Capital gains tax will be the biggest scrap of the year

Jacinda Ardern Taxes meme

The Tax Working Group’s report has been presented to cabinet, but we do not know what is in it yet. Still, Michael Cullen has dropped enough hints over the last few months for us to have a fair idea. This is a hot potato of the scorching variety, and while the media are still reasonably supportive of Jacinda, they are not going to tolerate being fobbed off for too long. quote.

Jacinda Ardern is already feeling the pressure over whether to introduce a capital gains tax in what is shaping up to be one of the biggest political fights of 2019 and the election year. 

In her first post-Cabinet meeting of the year, Ms Ardern confirmed there will be no Cabinet reshuffle or demotions until after Budget 2019 is released. 

But before all that, the Prime Minister has a whopping great political fight on her hands: whether to introduce a capital gains tax – a tax on profits when you sell assets like property, land or shares. And it will likely dominate the election in 2020.  end quote.

It will dominate the political landscape from now until the election. Make no mistake. This is not something that the government will be able to release at 4.00 pm on a Friday, hoping no one will notice. This is a massive issue, and the government will stand or fall because of it. quote.

It’s still going to be a tough sell with voters. But first up, Ms Ardern has got to get it past the goalie, her deputy Winston Peters. 

In the past, the New Zealand First (NZ First) leader has said capital gains tax doesn’t work in this country or “any country”. 

  newshub end quote.

Winston has softened his stance recently, claiming that we ‘already have’ a capital gains tax, which is not technically true. He is simply being cute. We do have a few specific forms of tax on capital, such as the FDR rules on foreign investments. If he is referring to the Bright Line test, he demonstrates his ignorance. The Bright Line test specifically identifies anyone selling an investment property within 2 years of purchase (now 5 years) as a speculator. Speculators pay tax on the income from property sales. quote.

Asked if Labour and NZ First are on the same page in terms of a broad base capital gains tax, Ms Ardern said it all depends on what the tax working group report comes back with. end quote.

While I already believe that Winston is well on the road to political oblivion, this could be the issue that sees him off for good. Everyone knows that a large swathe of his voter base comes from the Grey Power bloc, most of whom have assets. Winston will find himself torn between his support base and his socialist mates, with whom he is joined at the hip.

If he goes with the tax, his support base collapses. If he doesn’t, it may bring about the end of the government. The only way out that I can see for Winston is if he forces the government to accept the ‘grandfathering’ provisions that would tax only assets bought after the introduction of the tax. This will probably please nobody, particularly the left factions of the government, but it would allow a CGT to be introduced as law. Whether that would appease his support base sufficiently for them to consider voting for him again is another question, but they, as a group, will not be so adversely affected by the introduction of the tax if these provisions are applied.

My gut feel is that Winston is going to allow the tax to go through. His softening of his stance on CGT is the giveaway, for me anyway. That will be political suicide for Winston. At 75 at the next election, and with a knighthood and probably a cushy overseas posting in the offing, will he really care? Will his swansong be giving the finger to those who have supported him for decades?