Key says tackle housing supply first before looking at 'punitive' capital gains tax

Prime Minister John Key has stopped short of completely ruling out a capital gains tax, but has said the government should address restraints on new housing supply before imposing any 'punitive' tax such as a capital gains tax. Key told the Q&A programme a debate was going on in government over the issue of a capital gains tax, with Treasury in favour, but the IRD opposed. Key said countries with capital gains taxes had also experienced booms and it was not very effective. But he pointed to the Buckle Tax Working Group's review in New Zealand and the Henry review of Australia's tax system as part of the process of finding ways to improve the tax system. He reiterated that any changes would not happen in the current term and any suggestion of major reform would be put before voters. Here is the section of the interview below where TVNZ Political Editor Guyon Espiner asked Key about tax reform.

GUYON Okay you've talked about that, I want to take you to another area that people would see as being one of the central things in terms of actually lifting the ability to invest and grow more wealthy as a country. The Reserve Bank this week said pretty much, they warned that we were gonna enter possibly the same boom and bust cycle in housing. Are you going to do anything to make housing a less attractive investment for people in terms of investment properties, and try to shift investment into the productive areas of the economy, are you going to do anything about that issue? JOHN KEY Well firstly under Bob Buckle the government has established a Tax Working Group. Now that Tax Working Group has a wide range of participants and it's going to report back to the Minister of Finance at the latter part of the year, and it's having a look at all of the structure of the tax system, how it operates, where there are efficiencies, maybe where there are loopholes, maybe where there aren't. I'm gonna leave that working group to come back and report to the government and not again prejudice its outcomes on day one. GUYON Haven't you ruled out a capital gains tax? JOHN KEY Well I've repeatedly said I'm quite happy to say today, I personally don't like capital gains taxes. I don't think that they work very effectively, they certainly don't stop housing booms, I mean the United States, Australia and the UK, all have a form of capital gains tax on housing, and it hasn't worked, they all had housing booms, and in fact even within the bureaucracy in New Zealand, the Secretary of the Treasury is very supportive of a capital gains tax, the main policy advisors in IRD are opposed to one. So there's quite a debate, but one of the reasons why housing has been such an effective form of investment for New Zealanders is the system hasn't been working well, and the Minister of Local Government can talk about that, but the RMA has held back the lease of land, the Building Act's been highly inefficient, we haven't had the supply for what's been an increasing population. So let's go and tackle those issues first, a punitive tax won't necessarily just deal with the issue. GUYON On tax Bill English said this week when he was visiting Australia, that he kind of expected Australia to move on tax next year, and that we might have to respond. Are your tax cut agenda programme actually back on the agenda over this term? JOHN KEY Well again we delayed personal tax cuts reluctantly. GUYON But will you cut them if Australia does? JOHN KEY Not specifically because Australia does, but the point that the Finance Minister is making he's quite right. Australia's undertaking a thing called the Henry Review, so Henry "“ Lex Henry I think at the moment is out there reviewing tax in the Australian structure in the very same way that we are through the Bob Buckle Review. So what is going to happen is, we're ob going to go and have a look at what Australia does. Now we can't ignore the fact that our large Australian partner, the partner that we have a single economic market has been established with is undertaking tax review, otherwise we'd be too closing our eyes to the competitive threats around them. GUYON So it sounds like if they cut taxes you'll follow? JOHN KEY Well let's just have a look at what they do, they've got a different tax structure to us so we're not saying holus bolus we would sign up to what they're doing, we're simply just saying we would need to look at what happens and what comes out of that review in Australia, who knows how ambitious it will be.