Have your say: Labour opens way for bi-partisan capital gains tax (Update 3)

Labour leader Phil Goff is prepared to support moves by the government to bring in a capital gains tax on investment property, NZ Herald reported after Labour's weekend conference. (Update 3 includes comments from New Zealand Institute of Chartered Accountants.)

Mr Goff said the party's bottom line would be that the tax would not apply to family homes. This means it would effectively target investment properties. The issue is being considered by a Government tax working group, and neither Prime Minister John Key nor Finance Minister Bill English will rule it out. A capital gains tax on property investment is seen as one way to reduce the tax advantages of rental housing, curb house price inflation and send investment into productive sectors of the economy. The tax review group is due to report back this year. Mr Goff said Labour would wait to see what it came up with, but was prepared to work with the Government if it had a persuasive case. "We are utterly against a capital gains tax on people's homes. But if the Government has other ideas, we'll keep an open mind."

Meanwhile Prime Minister John Key told TVNZ's breakfast he was not completely closed to the idea.

"I would take a lot of convincing that a capital gains tax would be a good idea," Key was reported as saying.

Key said it was an interesting offer from Phil Goff.

"The committee the Government has set up to look at all the tax policy is going to consider that as well and it's an interesting offer from Phil Goff that he might support that if one is proposed, but I've never been a fan of capital tax."

The New Zealand Institute of Chartered Accountants (NZICA) also waded into the debate later on Monday, with NZICA tax director Craig Macalister saying a capital gains tax was not the magic bullet for economic stability.

"There are many complex factors that come into play: using the tax system to target bubbles in the markets is fraught with danger. "In relation to concerns about the overheated property market we have seen suggestions in recent times to introduce a capital gains tax, a property speculation tax, or even to limit the deductibility of rental losses as a means of cooling investment in housing." Mr Macalister said the wider implications of such calls often were not thought through and frequently overlooked key details, such as the fact that New Zealand already has a tax on properties purchased for speculative purposes and importantly that developed countries have capital gains taxes and other property taxes such as stamp duties, yet still experienced a housing price boom. "In addition, the incidence of any general capital gains tax may be factored into the price of our housing stock and yet further impact house prices. That is, contrary to cooling prices it could actually increase prices and make home ownership less affordable. "Similarly a corollary of limiting deductibility of rental property losses may lead to a reduction in supply and an increase in rents, contrary to Government objectives to provide better quality of housing for people. "It also needs to be remembered that a general capital gains tax could apply to all capital gains from assets, such as the sale of farms, businesses or equities, and not just housing. "Introducing a tax to try and alter markets and influence the economy needs to be treated with caution. This has the potential to create unforeseen distortions and costs elsewhere. A poorly designed capital gains tax may be of little benefit to anyone other than a boon for tax specialists."

What I think This is an interesting development because it potentially gives National some political cover to bring in a capital gains tax on investment properties. Prime Minister John Key has ruled out a capital gains tax, but Finance Minister Bill English has been much more equivocal. This is encouraging and timely because the Tax Working Group will discuss the issue of a capital gains tax and a land tax on Wednesday. The political sands are shifting in the direction of actually doing something to fix our unbalanced economy, but there's still a long way to go. The proposals from the Tax Working Group and the 2025 Taskforce will be crucial, as will be Key's response. We can only hope for some significant reform. My gut feel is that debate over tax reform will dominate the next two years before the 2011 election. Your view? We welcome your comments and insight below.