COMMENT:

Finance Minister Grant Robertson says he wants a conversation with Kiwis about a capital gains tax and other proposals in today's interim Tax Working Group report.

But there is only one conversation that will count ultimately, and that is with New Zealand First leader Winston Peters.

The past few weeks have shown the real forces of power in the Coalition Government and the reality is that New Zealand First holds a veto over any policy that National opposes. And it will not be hard for National to oppose Sir Michael Cullen's report - even though it does not formally recommend a capital gains tax.

Advertisement

In fact from the Opposition's view, it may be regarded as manifesto for the re-election of a National Government. Cullen's report has not come up with a capital gains tax. It has come up with two.

While not recommending a CGT, it has come up with a conventional capital gains tax which would tax the gain in assets when they are sold (except the family home). At up to 33 per cent that is much higher than Labour's old policy of 15 per cent. But by integrating the CGT rates with other income-tax rates, compliance costs come down.

The working group has also come up with an alternative accrual tax, which would tax certain assets on an annual rate of return deemed by IRD - known as the risk-free rate of return (RFRM) - but which would also exempt the family home.

It is hideously complicated to explain - as Gareth Morgan found last election - but could involve either an annual tax bill on defined assets or one that was applied only once the asset was realised. But again, the Tax Working Group is not recommending it.

Given that it cannot easily explain it, it is difficult to imagine it will become part of the group's final report and recommendations next February. It will have huge scare value for National - but may have the added advantage of making the integrated capital gains tax look more attractive.

As Cullen puts it, the argument of a capital gains boils down to having a fairer tax system versus introducing a tax that adds multiple layers of complexity to a relatively simple system.

And that argument will be settled by New Zealand First.