KEY POINTS:
One day in the recent election campaign I went with a National candidate to his private meeting with executives of one of the country's primary industries. The issues they raised were predictable except for one.
The chief executive put it to him that the economy needed to seriously
tax the capital gains on property investment.
Peculiarly in New Zealand, this is the political equivalent of swearing in church. He might not have done it if I was going to tell the world. Hence no names, but it now seems important to record that the Treasury's fearful suggestion last week might not be entirely friendless, particularly in the productive sectors.
Mortal fear of a capital gains tax on housing has been a conventional wisdom in this country for so long I doubt anyone remembers how or why it took root.
It was well established by the time the Lange-Douglas Government set about slaughtering other sacred cows. But apart from a tentative essay from David Caygill, they wouldn't challenge this one.
Lange memorably called a capital gains tax the policy you adopted if you wanted to lose the next election and several thereafter. Ever since, politicians have salivated at any suggestion that the other side might consider it.
Bill English was quick to squash this and several other rational steps recommended in the Treasury's briefing to the incoming Finance Minister published last week. Opposition leader Phil Goff dismissed them too, as did all political commentaries I read or heard.
None of the commentaries engaged with the economics - all merely jeered at the Treasury for serving a dish that politicians couldn't stomach. That is often the Treasury's thankless task and I can think of no greater public service.
Sir Robert Muldoon would have loved today's commentators. He professed to believe that if an economic suggestion was politically unpalatable it should be dismissed out of hand. Sir Roger Douglas, succeeding him with not a fraction of his persuasive power, redefined the art of the possible.
Douglas turned a local currency crisis, largely of his own making, into a moment of far-sighted opportunity. The international financial crisis this year is far more ominous but no less opportune for lasting improvements to the economy here and worldwide.
The Treasury briefing looks beyond the immediate gloom, noting this country has already done as much as any to ride out the recession. The previous Government's Budget for the current year contains a stimulus of around 2.8 per cent of GDP in tax cuts and additional spending.
"This," says the Treasury, "is already larger than the stimulus being undertaken in most OECD countries that have announced fiscal stimulus packages, including Australia." National appears to have heeded that advice at least. There has been no hint that panic spending is imminent.
Our economy went into recession much earlier than most and it was largely attributed to local conditions - mainly drought and the collapse of house prices that had risen higher than almost anywhere relative to average earnings.
Our Australian investment banks, bless them, were not caught up in the Wall St follies. Though they fed the local housing boom they were not lending to hopeless cases. Rather, our rocketing real estate values were locking young and low earners out of home ownership as well as denying investment to productive sectors.
The Treasury is urging the new Government to use the tax system in ways that could make New Zealand incomes more internationally competitive. To do this, it reasons, the tax base should be shifted from activities that are "internationally mobile" (labour and profits) to the less mobile (consumption, land). That means lower personal and company taxes, higher GST, effective taxing of real estate.
The tax distinction between realised capital gains and ordinary income has always eluded me, particularly since losses on the cost of capital invested in property are deductable against other income. With so much personal savings in investment property, removing the distinction will never be popular. But there may never be a better time to do it.
Sorry investors face a long wait for real estate to recover the ridiculous values of recent years. A capital gains tax on houses sold from here on would be fairly harmless for those who bought at those dizzying prices.
And the other side of this coin - a tax allowance on capital losses - could be just what we need right now. It would encourage owners of over-geared property to quit them, hasten the rate at which houses become available and affordable for first-home buyers, revive real estate turnover and get money moving through the banks again.
If only National could find the courage.