Labour's leadership contest has turned into a showdown on the party's capital gains tax policy, with Andrew Little and David Parker at loggerheads over its future.

At the first of three hustings meetings in the critical Auckland region yesterday, Mr Little was stronger than before in condemning the policy, while Mr Parker shifted to more strongly defend it.

Mr Little told the audience of about 300 party members that Labour had now lost support in three successive elections - something that had never happened before.

Watch: Labour leadership contenders in Rotorua

Members of the party's Rotorua branch heard Grant Roberston, Nanaia Mahuta, David Parker and Andrew Little put forward their cases yesterday at the Rotorua District Library.

He said there were a number of reasons for that but two policies stuck out - lifting the retirement age and capital gains tax. "There are at least two policies I know for a fact have caused people not only to not vote for us but to turn us off completely."

He said the party and caucus had championed those policies. "But the conclusion I've come to now is that those two policies alone are enough to stop people even considering what we have to say any more."

The tax was aimed at property speculators, but Mr Little said it also impacted on those who had scrimped and saved to buy a second property which they considered their retirement savings.

Mr Parker, the architect of both policies, said it remained the best way to ensure an equitable tax system.

"Currently, our system is rigged and it's rigged to favour speculation, not investment in jobs. We reward speculation and we punish work. If the capital gains tax is not the answer, then what is?"

He said Labour had to be pragmatic and he believed the retirement age policy should be decided by a referendum "rather than carry that cross ourselves into the next election".

Nanaia Mahuta said the labour market had changed and Labour had to change with it. "We need to be there for the apprentice, the small trades person, the small business person, the CEO with the social conscience, entrepreneurs, innovators."

Grant Robertson said Labour had to be courageous. "We're not going to get there by timid managerialism or changing a policy because of a focus group. We will get there by being clear and direct and authentic."


He addressed his sexuality, saying he had shown courage in his life "to stand up for who I am and what I believe in."

After three weeks of travelling, the contestants' roadshow will end on Wednesday in South Auckland. The winner will be announced on Tuesday next week.