The New Zealand Taxpayers' Union has today launched its latest report assessing Labour's unfair, unworkable approach to a capital gains tax.

The report, entitled 'Why Labour's capital gains tax fails the fairness test', criticises the policy for taxing inflation, setting up Kiwis who are no better off in real terms for five or six-figure tax bills. 

The policy also lays the groundwork for an administrative nightmare by forcing a valuation day, and overlooks businesses by making no mention whatsoever of same-asset class rollover relief. Small businesses who want to buy a new shop may be stung for hundreds of thousands of dollars, despite not liquidating assets. This will be a disaster for growth, prices and jobs.

Finally, the policy simply won't be able to raise enough money to meet Labour's revenue aims, meaning this capital gains tax will be the thin end of the wedge for more comprehensive capital gains or wealth taxes to meet the shortfall.

The New Zealand Taxpayers’ Union is calling Labour’s proposed capital gains tax (CGT) an unfair and poorly thought-out policy that punishes ordinary New Zealanders for inflation, not real gains.

Taxpayers’ Union spokesperson Tory Relf said:

“Labour’s capital gains tax is effectively a tax on inflation. Around 40 percent of house price growth over the past three decades has simply been inflation, not real profit, yet Labour wants to tax it anyway. That’s not fair or sensible economic policy.”

“By refusing to adjust for inflation, Labour is taxing people on phantom gains. It means someone could sell a property for the same - or lower - real value they bought it for but still get hit with a 28 percent tax bill.”

“If Labour genuinely wanted to broaden the tax base, it would have made the policy revenue neutral by lowering other taxes. Instead, it’s just another cash grab dressed up as reform.”

The Taxpayers' Union is slamming Labour's newly announced Capital Gains Tax on investment and commercial property, dubbing it a "Bach Tax" that punishes savers, kills productivity, and opens the door to a full-blown wealth tax.

"This is a tax on inflation disguised as fairness," said Jordan Williams, Executive Director of the Taxpayers' Union.

"Even if your property hasn't increased in real value, you'll still pay up to 28 percent of the paper gain. That's not tax reform, that's daylight robbery."

A tax that pretends to help productivity - but doesn't

Labour claims the policy will make the economy "more productive" by shifting tax away from "work and business." It's a nice talking point, but it's not the policy.

"Labour talks about the 'unfair burden on productive Kiwis' yet this policy doesn't reduce that burden by a single cent," said Williams.

"They're just piling a new tax on top. Not one business owner or wage-earner will pay a dollar less tax under this plan."

Taxing inflation is fundamentally unfair

Labour's CGT doesn't even adjust for inflation, meaning everyday savers, small business owners, and investors will be taxed on imaginary gains.

"If you buy a property today and sell it in ten years for exactly the same real value, Labour wants nearly a third of your nest egg," said Williams.

"That's not a tax on profit, it's a tax on patience."

A political Trojan horse

"Once a CGT is in place, history shows it inevitably expands to family homes, inheritances, and even death duties," said Williams.

"Every country that's adopted a so-called 'targeted' CGT ends up with the full-blown version. This is just the first spoonful."

Bad economics, bad politics

• Volatile revenue: CGT inflows crash in recessions, making it a terrible base for funding ongoing health entitlements like Labour's "free GP visits."
• Distorts investment: Discourages development and improvement - people hold onto assets longer just to avoid the tax.
• Inflated valuations: Tying the system to outdated council Capital Valuations (CVs) is a recipe for inequity and endless disputes. CVs are often materially wrong. A CV, wrong by just $100,000, will result in a $28,000 tax bill.

"The Government doesn't have a revenue problem, it has a spending problem. In 2017, the Government was 27.7% of the economy. Now spending is 32.5%. Labour could easily have looked for savings and spending reprioritisation. Instead Hipkins is doubling down on new taxes. That's lazy, and to dressing it up as something to 'help' the economy is political gas lighting.”

The Taxpayers’ Union is pushing back on comments from Labour leader Chris Hipkins, who has hinted that a capital gains tax might be back on the table despite the economy struggling under the weight of existing taxes.

Taxpayers’ Union spokesperson Tory Relf said:

“Labour is recycling a failed idea that New Zealanders have already rejected. A capital gains tax punishes investment, hits small business owners, and makes it even harder for hardworking Kiwis to get ahead.”

“Capital gains taxes are inherently taxes on savings, investments and the very things New Zealand needs to be able to grow the economy. They are inherently an unfair tax - taxing savings and retirement nest eggs over and over again for politicians like Chris Hipkins to flutter."

“If Chris Hipkins is serious about turning the economy around, he should rule out any new taxes. That’s the bare minimum Kiwis should expect right now.”

NEW POLL: Hung Parliament as Māori Party and ACT make gains 📊😳

The Prime Minister today announced that he is ruling out a wealth or capital gains tax despite having asked officials to give the Government advice for consideration of introducing a wealth tax as part of the budget process earlier this year.

The Taxpayers' Union has been calling on the PM to commit to this for some time, but it seems another poll earlier this week that had Labour at its lowest level of support for many years may have bounced him into making this announcement. He understands that such proposals are politically toxic. But these aren't just politically bad, they are economically ruinous too. 

No country has ever taxed itself into prosperity. Mr Hipkins shouldn't just be ruling out these two taxes, but ruling out any new taxes while he is Prime Minister – including extending or raising existing taxes. Only by doing this can we look to make New Zealand a high-growth, high productivity country where people want to live, work and invest. 

Can we trust Chippie at his word? 😉

A word of caution. We cheered when Jacinda Ardern made a commitment to rule out "any new taxes", but she broke her word – repeatedly – despite the Labour majority. Since the 2020 campaign, we have seen:

> Continued tax hikes by stealth through bracket creep

> Introduction of the ute tax 

> Annual tax increases to alcohol and tobacco 

> The extension of the bright line test

> Stopping interest deductibility for rental properties

> Increasing the trust tax rate 

Plus, today's poll confirms that any Government Chris Hipkins leads post-election would have to involve the Greens and the Māori Party who both want nothing less than exorbitant tax hikes and new asset taxes.

Just who's to blame for high supermarket prices? 🛒 👀

The Government has established as new 'Grocery Commissioner', which it says will tackle New Zealand’s excessive grocery prices. But while it likes bashing the supermarket companies, the real issues behind paying too make for groceries lies in over-regulation. 

The grocery duopoly is propped up by restrictions on both foreign competition and land use. High corporate taxes and the ban on foreign companies owning land make New Zealand an unattractive market for international discount chains to invest in.

And the Government has doubled down with the Grocery Industry Competition Bill’s ridiculous requirement for potential future competitors to supply their competition (i.e. the two big established players) with produce at wholesale prices.

Restrictions under the Resource Management Act (RMA) prevent would-be competitors from setting up shop, resulting in localized monopolies and price gouging. David Parker’s RMA reforms are only going to make this worse.

And all of this is before the Government continues to drive inflation through its reckless overspending. It is little wonder food price inflation of 12.5% is causing families to feel the pain.

Instead of fixing the drivers of high food costs, the Government appears to be trying to shift the blame. Adding more bureaucracy isn’t going to reduce barriers to entry and cut grocery costs.

Writing in today's edition of The Post, Taxpayers’ Union Researcher James Ross explains in more detail how the Government is fuelling excessive grocery prices. Read his piece over here.

Taxpayers were made to foot the bill for up to $2 million in census giveaways 🎁

As if the census earlier this year was not disastrous enough with its poor return rate, your humble Taxpayers’ Union can reveal that up to $2 million was budgeted for handing out support vouchers to get non-responding individuals and households to complete the census.  

From that $2 million budget, $1 million went to communities nationwide and the other half went to households in Auckland. Across both streams of work, vouchers were given out at up to $100 dollars in value. As of 18 May, the total spend on food and fuel vouchers was $176,090. 

Taxpayers' Union Researcher Alex Murphy looks into this issue in more detail in a blogpost and asks whether it is really the right approach to offer those who refuse to fill out their census forms a free meal. The scheme leaves a rather bad taste in the mouth.

Thank you for your support.

Yours aye,

Callum Purves Campaigns Manager New Zealand Taxpayers’ Union.

Media coverage:

NZ Herald Auckland Mayor Wayne Brown sets record for the Super City’s highest rates increase ever

Business Desk Queenstown adds $30m to ratepayer bill to pay debt

The Post How the Government is propping up our excessive grocery prices

The Taxpayers’ Union has welcomed today’s announcement from Chris Hipkins ruling out a wealth or capital gains tax under any future government he leads, but is calling on him to extend this commitment by promising no new taxes whatsoever.

Reacting to the announcement, Taxpayers' Union Campaigns Manager, Callum Purves, said:

“This is the announcement many New Zealanders and overseas investors have been waiting for and we are glad the Prime Minister has recognised how economically – and politically – unviable these two proposals are.

“Countries cannot tax themselves to prosperity. Now it is time for Mr. Hipkins to outline his vision for a high-growth, high productivity New Zealand that makes this country an attractive place to live, work and invest.

“Part of this vision must firstly be a commitment to no new taxes, a promise made (but not kept) by his predecessor Jacinda Ardern. Business owners, investors and workers need certainty that there is a future of opportunity and reward for those who work hard, something that is not tenable when new taxes are imposed.

“A commitment to no new taxes must be clear that this also means not extending any existing taxes such as those on incomes, companies or trusts."

Dear Supporter,

It's a longer Taxpayer Update this week – but there is just so much silliness in Wellington that we're swamped.

Ruled-out taxes back on the agenda

Jacinda Ardern has previously ruled out both a capital gains tax and an asset tax. In fact, both she and the Finance Minister promised that other than a new income tax bracket, there would be no further tax changes this term.

But just weeks after the election, it looks like those promises could unravel.

Faced with increasing pressure over rising house prices, the Finance Minister appears to be “un-ruling out” new taxes on housing.

Egged on by Reserve Bank Governor Adrian Orr, Robertson is asking Treasury for advice on an extension of the “bright-line” test.

Our new TV ad:

Click here to share the ad on Facebook.

Extending the bright line test is effectively imposing a nasty capital gains tax – at a rate of up to 39% – for property owners who sell within ten years.

Click here to tell Grant Robertson to stick to his word.

Taxing houses will not make them more affordable. What this tax would do is hammer people who need to cash out of property for personal reasons. It would reduce liquidity in the market, and could even incentivise politicians to drive up house prices further in order to reap tax revenue from the capital gain.

The Government also appears to have “un-ruled out” increasing the tax rate for trusts to 39%, to match the new top income tax bracket.

Both of these tax proposals would be harmful. But here’s the biggest worry: if the Government decides it’s okay to break its tax promises, it won’t stop at these. A Green Party-style asset tax or even a Michael Cullen-style capital gains tax could be back on the agenda. That's why we've set up a tool for New Zealanders to tell Grant Robertson to keep his promises. Sent him your message at www.StickToYourWord.nz.

Auckland University’s $5 million mansion rort

A year ago, the University of Auckland purchased a $5 million Parnell mansion for its new Vice-Chancellor, Dawn Freshwater.

The Auditor-General opened an investigation and on Wednesday released his report. He could hardly be more scathing: he says that the University failed to show a justifiable business purpose, failed to demonstrate objectivity, failed to display adequate transparency, failed to show the expenditure was moderate and conservative, and failed to follow its own policy on sensitive expenditure.

By charging the Dawn Freshwater half the market rent, the University effectively topped up her $755,000 salary in a way that wouldn’t be transparent to observers.

The victims here are fee-paying students and taxpayers, who expected their hard-earned money to be spent on education, not luxury housing for a public sector bigwig.

It’s not enough for the University to just sell the mansion. We’re calling on Dawn Freshwater to backpay the University for the real value of her discounted rent. If she can’t show this basic respect to taxpayers and students, she is unfit for the top job.

Consultants are getting rich off the Ihumātao stand-off

Last year the Prime Minister made a big show of announcing her intervention at Ihumātao, but in reality she’s fobbed off the nuts and bolts of negotiations to highly-paid consultants.

The Government has paid consultants more than $150,000 to provide advice regarding the dispute, with some paid $325 an hour, according to the Herald.

The problem is that all parties involved at Ihumātao – the occupiers, Fletcher Building, and the consultants – know that the Government has deep pockets and that the Prime Minister isn’t willing to walk away from the negotiating table. This means they can be aggressive with their demands.

If the Government is willing to pay Ihumātao consultants $325 per hour, taxpayers can expect the Government to fork out a horrendous sum for any eventual settlement of the dispute. And with Auckland land values rapidly increasing, the likely bill only gets worse as the standoff drags on.

The Prime Minister needs to do right by taxpayers and call off the negotiations, reasserting Fletcher Building’s property rights. That way, if the occupiers want the land, they’ll need to convince Tainui to buy it.

Green Party MPs once again the highest spenders on air travel

Yesterday saw the release of MP expenses for July-September.

It turns out Green Party MPs are burning taxpayer money and fossil fuels at a faster rate than any other party as they jet up and down the country:

These spending figures arrive in the same week the government declared a climate emergency at the Greens’ behest. The hypocrisy is enough to make you weep.

Children’s Commissioner is a pointless taxpayer-funded lobbyist

Children’s Commissioner Andrew Becroft has used his latest “Child Poverty Monitor” report to call for costly policies that aren’t even targeted at children. He wants the Government to spend more on benefits and accommodation supplements, and is even pushing for the internationally discredited policy of rent control.

Taxpayer-friendly proposals to address child poverty, such as GST relief or RMA reform, never seem to feature in the Commissioner’s proposals.

On Wednesday, we called it for what it is: the Commissioner is a taxpayer-funded left-wing lobbyist. He offers no ideas that aren’t already being pushed by countless left-wing groups who at least get their points across without taxpayer funding.

The Commissioner is funded by taxpayers to the tune of $3.2 million a year. $2.7 million of that is spent on salaries, including $272,000 for the Commissioner himself. He could do far more for children by winding up his office and just giving that money to the kids!

You've got to be kidding...

Remember Trevor Mallard's $572,000 Parliamentary playground? It's been open for barely a year and it's already closed for maintenance!

Ministers need to explain surprise new priorities

Just six weeks after the election, Labour Ministers are unveiling surprise new 'top priorities' that were completely absent from the party's election manifesto.

Local Government Minister Nanaia Mahuta stated of that one her top priorities is abolishing the ability of ratepayers to initiate a public referendum if a Maori ward is going to be established in their area. This policy is not referred to in Labour's manifesto. Ironically, the manifesto does commit to having ‘major decisions about local democracy involve full participation of the local population from the outset.’ The Minister seems intent on shutting out full participation on certain major decisions about local democracy. She has no mandate for this.

Labour's success in the election gives the party a clear mandate, but only for the policies it campaigned on. The public has not endorsed abolishing referenda, nor switching to bilingual road signs, which the Minister of Transport has also named as a priority.

If other Labour Ministers are harbouring unannounced priorities, they should release them now in a transparent manifesto update, rather than revealing them on an ad-hoc basis throughout the next three years.

Creative NZ fights COVID-19 with poems attacking National, ACT

In the lead-up to the 2020 general election, Newsroom was awarded $21,150 “towards commissioning weekly NZ book reviews, short stories and poems” as part of Creative NZ’s "Arts Continuity" COVID-19 response fund.

Newsroom used taxpayer money to commission a series of poems targeted at political party leaders, penned by writer Victor Billot – a former trade union official and former co-leader of the socialist Alliance party.

On Judith Collins, Mr Billot writes:

“But when the Queen first speaks, Lady Judith just cackles.
F-bombs and eye rolls, head high verbal tackles
When Her Kindness speaks again, JC says look at me!
And spins her head round in circles, demonically”

An attempted satire of David Seymour reads:

“But now fascism is casting a shadow over our fair land.
Queen Cindy’s one party state is close at hand
To despots I proclaim; I have no time for your treaty!
On principle I REFUSE to holiday on Matariki”

Meanwhile, a poem addressed to Jacinda Ardern merely encourages her to push harder for her political agenda:

“The kind of kindness we need to see
now must go beyond reassuring speech.
It must extend both breadth and reach.
That’s what we need J.A. to deliver
Those houses she mentioned, those fresh blue rivers.”

Here’s what we told the media:

Mr Billot is entitled to write childish screeds about politicians he doesn’t like, and Newsroom is welcome to publish them – but taxpayers shouldn’t have to pay for it.

This is yet another example of Creative NZ using its funding to support political propaganda. The agency, which claims to support the arts for the benefit of all New Zealanders, recently also gave money to The Spinoff to agitate for entrenched Maori electoral wards.

The Newsroom poems are especially egregious in that they were published in the lead-up to an election. At the very least, Creative NZ needs to review its grants approval process to ensure it is funding a range of political perspectives, or simply not funding political material at all.

Amusingly, after we criticised this spending, the poet himself published a tirade calling us “a front for far right political interests who are opposed to taxes in principle”. Our in-house poet Neil Miller decided to respond in poetry form:

There once was a poet called Billot
Evil Taxpayers’ Union put his funding on a skillet
He responded to this fiscally conservative swinge
With an extended far left wing whinge

Criticisms of his time at the public trough
Were met with a challenge and a mighty scoff
He then unleashed interminable verses of rage
“Taxpayers should fund my hobby in my dotage”

Calling David Seymour a fascist marching the street
That might make a nice low-grade tweet
But taxpayers should not have to pay for your socialist rants
The Union took a poll – your poems are pants

We ridiculed your poems just by publishing them
That got more readers than the usual arty scrum
Your poems are so bad they would almost be funny
If they weren’t being paid for by our hard-earned money.

Neil Miller
New Zealand Taxpayers’ Union Poet Laureate (27 November 2020-)

Have a great weekend,

Louis Houlbrooke Campaigns Manager New Zealand Taxpayers' Union

Two thirds of the forecast revenue from the Tax Working Group’s proposed capital gains tax is the created by the proposal’s failure to adjust for inflation, reveals the Taxpayers’ Union in its new report, Inflating the Cost of Tax: Why failing to adjust capital gains tax for inflation is unfair.

Jordan Williams, Executive Director of the Taxpayers' Union, said:

“Michael Cullen defends his proposal on the basis of ‘fairness’, but it is not fair to tax New Zealanders for inflation that they have no control over. If the Government fails to fix this aspect of the tax, it will be guilty of a cynical revenue grab.”

“This tax will hit New Zealanders at far higher rates than advertised, it would thieve from those who are not necessarily getting any richer, and it would reward politicians who fail to control inflation with extra revenue.”

Joe Ascroft, Economist at the Taxpayers' Union who authored the report, said:

“The compounding effect of inflation creates large ‘paper gains’ on assets in the long term. Under the Working Group’s proposal, these gains would be unfairly taxed, even though they don’t represent any real increase in value.”

“This will result in some asset holders paying real tax rates far higher than the advertised 30 or 33 percent. In fact, in some cases the tax on capital gains will be well over 50 percent.”

Key findings*:

• Over two thirds of the tax’s forecast revenue can be attributed to the effect of taxing paper gains (based on the Working Group’s own assumptions about expected capital gains).

• A typical $500,000 rental property could face a real capital gains tax rate of 55.7 percent when sold after 20 years.

• A typical $450,000 bach could face a real capital gains tax rate of 76.5 percent when sold after 30 years.

