Taxing capital: Nothing ventured, nothing gained

Comment: Sometimes, the economics and the electoral maths just don’t add up.
So today, I’m going to simply offer you the views of seven informed, credible voices arguing for a capital gains tax – and two arguing against it. I’ll let you draw your own conclusions.
Antonia Watson: The chief executive of NZ’s biggest bank, ANZ, has given an interview to RNZ’s Guyon Espiner. Watson qualifies her comments with a warning about the compliance costs of introducing a capital gains tax, and emphasises she’s opposed to any tax on unrealised gains. Those caveats aside, she says: “The time has arrived for a capital gains tax … I think that there is some fairness in saying that a gain from a capital gain [is the same] compared to a gain from your income.”
Inland Revenue: The IRD began consulting last month on the scope of its next long-term insights briefing. “NZ’s imputation system and lack of a general approach to taxing capital gains reduce the extent to which capital income is taxed at the individual level,” its consultation paper says. “NZ is unusual among OECD countries in not having a general tax on income from capital gains. A general capital gains tax was introduced in Australia in 1985. It raised A$25 billion in 2021-22, or around 1% of GDP… While NZ’s income tax base is broad, there are gaps in the base. Specifically, NZ does not have a general tax on some forms of income, for example capital gains. This may constrain the ability to adjust rates to meet differing revenue levels.”
Caralee McLiesh: The outgoing Treasury chief executive has told the NZ Herald’s Jenée Tibshraeny that Treasury has long advocated for the introduction of a comprehensive capital gains tax. “There is more to do,” she emphasises. In a working paper, the Treasury says: “Broadening the capital income tax base could increase the sensitivity of the tax base to asset prices.”
Max Rashbrooke: The Victoria University academic published a study this month showing wealthy NZers are taxed less than their counterparts in other developed nations. “Capital gains should be taxed just like earnings from salaries and wages. Income is income,” he says. “The absence of a capital gains tax allows many high earners here to pay just half the tax they would at Australian, American or British rates … The tax’s defect, though, is that it applies only to gains made after it is brought in, so it takes a while to gather speed.”
Mark Lister: The investment director at Craigs Partners says he could support a capital gains tax if it were well-constructed and at a modest rate. “In return, I’d expect an accompanying reduction in income taxes. For me, that’s crucial for it to be a genuine rebalancing exercise. It would shift the focus toward genuine income and cash profits, helping encourage better investment decisions.”
IMF: After a monitoring visit this year, the International Monetary Fund experts issued their opinion. “NZ would benefit from a more efficient, equitable, and sustainable tax system. NZ already has one of the most efficient goods and services tax systems globally. However … to achieve these objectives, reforms should combine comprehensive capital gains tax, land value tax, and changes to corporate income tax.”
Terry Baucher: NZ’s best-known tax consultant highlights that gap between the economics and the politics. “Given we will need to find extra revenue, taxation of capital is the obvious point. We should be considering whether it’s a wealth tax, land tax, capital gains tax or even restoration of estate and gift duties, which were once quite a substantial part of the New Zealand tax base. It could be a combination of all or some of those, but the debate isn’t going away.”
The two voices arguing against a capital gains tax were speaking ahead of last year’s election – and there’s the clue to their motivation.
Chris Hipkins: The Labour leader has put a capital gains tax back on the table for now, but the party has a long history of ruling it out when the going gets tough in election years. “I’m confirming today that under a government I lead there will be no wealth or capital gains tax after the election. End of story. New Zealanders I talk to want certainty and continuity right now, and that’s what I’m delivering with this policy.”
Christopher Luxon: The National leader was effective in raising concern about capital gains taxes, ahead of the election, saying imposing such taxes on mum-and-dad landlords would lead to higher rents. “That doesn’t help people in a cost-of-living crisis. New Zealanders can work out for themselves that actually, ultimately, a capital gains tax will put a wrecking ball through our country.”
So would a capital gains tax be a wrecking ball to the economy? Or would it, rather, be a wrecking ball to the electoral prospects of a leader seeking election as prime minister?
As I said, I’ll let you draw your own informed conclusions. And ahead of the next general election, perhaps the wider voting public will do the same.