Chris Hipkins. Photo: RNZ/Tim Collins
Chris Hipkins says he's not worried a capital gains tax implemented by a future Labour-led government might drive the wealthy offshore, because most other countries already have one.
The Opposition leader, who ruled out campaigning on capital gains and wealth taxes ahead of the 2023 election, in a speech at the weekend said both were back on the table, as was a land tax. The idea is to ease the tax burden on salary and wage earners, who are "shouldering a disproportionate share" compared to those whose money comes from their wealth.
"Under this government, those with multiple investment properties are getting huge tax breaks while those on salary and wages pay tax on every dollar they earn," Hipkins told supporters on Sunday.
Labour considered a capital gains tax, but ruled out campaigning on it in both 2020 and 2023. Hipkins ruled out a wealth tax, as proposed by the Greens, last year - despite it having interest from then-Finance Minister Grant Robertson and Revenue Minister David Parker, the latter of whom quit after Hipkins' captain's call.
"Well, you know, that was then and this is now," Hipkins told Morning Report on Monday.
"I think we have to realise, you know, we have to accept at some point in the country that the tax system that we've got is unsustainable. You know, with fewer people paying PAYE - pay as you earn - tax as a proportion of the workforce, we're going to have to do something to recognise the fact that, you know, all of the public services that we currently fund out of our tax revenue - so, health, education, you know, the infrastructure that we build, welfare system, superannuation - we're going to need to be able to continue to fund those things into the future, and our current tax system is going to struggle to do that."
An investigation by Inland Revenue last year found the wealthiest were paying less than half the amount of tax, across all forms of income, than most other New Zealanders - because of untaxed capital gains from businesses, property and other investments.
"We will be very clear with the country what we put forward as our tax policy well before the election, so that people know what they're voting for," Hipkins said.
"But I do think increasing numbers of New Zealanders want to have this discussion. I think they see that the tax system is unsustainable as it is."
The International Monetary Fund (IMF) last week said New Zealand "would benefit from a more efficient, equitable, and sustainable tax system" to encourage productivity, and "increase the progressivity of income tax". The global body also said the country should "mobilise additional revenue in response to long-term fiscal challenges", including a "comprehensive capital gains tax, land value tax, and changes to corporate income tax".
"When even the IMF is saying our tax system is broken it really is time to do something," Hipkins said on Sunday.
While a poll last year found a majority of voters would back a capital gains tax on investment properties, most would not like one on the family home. New Zealanders' reliance on property as their primary investment has been noted by the IMF as an ongoing risk to the economy, due to "high household debt, borrowers' vulnerability to rising interest rates and banks' high exposure to housing".
David Seymour. Photo: RNZ / Angus Dreaver
Asked if a wealth or capital gains tax could result in "capital flight" - investors taking their money out of New Zealand to spend elsewhere - Hipkins said it was "certainly one of the risks of something like a wealth tax".
"But there are a range of options on the table, wealth tax only being one of them - a capital gains tax, you know, we have to look at land tax - we've got to look at a range of options and the strengths and weaknesses of each of those.
"If you look at something like a capital gains tax, for example… that would be one of the least-riskier options in terms of wealth flights, because most of the countries that people would move their wealth to also have a capital gains tax. We're actually an international outlier in not having one.
"Having said that, I'm not narrowing down the options at this point. I think it's important that we work through those."
'Lunacy'
ACT leader David Seymour rejected Labour's assessment of the tax system, telling RNZ the opposition's prescription was driven by envy.
"They need to stop looking at policies that set people against each other... and [instead] ask, how does New Zealand become more affordable and ultimately more prosperous overall?"
Seymour said taxes on capital gains were "taxing twice" as property investors already had to pay tax on the rental income from that asset.
"[A CGT] is basically an opportunity to grab money off people who have got it and ACT would always argue that's the opposite of the values that will make us more prosperous as a country."
Seymour also rejected the notion New Zealand had a "massive revenue problem" and said "more effective spending" was the solution.
"Let's just remember that New Zealand's economy actually has more tax as a percentage of GDP than many of the countries that we like to compare ourselves with, I'm thinking, Australia, the United States, Canada."
New Zealand First leader Winston Peters also attacked Labour, tweeting Hipkins was only proving his irrelevance and did not understand a nation could not "tax itself into prosperity".
"His terminal plan to take Labour further to the lunacy of the economic and social left is palpable."
Chlöe Swarbrick. Photo: RNZ / Samuel Rillstone
Greens co-leader Chlöe Swarbrick says the tax burden falls unequally on middle-earners rather than those with the most money, received through big capital gains.
She told Morning Report she and the Greens welcomed Labour " to a desperately long overdue conversation on tax reform".
"Labour's own commissioned advice and evidence from when they were last in government, from IRD last term, told us that we have a tax system that says the wealthiest pay and effective tax rate less than half of that is the average New Zealander.
The Green Party has been proposing a wealth tax to pay for a universal guaranteed income and more infrastructure spending.
