Jacinda scraps capital gains tax. Now what?
Has Jacinda changed her mind? After spending a decade or so campaigning for capital gains tax (CGT) to “make our tax system fairer”, it’s no longer on the PM’s to-do list. The Tax Working Group suggested CGT in February. Anyone who made a profit selling assets like residential rental homes, investment properties, land and buildings, business assets, intangible property and shares would have paid the new tax.
They can all exhale now. The PM said, “while I believed in CGT, it’s clear many New Zealanders do not…I am ruling out a capital gains tax under my leadership.” That’s political speak for her Government not having the numbers to pass it into law. You see, Winston Peters was not a fan! He was troubled by its "absolute complexity", and a view that CGTs “haven’t worked overseas”. Must be a tough pill to swallow for a PM so committed to tax reform.
FYI, the two sides of the argument were:
- Owners of capital assets would be taxed at the full rate like workers’ wages, making things fairer
- Government could afford lower income tax for everyone
- Investment would shift into productive businesses rather than unproductive real estate
- NZ, Switzerland and Turkey are the only OECD countries without a form of CGT
- CGT would negatively impact businesses, reducing funds for investment and job creation
- CGT would add to the already heavy, red tape burden
- Business sector would be less competitive for no discernible gain
- It hasn’t worked overseas
It seems Jacinda isn’t giving up! She’s now finding other things to do on, what she sees, as her quest to make our tax system fairer. The future may hold tighter rules around land speculation; including taxing vacant land to reduce land banking.
With the dropping of the CGT, the May 30 Budget, the so-called Wellbeing Budget, will carry less projected tax revenue— the government won’t have future tax injection to spend on services and so on. So are we good given the looming storm clouds and errant tweets swirling around the global economy? According to Minister Robertson yep. The IMF projects that our GDP will grow at around 2.5% in 2019 and 2.9 per cent in 2020. By way of comparison the average growth for advanced economies will be 1.8% and 1.7% respectively. This puts NZ on a faster growth trajectory than the US, UK and Japan.
Meanwhile, across the Tasman, the Australian Labor Party’s just lost a federal election despite making a lot of noise about its housing affordability plan. It was going to reduce Australia’s CGT discount from 50% to 25%. And, from 1 January 2020, negative gearing would have only applied to new housing. And it wasn’t retrospective. Just like here, tweaking housing policy is a dangerous business for political parties.
If you, or your clients, need more clarification around all things CGT or Labour’s property plans, please get in touch.