Labour releases document setting out tax plan, says no Working Group taxes would come into effect until after 2020 election; Confirms Tax Working Group won't look at CGT or land tax on family home/land and no inheritance tax

By Alex Tarrant

Labour is trying to get back on the front foot over its tax ambitions, saying any tax changes resulting from its Working Group’s recommendations won’t be put in place until 1 April 2021, after the 2020 election.

The move comes after a series of attacks, including a “let’s tax this” campaign ad from National, after Jacinda Ardern had said she was keeping the right and ability to introduce recommendations before 2020 if that was what Labour thought was required.

Meanwhile, Labour finance spokesman Grant Robertson acknowledged that a revenue-neutral set of proposals from the Group – if this was what it came up with – could see income tax rates cut if new tax bases were identified or other existing tax rates were raised.

He refused to be drawn on what extra changes to the tax system outside Labour’s existing bright line test extension there could be to help ‘fix the housing crisis’, declining to comment on the possibility of a tax on vacant land.

Labour released a document bringing together all previous announcements on tax policy, while confirming a Tax Working Group next term will not be allowed to make recommendations on a capital gains or land tax on the family home/land, or an inheritance tax.

“We know it is important to get this right, so we will balance the need for certainty and urgency by ensuring that any potential changes will not come into effect until the 2021 tax year. This gives multiple opportunities for public input, and a general election before any new tax would come into effect,” Grant Robertson said. 

Legislation would likely be put in place before the 2020 election, although changes would not come into force until 1 April 2021, allowing the public to have their say by way of the election.

“To avoid any doubt, no one will be affected by any tax changes arising from the outcomes of the Working Group until 2021. There will be no new taxes or levies introduced in our first term of government beyond those we have already announced.” (Read already-announced changes below.)

Read the policy document here. An announcement from Grant Robertson and Michael Wood is further below. Watch a media stand-up with Robertson in the video above. Read National finance spokesman Steven Joyce’s response further below, and TOP leader Gareth Morgan’s reaction.

In the media stand-up Thursday morning, Robertson made a number of comments. These included:

  • A set of revenue-neutral proposals is possible, particuarly as the Group is being put to work on fairness across the tax system
  • That this could mean income tax rates are cut if there is a corresponding new tax base found (or rise in other taxes)
  • That the Group’s terms of reference are to review “balance and fairness in our tax system, with a particular focus on making sure that we crack down on property speculation.”
  • And that this had been the position since Ardern had become leader
  • He would not be drawn on other potential tax system changes to address housing, other than extending the bright line test – when asked about whether he could see the Group recommending a land tax on vacant land

Change of priorities?

I asked Robertson whether the Group’s direction of travel had changed slightly – all the talk under Andrew Little was about fairness across income, assets and wealth. Now the main reason for setting the Group up appeared to be to ‘help fix the housing crisis’. Was there an actual change in stance?

“No, I think it’s a focus,” he replied. “That is where we believe the most important rebalancing of the tax system has to happen. There are loopholes in our tax system that encourage speculation on property. I think all New Zealanders understand that when they go to work every day, pay tax on every cent of income that they earn, that they want that fairness to be seen across the system.”

The terms of reference of the Working Group remained “balance and fairness in our tax system, with a particular focus on making sure that we crack down on property speculation.”

I put to him that the bit on ‘assets and wealth’ appeared to be gone – with the Group not allowed to consider the family home or an inheritance tax. “Nothing has changed in the way that we’ve been doing this since Jacinda became leader,” was the response.

Housing crisis

“We cannot sit around and let the housing crisis get worse and worse as Natinal have done over the last nine years. We’ll do the work, we will make sure New Zealanders see it, and if they don’t want it, then they won’t have to have it,” Robertson said.

I put to him that Labour had already ruled out CGT on the family home and land tax on the family section, and that Labour had already announced the bright line test to five years. So what else was left that could be imposed with the express intention to tackle the housing crisis, from a tax system point of view? Tax on vacant land?

This was the job for the Working Group, he said. “We have put forward our policies this election…about a direction of travel towards rebalancing our tax system. The Working Group’s job is to see whether or not there is more that can be done in that area.”

I tried again: What else could be recommended other than tax on vacant land? He disagreed that’s all that was left. “We’ve still got the issue of what happens with speculation more generally in the property market and we’ve got to make sure we do everything we can. We owe it to New Zealanders to make sure they can get in, buy their first home, make sure that our housing market is not part of a speculators dream. We have to do something about it,” he said.

Wouldn’t that be tackled by extending the bright line test? “The bright line test only goes out to five years. The question for the Working Group is, is that enough?”

Capital Gains Tax & wealth

Robertson was also questioned on whether a capital gains tax would apply to other forms of capital than housing. “We’ve ruled out capital gains tax on the family home, we’ve ruled out a land tax on family land under the family home. We want the Working Group to be able to find a way of rebalancing the system,” he said.

