At the ASB Great Debate, when David Seymour said Labour’s capital gains tax “does not allow for inflation,” Labour’s finance spokesperson, Barbara Edmonds, disagreed. “No, it does. Do you want me to explain it? I’m a tax lawyer.” She asked for a chance to respond, “because I’m an actual tax lawyer on the stage.”
Her explanation was the median rule, which she said meant Labour’s tax “will not tax you on paper gains.”
Four days later, Jack Tame asked Chris Hipkins on Q+A whether an investment property rising only with inflation would be taxed when sold. Hipkins said it would. Did that include inflation? “Yes, it does.”
Even Labour’s own policy document says the tax will apply “with no indexation for inflation.”
Barbara Edmonds is wrong about her own tax policy. Here’s why:
Take a rental bought for $650,000 and worth $700,000 on valuation day. Over the next year it goes up 3 percent, in line with inflation, to $721,000, and gets sold. The owner is no better off in real terms, but here’s how Labour’s tax treats the sale.
| Amount | |
|---|---|
| Original purchase price | $650,000 |
| Value on 1 July 2027 | $700,000 |
| Sale price one year later | $721,000 |
| Inflation | 3% |
| Nominal capital gain since valuation day | $21,000 |
| Real capital gain since valuation day | $0 |
| CGT payable at 28% | $5,880 |
Despite making no real gain, the owner would still have to hand Labour $5,880.
What is the median rule?
The median rule, which Edmonds brought up, deals with one specific quirk of starting the tax on a single date. Say someone bought a rental for $700,000, it dipped to $650,000 on valuation day, and they later sold it for $720,000. Without the rule, they’d be taxed on a $70,000 gain, even though they only made $20,000 overall, including paper gains. The median rule makes sure they’re only taxed on the $20,000.
But in the example above, it changes nothing. $700,000 is the middle figure, so the owner still pays $5,880. That’s because none of the figures the rule uses are adjusted for rising prices, so any gain after valuation day still gets taxed, inflation and all.
"Trust me, I’m a tax lawyer"
Pulling rank only works if you’re right. Telling a room of voters that Labour’s tax does not tax inflation, when both Labour’s policy and Labour’s leader say it does, is misleading. Doing it while reminding them you’re a tax lawyer makes it worse, because you’re using the credibility of the profession to lend weight to a claim that isn’t true.
Labour has had three years in opposition to get its numbers straight, and it keeps tripping over them.
Take its fiscal plan, for example. After it was released, we found Labour had booked the cost of reversing accommodation supplement changes as a saving rather than a cost, and Edmonds put her hand up and called it her mistake. Labour has also promised to bring back the old pay equity regime, which Treasury estimates would cost around $11 billion, or roughly $5,300 for every household. Labour’s plan sets aside less than a quarter of that.
So Labour went into Queenstown with its tax and its fiscal credibility both under fire. Its finance spokesperson then stood on stage and got the most basic criticism of Labour’s flagship tax wrong.
Either Edmonds knew her claim was wrong and said it anyway, or she doesn’t understand her own policy. Either way, voters are being asked to hand the books to someone who can’t get the basics right.
