Small investors were set to be punished at the expense of large fund managers, while (equally bizarrely) international shares were going to be advantaged over investments in local companies.
My biggest concern was that the changes would result in asset classes such as shares and businesses being hit unfairly hard.
I felt that would’ve been counterproductive, given our need to push capital towards those more productive, job-creating parts of the economy.
Interestingly, the 10 members of the Tax Working Group didn’t completely agree.
Three of them, including tax expert and former Deputy Commissioner of Policy at the IRD Robin Oliver, reached a different judgment.
In addition to the official 132-page final report, they released a “minority view” outlining their preferred course of action.
Both reports are available online, and the latter suggested something very similar to this new Labour policy.
Oliver and his colleagues, Joanne Hodge and Kirk Hope, argued the tax system shouldn’t discourage innovation or productivity.
They also noted that a comprehensive CGT could very quickly become incredibly complicated, with a raft of exclusions and compliance costs.
In the interests of keeping the simplicity of our tax system intact, while also maintaining the incentive to innovate, they suggested a CGT on residential rental housing.
It was noted that a decent proportion (some 39%) of the total revenue from the more comprehensive CGT would be from residential houses over a 10-year timeframe too.
Labour hasn’t released any figures yet, but that equated to $180 million in year one, rising to $2.4 billion in year 10.
I had a lot of sympathy for this minority view several years ago, so I can’t help but be intrigued by what the Opposition is suggesting today.
It could prove to be a politically savvy move as well.
While being watered-down and targeted rather than broad-based, this is a much more straightforward approach than previous iterations of Labour’s CGT proposals.
That should help avoid another awkward “show me the money” moment, like we saw during a debate between Prime Minister at the time John Key and Labour leader Phil Goff during the 2011 election campaign.
It could also garner more public support.
In a Reid Research poll from earlier this year, 43% of respondents supported a CGT, compared with 36% opposed and 22% unsure.
A big chunk of New Zealanders would be unaffected by this new Labour proposal, which targets residential and commercial property specifically.
The family home is excluded, as are farms and most businesses (apart from those directly involved in the property sector).
A few others might get caught in the net, although very few of the small business owners I know own their land or buildings.
The vast majority lease those premises from a commercial landlord.
Real estate investors will obviously be opposed to this, although it’s unlikely they’d exit the market altogether if it was to eventuate.
A CGT won’t stop house prices from rising, it might simply slow the pace of gains.
Businesses and shares could be the big winners.
Being exempt gives them a strong relative advantage, and you’d expect to see investment capital move away from property and towards these areas.
Entrepreneurs and growth companies looking to get bigger and take on the world with new products would benefit, which would hopefully lead to wealth creation and more jobs.
We’re only about a year away from the election, and this isn’t a bad first salvo from the Opposition.
However, the biggest concern for the voting public will still be how our money is being spent.
High earners and asset-rich voters are not opposed to paying taxes, but they want that capital to be used wisely and effectively.
Poor decisions and frivolous spending choices in recent years have dented the credibility of our politicians, especially those in the Labour camp.
That trust will need to be rebuilt before voters will fully embrace a CGT, even a targeted one.
Mark Lister is Investment Director at Craigs Investment Partners. The information in this article is provided for information only, is intended to be general in nature, and does not take into account your financial situation, objectives, goals, or risk tolerance. Before making any investment decision Craigs Investment Partners recommends you contact an investment adviser.
