Earlier this week it was reported that the Labour Party's Policy Council is recommending the Party include introducing a capital gains tax in its policy for the next election. If that recommendation subsequently becomes part of Labour's policy, it will confirm the accuracy of Einstein's alleged comment.
Labour has flirted with the idea of a capital gains tax since the late 1980s when a tax advisory committee recommended to the then fourth Labour Government that such a tax be introduced. The government rejected the idea then fearing the public backlash, and Labour resisted internal pressure to promote capital gains tax for the next twenty years.
Finally, in 2011 and even more explicitly in 2014, Labour went to the electorate proposing the introduction of such a tax. It was resoundingly defeated at both elections. But Labour did not accept the electorate’s rejection of its tax ideas.
By 2017, the capital gains tax was back on Labour’s agenda, although this time the party stopped short of specifically proposing it. Rather, it suggested establishing an independent tax working group to examine all aspects of the tax system, including capital gains tax. When that working group, chaired by former Labour Finance Minister Sir Michael Cullen, duly recommended the introduction of a capital gains tax, the die seemed cast. Even more so when Cullen prophetically observed that it was “now or never” for a capital gains tax, because political pressure was likely to make the idea even more difficult in the future.
However, when the crunch came, Prime Minister Ardern – a self-confessed long-time capital gains tax supporter – baulked at going beyond her talk, and abandoned the idea, saying it lacked popular support. In 2019 she pledged never to introduce a capital gains tax so long as she was Prime Minister.
In 2023, new Prime Minister Hipkins overruled a plan from his Finance and Revenue Ministers for a tax-switch, reducing personal taxes but introducing a capital gains and possibly a wealth tax to compensate for the revenue loss. In words akin to Ardern’s, he said those ideas would be off the agenda while he was Prime Minister.
One would have thought that after more than a decade of first promoting then backing away from the idea of a capital gains tax Labour should have by then have learnt its lesson. But no; no sooner was the Party back in Opposition at the end of 2023, than party activists were again raising the spectre of a capital gains tax, claiming – in complete denial and contravention of recent history – that Labour’s failure to introduce a capital gains when in government contributed strongly to its defeat in 2023.
To placate some of these death-wish activists more concerned with political purity than winning elections, last year’s party conference referred the question of a capital gains or a wealth tax to the party’s Policy Council for consideration.
Reports that the Policy Council now wants a capital gains tax could place Hipkins in a near impossible situation. He is smart enough to know that the chances of being able to persuade the public now that a capital gains is a political winner when he and three of the party’s leaders before him either could not or would not do so over the last decade are close to zero. Moreover, he also knows his own credibility would be shattered if he now opted for a capital gains tax having so vigorously ruled it out in government barely two years ago.
But overruling the Policy Council and potentially the party’s ruling New Zealand Council a little further down the track is unlikely to be a feasible option either. Many in the party resented Hipkins’ “Captain’s Call” rejecting the capital gains/wealth tax option in 2023 and are unlikely to tolerate his being consistent and doing so again this time around. A second “Captain’s Call” might be a step too far.
However, the last thing Labour can afford right now is a distracting and divisive debate on this issue. Against the odds, it has a strong chance of becoming the government again next year, given the present government’s performance and the wallowing state of the economy. It already has enough ammunition to mount a strong campaign in 2026 and does not need to let itself be sidetracked by issues that have historically worked against it. So how Hipkins manages the ongoing internal party debate from here and maintains his personal credibility will be intriguing to watch.
Meanwhile, all this is mana to National, at a time when it needs it. No doubt it will be already preparing a fear campaign about the impact of capital gains taxes on things like the family farm, the holiday house and boat, and other assets New Zealanders enjoy or aspire to. Again, history suggests such a campaign will produce the same results as previous attempts to introduce a capital gains tax.
Therefore, rather than allow itself to get bogged down in another rerun of a long-standing political argument it has consistently failed to win, Labour should heed the rueful observation of Sir Michael Cullen after the Ardern government abandoned his tax working group’s capital gains tax plan. He said:” "The problem we have is New Zealanders seem not to want an inheritance tax, or a wealth tax, or a land tax or a capital gains tax but they still want to complain about growing inequality of wealth. Clearly that is a political position that has to be recognised, but it is not a satisfactory one.”
Labour therefore ought to be taking the opportunity to promote constructive reforms about tax enforcement, collection and compliance to boost fairness and equity, rather than continuing to flog the capital gains tax dead horse.
Peter Dunne, a retired Member of Parliament and Cabinet Minister, who represented Labour and United Future for over 30 years, blogs here: honpfd.blogspot.com - Where this article was sourced.
