Government cautious in initial response to new tax plan

2019-02-21 09:05:37

The Government's initial response to its own Tax Working Group's recommendations is extremely cautious, but ministers say nothing is off the table.

The TWG, chaired by former Labour finance minister Sir Michael Cullen, has recommended the Government introduce a new broad-based capital gains tax (CGT) on rental properties, land, and shares, paid at the income tax rate. The family home would be excluded.

The report estimates this would raise roughly $8.3 billion over the next five years, but that could be ploughed back into the hands of taxpayers via a suggested income tax cut, and another tax break for KiwiSaver accounts. This would deliver a tax cut for almost all taxpayers of between $420 and $595 a year, particularly those without investment property or serious assets.

The Government are planning a full response in April, and will not implement any changes until after the next election, giving voters a chance to effectively decide the issue.

"I'm not ruling anything in or anything out today," Finance Minister Grant Robertson told a press conference in Parliament, shortly after the report was released. Robertson repeatedly said questions on specific issues would not be answered, as the Government attempts to build agreement on any reform.

Labour ministers face an uphill battle getting coalition partner NZ First to support serious changes. NZ First leader Winston Peters has spent many years railing against any change.

While his public demeanour has softened Stuff understands his party remain "uninterested" in a CGT, although other measures included in the report could win support.

Meanwhile, the Greens are very keen on a CGT, with co-leader James Shaw arguing the Government doesn't deserve to re-elected if it doesn't implement one.

Robertson told reporters that Peters, his party and the Greens were all "committed to working together with the Labour Party" to coming to a firm view.

"All of you know it is the reality of MMP that in order to pass legislation, if that's what ends up being the case here, we have to get the votes to do that," Robertson said.

"That's the process we're working through now and I can say the early discussions that I've had with Mr Peters and NZ First, they are engaging very constructively."

Cullen warned the Government that it may need to allocate extra resources to help Inland Revenue, including from overseas, given the tight timetable to pass the legislation.

Revenue Minister Stuart Nash said Inland Revenue had strong capabilities and the legislation would be passed as usual.

"It's not going to be done through urgency, it's going to go through the proper process, if legislation is required."

The reference by both ministers to whether legislation is required opens the door to the possibility that the Government opts to make no changes.

Minority view 'an interesting idea'

Robertson was asked about the dissenting view of three members of the tax working group, which argued that the costs would outweigh the benefits, but made the case for considering a form of capital gains tax only on residential rental properties.

He suggested that the dissenting view could be seen as the unanimous view.

"It's probably worth looking at that the other way around, which is that the entire working group of 11 people have agreed to that proposal, to be extended to residential rental, that's an interesting recommendations and are that we can take a look at."

National are dead-set against the changes, with leader Simon Bridges saying they amount to an "assault on the Kiwi way of life". The party has already vowed to repeal any CGT if it forms a government after the next election.

Finance spokeswoman Amy Adams also appeared to rule out the idea raised by the dissenting members of the TWG, that a capital gains tax be considered specifically on residential rental property.

"We don't support that for a couple of reasons. You've already got a five year bright line tax which is a capital gains tax on residential rental, the turnover on them can be reasonably high, and also because it will raise rents."

Compromise likely

Finance Minister Grant Robertson said it was "highly unlikely" that every recommendation would be enacted.

In a press release accompanying the report, Revenue Minister Stuart Nash and Robertson mostly confined themselves to platitudes as well as a lengthy outline of the existing tax and welfare reforms already passed by the coalition, including an extension of the bright line test on property, GST on offshore providers and the families package. Cullen himself described the press release as "muddy".

"There is some unfairness that we need to address. We will work through ways to do this to make the system fairer and more balanced," Robertson said.

"We look forward to discussing the recommendations with our Coalition and Confidence and Supply partners as we work to find consensus on the best overall package."

Nash was even more sanguine.

"The overall findings confirm that there is no need for a major overhaul of the system," Nash said.

"Our response will preserve the key principles of our existing broad-based low-rate tax system. In the words of the Prime Minister, we will not throw the baby out with the bathwater."

At a BusinessNZ event on the eve of the report's release, Prime Minister Jacinda Ardern emphasised it was not a "Government" report.

"This is very much the Tax Working Group's report," Ardern said, adding that she encouraged public debate on the issue.

"We will then be using that time as Government parties to come together to formulate a response and build consensus.

"In that process, I believe what we generate, I hope, will respond to the majority view of New Zealand.

"Because we are the parties which ultimately represent that majority of New Zealanders."

During a public debate on the issue, Ardern reiterated that the overall reason the group was set up was "fairness".

Cullen pre-emptively defended the report from any accusation that it was simply a sock puppet group from the Labour Party, saying he thought most of the group likely never voted Labour.

"There's been an enormous amount of getting in the retaliation first in the last few weeks, some of it well informed," Cullen said.

"There is only one member of the group that I am sure has voted in recent years for the Labour Party. The rest of the group probably does not. I think one votes for the Green Party."

Ardern and Labour committed to the Tax Working Group ahead of the 2017 election, after losing an election in 2014 with a CGT as simple policy.

Under sustained pressure during the campaign Ardern promised that any changes from the group would not go into effect until after the 2020 election - although legislation would be passed ahead of that.

Cullen said the Government would need to devote serious resource to getting a bill passed before the election, and doing so could be necessary in order to counter "mischief" from the Opposition.

He noted with some sarcasm that the tax package could have "some effect" on the election.

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