Prime Minister Jacinda Ardern on Wednesday abandoned plans for a capital gains tax despite strongly backing it at the last election, leaving New Zealand among a handful of developed countries not to impose such a levy. The surprise decision, which reflected a split in her Labour coalition government, came after a tax working group that Ardern set up after the poll reported back that it supported the concept.
Ardern was forced to back down when she could not get consensus in her three-party coalition, with her deputy Prime Minister Winson Peters -- who heads the minority New Zealand First Party -- firmly against it. Backers of the CGT -- a levy on profits from asset sales -- had argued New Zealand needed a fairer tax system with a better distribution of wealth.
Opinion polls had shown most New Zealanders opposed a CGT and Peters said there was "neither a compelling rationale nor mandate to institute a comprehensive capital gains tax regime". Frank Scrimgeour, the head of the school of accounting, finance and economics at Waikato University, said a capital gains tax, while universally widespread, has not necessarily been effective.
"The proposal that came back from the Tax Working Group would not really have made a significant difference to the equity argument," he told AFP. "It would not raise significant money and would complicate the tax system," Scrimgeour said in a perfect world a tax on capital should be straightforward but in reality, it was difficult to achieve.
"In other countries, it has not solved the kinds of problems CGT proponents suggested it should." New Zealand Taxpayers union executive director Jordan Williams described the decision as a "huge victory" for taxpayers with New Zealand's streamlined system negating the need for CGT. "We won," he said. "We're the envy of the world in terms of our very low amount of loopholes. We don't have a huge proportion of tax lawyers and accountants compared with many jurisdictions. We are extremely lucky."
The Tax Working Group had recommended a CGT rate at the income earner's top tax rate -- 33 per cent for most people -- which opponents argued would be one of the highest in the world. The Labour Party had previously campaigned for a CGT in 2011 and 2014 and lost both elections.
"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," Ardern said. "However after almost a decade campaigning on it, and after forming a government that represented the majority of New Zealanders, we have been unable to build a mandate for a capital gains tax. "While I have believed in a CGT, it's clear many New Zealanders do not."
(With inputs from agencies.)