By Alex Tarrant
A capital gains tax will be an important issue for the Green Party in any post-election coalition bargaining, Greens co-leader Russel Norman says.
Prime Minister John Key last week fixed the general election date for November 26 this year, effectively kicking off re-election campaigns for a poll likely to be centred on savings, government spending, revenue and the economy.
It was inevitable that sooner or later New Zealand would implement a capital gains tax, Norman told interest.co.nz, saying it was the central element missing from the Saving Working Group’s prescription for how to improve the nation’s savings rate.
The Savings Working Group’s diagnosis was “pretty good, but its prescription for what to do was “pretty weak,” Norman said.
“Probably the central element that’s missing from it is a capital gains tax, excluding the family home,” he said.
“When you look at [the Group’s] concerns around housing – they say the tax system is the cause of half the increase in house prices in the last decade – clearly the thing that’s missing is the capital gains tax, excluding the family home,” Norman said.
“When you look at their concerns around the Government’s fiscal position going forward, again, a capital gains tax, excluding the family home, would raise about NZ$4.5 billion a year, and that’s probably a conservative estimate.
“So I do think that’s one of the missing elements. Now obviously that’s part of their terms of reference [to not look at a capital gains tax], but I just think if you look at the changes you need to make it’s clearly one of the things you need to change,” he said.
In what was perhaps a surprising move, ASB advocated for a "targeted" capital gains tax in a submission to the Savings Working Group.
Certain logic to soft KiwiSaver compulsion
The Greens were not opposed to the Savings Working Group’s soft compulsion recommendation for KiwiSaver, where everyone in the workforce would be automatically enrolled in the saving scheme, but with the chance to opt out, Norman said.
“It’s still a voluntary scheme in the sense that everyone can opt out. It just basically moves a few more people in that direction, so there is a certain logic to it,” he said.
“The real issue for New Zealand will be to what extent do these kind of schemes redirect savings from one area to another, and to what extent do they result in new savings?
“There’s some evidence that the Australian scheme – it’s compulsory over there – has resulted in an increase in savings. But there’s also a lot of evidence from elsewhere that some of these schemes don’t have a huge impact,” Norman said.
“Looking at moving what savings there are into the productive sector, by changing the rules around investment properties, would make a significant difference. It would also make more productive capital available to New Zealand businesses,” he said.
“Some of the [proposed new] KiwiSaver rules I think will make a pretty marginal diference, but might make some difference.”
Capital gains tax important
The issue of a capital gains tax in any coalition bargaining was “quite important” for a couple of reasons, Norman said. Both Labour - the Greens' most likely coalition partner - and National are currently ruling out the implimentation of a capital gains tax.
“We’re very concerned about going into further government debt, and so our approach is if you’re going to talk about spending, then you also need to talk about revenue and where you intend to get it,” he said.
“Labour’s identified some sources of revenue – tax avoidance, perhaps doing some ring-fencing, and some cutting of spending, for example this missile project the navy wants to do – but they haven’t identified any significant areas of new revenue.”
It was inevitable New Zealand “will eventually do what just about every other country does and that is have some form of a capital gains tax,” Norman said.
“Whether it’s National or Labour, sooner or later we’re going to go there, because it’s obviously missing and it’s obviously needed,” he said.
Indexation of inflation component of interest
On the Savings Working Group’s recommendation to not tax the inflation component of interest on savings products such as term deposits, Norman said that would introduce a revenue cost and further layer of complication into the tax system.
“But on the other hand it might result in an increased incentive. We’ve had a bit of a look at it, we haven’t reached an absolute final conclusion about it, but clearly there are complications with it,” Norman said.
“It’s like, how do you implement a capital gains tax – there’s more of less complicated ways you could do it. Does the complication really justify the benefit? I think that’s the debate we need to have,” he said.
Goff will have discussion when the time comes
Meanwhile Labour leader Phil Goff said this morning that his party had not considered a capital gains tax as part of its tax policy.
“Labour will be the majority party in a coalition government for the future, and it won’t be a case of anybody demanding something, it will be finding policies that we can find agreement on that will work for all New Zealanders,” Goff said.
“You’re asking hypothetical questions. I’ll have those negotiations when the time comes,” he said when asked whether Labour would not enter government with the Greens if the minority party were to demand a capital gains tax in coalition bargaining.
(Update adds video of Goff, Goff comments)
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