Labour leader Goff eyes those offsetting rental property losses against other income then making capital gains, but capital gains tax still off agenda

Labour will target people making losses on rental property and claiming it against other income as a way of avoiding tax, then later selling the property for untaxed capital gains, leader Phil Goff said today.

However, Goff offered little insight into how Labour would tackle the issue, as he continued to rule out a capital gains tax and refused to be drawn too far on the tax policy Labour would take to the public in the run up to this year's election.

“But what we are looking at [changing] is ways [now] that people can socialise their losses and capitalise on their gains. It’s wrong that you can write off all the costs for your rental housing investment against other income and then when you finally sell the property you don’t pay tax on it either," Goff told a media briefing in Wellington today.

"So you [those offsetting rental property losses] end up paying very little tax. And anything that people avoid paying in tax – the rest of you have to pay it for them," Goff said.

Labour's pending tax package would be for the benefit of middle-income and lower-income New Zealanders, Goff said. "Those at the top and those and those doing the dodges will pay a bit more,” he said.

"Middle income earners will benefit from the tax free threshold that Labour will be introducing, just the same as everybody else. And they’ll benefit from GST off fruit and vegetables just the same as everybody else."

Asked if he would rule out a 50%-plus top personal tax rate, Goff said he was "not in a bidding game now, and you can be sure we’re not going to set those rates at unreasonable levels".

"Those that got the windfalls last time, they’ll be paying a bit more, as you’d expect," he said.

However, Labour would not simply rely on the top take rate and reigning in tax dodges to increase its revenue stream, Goff said. He refused to be drawn on a financial transactions tax - neither ruling it in nor out - or speculate on talk of a tax on foreign inflows of capital into the country.

Details would be released when he was "ready to release them".

'Borrowing levels to come down'

Meanwhile, a Labour government would not borrow at the level the National-led coalition is now to fund its budget, Goff said, adding Labour would reprioritise spending to reign in borrowing and in order to pay for tax relief for the lower and middle classes.

At the media briefing Goff attacked the government's announcement that it would look to sell up to 49% in Mighty River Power, Meridian, Genesis and Solid Energy as well as part of its majority stake in Air New Zealand. Goff said he did not think the proposed sell-offs would make much of a difference to New Zealand's capital markets, and National was softening the public up for the sales by saying they would be different than privatisations carried out under a Labour government in the 1980s.

"I don’t see us borrowing at the level National is borrowing now," Goff said at the non-regular briefing focussing on asset sales and early childhood education. "John Key talks about NZ$300 million a week, of course the economists say that’s a nonsense figure – actually the net figure’s closer to NZ$120 [million]," Goff said.

"But that’s too high, it will come down because the recession is behind us, and this country is getting better returns than it’s ever got on most of its exports. There is no reason why the New Zealand economy should be in the bad shape it is now,” he said.

Reprioritisation

In order to borrow at lower levels than National is now, Goff said Labour would reprioritise spending in certain areas of the government's budget. "There are some areas that won’t be as big a priority for us. For example, we won’t be putting a whole lot of extra money into subsidising private education for those who are the wealthiest in the community," Goff said.

"The government’s committed itself to NZ$875 million for a new missile system for the [Navy] frigates. That wouldn’t be a priority for me," he said.

"Government is about deciding what is important to do, given the resources that you have. It’s not about borrowing when you can’t afford to borrow extra, and it’s not about bludgeoning people with much higher rates of taxation.”

‘We got it wrong in the 80s’

On the issue of privatisation of State Owned Enterprises in the 1980s, Goff said the Labour government at the time "got the first half of it right, which was to make sure the SOEs worked well and efficiently, and the second half of it we got it wrong in selling them off".

"Those Treasury papers [released last week on government SOE ownership - read them here] say that there is not much to be gained in efficiency terms for privatisation. That is a clear admission [from] those who advise government that there is no benefit to efficiency from privatisation," Goff said.

"When they say that the private sector, as an ideological statement, is better at running things, somebody ought to explain to me why it was that the private sector ran Air New Zealand to bankruptcy, why the private sector asset-stripped New Zealand Rail to the point that it couldn’t deliver for New Zealand," he said.

In the 1980s Labour “absolutely" got it wrong. "Not only am I admitting that we got that wrong in the late 80s, but of course in the nine years of the last Labour government, we didn’t privatise our assets," Goff said.

"This government wants to privatise, New Zealanders say they don’t want that to happen, and John Key very arrogantly says: ‘I don’t care what New Zealanders think, we’re going to do that’. Well I do care what New Zealanders think, I care about those assets, and Labour won’t be selling them," he said.

'Softening New Zealanders up for asset sales'

Goff said talk the proposed sales would be different than in the 1980s was "simply a softening up of New Zealanders to make it more acceptable".

"But we’ll end up in the same place. Assets that are owned by New Zealanders [now], where the benefits go back to New Zealanders and the community, will be owned predominantly by foreign corporate, and the benefits will go overseas.”

The proposed sales would not make "a huge difference" to New Zealand's capital markets. "I think about 5% was the figure I saw," Goff said.

"It doesn’t make a huge difference in debt either. If you sold all of those power companies and Solid Energy, it reduces your debt by about 6%. [It] hardly makes any difference, and as Treasury will acknowledge, actually you lose money by selling them, because those assets produce better returns than the cost of servicing the debt," he said.

"I don’t accept the argument that it’s going to make a huge difference [to the capital markets] for a start. If people are investing their money in power companies that were once owned by all of us, that means they’re not investing their money in some other areas of the private sector that actually might have provided a better return for the country," Goff said.

“So called ‘mums and dads’ investors, they already own them, because we all own those power companies. As we saw with Contact, what starts with Mums and Dads end up with big foreign corporates. They’re the ones that will end up with all the shares, those are the ones that will make all the profits, and New Zealanders will be losers," he said.

'Problem is household debt'

Asked whether it was household, rather than government, debt that was the biggest problem for the economy, Goff said “Yeah I think that’s right. The government, under a Labour government, we paid down the debt. If you take into account the superannuation fund, we had a zero net government debt," Goff said.

"But New Zealanders spent alot during that period of time – house prices went through the roof. That’s one of the reasons I’m announcing some of the policy changes that I have, in terms of monetary policy and in terms of taking some of the speculative element out of forcing up house prices," he said.