Labour's re-election chances 'a little bit easier' with capital gains tax u-turn - Jessica Mutch McKay

The coalition Government's backdown on introducing a capital gains tax improves Labour's re-election chances but is an embarrassing u-turn for the Prime Minister, according to 1 NEWS political editor Jessica Mutch McKay.

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1 NEWS political editor Jessica Mutch McKay says there is a silver lining for the PM, despite today’s blow.

New Zealand First leader and Deputy Prime Minister Winston Peters forced a major policy backflip as the Labour-led Government yesterday ditched the controversial capital gains tax.

Jacinda Ardern announced that the Government will not proceed with the Tax Working Group's recommendation for a capital gains tax, saying the parties have been unable to find a consensus on it.

Jessica Mutch McKay says successive Governments haven't been able to get a capital gains tax through because it's unpopular and controversial with many. 

"Yes, the Prime Minister has to take a hit on this," Mutch McKay said.

"This is an embarrassing u-turn for her. But it does mean her changes of being re-elected in 2020 have just got a little bit easier now that she doesn't have to talk about capital gains tax. Remember, she's ruled that our completely while she's prime minister."

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In an embarrassing flip-flop, Prime Minister Jacinda Ardern has been forced to ditch the controversial capital gains tax. Source: 1 NEWS

Mutch McKay says National can claim the Government's decision as a victory and will be celebrating it.

"They've had months of successfully slamming the Government on this capital gains tax issue. But the thing is this decision now means that attack line has been taken away from them," she pointed out.

The decision to drop the plan is "a big deal" for several reasons, firstly that the Prime Minister personally wanted the capital gains tax, Mutch McKay said.

"This was a cornerstone of her 2017 election campaign. It's also been a flagship policy for Labour for three elections. But she couldn't convince Winston Peters that it was a good idea," she said.

"Labour has promised to be brave on capital gains tax. They promised this would be the year of delivery and they haven't been able to get this big policy over the line," our political editor said.