Is Labour's new policy a watered down capital gains tax?

didn't have any numbers around it. We didn't know how much revenue this capital gains tax or limited capital gain tax and expected to bring in, So it was a bit challenging to start with, alongside the fact that you know, looking through the detail, it was clear that this was a very narrow capital gain sex. It was focused on the lacks of residential property outside the family home and commercial property, but it had a much longer list of

exceptions that weren't included. And when you sort of have a policy that includes two bullet points of what is in and a whole lot of bullet point of what's cast out, you really do start to get the feeling that it's sort of quite constrained. The idea generally with a tax policy, certainly from an economics point of view, is you want it as broad based as possible so

that reduces those administration costs. It means that income has broadly sort of taxed a similar way instead of at the moment, we now start to risk having a whole lot of different silos that things fall into. Probably one of the more challenging ones that we've started to uncover as we've started to get through the policy detail is the fact that this policy is expected to pay for a new healthcare policy for three VP trips per person

per year. The difficulty is this, it looks like what we call a hypothicated tax that the money that is coming in from the capital gains taxes ring fenced and can only be spent on that new health proposal. So done, seeing a little bit odd to tie capital gains to health funding. Good to sort of see a connection in terms of the government wants to highlight a priority area, but seemed a little bit sort of specific to link those two parts together.

It is an option, but it's unusual to link something like capital gains and health If you were to link health money into health money out maybe, but to have something sort of quite different on the INDs and the outside as unusual. You can technically do it. But to first question around how much is expected to be brought in, it's not going to be nearly as much of anyone

probably would have thought of before. Capital gains just aren't nearly as strong forecasts into the future, and so you know, the figures are in sort of the low hundreds of millions of dollars that have been talked about, and Labor themselves highlighted that the expected amount coming in is expected to be small and to sort of scar up over time. I think that's understandable given where the likes of the property market and SMAR is. But we're not talking a lot.

It's not billions of dollars a year that we're going to be generating if from this sort of proposing going forward, if it were to come into action.

seven if it were to be enacted. So it means that you could buy a house right here today, it might make let's say, fifty thousand dollars between now and twenty twenty seven, and then after twenty twenty seven you make another fifty thousand dollars, so one hundred k all up before you sold it in I don't know twenty twenty nine. You'd only pay tax and it would be

twenty eight percent of the profit. So the additional gain that you'd make, which would be the fifty thousand dollars made after July twenty twenty seven, so you might have had an asset for forty years, doesn't matter how many how much of a capital gain it has made. None of that would be taxes only sort of going into

the future. So I'd find it pretty hard to believe that there'd be a whole bunch of people out there who would have an asset at the moment and he'd go, you know what, I'm going to sell it off and then do what with the money, presumably buy another APT in the future. So there's a lot of talk about it. I just don't think it would be necessarily as sensible

to do it. Quite different though, this proposal from the Lakes and All wealth tax, where no matter if you sold it or not, you were going to be paying a whole bunch of pecks out each and every year, which is generally why capital gain sex is a much more appropriate way to move things to the tech system than to go for something like the wealth tax.

and the challenges here why universal? Why do people who earn I don't know, two one hundred thousand dollars a year, what do they need three free GPS? It's a year that seems like an expreme amount of funding to sort of put universally for something like that, rather than targeting it to those who need it the most. And I mean part of that seems to come down to an

ideological sort of divide. We have some groups and parties and similar who going while everything should be universal, others who think it should be quite sort of specific and targeted. Look generally, personally and economics. So I generally lean into more of the let's get it to the specific people that need it can because that's where you then can reduce some of the costs, so you don't have to

sort of put it out to everyone. But look, there will be a question I think around the likes of resourcing and similar in the health system, given it's already under pressure, but getting more money into frontline services and through that sort of proactive preventative work that GPS do

is important. If you can get more resource in there, then you don't you shouldn't have to put as much resource into the other end of the spectrum because people will actually go and get their issues sorted earlier rather than waiting and waiting, waiting, going to the hospital late and then costing a whole lot more. So I can see that part of the approach on balance as being quite efficient. It's just can you resource it? And look,

they're the challenge there at the moment. I think there will be an ongoing challenge in the future.

politics over economics. There is an argument for a capital gains tax at a comprehensive level, and in my mind as an economist, that would include the family home, just so that you don't have this sort of ability for everyone to sort of play games with it, and you know, you sort of say, well, my family home is the one I grew up in, and my partner's family home is the one that they grew up and so we get to, you know, all that sort of question around

inheritance and everything else. You know what happens to that sort of farm if you then sort of divide something off and you add an extra property onto it, is that a second home or is that just a farmster which becomes exeent. Like you just get into this really big challenge of sort of ruling in, ruling out that causes for an administration, you need to get the accountants

and the lawyers and all that involved. So I find that a bit challenging, but I think that's pragmatic from the Labor Party because they want to manage the politics of this hit. The form glorries around a more comprehensive capital gains tax and wealth tax on similar that would

be quite broad. This time it's sort of focused very much into areas that I except they think as a political party has a little bit more ability to influence the electorate if you're sort of looking to taxing people who have a second home that's on a particularly large large group, or those commercial properties that's not sort of it shouldn't be inhabiting business activity itself and everything else.

