Many have argued that Capital Gains Tax would have resulted in a fairer housing market, but would it have? And now it's off the table what measures would help first-home buyers and those who feel the barriers to home-ownership are too high. Our experts debate this hot topic.
As the countdown continues on whether Labour will adopt a capital gains tax, a fresh report is pushing the party to support a broad-based, comprehensive model.
Capital Gains Taxation in OECD and Comparable Nations, released today by Tax Justice Aotearoa, looks at CGTs in comparable countries and finds thatNew Zealand is an outlier.
Out of 38 OECD members, 31 have comprehensive CGT regimes, including Australia, Canada, Britain and Ireland.
These findings are nothing new, but the timing is curious. After a prolonged period of policy-brewing, Labour is today starting to roll out its economic plan, with its tax plan to be revealed in the coming weeks.
The party has previously campaigned on – and later jettisoned – a CGT, and while in Government investigated a wealth tax, which leader Chris Hipkins eventually vetoed.
After last election’s drubbing, however, Hipkins said all options were back on the table, and party murmurings have suggested a CGT was ahead in the policy race.
What will be chosen is highly anticipated, as will be the details, if it’s a CGT, of what’s in and what’s out.
There is a suggestion that Labour was leaning towards a CGT that acted like a maximalist bright-line test: family homes exempt, farms also likely spared, but residential investment property and the family bach all captured.
Guy Body's political cartoon for September 13 this year focused on Chris Hipkins' work on Labour's capital gains tax plan.
Common CGT characteristics
The report found that, to encourage home ownership, the family home is exempt in the CGT regimes of almost all OECD countries.
Many of them also allowed capital losses to offset capital gains, and also had lower tax rates or exemptions for small business disposals, often with minimum holding periods (typically two to 15 years).
Several regimes also included exit taxes on unrealised gains when individuals changed tax residence.
These issues highlight a CGT’s inherent complexity, which is one of the arguments against it.
The six OECD countries without a comprehensive CGT used other means to tax capital gains, such as Switzerland’s wealth levy.
New Zealand also does this with the two-year bright line test, but the report said New Zealand “has the most limited regime for taxing capital gains”.
“New Zealand’s position is increasingly anomalous given international norms and the need to gather more revenue,” the report said.
Just how much revenue a CGT would gain in New Zealand is another contentious issue.
Labour leader Chris Hipkins is expected to reveal the party's tax policy in the coming weeks. Photo / Mark Mitchell
‘Not adequate’
Tax Justice Aotearoa spokesman Glenn Barclay said a narrow CGT wouldn’t move the dial enough in terms of gathering revenue, making the overall tax system fairer, and incentivising investment in more productive parts of the economy.
“The minimalist CGT that Labour is reportedly considering won’t adequately address these challenges.”
exempted the family home but included all other forms of “significant assets”;
applied to all asset-owning individuals, companies and trusts;
was payable when the asset is sold or transferred.
“Income from capital gains should be taxed like any other source of income to mitigate the risk of tax avoidance, which will happen if lower tax rates apply,” Barclay said.
He noted Inland Revenue research from 2023, which showed that 311 of the wealthiest Kiwis and their close relatives had a combined family wealth of $86 billion, but paid on average only half the tax (9.4%) of ordinary Kiwis.
“A comprehensive CGT would be an important step towards fixing this.”
Prime Minister Christopher Luxon has long opposed a CGT, and has been waiting for the details of Labour’s tax policy so he can use them to attack the party.
“The worst thing that New Zealand needs is more tax, more borrowing, more spending – that’s what’s got us into the mess,” he said last month.
“We know what the Labour prescription will be – but a capital gains tax, a wealth tax, an inheritance tax, a death tax, all we know is it’s going to be more tax, more borrowing.
“When you look at a coalition of Labour, Te Pāti Māori and the Greens, that’s pretty economically dysfunctional.”
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Derek Cheng is a senior journalist who started at the Herald in 2004. He has worked several stints in the press gallery team and is a former deputy political editor.
