Well that was a bugger.
The brutality of MMP Politics and New Zealand First’s withdrawal of support has meant that there will be no new capital gains tax introduced.
I always thought that the proposal was brave and that the final version would be pared back from the tax working group’s recommendations. The valuation exercise required of small businesses would have made it too complex to tax private shares. But I thought there was a compelling case for a CGT on land and on public company shares.
Yesterday’s announcement was something of a shock. But Michael Cullen in his usual way has explained why the decision was, with the benefit of hindsight, utterly predictable.
From Jason Walls at the Herald:
Cullen said NZ First may have been worried about going down further in the polls if they had supported a CGT.
Cullen added that he was disappointed with what happened – “but not in the least bit surprised”.
“I thought it was always going to be very difficult to persuade Peters and New Zealand First to vote for any form of CGT, given their natural constituency is older, whiter than the population as a whole.”
He said this demographic would have been more susceptible to a CGT than most of the population.
In fact, he said he was never really confident that the TWG’s CGT recommendation would get across the line.
In terms of the political implications and the reasoning behind Jacinda Ardern’s decision to rule out a CGT in the future I believe Audrey Young has got it right:
… [Ardern] explained her third position on capital gains by saying while she supported it in principle, she was a pragmatic idealist.
Another way to explain it is to imagine the counter-factual.
Pragmatically speaking, if Ardern had not ruled it out, three things would have happened which she has now stopped by refusing to campaign on it again.
National would have hounded Labour about it week in and week out.
Even a diluted capital gains tax would have presented opportunities for National to portray it as a Trojan Horse for further expansion.
New Zealand First leader Winston Peters would have continued to campaign to voters as the ultimate insurance policy against any further expansion of capital gains tax to farms and other businesses.
The only way he could do that now would be to suggest that Labour and Jacinda Ardern might not keep her word on a capital gains tax – and that is not something a Deputy Prime Minister would say about a Prime Minister.
The third reason, and not least, for Ardern’s decision to rule out a future capital gains tax is that the Labour Party base would have expended a lot of energy about whether it should go into its fourth consecutive campaign in 2020 supporting such a contentious tax.
It would have been a distracting and possibly divisive debate.
Ardern has decided it is not worth it. She has built up political capital in her 18 months as Prime Minister and she has decided to cash it in.
Of course it hurts. Seeing the right bray on social media and the already wealthy celebrate the retention of their privilege was a real lowlight.
It is not the end of the debate about our tax system. The changes the Government made to the brightline test has made a significant difference at least in Auckland and house prices have been stalled for a while.
And the budget will present a further opportunity to address inequality.
I trust that this decision is part of an overall negotiation process and that New Zealand First will sign up to significant climate change policies. There will be intense disappointment on the left if the New Zealand First dinosaurs prevent meaningful action in this most important of areas.
And this is MMP.
A Labour Green government is capable of making brave decisions. While we continue to rely on New Zealand First for confidence and supply these sorts of shocks will always be possible.
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