Government kills off capital gains tax, won't happen on Jacinda Ardern's watch

Winston Peters has downplayed NZ First's role in the Government back down on capital gains tax, saying it was the lack of public support throughout the country that led to it.

The NZ First leader said the decision was not made until the "last few hours".

But there was not sufficient support in the country for a capital gains tax.

Peters said too much demand and a lack of supply was the issue in the housing market

He said the coalition was in "very sound health" despite not agreeing on a CGT.

He would not answer questions about how much power NZ First had in the Government.

Peters said the $2m spent on the Tax Working Group was worth it, given that a majority of the group's recommendations were going to be actioned.

Peters said Simon Bridges was "wrong" about claiming credit for blocking a CGT, and this would be the final nail in the coffin in his political leadership.

Peters said coalitions were "difficult to operate" but it wasn't a case of winners and losers, but rather what policies had the support of the majority of the public.

He said the "absolute complexity" of the CGT was one of its negative aspects, and CGTs overseas had not worked.

Peters said the Bright Line test at five years was "fine". Ardern also said there were no plans to change the test from the current five years.

Peters conceded the tax system could be fairer, singling out multinationals not paying their fair share.

Peters said he was "relieved" that the transformation that the Government was leading could keep going without the distraction of a CGT.

He said the voters in New Zealand now had certainty.

The Deputy Prime Minister's comments follow the Government categorically rejecting a capital gains tax.

Prime Minister Jacinda Ardern made the announcement this afternoon, saying there was no mandate - and no consensus - for a CGT.

In doing so she has rejected a key recommendation from the Tax Working Group - which cost an estimated $2 million to run.

"The Tax Working Group gave the Government, and the country, an opportunity to look at the fairness of our tax system and debate options for change," she said.

"All parties in the Government entered into this debate with different perspectives and, after significant discussion, we have ultimately been unable to find a consensus. As a result, we will not be introducing a capital gains tax.

"I genuinely believe there are inequities in our tax system that a capital gains tax in some form could have helped to resolve. That's an argument Labour has made as a party since 2011."

Ardern said the Tax Working Group review had provided an opportunity to debate the tax system.

However Labour had been clear that the Government would only proceed if there was a consensus within Cabinet.

Ardern said she had talked to the TWG's chairman, Sir Michael Cullen, who said he understood the Government's decision.

She confirmed today a consensus was not reached - and said there was not a mandate for such a tax.

The CGT debate wasted millions of taxpayer dollars and over 18 months weakened our economy by scaring businesses owners, investors and mum & dads out of getting ahead. — Simon Bridges (@simonjbridges) April 17, 2019

Ardern said under her leadership, the Government would never push for a capital gains tax.

But Ardern said the Government was looking at other areas where it could move to make the tax system fairer.

The Prime Minister rejected National leader Simon Bridges' claim that it was National that made her Government back away from a CGT.

"Politics is not for the faint heated."

Ardern said she was still proud of commissioning the tax report and said the Government had not shied away from the debate.

A CGT was now off the table at the next election and the decision showed that "this was MMP".

Ardern said New Zealand First had not bullied Labour into making the decision.

However it was "disappointing" that the Government was not able to reach a consensus.

The main reason for not going ahead with the CGT was because it was clear New Zealanders did not want one, she said.

Ardern said she was a "pragmatic idealist".

She said it was one thing to want to implement a CGT – it was another to put one into practice.

The Government had considered a "broad range of options" but didn't want to sacrifice the "simplicity of the system".

"Ultimately none of them were successful," Ardern said.

She said the existing bright-line test would remain where it is, at five years.

Ardern said the TWG report had cost $1.6m to date – "it should come in at less than $2m".

However the Prime Minister insisted the review was not a waste of money – noting that CGT changes made up just one part of the report.

She said she had a "solid relationship" with the Greens and NZ First.

"We cannot introduce something that we do not have the numbers for in Parliament," Ardern said.

Ardern said today's decision was "just the process of an MMP Government".

Labour's tax policy for 2020 will be delivered before the next election – but she said it would not include a capital gains tax. When Ardern told Labour MPs the CGT would not be adopted there was "disappointment" but also "acceptance".

Revenue Minister Stuart Nash and Finance Minister Grant Robertson would later today announce the rest of the Government's response to the TWG report – there were almost 100 recommendations and a CGT was just one, Ardern said.

BusinessNZ congratulated the Government for its decision not to proceed with a capital gains tax.

Chief executive Kirk Hope - a member of the Tax Working Group - said the proposed CGT would have hit businesses hard, reduced funds available for investment and impacted on job growth.

"Our members have been very clear that they did not see the justification for an expensive new tax that would have reduced the competitiveness of the New Zealand business sector for no discernible gain.

"The Government is to be commended for listening as New Zealanders made their views clear.

"It is clear that NZ First has played a significant role in a capital gains tax not proceeding, and the business community will thank them for not compromising their concerns.

"We feel the process of working group proposals followed by widespread consultation has been successful in delivering a result that the majority of New Zealanders can support.

The rejection comes after the Tax Working Group (TWG) made close to 100 recommendations in its February report.

Under the group's proposal, a CGT would cover investment properties, land, shares, business assets and intangible assets like intellectual property.

Tax Working Group chairman Sir Michael Cullen.

The Tax Working group report's recommended a CGT would exclude the family home, cars, boats and artwork.

Group chairman Sir Michael Cullen said the CGT would bring in $8 billion over the first five years.

The revenue raised from the CGT would help pay for other initiatives – such as cutting the personal income tax rate and cutting KiwiSaver tax rates for low and middle-income savers.

The TWG also mooted new environmental taxes which would punish companies for polluting.

Three members of the group prepared their own 'minority report' – which suggested the amount of extra revenue the tax would collect would be "relatively low".

After the group's report was released, Finance Minister Grant Robertson said it was "highly unlikely" that all of the recommendations would be implemented.

He also said the Government would make its decision as to which of the TWG's recommendations the Government would be adopting in April.

National is strongly opposed to any form of a CGT and has vowed to repeal any law the Government puts in place which would give effect to such a tax.

After the Government says which of the TWG's recommendations it will be adopting, officials will get to work on drafting legislation to make it law.

The Government would pass any legislation to implement any policy changes arising from the report before the end of the Parliamentary term.

Robertson had promised no policy measures would come into force until 1 April 2021 – "giving New Zealanders the chance to vote on any decisions made by the Government".

The Labour Party, led by Phil Goff, campaigned on implementing a 15% capital gains tax.

2014: The Labour Party, now led now by David Cunliffe, again campaigns on the same CGT policy.

2015: In the May's Budget of this year, then-Prime Minister John Key introduced a bright line-test, which required income tax to be paid on any gains from residential property, if sold within two years – a form of a CGT.

2017: The Labour Party campaigned on setting up a Tax Working Group, which would look into a CGT.

2017: In November, the Tax Working Group was set up and Finance Minister Grant Robertson ruled out any capital gains tax on a family home, or the land under it.

2018: In February, the Government extended the bright-line from two, to five years.

2018: In September, the Tax Working Group released its interim report which provided a bit more detail on its thoughts on a CGT.

2019: In February, the group released its final report which included a recommendation for a CGT.

2019: Today, the Government announced its decision on which of the Tax Working Group's recommendations it was adopting.