The Prime Minister has announced that the Government will not tax the income from capital gains while she is Prime Minister. It has therefore lost a future source of revenue at a time when needs are becoming ever more apparent, and just before its first ‘Wellbeing Budget’.
Both supporters and opponents of taxing capital gains were astonished at the Prime Minister’s decision. There were other options, even given New Zealand First’s abject opposition to it. An historic opportunity has been lost to rebalance an unfair tax system by shifting it towards the income from capital and the wealthy. We should not stop advocating for a capital gains tax.
The bigger picture was the furious campaign against it by every business interest which stood to pay the tax, and their representatives including Business New Zealand and the National Party. The media gave voice to a parade of property investors, commercial property owners and others, often with outlandish claims about the effect of the tax, generally trying to dress up their own self-interest as the public interest.
What choices does a future Government have to make the tax system much fairer and raise the revenue needed to make serious inroads into our environmental and economic needs?
The main options are higher top income tax rates and taxes on wealth: a land tax, a wealth tax, an inheritance tax, or a tax on the “deemed income” from assets. I outline how they might work and give some estimates of the revenue they could raise.
We will have to see how the 30 May “Wellbeing Budget” will change the way the Government’s plans are presented. We can expect reporting on non-financial indicators including the environment, people’s education and health status, the state of child poverty and other measures of inequality. Because it is the first such Budget, these will form the base line for measuring progress in future. We can expect some hints in the forecasts as to what might change in its Budget Responsibility Rules, such as in debt and spending tracks. But we are unlikely to hear about what it might replace them with: that is for election year. A recent symposium started some thinking on how both the Government’s own Budget guidelines and the Public Finance Act should change.
The Government has set itself five objectives for the Budget covering economic and regional development, developing New Zealand’s digital capabilities, lifting Māori and Pacific incomes and skills, reducing child poverty and family violence, and supporting mental wellbeing with a focus on under 24-year olds. We can expect an emphasis on these areas, but there are additional substantial needs in health, housing, education and other public services.
Download the full bulletin: CTU Economic Bulletin 212 – July 2019