In 2011 and 2014 Labour was talking about collectables and other elements of wealth. Will the Working Group be looking at those as well?

“What we are signalling is, the Labour Party’s policy is that our focus is on fixing the housing crisis. That is our focus. The Working Group have been given the mandate to get a fairer and better balanced tax system. We will then look at the recommendations. A future Cabinet may or may not take up all of those recommendations, as has been the case in previous terms,” Robertson said.

The Group’s ambit was to get a “fairer and better-balanced tax system with a particular focus on moving ourselves away from property speculation.”

Revenue-neutrality

I asked Robertson, of all the recommendations Labour might legislate for, would he expect them to be revenue-neutral?

“That will be one of the things that I think the Group will certainly be looking at,” he said. “It’s quite clear that if we are rebalancing the tax system, a revenue-neutral outcome is one of the outcomes that is quite likely. But, we want to give the Working Group the ability to come back to us, and come back with what they believe is best for New Zealand. But, revenue-neutral outcomes could indeed be one of them.”

So we could see a reduction in income taxes if new tax bases were recommended?

“That is indeed one of the possible options. If we are looking at a rebalancing of the tax system, it may well be a revenue-neutral outcome. That is one of the things the Working Group will be able to come forward with.”

Progressive, fair tax system

Robertson had earlier opened the press conference saying Labour was committed to a progressive tax system where everyone pays their fair share. Labour had committed to not increasing personal income taxes, corporate taxes or GST. National’s tax cuts would be reversed to fund spending promises for health, education and housing.

He called out the National Party for spinning lies about Labour’s tax policy, particularly on income tax. “New Zealanders will not be paying more in personal income taxes in the future under a Labour government than they are today.”

Robertson also said the major focus of Labour’s tax plan was to crack down on speculators “who are exploiting loopholes in our tax system. In particular, that means cracking down on negative gearing, and also extending out the bright line test that the National Party brought in, that effectively taxes the capital gain on a property that is not your family home that is being sold.”

He touched upon Labour’s plans to crack down further on multinational tax avoidance, and Labour’s policy included the proposal to get rid of secondary tax.

But it was the comments on Labour’s planned Tax Working Group that were the most awaited. Robertson said the party was still committed to setting the Group up to look at delivering “a fairer tax system and a better balance in our economy between speculation and productivity.”

‘We’ve listened to New Zealanders on this’

The Working Group’s work was “urgent and important,” he said. “That’s why we need to get it underway. But we also need to balance that urgency with the certainty that New Zealanders need from their tax system.”

While a Labour government would undertake the review and take chosen recommendations through the legislative process before the 2020 election, no outcomes would come into force until 1 April 2021, he said. This would give New Zealanders certainty over Labour’s plans, he said. This was also the position National was in this election with its tax package.

Put to him that this was an admission that Labour had taken a political hit from National’s campaigning, Robertson said: “What we’ve done is, we’ve listened to New Zealanders who want to be involved in this process.” The timeline for the Working Group provided for numerous opportunities for engagement, he said.

On legislating for any changes before 2020, but allowing for an election before the changes actually come into effect in 2021, I put to Robertson that the latest position was a compromise between the previous stance under Andrew Little, and Jacinda Ardern’s more recent stance of maintaining the ability to impose recommendations before 2020.

“It is Jacinda Ardern’s stance. She is seized of the view that we have to urgently address our housing crisis and that our tax system plays a big part in fuelling that crisis. We will have done the work, we will have passed the legislation, but nobody will be paying any tax as a result of the Working Group’s outcomes until 1 April 2021,” he said.

Why did Labour wait so long to make the decision? “We have listened to New Zealanders. New Zealanders want to be involved in this process. It’s quite clear that when it comes to taxation, we need to provide both certainty, but also that sense of urgency.”

He later said it had become clear through the election campaign that Labour realised it needed to balance its sense of urgency with the desire of New Zealanders to have a say on the process and recommendations.

Already announced:

Labour in the policy document drew together what it had already announced, including on negative gearing and secondary tax:

  • Reverse National’s proposed tax cuts and re-invest that money in a fairer package of support for families and in core public services such as health, education, housing and police
  • Crack down on housing speculation by extending the bright line test to five years. This taxes the sale of properties other than the family home
  • Create a level playing field for families to buy their first home by removing a tax loophole that speculators use to avoid paying tax – as recommended by both the IMF and the Reserve Bank
  • Set up a Tax Working Group, to ensure that there is a better and fairer balance between the taxation of income and assets, in particular the capital gain associated with property speculation. The outcomes of this Working Group – if any – will not take effect until the 2021 tax year
  • Introduce tax incentives to encourage research and development
  • Eliminate Secondary Tax as part of IRD’s Business Transformation Programme
  • Take strong action to ensure that multi-national companies pay their fair share of tax.

