Labour leader Ardern maintains 'right and ability' to introduce Capital Gains Tax if working group suggests it next term; Would exempt 'family home'

By Alex Tarrant

Labour Party leader Jacinda Ardern is not ruling out introducing a capital gains tax (CGT) on rental/investment properties or second homes next term, saying Labour will listen to what their planned tax working group says on the issue sometime before 2020. Labour will not take a CGT to the electorate this time around though, she said.

Ardern said any CGT imposed by Labour would not apply to the “family home,” regardless of what the working group recommends, effectively carrying on Labour’s pre-Andrew Little stance that just under two-thirds of property would not be potentially subject to a capital gains tax.

This is despite Labour saying it wants the tax review to report on how all income, assets and wealth could be taxed more fairly. In defending the stance, Ardern said on Tuesday that exemption of the family home represented a set of “values and things that [Labour] holds important and dear.”

A recent study by economist Andrew Coleman would indicate that not imposing a CGT on the family home would continue to encourage home-owners to invest in lifting the value of their property by renovating for value uplift and building larger homes, rather than potentially putting that money into other savings schemes that currently face greater tax hits than property.

Coleman’s study also focussed on how changes to New Zealand’s tax system in 1989 had likely contributed to the average size of New Zealand houses growing faster than in the US and Australia since 1989. The average size of a new build had jumped from 110sqm in 1974 to about 200sqm today.

Ardern even said Tuesday that not enough new houses were being built around the 100 square-metre mark; that new builds were still closer to 200sqm and that this was to the detriment of first home buyers.

CGT uncertainty and transparency

Tuesday’s capital gains tax talk was kicked off by Prime Minister Bill English, who said Labour’s refusal to rule one out next term would lead to uncertainty in a housing market that had entered “correction” territory in the lead up to the general election.

“They are trying to stop themselves saying they want to do a capital gains tax, and are talking about putting up income tax. Those things would have an effect on the housing market,” English said on his way into National’s weekly caucus meeting.

Ardern, speaking to media after English on her way to Labour’s caucus meeting, said the party had in fact given a large amount of clarity and transparency on the issue. “We’ve made it very clear we’re not campaigning on a capital gains tax,” she said.

“And we do not believe in a capital gains tax or anything similar, applying to a family home. But at the same time, we’ve also acknowledged that we don’t think there’s fairness in our taxation system.”

Labour had proposed a tax system review which it will hold if in government after this election. Ardern said she would not pre-empt what that review might find, in the same way that the 2010 Tax Working Group recommendations were not pre-empted.

“I am maintaining our right and ability to act on its findings and do the right thing when we’re in government. We’re yet to know what that will be though,” she said.

“I’ve been very, very transparent on this. We do not think that assets are treated fairly, relative to other forms of taxation in New Zealand. The fact that someone can go out and work a 40-hour week and pay tax on that, [while] someone can own multiple homes, flick them off for capital gain and is often not treated in that same fair manner, is something that needs to be addressed.”

“Most countries have. New Zealand sits on its own in that regard,” she said.

Given that she said Labour would not pre-empt the working group’s recommendations, I asked Ardern how that fit with her comment earlier that a CGT under Labour would not apply to the family home. What if the working group proposed a blanket CGT – including on the family home?

“We’ve set out some expectations,” she said. “Any government would say what were particular values and things that it holds important and dear. So it’s good that we be clear with that Group before we go in what our expectations are.”