Capital gains tax decision met with praise

A roar of approval was chorused after Prime Minister Jacinda Ardern yesterday decided not to implement any aspect of the controversial proposal to introduce capital gains taxes (CGT).

The CGT proposal could have affected profit-taking from the sale of second homes, rentals, cribs, investments, farms and businesses and would likely have become a key election issue next year.

Praising the decision were BusinessNZ, Federated Farmers, Otago Southland Employers' Association, Employers and Manufacturers Association, Canterbury Employers Chamber of Commerce and Road Transport Forum, while the Council of Trade Unions and Green Party lamented a lost opportunity "to make the tax system fairer''.

Ms Ardern's decision was a surprise, as many analysts had picked at least a ``watered down'' Government recommendation to encompass rental properties, but Ms Ardern went so far as to rule out any CGT under her leadership in the future.

"All parties in the Government entered into this debate with different perspectives and, after significant discussion, we have ultimately been unable to find a consensus,'' she said on not introducing a capital gains tax.

"I genuinely believe there are inequities in our tax system that a capital gains tax in some form could have helped to resolve.

"That's an argument Labour has made as a party since 2011.''

However, in order to improve the fairness of the tax system, Ms Ardern said the Coalition Government had agreed to tighten rules around land speculation, work on ways to counter land banking, continue to cut red tape for business and to crack down on multi-nationals avoiding paying their fair share of tax in New Zealand.

Findex, formerly Crowe Horwath, Dunedin tax specialist Scott Mason said Ms Ardern had taken on board the feeling of the population on CGT, as opposed to focusing on the minority, who owned rental properties.

"First and foremost this was political, about getting re-elected; a very astute political decision,'' he said.

He noted that under the existing "brightline test'' rental properties were still "captured'' for tax, if sold within five years of purchase.

He said Ms Ardern's decision meant New Zealand First's Winston Peters would not have a platform "to differentiate himself from Labour'' at next year's election.

However, changing demographics meant tax issues needed to be scrutinised further, given the future funding needs required for health and superannuation.

Otago Southland Employers Association chief executive Virginia Nicholls said southern businesses would be "breathing a collective sigh of relief ''.

"This will now encourage business to grow, to create jobs which will provide economic growth for our region,'' Mrs Nicholls said.

Businesses could now focus on development and innovation and look to the future without concern for an additional tax burden, she said.

"Businesses have been struggling with increasing compliance requirements, rising costs and the employment relations changes, and will be relieved CGT is not going to proceed,'' Mrs Nicholls said.

Federated Farmers vice-president Andrew Hoggard said it was clear the Coalition Government partners had listened to "widespread concerns that CGT had too many downsides'', including administrative costs and a "handbrake'' on small and medium businesses.

"It seems to us that New Zealand First has been pivotal in this decision, and we appreciate their pragmatism,'' he said in a statement.

BusinessNZ chief executive Kirk Hope said the proposed CGT would have hit businesses hard, reducing available investment funds, job growth and increasing compliance burdens.

"Our members have been very clear that they did not see the justification for an expensive new tax that would have reduced the competitiveness of the New Zealand business sector for no discernible gain,'' he said in a statement.

Green Party co-leader James Shaw said taxing income from capital, like taxing income from work, would have reduced the wealth gap, fixed the housing crisis and built a more productive, high wage economy.

"We're particularly disappointed that the Tax Working Group's unanimous recommendation to implement a capital gains tax on investment properties isn't going ahead,'' Mr Shaw said in a statement.

Council of Trade Unions president Richard Wagstaff said the outcome was "hugely disappointing''.

"If this Government wants to be taken seriously on making lives better, then they need to make decisions which stop favouring businesses and property owners over working New Zealanders.''


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