14 Jul 2011

Labour confident capital gains tax will help economy

9:07 pm on 14 July 2011

A Labour government would make significant changes to the tax regime, including introducing a capital gains tax and a new top tax bracket.

The main opposition party officially released its economic policy on Thursday, saying a capital gains tax would improve New Zealand's economy.


The tax, levied at 15%, would exempt the family home, some small businesses, personal assets and for at least five years earthquake-damaged areas in Canterbury.

Valuation would not be retrospective, but would apply from the time the tax was introduced in April 2013.

The capital gains tax would cover investment properties, shares, foreign currency and farms, with some exemptions for the family farmhouse and domestic land.

Assets gained by inheritance would not be taxed, unless the new owner sells them sometime in the future. But any profits from drawing down superannuation funds, including KiwiSaver, would not be subject to the tax.

Labour estimates the capital gains tax would raise $78 million, rising to $2.2 billion after 10 years.

The other key policy is a new tax rate of 39 cents in the dollar for earnings over $150,000, up from 33% for income over $70,000.

Labour says the extra revenue will cover the cost of its policy to exempt fresh fruit and vegetables from goods and services tax (GST). Other tax changes would be making the first $5000 of earnings tax free.

The party says it would not be fair to impose a capital gains tax on Canterbury and so some parts have been exempted.

Economic development spokesperson David Parker says if Canterbury residents were included straightaway and the tax introduced in a year or two, it is possible values there would drop.

"Therefore the starting value for the capital gains tax would be falsely low and they would be paying too much. We didn't want to cause that unfairness."

Leader Phil Goff says claims from property investors that they would just increase rents to compensate have not been borne out elsewhere.

Clear alternative to asset sales - Goff

Phil Goff says Labour's policy provides a clear choice to National's plan for the partial sale of state assets.

"We would not be doing this if it weren't for the fact that National has made this election about the sale of assets.

"We are fundamentally opposed to that and we're setting forward a very clear alternative about how we can repay our debt, that we can make a tax system fairer for all New Zealanders and not have to sell out assets."

But Prime Minister John Key says the last thing the economy needs at the moment are more taxes "at a time when we're starting to get confidence back."

Mr Key says the capital gains tax is convoluted and complex. "The other problem (Labour's) got is the tax doesn't raise revenue for a long time into the future, so by definition they have to run more debt."

The election will be held on 26 November.