The Tax Working Group released their long-awaited final report last Thursday. As was widely anticipated a broad based capital gains tax was at the heart of their recommendations, and has subsequently received most of the media attention. Given the detail and ramifications of the report, this will be the focus of a number of blogs over the next few weeks. This first piece will look back at Labours difficult history with capital gains taxes over the last decade, as this sets the scene for their current deliberations.
The Labour party have had a long and tortured history with capital gains taxes since the fifth Labour government lost office. They first announced a policy of a capital gains tax before the 2011 election, when under leader Phil Goff (and Finance Spokesperson David Cunliffe) they announced a they would implement a broad capital gains tax of 15% as part of a wider tax policy. Labour of course performed poorly at the next election, gaining 27.5% of the vote.
Labour had problems selling the capital gains tax from the start, and always seemed to be on the back foot. Even before the policy was officially released (but was widely expected) then Prime Minister John Key laid into the policy saying “the tax would be bad news for New Zealand.”
In 2014, the policy was retained, with one of policy architects David Cunliffe now the leader. Again Labour struggled to sell the policy. In one infamous leaders debate moment, John Key managed to trip up David Cunliffe over the details of the policy. Cunliffe was unable to answer when Key asked if a family home in a trust would be subject to capital gains tax.
Following another disastrous election performance where Labour gained only 25.1% of the vote, its worst result since 1922. Andrew Little took over as leader, and in his first speech as leader announced the capital gains policy would be dropped. However, the door was left ajar when in 2014 new Finance Spokesperson Grant Robertson announced a new Labour Government would set up a Tax Working Group. The group was tipped to propose new taxes on property speculation, as well as consider a capital gains tax.
Fast forward another 15 months, and with the 2017 election approaching it Labours policy reversal was not doing them any favours, with the party again stuck in the mid 20’s. Jacinda Ardern then took over as leader, immediately producing a powerful performance in her first press conference. Labour shot up in the polls, touching 40% which for many observers (and even members) seemed like an unrealistic dream only a few months before.
However, during the Nation’s economy debate Grant Robertson said that Labour reserved the right to legislate for a capital gains tax if that was recommended by the Tax Working Group. This appeared to be a deliberabte shift from Jacinda Ardern, but one that opened a minefield for Labour. For the next few weeks of the campaign Labour was hounded to rule different tax policies in or out. Both land taxes and inheritance taxes were ruled out after National party attacks. Meanwhile National produced some simple highly but effective adverts that attacked Labour over a range of possible taxes. Labours poll rating started slipping, heading back down into the thirties.
Labour was again at risking of losing the election. So two weeks before the election Jacinda Ardern made another call, this time to delay the introduction of any capital gains taxes or other taxes until after the 2021 election.
Labour managed to stabilise their poll ratings, gaining 36.89% of the vote at the election. Four weeks later, the nation gathered to watch Winston Peters announce his decision, and we finally had a Labour Government. But of course whether we will have a capital gains tax is a different question altogether, given the complexities of coalition politics & risk it poses for the 2020 election. That will be the subject of the next blog.