I think that's the argument, and that came through in the release from the Labor Party focusing on the fact that I think nine to ten people wouldn't be hit by this narrow capital gains tax. So again, there's sort of a variety there in terms of what they're trying to focus on politically as well as economically.

which is exactly what we saw. And I think twenty twenty three we need to have a conversation about tax and I absolutely think that's true, But we need to have a good conversation rather than sort of a bit of a bat and switch where you tell everyone one thing, do the other, and then you just undermine everything because well, at the moment, who sort of would trust what later says on tax that That's the challenge that I think they has, which is also why I think they've come

out with this fairly narrow approach and going well, look, this is not going to knock this, so of everyone, that's a sort of a more quite constrained option. It's a constrained tax policy being taken on. It's a more

sort of and softly approach. The risk, of course with that is that what does it do enough to sort of change the dial And after a period where let's be clear, canceital gains of runne course a little bit, maybe not fully, but some of your bigger capital gains happened over the last sort of ten twenty years, and with house prices currently down on a year ago depending on the measure, years not looking particularly strong to have those in the future. What I think changed is political polling.

You know, you've seen continued support actually in the last couple of years for a capital gains tax, at least at this more sort of narrow level. So it does give an ability to say, well, look, people are asking for it. It's clearly a want as well to invest more into health. So I think that's where coming bringing everything together, there was an economic reason as well as a political reason.

and the equity of the tax system. Like the idea here right should be that you bring together as much money as you need to fund the government from as broad of a set of sources as you can, so that there's sort of no one area that doesn't get text, which means that another area has to get text a whole lot more to make up for it. And so in my mind, having something like the comprehensive capital gains

tax does seem sensible. It might not make a lot of revenue at the moment, that's fine, but also looking at other options like a land value tax or similar or importantly, trying to reduce the top tax rate, which at thirty nine percent, really does diminish the ability for people to want to or the ability to invest in businesses to quite the same degree because when they get those returns will once they get over a certain amount they get you lose a sort of you know, nearly

forty percent all at once. So there is a challenge there, I think around this sort of cohesiveness of the entire tax system. I think it is a missed opportunity to have done more. But at least we're having the tax debate. The concern, of course, is that this has already started to turn into you know, a real misinformation while people talking about tax you know, I've seen some parties who are opposing this saying, you know, this is coming for

the businesses, and no it's not. It's coming for the profit on someone who's got a commercial holding, so they might have a twenty five million dollar factory or something that they've had for thirty years, if it makes sense for thirty thousand dollars over the next couple they will pay twenty eight percent tax on the thirty thousand dollars more not on the entire value of the asset. Like there is some real stupid scare mungering out here that

I think misses the issue. But at the same time, as an economist, yeah, I would have definitely liked a more comprehensive option, if not having thought even more broadly about the tax system.

I mean, you can see them in terms of how many countries developed countries actually have a walth text in comparison, a comparison to something like a capital game stick and some of the advice that was coming through from Trusury when Labor last tried to look at when they were in government, there was a much greater focus on careful gastacks or doing something more in that area. So I sort of think that it's a combination of politics and and economics again trying to find the best middle ground.

But the questions with how narrow a policy this is, both in terms of the money it brings in and what it pays for. Isn't enough to turn the doll because you know, you've seen a lot of calls from some political borders saying it needs to be a whole lot more investment in government. If there's not the ability to sort of raise a huge amount of revenue from the policy, are we spending a lot more time on a policy then it's actually going to sort of influence in our daily lives potentially.

the country. And this is all before they mentioned the word tax, mind you, So that kind of seems to me like they were hesitant with their so they've tacked it onto something that Kiwis care about.

I think difficult balance there. We're on one hand, you need more money generally to try and balance the book seed through higher revenue or not spending as much, but you also need to be spending more apparently on the healthcare system to increase those outcomes. That means that again it's sort of still got this tension there where even under these sort of policy settings and still have a deficit or half a decade or so, it's still pretty

unpalatable for a lot of New Zealanders. So a lot of difficult choices I think ahead, a lot of balancing to be done.

what it means. But look, so far we're always withhold judgment, and probably most importantly as economists, we're looking at this from a policy perspective. Yes, there's politics involved, and simply there's to be some sort of more personal politics involved all the time at the moment, but we're looking at it from a policy point of view. What does it mean for the country, what does it mean for the economy,

what does it mean for people in society. So that's sort of how we're focused on it, and we'll take all the information that continues to come through and try and understand what that means and hopefully add a little bit more context through what is a usually quite politically charged conversation. We want to make sure there as economists that we're bringing a little bit more of the sort of underlying facts to it.

lot more politically experient and more efficient, but certainly economic. Cly, it feels like a little bit of a missed opportunity to have sort of more comprehensively laid out how to structure things in a better way, but as usually, politics probably will rule the day. There.