It's About Nothing!

“Everybody's doing something, we'll do nothing” - George Costanza (Seinfeld Character)

Well, I was wrong. But then so was everyone else. In a highly anticipated press announcement at 2pm today, Prime Minister Jacinda Ardern announced the New Zealand Government’s response to the 200 page, 99 point, $2 million Tax Working Group ("TWG") report. And it was……..nothing.

No capital gains tax. Not even on residential property. The Prime Minister made it clear that she still supports a capital gains tax, but that she cannot get agreement on this within the coalition Government. With the Greens being vocal supporters of a CGT, this obviously means that New Zealand First refused to support any form of CGT. Further, the Prime Minister has vowed never to campaign on it again, after Labour unsuccessfully promoted a capital gains tax in the 2011, 2014 and 2017 elections. I guess some people take a while to get the message.

This was a big surprise to pretty much everyone. It begs the question why this outcome could not have been arrived at earlier. During coalition negotiations, or before the TWG was launched, could the Prime Minister not have popped her head into Winston Peters’ office, asked “Winston – CGT yes or no?”, and on getting the “yeah, nah” response, made the decision to not proceed with what has become a pointless exercise.

During the announcement and the press that followed a lot was made of the fact that the TWG made 95 recommendations unrelated to CGT and that the Government will proceed with considering all of them. But let’s consider this claim. The recommendations are broken down into five groups:

• TWG recommendations endorsed. Around 15 of them. The fact that these have been endorsed was already announced last year.
• TWG recommendations related to CGT (and the tax cuts that they could have funded). About 10 recommendations in this basket. None are proceeding.
• Measures which Inland Revenue is already working on. About 30 of them. Enough said.
• New policy ideas to be put on Inland Revenue’s work programme. About 40 of them. Matters such as environmental taxes and tax simplification fall into this category. None are controversial and most are bi-partisan.
• High priority policies. 5 of them. Four are very tax technical and I won’t go into them in any detail. The one that remains is taxing vacant land – i.e. targeting land-bankers.

So one, yes one, new policy measure of any note. But this is a policy that will likely be imposed by local councils rather than central Government. So what new bold policy central Government measures are actually going to come out of the TWG? Nothing.

So we’ve spent all this time, all this money, caused angst up and down the country for businesses and individuals alike, to arrive back where we started. All that’s changed is that Inland Revenue have 40 new policy ideas to fit into their already busy tax policy work programme. And let’s not forget that this is an organization whose staff numbers have been cut. When Australia wants to target more revenue collection, they give the ATO more money – just look at this month’s Australian Budget with another $1 billion pledged over four years to combat multinational tax avoidance in Australia. It will be interesting to see if our Budget in May provides any additional funding for Inland Revenue to consider and implement all these new policy ideas.

So what now? Well the Prime Minister made it clear in her press announcement that she still believes New Zealand’s tax system needs an improvement in terms of fairness and that she is committed to combating issues like child poverty. If more tax revenue is to be raised to do this it will need to come from within current tax settings, which will mean a review of income tax rates and possibly GST. While no important tax changes will be made now before the 2020 election, Labour could well go to the polls in the 2020 election campaigning to increase taxes on high income earners, as they have done (unsuccessfully) in the past.

So interesting times still to come, but for now no more talk or concern about the CGT. Let’s pretend its late 2017 and none of this actually happened (I’m sure the Prime Minster wishes she could).

Bruce Bernacchi

17 April 2019