The Government has given itself until April to decide whether it will pursue a tax reform package based on the advice in the Tax Working Group (TWG) report released on February 21. A key point of contention is its recommendation for a capital gains tax on assets including residential rental properties.
Senior Government figures, including the Prime Minister and Finance Minister, stressed the final form of any proposal would depend on the outcome of Labour’s negotiations with its coalition and support partners, NZ First and the Greens.
If it adopts The Tax Working Group recommendation for a CGT the Government would aim to pass legislation before the 2020 election. Changes would not come in until 1 April 2021 and if a National Government was elected it would be able to repeal the legislation, said Finance Minister Grant Robinson.
He said he would now discuss the recommendations with Labour's coalition and confidence and supply partners as they work to find "consensus on the best overall package".
Investor groups had been expecting the TWG’s final report to include a proposal for a CGT to apply when rental properties are sold or change hands. However it arrived to widespread criticism, including that the broad-based top rate of 33% proposed is too high.
While all 11 members of the TWG agreed on the rental property recommendation, Working Group chair Sir Michael Cullen said a majority also supported broadening the tax to include all land and buildings, business assets, intangible property and shares. Gains would only be calculated from when any new law comes into force (after “Valuation Day”) and would be taxed at full rates, with no discount and no allowance for inflation.
The “family home” and personal use assets like cars, boats and other household durables would be excluded from the tax.
Options open to the Government included applying CGT to only some types of assets or staggering the inclusion of different assets over time, said Cullen.
He said that broadly taxing more income from capital gains would raise roughly $8 billion over the first five years and options for applying the proceeds included widespread tax reductions.
Cullen said any fears that a CGT could discourage investment were not based on empirical evidence and that had not happened in countries with longstanding CGT. Comparisons with Australia overlooked the cost of stamp duty on property transactions there.
National leader Simon Bridges said theTax Working Group’s recommendations amounted to an "assault on the Kiwi way of life". Bridges pledged to fight it every step of the way, saying the proposed changes were motivated by "envy and ideology" rather than fairness.
The Tax Working Group received 6,700 submissions on tax system reform including from the NZ Property Investors Federation, which said the rental property industry already paid a fair share of tax so increasing property taxes would not be equitable and the burden would mostly fall on tenants.
Instead, it suggested that shares could be included in the Bright Line Test and that a share traders compliance unit could be set up within the Inland Revenue Department.
Key recommendations in the Tax Working Group’s final report include:
