What appeared to be a flash of temper from the Prime Minister in Parliament yesterday is an indication of how much the capital gains tax debate seems to be getting to her.
She and Ministers are getting bogged down in detail as they answer endless questions about how the tax might work and are generally replying by saying that nothing has been decided.
In contrast Treasury Secretary Gabriel Makhlouf, speaking at a tax conference in Queenstown, unequivocally endorsed the idea of a capital gains tax.
“I hope it will surprise no one when I tell you that the Treasury supports the thrust of the Tax Working Group’s conclusions,” he said.
“Six months ago when I was last speaking in Queenstown, I said that the Treasury believed there was a real case to extend the taxation of capital income and we haven’t changed our view.
“I recognise that this would come with its own risks, including higher compliance and administration costs.
“But there are interventions available to address these risks.
“The extent to which the impacts are realised – whether positive or negative – will depend significantly on the design of policy.”
That, however, was a technical view and the design of policy is a political matter..
What is now becoming clear is that the Government is unclear on how to proceed with that design. .
In a series of statements yesterday we learned that:
- NZ First Leader Winston Peters wants a “simple” tax system
- But he also said it remained part of the consultation process whether any legislation would be passed this term.
- And he reminded Parliament that the Brightline test was already a capital gains tax.
- The Prime Minister said “if” there was a need for legislation it would occur after the consultation process.
- That Finance Minister Grant Robertson is “interested” in commentary on the so-called “mansion effect”.
- The Prime Minister repeated her assertion that the Government had not settled on any of the final recommendations of the report and was still l considering them.
It was clear from the combination of all the statements yesterday that the Prime Minister is leaving the option of backing off the proposals in the Tax Working Group wide open.
And it seems that NZ First is preparing to offer very limited if any, support to legislating for the proposals in the report.
It may just agree to an extension of the Brightline test and leave it at that.
In some ways, these arguments were eclipsed yesterday by an extraordinary exchange in Parliament yesterday when the Prime Minister appeared to lose her temper with Opposition Leader, Simon Bridges.
Bridges was asking about the impact of the proposed capital gains tax on small business and asked Ardern about her claim that running a small NGO had helped her understand small business.
“Is the NGO she spoke of the International Union of Socialist Youth?” he asked.
The Prime Minister’s reply was sharp.
“The member knows how to use Wikipedia—well done,” she said.
But the Government is having difficulty explaining the impact of a capital gains tax on small business and Kiwsavers.
Bridges claimed that workers on the average wage would lose $64,000 from their KiwiSaver funds over their lifetime if a capital gains tax on the sale of shares were introduced.
It is unclear how he has arrived at his figure.
Fundamental to the philosophy behind the Tax Working Group was the instruction that whatever they recommended needed to be fiscally neutral; that the gain in revenue from the capital gains tax should be redistributed through other tax measures to increase fairness in the tax system.
In their report, they have offered four examples of how this might be achieved.
They say: “All four packages have a focus on personal income tax reductions. These reductions would further increase the progressivity in the tax system and provide modest benefits to most households.”
But they also propose removing the Employee Superannuation Contribution Tax (ESCT) for those earning less than $48,000 a year.
The ESCT currently effectively syphons off some of the employer’s KiwiSaver contribution into the tax system and thus reduces the net benefit to the employee.
For someone earning $40,000 a year an ESCT payment into their KiwiSaver account rather than Inland Revenue would give them just over $200 extra.
But at the same time, the fund would be paying capital gains tax as it bought and sold shares.
“The recommendations adopted by the Tax Working Group mean that people earning less than $70,000 a year end up being better off as a result of those changes,” said Ardern.
“I again reiterate, though, that the Tax Working Group made their recommendations and we are considering them all.”
The Prime Minister has consistently qualified comments she has made on the Tax Working Group by inserting the word “if” when discussing whether the Government would legislate.
And again yesterday she said:” If there is a need for any legislation, that too will go through a full consultation process. There will be no lack of input from the New Zealand public.”
NZ First leader, Winston Peters, whose party is conducting its own consultation process, was reported by RNZ yesterday in response to a direct question about whether the tax changes would be legislated for this term, as saying “that remains part of the consultation process”.
“At the end, when we’ve finished consultation and come to a decision, that question will be able to be decided then, but it’s not now.”
Peters said regardless of what the Prime Minister or Grant Robertson had said; it would still be a matter for consultation.
“We don’t know where this thing ends up and what its componentry and elements would be. At that point in time, it’s not that there is legislation that matters; it’s what’s in it that matters, surely.”
Peters was also reported by Stuff as saying “tax policy needs to be simple and we will keep it that way”.
Meanwhile, Finance Minister Grant Robertson was resorting to the “no decisions made yet” defence against a list of questions from National’s Amy Adams on Kiwsaver, farms, small business and family homes.
Again, Peters made a revealing intervention.
“Can I ask the Minister, for the purpose of public understanding, does he regard the brightline test introduced by the National Party as being a capital gains tax?” he asked.
Robertson replied: “I am not the only person who believes that, and, in fact, interestingly there has been a lot of commentary recently about the place of the family home and whether or not a big family home should be exempted. The brightline test exempts the family home. It’s an interesting thing, isn’t it?”
The placing of a cap on the value of the family home for capital gains purposes is something that commentators are discussing.
But Peters’ reference to the Brightline test being a Capital Gains Tax is consistent with his argument that we already have a capital gains tax.
It sounded very much like he is beginning the process of arguing that an extension of the Brightline test (presumably by removing the five-year time limit) would constitute a capital gains tax.