A capital gains tax (CGT) has been a taboo issue for years, avoided by politicians afraid to lose votes.
The closest New Zealand came to one was in 2018, when a tax working group appointed by the Government returned a majority recommendation that we should follow in the footsteps of the rest of the OECD by introducing this policy.
The coalition Government then made up of Labour, the Greens and NZ First ultimately decided against pulling the trigger on the law. And in the follow-up election, Ardern pledged that a CGT would not be introduced under her Government. The promise was kept, but with the political winds changing is there a chance that CGT could rise from the dead in the future?
PWC tax partner Geof Nightingale was on the tax working group and tells The Front Page podcast that capital gains taxes are widely used around the world.
“In fact, New Zealand is the only OCED country without a comprehensive capital gains tax,” Nightingale says.
“We do tax quite a few capital gains, but not comprehensively.”
Nightingale says he isn’t surprised that one has never taken hold in New Zealand, given the cultural context.
“New Zealanders are aspirational. Most of us aspire to build wealth through land, investment, farming and small businesses. Many people over the years have seen they could do well with a farm, business or some land investment when they sold up. And they didn’t like the idea of having to pay tax on that. That underlying aspiration has been exploited by people who oppose an extension of capital gains tax.”
This has fundamentally seen the prospect of a CGT swatted away since it was first suggested in the 1960s.
Despite this opposition, a recent poll conducted by Chartered Accountants Australia and New Zealand suggested that 72 per cent of accountants supported having a comprehensive capital gains tax as opposed to the evolving status quo.
“I was at that conference when the vote was taken and I was surprised by the result,” says Nightingale.
“What you had at that conference was a bunch of technical experts. And if you analyse this objectively and technically, the case for capital gains taxes is reasonably strong. It’s not perfect, but it’s reasonably strong. But I don’t think the experts will carry the day. We, experts, don’t have to get voted in by anybody. Politicians have to get voted in, so they have to judge the mood of the public.”
So what does the mood of the public suggest right now amid a cost of living crisis? Do any politicians have the courage to follow expert advice? Will the next generation coming through push this issue harder? And how much money could a capital gains tax actually make for the country?
Listen to the full episode of The Front Page podcast to hear Geof Nightingale give his thoughts on these issues and more.