John Armstrong's opinion: Failure to deliver capital gains tax would see Ardern reduced to a laughing stock

David Lange once quipped that a capital gains tax was the sort of tax likely to lose you not merely the next election, but the next three.

That statement — spoken only partly in jest — would surely have been haunting Labour’s current leader prior to the release of the final report and recommendations of the Sir Michael Cullen-chaired Tax Working Group.

Jacinda Ardern wouldn’t be human if that wasn’t the case.

It is a moot point, however, as to whether she will be feeling more comfortable now that the product of that task force’s hard work is in the public domain.

Since coming to power some 16 months ago, Labour has kept talk about any capital gains tax confined to the working group.

The possible addition of such a measure to the long list of revenue-raising instruments available to a finance minister was effectively regarded as Cullen’s baby.

That has all changed now that a sensible, workable and very detailed model of a capital gains tax is now on the table.

Suddenly the question of Labour’s commitment to implementing a capital gains tax is now Ardern’s baby — one that does not answer to the name of Neve.

Suddenly something in the category of “things that are never going to happen” is not far off becoming a happening thing.

Suddenly something which has long been deemed to be the fastest means of committing political suicide is at the very top of the Cabinet’s agenda.

The consequent sense of trepidation being felt by Ardern and her colleagues was evident in the Government’s carefully manicured reaction to the working group’s recommendations.

Finance Minister Grant Robertson stressed the Government’s response to that advisory group’s findings would be ”measured”.

There was no need to conduct a major overhaul of the tax system. The Government was not obliged to pick up and run with every recommendation made by the working group. It was “highly unlikely” that it would do so.

Robertson deliberately avoided going into detail. His statement was an object lesson on how to say nothing. Its purpose was to cool the debate before those opposed to any form of taxation on capital gains could stoke it up.

That neither Ardern nor Robertson were willing to commit to a capital gains tax is no surprise. Long before the release of the Cullen review, Robertson made it very clear that the Cabinet will not be making any final decisions this side of April.

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    1 NEWS’ political editor takes a look at the big headline from the tax working group’s report. Source: 1 NEWS

    Ostensibly that delay is necessary in order to provide sufficient time for negotiations with New Zealand First which are likely be sharply focussed on which assets will be exempt from a capital gains tax.

    The lag gives Labour plenty of time to gauge the degree of any public antipathy towards what is being proposed.

    There will have to be tempest-level tumult from all parts of the electorate, however, for Labour to abandon the working group’s key recommendation.

    It took Federated Farmers little more than an hour following the release of that course of action to work up the required lather of outrage.

    The lobby group likened a capital gains tax to a “mangy dog” which would impose hefty compliance costs on farmers.

    Labour will be heartened that the barking was coming from a quarter it can afford to ignore. It is early days, however.

    Underlying all this is the fact that Ardern and Robertson had already crossed the Rubicon. There can be no retreat from a capital gains tax unless the opinion polls flag calamity at the ballot box next year.

    It is plain the road must now take. It is the one marked by signs flashing the words “capital gains tax”. It is not clear whether the words serve as a welcome or a warning.

    The reality is that even if their nerves get the better of them, Ardern and Robertson no longer have the option of engaging reverse gear.

    Sir Michael has delivered what he was effectively instructed to deliver. Ardern and Robertson have endlessly referred to unfairness in the tax system. They have made it their mission to address inequality.

    The means of doing so has now been laid out in detail in front of them.

    For Ardern in particular, the implementation of a capital gains tax is the ultimate test of her willingness not just to talk about doing the right thing, but to actually do the right thing.

    And without question, it is the right thing to do. Taking into account the current inconsistencies and anomalies in the way assets are treated, the logic for the introduction of a capital gains tax is compelling.

    The economic logic in terms of removing distortionary factors impeding investment decisions is similarly persuasive.

    In politics, however, logic often falls victim to what is convenient or expedient.

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      The Tax Working Group suggested the controversial tax on investment properties in a report released today. Source: 1 NEWS

      Then there is the fear factor. Labour might be riding high in the polls right now. But implementing a capital gains tax is an invitation for a voter backlash.

      Nevertheless, having declared 2019 to be the year in which Labour will deliver, the failure to deliver a capital gains tax would see Ardern reduced to laughing stock.

      The big question hanging over what is watershed moment for Ardern’s Administration is whether the Cullen tax review has struck the right balance in determining what will or will not fall within the ambit of a capital gains tax.

      In that respect, the Tax Working Group’s report and recommendations are hardly radical.

      The details of the tax regime proposed by Sir Michael and his band of tax experts echoes those applying in other jurisdictions such as Australia and the United Kingdom.

      That will be of little interest to those who believe — or who want to believe — that Labour is effectively mounting a raid on their bank accounts.

      Apart from holding out the likelihood of compensating income tax cuts, there is little in the working group’s report to disabuse people of such a notion.

      There is some economic modelling which indicates that those in the top 10 per cent in terms of disposable income will pay nearly 8 per cent of that income by way of a capital gains tax. Those in the decile below them will pay less than 2 per cent.

      That figure further declines in similarly drastic fashion in lower deciles.

      That is good news for Labour in what is going to be a lengthy selling job to the large segment of voters who regard themselves as non-aligned centrists and whose allegiance is vital to both Labour’s and National’s chances of being in government.

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        But such complicated analysis is not the stuff of soundbites.

        Boil it all down, however, and one is struck by one stark fact. It might seem obvious, but the debate about a capital gains tax makes a nonsense of the contention that there is little material difference between New Zealand’s two major parties.

        Labour’s manifesto in 2011 and 2014 included a promise of a capital gains tax.

        The current contemplation of such an impost on the well off seems to be a far more serious proposition than those forerunners.

        It is also further proof of the party’s marked shift to the left under Ardern’s leadership.

        That is an absolute gift to National. Or should be. If Simon Bridges fails to take the advantage, the National Party caucus will be knocking on Judith Collins’ door pronto.

        The party’s MPs will be asking themselves one simple question. If Bridges cannot get the better of Ardern in the fight over something as easy to make the running on as a capital gains tax then will Bridges ever be able to make life difficult for his Labour counterpart?

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          The Prime Minister says she’s ‘not ruling anything in or out,’ including implementing a capital gains tax. Source: 1 NEWS