Editorial: Capital Gains Tax surprise raises doubts on coalition

Editorial

COMMENT: Winston Peters says the decision to reject a Capital Gains Tax provides certainty to taxpayers and businesses. But it raises further doubts about the balance of power in the coalition Government.

The announcement will surely end a worrying period for many farmers, lifestyle blockers and the owners of investment properties. That should be welcomed, not least because there's a sense the Government took too long to respond to the proposals of the Tax Working Group and was too silent on the subject in the meantime. That was particularly true in the case of Prime Minister Jacinda Ardern and Finance Minister Grant Robertson.

The long wait meant the many critics of the CGT had ample opportunity to stoke objections, often through a willing media. It was, therefore, no surprise that both Ardern and Peters cited a lack of public support for the policy.

The primary reason for not going ahead with the CGT was, Ardern said, because it was clear New Zealanders did not want one. She said the various parties in the Government were unable to find a consensus, although she genuinely believed a CGT "in some form" could help resolve inequities in our tax system.

There's little doubt a lack of support from New Zealand First was the ultimate stumbling block. Peters had supported the working group and did not express opposition to a CGT in Government. Labour might have formed some hope it could get New Zealand First to accept some form of a tax, even if it was not comprehensive.

Prime Minister Jacinda Ardern announces the Government has rejected a proposed Capital Gains Tax. Photo / Mark Mitchell

The Herald has supported the idea of a form of Capital Gains Tax on investment properties. Given the public backlash to the wider recommendations , there was a reasonable expectation that yesterday's decision would soften proposals to tax farmers, lifestyle blocks and the like.

The decision to drop the policy altogether came as a surprise. Peters has said the decision was not made until the "last few hours". It might reasonably be asked why when Labour has campaigned on some form of CGT since 2011 and the proposal emerged seven months ago. Ardern said there was no mandate for the policy. If laws were introduced only when there was a mandate, we might as well be governed by a series of weekly referenda.

It is telling that she referred to herself as a "pragmatic idealist''. The decision has the hallmarks of pragmatism rather than strong leadership. Labour are about halfway through leading this term of Government. There is little evidence so far that Ardern will make tough but unpopular decisions to deliver on her convictions.

That may come. She has, of course, excelled in other areas, not least her exceptional response to the Christchurch mosque attacks.

Both Ardern and Peters stressed the CGT decision was nothing more than an inability to reach agreement in this particular case. But there must be some concern Ardern was left in no doubt that NZ First would hobble the policy. And if it would do so over a CGT, when else might it?