• A typical $800,000 family home / lifestyle block could face a tax rate of 30.35% when sold after 10 years.

• A typical $500,000 bach that experiences zero real capital gain could still produce a $64,000 tax bill when sold after 25 years.

* based on an inflation rate of two percent.

The Taxpayers’ Union is campaigning to stop the capital gains tax at AxeThisTax.nz. Inflation adjustment was one of the Five Rules for a Fair Capital Gains Tax published in February.

The New Zealand Taxpayers’ Union today formally launches a major campaign to fight the unfair capital gains tax, proposed by Dr Michael Cullen’s Tax Working Group.

The Union is encouraging New Zealanders to go to axethistax.nz and use the email tool to tell Jacinda Ardern and Winston Peters how the tax will hit their family.

Taxpayers’ Union Executive Director Jordan Williams says “The capital gains tax proposed by Dr Cullen and the Tax Working Group would be the least fair and most punitive in the world, and would apply to small businesses, farms, shares, and property. We are calling on the Government to Axe this Tax by rejecting the Working Group’s recommendations outright.”

“Our role in this campaign is to make it easier for taxpayers to navigate the Wellington bureaucracy to ensure politicians hear from those who will be personally affected by the tax. That’s why as a first step of the campaign we’re providing taxpayers with a tool to tell Jacinda Ardern and Winston Peters to reject the capital gains tax.”

“This is also a public education campaign to increase awareness of the scope of the proposed tax. With the support of our thousands of donors, we have full page newspaper adverts (see below) running across the country and a major digital campaign launching today.”

“While Dr Cullen is trying to convince the public that this is a tax on the wealthy, most New Zealanders will be hit by the tax at some point in their life. If you own your own home but have flatmates, live on a lifestyle block, have a small business, have a rental property for retirement, or have a KiwiSaver account, you will be targeted under Dr Cullen’s proposals.”

More information on the Taxpayers’ Union’s campaign to Axe this Tax can be found at the campaign website www.axethistax.nz.

The Taxpayers’ Union has listed the top 19 details Kiwis will be looking out for on Thursday in the Tax Working Group’s capital gains tax proposal.
 
In our recent report, Five Rules for a Fair Capital Gains Tax, we outlined criteria to assess whether a capital gains tax is ‘fair’. Capital gains taxes can range from moderate to extreme, or simple to convoluted, depending on the detail of the proposal.

On Thursday we will look to see how the proposals stacks up against these criteria, and check off many other details that we encourage commentators and concerned New Zealanders to look out for.

Details to look out for include:

• Rollover relief:
  • will the capital gains tax apply on death or just on sale of an asset;
  • will the tax apply if capital is simply being recycled within the same asset class (selling a smaller farm to purchase a larger farm, for example)?
• The rate:
  • will there will be a discounted or lower rate, like in Canada, Australia, the United Kingdom, or the United States?
• Revenue neutrality:
  • will the revenue be offset with tax cuts;
  • if so, who will receive them;
  • will revenue neutrality be maintained in the medium-to-long term as CGT revenue grows?
• Family home exemption:
  • will there be exemption exclusions for large properties (will lifestyle blocks be subject to the tax?);
  • will there be a ‘maximum value’ for the family home;
  • how much tax will be payable if there is an exemption exclusion?
• ‘Valuation Day’:
  • will asset owners be required to value their property and businesses;
  • if so, will it be at their expense, or will the general taxpayer be required to pay;
  • if the general taxpayer is required to pay, what will be the estimated cost of ‘V-Day’;
  • how much time will taxpayers have to obtain asset valuations;
  • if valuations are not obtained, will other ‘default valuations’ be used?
• Exemptions:
  • are there any sectoral exemptions (e.g. racing, fisheries);
  • will Maori authorities pay capital gains tax, if so, at what rate;
  • how are vehicles, boats, antiques etc. treated?
• Trusts:
  • at what rate are trusts taxed;
  • will they be taxed on accrued or realised gains?