The surprise return of the capital gains tax conversation

The government is signalling something significant on tax – but would they really take such a big gamble in an election year?

Mōrena and welcome to The Bulletin for Thursday, April 20, by Catherine McGregor. Presented in partnership with Z Energy.

In today’s edition: National find an unlikely ally on one of their farming policies; Elon Musk consigns a NZ Twitter icon to history; delays to threat-reporting system leave Muslim community frustrated. But first, what changes to the tax system is the government cooking up?

(Image: Archi Banal)

Countdown to a mystery tax announcement

When there are two reports on the tax system set to be released simultaneously, you know it’s probably worth paying attention. When you have two reports and, reportedly, a speech by the revenue minister all scheduled for the same day? Something is definitely up. That’s the conclusion being drawn by a number of commentators – including Duncan Greive on The Spinoff this morning – ahead of next Wednesday’s big tax announcement. A year to the day since it was announced by revenue minister David Parker, IRD’s report on the tax paid by the country’s wealthiest individuals will be released, accompanied by another report from Treasury on the effective tax rate paid by New Zealanders of all incomes. “If, as seems likely, they reveal enormous incomes which attract a relatively small tax contribution,” writes Greive, it could set the stage for “a reversal of Jacinda Ardern’s position on capital gains tax”. The former prime minister famously ruled out a capital gains tax while she was leader. Now she’s gone, her successor Chris Hipkins has the chance to resurrect a tax that proponents had all but given up for dead.

‘High-wealth individuals ARE paying their fair share’

But would he dare to take such a bold step just months out from an election? As Pattrick Smellie writes in BusinessDesk (paywalled), “Hipkins has a reputation for political caution. Would he really buck the conventional wisdom that trying to tax wealth in NZ is a recipe for political annihilation?” New Zealand is the only country in the OECD where capital gains is not a significant part of the tax system, notes Greive, and there are plenty of good fiscal reasons to make a change. But Ardern, for one, was clear-eyed about the political risk inherent in announcing any new tax – especially one that would hit almost every homeowner in the country. It’s not only Labour politicians who are seemingly nervous about the prospect of a CGT. Tuesday saw the release of yet another report on our tax system, this one commissioned by tax consultancy OliverShaw. “Don’t be fooled, high-wealth individuals ARE paying their fair share, with tax payments increasing as their income grows,” their report confidently states. That claim has raised eyebrows among experts including tax professor Craig Elliffe, who tells Greive it left him “extraordinarily confused” – “it just defies common sense”. 

The tax bracket problem

Here’s how the OliverShaw report comes to that controversial conclusion: instead of simply calculating tax paid as a proportion of income, it “takes into account Working for Families and other benefits, as you cannot sensibly consider average effective tax rates without doing so” – that’s from a summary of its findings published on Interest.co.nz. It turns out households who get WFF top-ups already “generally get most if not more than the tax they pay back”, BusinessDesk’s Smellie observes – and those households can look forward to an upwards adjustment in the WFF rate in the next budget, says the Herald’s Thomas Coughlan. The more pressing issue, Smellie argues, is “the inexorable rise of NZ middle-income earners into higher personal income tax brackets as a result of the simplest thing any government can do: ie, nothing.” The government hasn’t adjusted tax thresholds for 13 years, defying “principled tax theory [that] suggests thresholds should be adjusted every year for inflation, at least.” Indexing tax brackets to the rate of inflation is current National party policy, though a plan to scrap the top 39% rate was jettisoned in November.   

Single renters among the hardest hit

The OliverShaw report’s claim about New Zealand’s wealthiest taxpayers got the most attention, but I was drawn to another of its headline conclusions, that “households of single employees renting face some of the highest average effective tax rates”. More of us than ever are living alone these days, and that greater tax burden could be hurting women in particular. “The cost [associated with living alone] is an issue that's particularly important for women because they tend to earn a bit less,” financial planner Liz Koh told The Spinoff in 2021. “So if a woman ends up living on her own it can be a lot harder than for a man who's potentially earning 10% more.”

Our award nominations are a win for us and our supporters

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Blue-green consensus on RSE workers 

The Green Party is encouraging Labour to join the “emerging cross-party consensus” on a pathway to residency for recognised seasonal employer (RSE) workers, following National’s statement of support during its farming policy launch yesterday. National would also scrap the current median wage requirements to bring in migrant workers, restart live exports of cattle under strict animal welfare rules, and cut red tape around what farmers can do with their land and livestock. "A two-for-one rule. For every new regulation, two must be removed," says National agriculture spokesperson Todd McClay. Labour’s Damien O’Connor calls the latter “a ridiculous proposal”, while Greenpeace warns ensuring “humane” live animal exports by sea is an impossible ask.

For NZ, Elon Musk is the Grinch who stole Christmas

NZ Secret Santa has sent its last mystery gift, thanks to sweeping changes to Twitter implemented by owner Elon Musk. The local gift exchange began on Twitter in 2010 and was taken over by NZ Post in 2013, and has grown into a favourite festive tradition for thousands of New Zealanders. But now Musk’s decision to shut off free access to Twitter’s API – on which countless apps rely – left Secret Santa organisers with no choice but to close. “It's a heart breaking decision because we thought we'd future proofed with the App etc, but we will always have the memories,” they tweeted. 

How Fibre Fale are indigenising the tech space

Pacific people make up just under 3% of the tech industry. Julia Arnott-Neenee co-founded Fibre Fale as a platform for Pacific people working in tech to increase digital equity and representation. In the latest episode of Business is Boring she talks with Simon Pound about starting Fibre Fale and her hopes for its future.

Delays to threat-reporting system leave Muslim community feeling unsafe

The government is yet to set up a streamlined system for reporting suspected terrorist threats and other concerning behaviour, Stuff’s Eugene Bingham reports. The creation of such a system “in the next 12 months” was a recommendation of the royal commission report into the Christchurch terrorist attack, released in December 2020. Minister Andrew Little says a Treasury-mandated business case is expected to be presented to cabinet by October, following which the system should be up and running within 12 months. The government remains committed to the project, Little says, but members of the Muslim community are frustrated by the delay. “How many more business cases and how much more consultation do we need to have?” says Aliya Danzeisen of the Islamic Women’s Council of New Zealand. “Is it going to take more loss of lives?”

Click and collect

• National candidate Stephen Jack has stepped down after a sharing a poem comparing Jacinda Ardern to Adolf Hitler, which came on the heels of another offensive Facebook post last weekend.

• Ahead of the release today of a report into last year’s parliament protests, new figures show just 31 people have been convicted so far in connection with the stand-off, out of the 300 charged in connection.

• For years, the cost of supermarket sliced white bread hovered around the $1 mark. Those days are over, reports Newsroom’s Jonathan Milne.

• More on the NZ cost-of-living crisis: a useful interactive chart from the Guardian showing price changes for individual items year-on-year. The rocketing price of eggs has never looked more stark.

• Organisers of the controversial feral cat hunting competition for kids say they cancelled it after receiving death threats and threats to burn down their school.

Got some feedback about The Bulletin, or anything in the news? Get in touch with me at thebulletin@thespinoff.co.nz.

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