Government rules out implementing capital gains tax

Prime Minister Jacinda Ardern says the public has spoken and she won't introduce a capital gains tax while she leads the Labour Party.

The Labour-led coalition wasn't able to reach an agreement on whether to adopt a capital gains tax in response to the Michael Cullen-led working group's report, and have ditched the idea altogether.

Ardern told reporters in Wellington she still believes a capital gains tax could make the system fairer, but hasn't been able to secure a public mandate to introduce such a regime after campaigning on the issue since 2011.

"The Labour Party has now campaigned on this for three elections. It's time to accept that not only has a government that reflects the majority of New Zealanders not been able to find support for this proposal, feedback suggests there is also a lack of mandate amongst New Zealanders for such a tax also," she said.

The coalition government has been sitting on the report since February, but hasn't been able to find common ground, with New Zealand First and the Green Party at odds with their senior partner over how far such a regime should extend.

Ardern said the coalition partners discussed a range of options, but didn't want a watered down version that didn't achieve its goals and couldn't reach a consensus.

"I have a very solid relationship with both parties in this government - every single day we debate issues where we have different perspectives, the majority of the time we have consensus, from time to time we do not, it does not affect the health of our relationship."

Labour didn't extract support for a different policy, with Ardern saying that's not how the coalition operates: "We debate the merits of an issue case by case and we have done so here."

The group itself couldn't agree on how far the net should be cast in taxing capital gains. A minority including Business NZ chief Kirk Hope, former Inland Revenue deputy commissioner Robin Oliver and former Belly Gully tax partner Joanne Hodge backed a more refined scheme targeting residential rental property.

The majority proposed a broad extension of the capital gains tax regime, capturing all businesses, commercial land and buildings, and farms. To counter the increased tax, the report recommended lowering tax rates in the lower income thresholds.

The capital gains element of the report has captured the public's attention, although the work was much broader than simply addressing how capital is or isn't taxed.

Ardern said there are other ways to make the tax system fairer, and the government's wider response to the Tax Working Group's report has already started in some areas, such as the work on how to target multinational companies and other directives to cut business compliance costs, support start-ups, and more stringently enforce existing tax law.

Finance Minister Grant Robertson and Revenue Minister Stuart Nash outlined the government's response to the rest of the Tax Working Group's report, although neither joined Ardern in fronting the press gallery.

The response will include a direction to the Productivity Commission to include vacant land taxes in its local government funding and financing inquiry, and to prioritise work on ways to encourage investment in significant infrastructure projects.

A refreshed policy work programme will be released in the middle of the year.

A summary of the responses shows the government has also put a high priority on including the group's recommendation to consider restoring the depreciation deductions on buildings in relation to seismic strengthening work.

It also wants officials to consider adding the recommendation on ways to encourage savings by low-income earnings as part of the broader KiwiSaver programme.