Would a ‘CGT-lite’ be a good idea?

Newly uncovered data suggests it might fail to address disparities

Summary:

• Labour is rumoured to be contemplating a version of a capital gains tax that focusses only on residential property

• This could have economic efficiency advantages, if it shifts investment away from residential property and towards export-oriented businesses

• However, if Labour’s goal is to reduce economic disparities, it risks leaving out of the tax net some asset classes that would affect those disparities

A taxing dilemma

Will Labour run on a capital gains tax (CGT) next year? If so, what form of the tax might it propose? And can it win?

These questions have been uppermost for politics-watchers this week following two CGT-related stories. One, based on polling by Reid Research and RNZ, found that 43% of voters would support a CGT as long as it excluded the family home, while 36% opposed it and 22% were unsure.

Voters’ views did not split neatly down party lines. One-third of National and ACT voters support a CGT; conversely, only half of Labour voters do, the remainder being split evenly between opposition and “don’t know”.

Political calculations

Although Labour has promised a tax announcement before the end of the year, it has not made an explicit decision on what that tax will be. At least notionally, both the parliamentary wing (the Labour caucus) and the non-parliamentary wing (the membership) get to have a say.