Labour announces a big, bold tax policy

A capital gains tax predicted to raise $26 billion over 15 years and a hike in the top tax rate to 39 cents in the dollar on income over $150,000 are proposed in a bold Labour Party policy released today.

It says a fundamental shift in the tax system is needed to ensure economic recovery, and it isn't fair for wage earners to bear the brunt of it while people who sell assets at enormous profit contribute nothing.

Labour is setting its tax policy against the Government's plan to raise money from the partial sale of state-owned assets, which it knows is unpopular, and says it will pay off debt more quickly.

"These changes won't be easy and some people won't like them," party leader Phil Goff said.

"But it's the right thing to do...it's about creating a fairer tax system and under Labour the overwhelming majority of Kiwis will end up paying less tax, not more."

The party has previously announced it will make the first $5000 of income tax free, and remove GST from fresh fruit and vegetables.

The 15 percent capital gains tax it is proposing would be broad-based, targeting profits made from the sale of investment properties, businesses and assets.

The family home would be exempt, so would collectables like jewellery and antiques.

Small business assets, up to a maximum $250,000, would be exempt if the owner was retiring.

The new top tax rate is expected to raise about $300 million a year and Mr Goff said it would only affect about 2 percent of the country's highest income earners.

At present, the top rate of 33c cuts in at $70,000.

Even if Labour wins the November 26 election, it would take time to introduce the capital gains tax.

Mr Goff said the earliest likely date would be 2013 because of the preparation and legislation that would be needed.

Profits made from the sale of properties would be based on valuation at the time the law was enacted, not since they were first bought or built.

Labour's finance spokesman, David Cunliffe, said New Zealand couldn't afford the windfall gains that top income earners received from the Government's tax cuts.

"Fairness means that when times are tough, everyone gets a fair go and everyone pays their fair share," he said.

"At the moment, some New Zealanders aren't paying their fair share and are leaving it to others to shoulder the burden."

The policy has special exemptions for Canterbury because of earthquake damage, and properties wouldn't be liable for the capital gains tax for five years after its implementation.

Labour is banking on people deciding a capital gains tax is better than state-owned asset sales.

It is emphasising that most developed countries have the tax and that it works well, and that the Treasury, the International Monetary Fund and the Reserve Bank have said New Zealand needs it.

"Capital gains tax is not a maverick political proposition," Mr Cunliffe said.

"The good news about being one of the last countries to adopt one is that we are in a unique position to learn from the rest of the world and work towards a best practice form for our country."

The Government has previously said the tax would be extremely complex, people would find ways around it, and if house prices were flat or falling it wouldn't raise any revenue.