Key: Tax system envy of the world

John Key. Photo / Getty Images

New Zealand's tax system is the envy of the world and does not need Labour's capital gains tax which would prove to be "a dagger through the heart of growth", says Prime Minister John Key.

But Labour leader Phil Goff, while still refusing to acknowledge the plan, has welcomed the debate it has sparked ahead of Labour's tax policy package on Thursday.

Mr Key yesterday kept up his attacks on Labour's plans for a redesign of the tax system with a new broad-based capital gains tax that exempts the family home as its centrepiece.

The idea has found some early support with many tax experts as well as the IMF, the OECD, Treasury and the IRD, which say the tax base is too narrowly focused on salaries and wages.

A capital gains tax was considered by the 2010 Tax Working Group but was not recommended as it was feared it would prove too complex. But Mr Key yesterday said New Zealand already had a capital gains tax for anyone who bought property or shares with the intention of reselling them as part of what was "quite a comprehensive tax system".

"Where there is a capital gains tax it operates as it should do on the right areas.

"I think we've got a tax system that most countries in the world would want to have."

National had addressed the capital gains tax issue in the Budget this year and last year by making it much harder for people to speculate in the property market and by increasing IRD's ability to clamp down on speculators. Labour has already indicated it will increase the top rate of tax for salary and wage earners but Mr Key said that would lead to "massive gaming of the system as we saw in the past".

NZ did not need new taxes, it needed more taxpayers "and the way to get that is to encourage growth". A capital gains tax would discourage investment and cost jobs.

"Do we really want to put a dagger through the heart of growth? That's what a capital gains tax is going to do."

Mr Goff said Labour was happy people were talking about a capital gains tax.