This discussion has gained momentum following comments from ANZ’s chief executive, who suggested that the time has come to consider implementing a capital gains tax.
The Labour government has indicated that it is reviewing its tax policies and is open to examining options such as capital gains, wealth, and capital income taxes. IR is conducting consultations as part of its long-term insights briefing, which aims to provide strategic advice to the ministers of revenue and finance. The agency’s recent consultation document outlines the challenges facing the current tax system and seeks input on possible solutions.
A pressing concern highlighted in the document is the increasing fiscal pressures associated with superannuation and healthcare costs. Future governments will face choices about how to respond to these challenges, which could include adjusting tax legislation, managing expenditure, implementing user-pays models, or increasing the overall tax revenue relative to GDP.
New Zealand is relatively unique among OECD countries for not imposing a general tax on income derived from capital gains. While the country has a broad income tax base, the absence of a capital gains tax represents a notable gap. As fiscal pressures mount, the potential for alternative tax bases is under consideration, raising the question of what combination of taxes should underpin the nation’s tax structure.
Tax expert Terry Baucher noted the significance of this consultation, as it addresses options for increasing tax revenue in the face of rising demands. He expects that ongoing discussions will highlight the need for additional funding for essential services, such as healthcare and climate change initiatives. With an ageing population and escalating superannuation costs, the current tax framework may struggle to meet future needs.
Baucher also pointed out that much of New Zealand’s wealth is concentrated among older demographics, particularly the Pākehā population, who may expect continued support from social services. This demographic shift raises concerns about the sustainability of the current tax base.
A capital gains tax has been proposed as a straightforward solution to taxation, addressing complexities in the existing system where capital gains are taxed under various regimes. Advocates argue that a broad-based capital gains tax should be administratively simple, ideally without exemptions and based on a flat rate.
Christina Leung, chief economist at NZIER, supports this view, suggesting that a capital gains tax could help rebalance the tax system away from income taxes without necessarily increasing the overall tax burden. Craig Renney, policy director at the Council of Trade Unions, emphasised the importance of determining the funding required for essential services before deciding on the necessary tax structures.
Overall, the ongoing consultation process by IR signals a significant moment for New Zealand’s tax policy, as the government grapples with how to ensure a fair and sustainable tax system in the face of evolving societal needs.
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