Read the announcement from Labour below:

Labour is committed to a tax system where everyone pays their fair share and where we start to address the imbalances that have fuelled the housing crisis, says Labour’s Finance spokesperson Grant Robertson and Labour’s Revenue spokesperson Michael Wood.

“Today Labour has released its full tax plan, bringing together a number of previous announcements and more detail on the Tax Working Group. Given the amount of misinformation being spread, it is important that we have all the information in one place.

“Labour will not make any changes to personal income tax, corporate tax rates or GST.

“What we will do is reverse National’s proposed tax cuts and use the billions of dollars to make 70 per cent of families with children better off and invest more in health, education, housing and other public services.

“Our policy also cracks down on those who are exploiting weaknesses in the tax system by speculating in the housing market. Labour will end the practice of negative gearing, and extend the current bright line test that taxes the capital gain on the sale of a property other than the family home to five years.

“We are establishing the Tax Working Group to explore other options to make our tax system fairer, particularly in terms of the balance between taxing income from salaries and wages and property speculation.

“To be absolutely clear, under Labour the family home and the land around it will never be taxed. There will also be no inheritance tax.

“Labour will not shy away from the hard issues such as fixing the housing crisis and we are determined to do what is right, but we also know we must take New Zealanders with us as we do that.

“We have heard the call for New Zealanders’ voices to be heard. We will involve the public at every stage of the Working Group, as well as Cabinet and Parliament’s consideration of any changes that arise from it.

“We know it is important to get this right, so we will balance the need for certainty and urgency by ensuring that any potential changes will not come into effect until the 2021 tax year. This gives multiple opportunities for public input, and a general election before any new tax would come into effect.

“To avoid any doubt, no one will be affected by any tax changes arising from the outcomes of the Working Group until 2021. There will be no new taxes or levies introduced in our first term of government beyond those we have already announced.

“Other highlights of Labour’s plan include ensuring multinationals meet their tax obligations, a Research and Development Tax Credit and the fast tracked abolition of secondary tax as part of the Business Transformation Programme at IRD,” says Grant Robertson and Michael Wood.

Read Steven Joyce’s response below:

The Labour Party has postponed two new taxes but has left five more in place that would slow down the New Zealand economy and restrict growth, National Party Finance spokesperson Steven Joyce says.

“They’ve postponed the introduction of two taxes but have reaffirmed their intention to impose a water tax, regional fuel tax, tourism tax, income tax increases, and bringing farming into the ETS,” Mr Joyce says.

“In particular, Labour keeps denying they are putting up income taxes but they have today confirmed again that would legislate to remove the tax threshold changes that occur on April 1. That means someone on the average wage would be $1060 a year worse off if Labour becomes the Government.

“They’ve begun the long march back but they’ve got a long way to go.

“This is about the fifth version of their tax policy in the last month. They are just too vague on a whole range of policies and it shows.

“It’s interesting that it was a “captain’s call” to allow for a capital gains tax but the captain was nowhere near the back down.

“We know that Labour desperately want to put a capital gains tax and an inheritance tax on farms, small businesses and the family bach. They have had it in their policy for two elections and they have only dropped it this time because they were rumbled by the public.

“The public simply can’t trust Labour on tax.

“The big puzzle that remains is why Labour wants to restructure the New Zealand economy.

“Even Labour agrees that by nearly all measures New Zealand’s economy is performing well. They need to explain why they are proposing such a major change in economic direction in tax policy, trade policy, industrial relations, spending and debt.

“Voters have a clear choice in this election. They can keep New Zealand moving forward with a strong National government or change direction and go backwards under Labour.”

TOP leader Gareth Morgan:

The Opportunities Party Leader Dr Gareth Morgan says today’s decision by the Labour Party to abandon any major reforms of the tax system until 2021, is a betrayal of those who have already cast their votes expecting any real change to the worsening statistics around social equality and the housing crisis.

“Scared by the latest poll results the old establishment party of the left has abandoned struggling New Zealanders by kicking any change to our broken tax system for touch until 2020,” says Dr Morgan, “This leaves TOP alone in having a fully costed plan for a Fair Tax system that will benefit 80% of all New Zealanders by giving workers a 30% income tax cut, and finally closing the tax loophole that lets the rich get richer, while condemning future generations to a miserable future as part of a divided treadmill economy.”

Gareth Morgan believes the abrupt U turn by Labour on tax is also a major betrayal of the tens of thousands who have already cast their votes in the 2017 election and may well now be regretting their decision to back a party which offers no alternative to the destructive tax policies being pursued by the current Government.

Today’s announcement makes it even more important that thinking voters make a choice for real change this election.

Care, Think, Vote for a fair tax system.