OECD tells us to tax capital gains

New Zealand should introduce a capital gains tax to boost its poor record on investment and savings, says the OECD in a report on New Zealand published late last night.

But Finance Minister Michael Cullen said the recommendation was extreme, socially unacceptable and economically unnecessary.

"The Government is not interested in a capital gains tax, either in the short or the long term," said Dr Cullen's spokeswoman. "Basically it is political suicide in New Zealand."

In its bi-annual report, the Paris-based Organisation for Economic Cooperation and Development said New Zealanders should be taxed on gains made on the sharemarket and through investment in property.

"New Zealand's rate of national saving is lower than in most other OECD countries, giving rise to large and persistent current account deficits as investment levels are not correspondingly subdued," it said.

New Zealand was one of the few countries in the Western world without a tax on capital gains made through investments such as residential real estate. This had resulted in "oversaving" in housing and "undersaving" in productive assets, the OECD said.

Dr Cullen said the Government's response to the structural problems in the economy was much more pragmatic.

An independent ministerial commission into taxation is due to report to the Government next September.

Dr Cullen's spokeswoman said the commission might recommend the introduction of tax on capital gains, but this would not change the Government's stance.

"The Government's position is that it is not a part of the Labour Party's policy to introduce a capital gains tax."

The OECD advised the Government to abandon plans for corporate tax concessions in areas such as research and development, to tidy up grey areas in international taxation and to address the issue of over-taxation of low- and middle-income earners' superannuation and life insurance payments.

It also called for a resumption of the privatisation programme.

- NZPA