John Roughan: Key has a green light from Goff to venture where politicians fear

Phil Goff might not be destined for greater things as leader of the Labour Party but he has put himself in line for the highest honour in my book. Last Sunday he put the country's interest ahead of party politics and made an offer to John Key that could fix the last crippling distortion in our economy.

Goff's offer - to consider a capital gains tax on investment property - is a gesture without precedent from an Opposition leader in my recall. It is also crucial to the prospect of plugging the gaping hole in this country's taxation. It is a rare national need that presents so tempting a political target it might only be done with the Opposition party's agreement. Capital gains tax is one.

The scale of Labour's sacrifice cannot be overstated. Generations of New Zealand politicians have regarded the very phrase capital gains tax as political death. The merest hint gave them a scent of blood and sent governments into vehement denial.

As recently as December when the Treasury's brief for the incoming finance minister included a capital gains tax, Bill English said he was focused on helping people through the recession and the tax formed no part of those plans. By the time he drew up this year's Budget, though, he was looking further ahead and set up a working group to review the entire range of taxes. Its report is expected by the end of the year.

Last month English warned National Party conference delegates they could face tax changes they wouldn't like. He wouldn't rule out a capital gains tax. The roof didn't fall.

Meanwhile, the Secretary of the Treasury, John Whitehead, has been telling business audiences the status quo is not an option and preparing them for significant tax reform. The Treasury wants to reduce taxes on incomes and profits, which can move overseas, and transfer the burden to property and consumption, which are less mobile. These omens could easily have led Labour's party conference last weekend to adopt a cheap and popular position. It sorely needs one.

These are cold times for a party so recently in power. Key's honeymoon with the voters gives no sign of abating. A daring move on his part could be gratefully opposed.

But Labour's nine years of government - its first decent tenure in 50 years - has left it a better party, more credible, experienced, responsible. It is back in opposition with a blend of seasoned ministers and studious newcomers who seem content for the moment to quietly learn their craft.

They might give Goff a full term before they succumb to impatience and look to present a face fresher than one the public has seen for 30 years. But for the moment they are a respectable ex-government ready to be helpful, not only on capital gains tax but also on the country's response to climate change.

They offered a strong prospect of a bipartisan emissions trading scheme last week when neither of National's small supporting parties supported its proposals in a select committee.

Unfortunately Key preferred to talk the Maori Party around, getting its support for a scheme that limits the price emitters will pay to exceed an industry standard. If the international market price of carbon exceeds $25 a tonne the Government will give them additional rights at a fixed charge. That is not emissions trading, it is a carbon tax.

Nor has Key publicly welcomed Goff's gesture on capital gains. Key will be wary; Goff's careful language leaves plenty of openings for escape. Neither wants to be left alone with this. As in too much modern rugby, there could an extended exchange of speculative kicking.

But Key should run with a tax on realised capital gains tax for all but owner-occupied homes. He came to power with a pre-recession mission to take the economy to a higher plane.

As an accountant, not an economist, he used to say the country had an underperforming balance sheet. He must have been talking about the public accounts because the overall balance of payments deficit was as deep as ever.

This country has always borrowed plenty of money. Our problem has been that we put most of it in unproductive real estate. Immigrants cannot believe the tax benefits of housing investment here.

Already, as the recession recedes, investment touts are on the radio extolling the attractions of real estate again, and English acknowledges the recovery is not bringing the necessary shift of national resources from consumption to exporting.

There might never be a better time to start properly taxing property. The market would get a lift in volume as sellers moved to beat the tax start and first-home seekers would no longer face bids from capital gainers.

Goff has given the country a golden opportunity. We'll see whether Key has the stature to match.