How a retired taxman sunk the capital gains tax
By Richard Harman (author)
The decision to scrap the capital gains tax may have just saved NZ First and with that ensured the government gets a second term.
It is probably also another nail in Simon Bridges’ political coffin since it leaves him without an issue to attack Labour.
For NZ First MPs, whose party has been struggling in the polls raising questions about whether it will make it back to Parliament at the next election at all,it will be political relief that has come not a moment too soon.
POLITIK has learned that the MPs who in recent weeks have tackled their leader, Winston Peters, about their low poll ratings have been told to wait. Something would happen.
And so it did, yesterday afternoon with the Prime Minister's announcement that the Capital Gains tax was dead as long as she was leader of Labour..
Right from the release in February of the Tax Working Group’s report proposing the tax, NZ First has been talking to the former Commissioner of Revenue, Robin Oliver, who was a member of the group.
He is believed to have been the lead author of the minority report from himself and other TWG members, Business NZ CEO, Kirk Hope and former Bell Gully tax partner, Joanne Hodge, which opposed a capital gains tax.
The report argued that the economic costs of implementing such a tax would exceed any benefits.
His view has been particularly influential within the NZ First caucus.
Peters last night was full of praise for his analysis.
“The interesting thing about the Minority Report was the quality of people on the minority,” he said.
“ Robin Oliver is a seriously, seriously qualified guy.
“So it's no mistake to say that I seriously read that report and understood what they were saying.”
Peters said it didn’t tip the balance for him but confirmed what he had been thinking.
NZ First has also recently raised some significant funding and was able to deploy this to conduct polling on the tax focusing on what its likely voters thought of it.
The response was one, apparently, of almost universal opposition.
Peters told POLITIK last night that many of his supporters, ordinary people, had been disillusioned with the sharemarket crash of the late 1980s and instead decided to invest for their retirement in property.
“They said we've got to get some real property now something we can trust," he said.
That drove their opposition to the tax.
But even so, Labour was always optimistic thinking Peters would go along with a capital gains tax.
He has consistently argued that National's brightline test was a capital gains tax. (which was, strictly speaking, correct) and that there was no need to go any further.
During the last election campaign, in an interview, he told POLITIK: “I’m not for an extension of the capital gains tax.”
Meanwhile last month the party launched an online survey to gauge the views of its members on the tax.
In his reaction to the announcement that the tax was scrapped, Peters emphasised the role feedback had played in the decision.
“We heard the feedback of our members, and the wider public,” he said in an email to party members.
“We listened very carefully to your sentiments and concerns.
"We acted by taking your feedback to consultation with our coalition partners.
"We heard, we listened, and we acted."
POLITIK understands that during negotiations Labour attempted to amend the Capital Gains Tax so that it could meet with NZ First approval. The proposal ended up looking like a Swiss cheese, said one insider.
But NZ First maintained its total opposition.
Ardern appeared to allude to this in her press conference yesterday announcing the decision to scrap the tax.
“We did consider a broad range of options,” she said.
“What of course we kept in mind at the same time was that we didn’t want to sacrifice the simplicity of our system and nor would you want to end up in a situation where you had an option that was so watered down that it didn’t achieve its ultimate principles.
“But it is fair to say that we did discuss a range of options and none of them were ultimately successful.”
Jacinda Ardern claimed to her press conference yesterday that the decision to dump the tax was made without any sort of a deal with NZ First.
But nothing comes for nothing in politics.
And NZ First must surely expect there will be a price to pay.
Most likely this will be in them folding their opposition to Labour’s climate change policies.
NZ First has been objecting to the way the Government is proposing to bring the agricultural gas, methane into the Emissions Trading Scheme.
The debate is over what percentage of methane emissions should be reduced by 2050. The Greens want 35%; NZ First wants half that.
And a bigger question remains in the background; where is the coalition Government now going to get its revenue from in the future to fund its big spending proposals like defence re-equipment or infrastructure.
The Tax Working Group modelled the fiscal neutrality requirement imposed on it by the Government out for only five years but after that revenue from a capital gains tax would have increased dramatically up to $5.5 billion by 2030.
There will now be a question about how fiscal and capital spending forecasts will be impacted by the lack of this money.
This was a point referred to by National Leader Simon Bridges, who said the scrapping of the capital gains tax meant Labour no longer had an economic plan.
But Bridges reached too far when he claimed the back down was because of the pressure he ha placed on the government.
“National’s relentless opposition to a Capital Gains Tax has forced the Government to back down,” he claimed.
Plainly that was not the case.
The more significant issue for National will be that its hopes that it might be able to campaign from now till the next election in opposition to the tax are dashed.
But Labour will have its own problems as a consequence of its back down.
The former Green MP, Nandor Tancos, probably spoke for many on the left when he tweeted: “I like Jacinda Ardern, but this is just another reminder that being charismatic and instinctively kind is not the same as having a coherent progressive agenda.”
The most obvious beneficiary of any disillusionment with Labour on the part of those on the left would be the Greens and their co-leader James Shaw was last night not willing to withdraw his support for a capital gains tax.
“We’ll continue to work with Labour to make our tax system fairer,” he said.
“The Green Party has long called for a capital gains tax as a way to level the playing field for hard-working New Zealanders who have struggled to get ahead. “
But Ardern had a message for the purists who might oppose the move made yesterday.
“Ultimately this is MMP,” she told her press conference.
“We are not the only party in government.
“We have to accept that there are different views and different positions.
“My personal view has not changed.
“But I do have to accept this is not something we will be able to deliver as a government.”
For Labour’s idealists, the whole exercise will have been an unwelcome experience of realpolitik, but even so, Ardern believed the party would support her move.
“The sense I get from the Labour Party, and certainly the feedback that I get, is that they would rather be here in government than not.”
And that was what yesterday was all about.