David Cunliffe is letting Labour down on the detail of a capital gains tax. The danger is that his imprecision will let down the case for a tax that New Zealand's economy needs. The Labour leader has been caught in confusion on two details, first when the Prime Minister asked in an online debate whether houses owned by family trusts would be subject to the tax, and subsequently on its application to deceased estates.
Both complications arise because Labour wants to exempt owner-occupied houses from the tax, as it should. But what then happens, National reasonably asks, to homes owned by a family trust or inherited at the death of a parent? Labour has had ample time to resolve both issues, and others, since proposing a capital gains tax three years ago. Mr Cunliffe, who was finance spokesman and took credit for the policy at that time, should not have been floored in the debate or contradicting himself on the inheritance issue yesterday.
When asked on Wednesday how soon after a death would heirs have to sell a house if they were not to incur his capital gains tax, Mr Cunliffe said a month. Yesterday he back-tracked and kicked for touch, saying it was a detail that would be decided by an expert tax-designing panel. That at least is preferable to making policy on the hoof.
In discussion of a tax on capital gains it is essential to remember its purpose is to make real estate investment a little less attractive so that more of the country's savings might be available for productive ventures. A family inheriting a house are not making an investment decision unless they let it for rent. At that point its value could be registered for tax on the gain in value if it is sold. A register of rental property may be necessary to the administration of a capital gains tax.
