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New Zealand government rejects capital gains tax recommendations

Thursday, 18 April, 2019

New Zealand's coalition government has rejected its independent Tax Working Group's (TWG’s) recommendation to introduce a general capital gains tax (CGT).

The TWG was set up by the Labour-led coalition government soon after its formation in October 2017, to create a vision for future tax policy. The terms of reference, set by the incoming Minister of Revenue Stuart Nash, aimed at reversing the previous government's programme of tax cuts.

Although they explicitly ruled out an inheritance tax, taxation of the family home or the land under it, or higher income tax or sales taxes, they left the field open for a general CGT. New Zealand is one of the few major jurisdictions not to impose CGT on most transactions.

The group's final report, which appeared in February 2019, duly proposed the introduction of CGT on a wide class of assets. The group's Chairman, Michael Cullen, pointed to the perceived unfairness that people earning just salary and wages are taxed on their full income, while income from gains on assets is often not taxed at all. Even so, the group was split on how far CGT should extend.

The TWG's majority decision was that it should be imposed on all types of land and improvements except the family home, and on shares, intangible property and business assets. If implemented, this would have raised about NZD8 billion over the first five years.

At the time, Minister of Finance Grant Robertson indicated he would take a 'measured response' to the group’s recommendations. In the event, however, the government's response to the report proposes no significant tax reforms.

'The government is not adopting any of the recommendations on capital gains taxation and has agreed no further work is necessary on that aspect of the report', said Robertson.

It has published a list of specific responses to the TWG's various suggestions, but the only one that resembles the CGT proposal is a possible tax on vacant land 'banked' by property speculators.

'The government intends to explore options for taxing vacant land, including as recommended by the TWG, directing the Productivity Commission to include vacant land taxes within its inquiry into local government funding and financing and seek a review of the current rules of taxing land speculators as a high priority', it said.