Finally, in 2011 and even more explicitly in 2014, Labour went to the electorate proposing the introduction of such a tax. It was resoundingly defeated at both elections. But Labour did not accept the electorate’s rejection of its tax ideas.
By 2017, the capital gains tax was back on Labour’s agenda, although this time the party stopped short of specifically proposing it. Rather, it suggested establishing an independent tax working group to examine all aspects of the tax system, including capital gains tax. When that working group, chaired by former Labour Finance Minister Sir Michael Cullen, duly recommended the introduction of a capital gains tax, the die seemed cast. Even more so when Cullen prophetically observed that it was “now or never” for a capital gains tax, because political pressure was likely to make the idea even more difficult in the future.
However, when the crunch came, Prime Minister Ardern – a self-confessed long-time capital gains tax supporter – baulked at going beyond her talk, and abandoned the idea, saying it lacked popular support. In 2019 she pledged never to introduce a capital gains tax so long as she was Prime Minister.
In 2023, new Prime Minister Hipkins overruled a plan from his Finance and Revenue Ministers for a tax-switch, reducing personal taxes but introducing a capital gains and possibly a wealth tax to compensate for the revenue loss. In words akin to Ardern’s, he said those ideas would be off the agenda while he was Prime Minister.
One would have thought that after more than a decade of first promoting then backing away from the idea of a capital gains tax Labour should have by then have learnt its lesson. But no; no sooner was the Party back in Opposition at the end of 2023, than party activists were again raising the spectre of a capital gains tax, claiming – in complete denial and contravention of recent history – that Labour’s failure to introduce a capital gains when in government contributed strongly to its defeat in 2023.
To placate some of these death-wish activists more concerned with political purity than winning elections, last year’s party conference referred the question of a capital gains or a wealth tax to the party’s Policy Council for consideration.
Reports that the Policy Council now wants a capital gains tax could place Hipkins in a near impossible situation. He is smart enough to know that the chances of being able to persuade the public now that a capital gains is a political winner when he and three of the party’s leaders before him either could not or would not do so over the last decade are close to zero. Moreover, he also knows his own credibility would be shattered if he now opted for a capital gains tax having so vigorously ruled it out in government barely two years ago.
But overruling the Policy Council and potentially the party’s ruling New Zealand Council a little further down the track is unlikely to be a feasible option either. Many in the party resented Hipkins’ “Captain’s Call” rejecting the capital gains/wealth tax option in 2023 and are unlikely to tolerate his being consistent and doing so again this time around. A second “Captain’s Call” might be a step too far.
However, the last thing Labour can afford right now is a distracting and divisive debate on this issue. Against the odds, it has a strong chance of becoming the government again next year, given the present government’s performance and the wallowing state of the economy. It already has enough ammunition to mount a strong campaign in 2026 and does not need to let itself be sidetracked by issues that have historically worked against it. So how Hipkins manages the ongoing internal party debate from here and maintains his personal credibility will be intriguing to watch.
Meanwhile, all this is mana to National, at a time when it needs it. No doubt it will be already preparing a fear campaign about the impact of capital gains taxes on things like the family farm, the holiday house and boat, and other assets New Zealanders enjoy or aspire to. Again, history suggests such a campaign will produce the same results as previous attempts to introduce a capital gains tax.
Therefore, rather than allow itself to get bogged down in another rerun of a long-standing political argument it has consistently failed to win, Labour should heed the rueful observation of Sir Michael Cullen after the Ardern government abandoned his tax working group’s capital gains tax plan. He said:” "The problem we have is New Zealanders seem not to want an inheritance tax, or a wealth tax, or a land tax or a capital gains tax but they still want to complain about growing inequality of wealth. Clearly that is a political position that has to be recognised, but it is not a satisfactory one.”
Labour therefore ought to be taking the opportunity to promote constructive reforms about tax enforcement, collection and compliance to boost fairness and equity, rather than continuing to flog the capital gains tax dead horse.
Peter Dunne, a retired Member of Parliament and Cabinet Minister, who represented Labour and United Future for over 30 years, blogs here: honpfd.blogspot.com - Where this article was sourced.
3 comments:
A capital gains tax would likely be more acceptable if this, or any Government, could demonstrate it was still necessary after abolishing any further Treaty Settlements and the billions of wasted taxpayer money. Time for some tough love!
Nah, let him run on a CGT ticket. He will lose, again. Then he might just get the message in his dumb head that we have had enough of Chippy and it’s time he got a real job.
All governments, especially Labour, can't spend the tax take sensibly now - give them more?!
Post a Comment