TWG backs away from Capital Gains Tax

Stuff reports:

The Tax Working Group is understood to have stopped short of recommending a broad-based capital gains tax, in an interim report due out within days.

The working group chaired by Sir Michael Cullen was tasked with designing a capital gains tax for consideration by the Government, but is expected to push back any firm recommendation to its final report which is due to be published in February.

It had been widely expected that the Tax Working Group (TWG) would recommend a broad-based capital gains tax on the likes of sharemarket and property investments as the centrepiece of tax reforms on which Labour would fight the next election.

However, doubts began creep in earlier this year that the Government would ultimately back the plan, amid concerns the new tax would be unpopular and would cause rents to rise without delivering much in the way of extra revenue for at least a decade.

This will be very interesting.

I’ve heard that in fact a Capital Gains Tax will result in a drop in revenue for the Government in the first few years. So if Labour wants one so they can fund more of their big expensive promises like free tertiary fees, then the CGT won’t help them much.

Paul Drum, chief executive of accounting body CPA Australia, said in a newspaper column that “a close reading of the tea leaves” suggested the “highly important and politicised” issue of the capital gains tax “is probably to be parked for further consultation and input”.

Sir Michael Cullen hinted that was on the money, saying he had “not reacted strongly to that comment”.

So sounds like it is right.

One was that there was “no money” in the medium term for any government from introducing a conventional capital gains tax (CGT) – if it was assumed that house prices and stock markets were close to reaching a plateau.

“The only way to raise any revenues from it would be to tax unrealised gains that have accrued to date. That would be bad policy and suicidal politics.”

Can’t rule out Labour wanting to do it.

The best Capital Gains Tax would be one on all capital gains, including the family home. However it would need to be accompanied by significant cuts in income tax to compensate. And I can’t see Labour ever cutting income tax.