COMMENT:

The Tax Working Group chaired by Sir Michael Cullen is due to produce its interim report this month.

This will consider the issue of whether New Zealand should continue not to tax most capital gains (tax the fruit from the tree, but not any growth in the tree that bears the fruit).

The Labour Party, however, has already indicated its strong commitment to a capital gains tax, following countries such as Australia that has had a capital gains tax since 1985.

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It is important that New Zealand gets this right. Unfortunately, Labour has said it intends having any capital gains tax enacted before the next election - late 2020 - to come into effect 1 April 2021.

That means legislation into Parliament in the first half of next year, soon after the Working Group's final report in February.

In reality, the Working Group will need to all but finalise its February report by the end of this year, with legislation soon after that.

Not much time. No time for proper consultation. No time to think through the consequences.

A capital gains tax would mark a sea change in the New Zealand tax system.

We have, over the past 30 years, established a world class tax system that is relatively simple, has low compliance costs, and stays in the background.

Unlike Australians, most New Zealanders do not face the annual nightmare of complex income tax returns. When I was Minister of Revenue, I strongly supported the view that the need for tax returns should be rare, not standard.

A capital gains tax is likely to change all that. Capital gains tax is known to require some very complex rules, have high compliance costs, involve filing lengthy tax returns and be very intrusive.

If you do not believe me, ask any Australian what they think (except of course Australian tax accountants and lawyers who earn mega fees from their complex rules).

Taxing capital gains would impact on all areas of the economy.

A particular concern to me is the housing market. This is where much of the revenue will come from.

The Government has said the family home will not be taxed. Fair enough. But this excludes most housing and means no increase in affordable homes. The rich will invest in mansions, putting further pressure on urban house prices. And what if the home is partly used for rental, a homestay or Airbnb? Is the increase in value of the family home then taxed?

The impact on the most vulnerable - those living in rentals could be disastrous.

The rental yield on houses in my electorate is maybe 2 per cent to 3 per cent. That is not an economic return for landlords.

Presumably it is the prospect of capital gains that has let landlords accept such low returns. Yes, tax speculators - the last National Government did that with the two year brightline test. But do not introduce a new tax that increases rents.

A capital gains tax on top of all the regulatory requirements being placed on landlords is likely to lead many to sell up and get out. Fewer rental houses available - higher rents. Why do this?

New Zealand has developed a world-respected tax system without taxing capital gains. Why change? Labour's response seems to be, "because it will make the tax system fairer by taxing the rich". This just shows the economic illiteracy of the Government.

When a worker has tax deducted and paid by the employer, and when the supermarket pays GST on groceries, everyone knows the tax cost falls on the worker and shopper.

No one would or should believe a politician who said they were increasing tax on supermarket chains by putting up GST on groceries.

Similarly a tax on rental housing will most likely fall on those struggling to pay the resulting increase in rents. The most vulnerable in society. What is fair about that?

A second major source of capital gains tax revenue is likely to come from taxing company share gains. But who owns the shares? Largely KiwiSaver schemes and those saving for retirement. KiwiSaver schemes are now specifically exempt from tax on gains in New Zealand shares.

If a capital gains tax is to raise any money, that exemption would have to go. A tax grab on your retirement savings. What is fair about that?

There are numerous issues like this:

• Will farmers be taxed on the rise in the value of their farms and their livestock?

• Will a small business person be taxed on the sale of the firm on retirement?

• Will iwi face another land confiscation as settlement assets are taxed or will Māori get a special exemption?

• Will the family bach be taxed?

• Will the capital gains tax rate be the same as the normal income tax rates or like almost all comparable countries (such as Australia) will the capital gains tax rate be set at a much lower rate?

• Will amounts left in an estate on death be taxed under the guise of capital gains tax despite election promises not to have an inheritance tax?

These are just some of the issues that hopefully Sir Michael Cullen's interim report will deal with.

But the Government's timetable allows for little discussion or reflection as we turn our simple, in-the-background tax system into a complex and intrusive one.

One hopes the potential impact on the most vulnerable, struggling to meet rising rentals is fully considered.

Academics often have ideas they think are great in their rarefied world. A capital gains tax looks like one of those that becomes a nightmare for ordinary people, especially those renting their house.

A capital gains tax is obviously an internal issue within the Labour Party. David Cunliffe wanted it. Andrew Little was quick to remove it.

To appease Labour's radical left it has come back to life. It is not likely that the concerns of those renting will alter the deals Labour's current leadership have entered into.

Judith Collins is the MP for Papakura and a former Revenue Minister.