gains tax has forced the Government to back down,” he said.
“The New Zealand economy has suffered while the Government has had a public discussion about a policy they couldn’t agree on.”