The Opposition has launched a stinging attack on the Tax Working Group's (TWG) recommendations, which include a capital gains tax.
The TWG on Thursday put forward a CGT which would apply to gains and losses on land improvements (except the family home), including shares and business assets. It would not apply to personal items though, like bikes, boats and art.
National leader Simon Bridges said the recommendations are "an attack on the Kiwi way of life", saying it will hit those with an investment property, a small business, a lifestyle block, a bach or even an empty section.
- Tax Working Group recommends capital gains tax
- Revealed: Majority of Kiwi voters oppose capital gains tax
- PM Jacinda Ardern confirms changes to tax system coming
He said it would lead to "boom times for tax lawyers and accountants and even Iwi advisers, given recommendations for exclusions that include Māori land in multiple ownership".
"National says no to new taxes. We would repeal a Capital Gains Tax, index tax thresholds to the cost of living and let Kiwis keep more of what they earn."
Brett O'Riley, chief executive of the Employers and Manufacturers Association (EMA), said the proposed changes "don't address the Tax Working Group's objectives of reducing over-investment in housing and increasing tax fairness".
He said he's concerned that CGT on business assets could discourage investment and innovation, locking businesses into their current asset holdings.
Sir Michael Cullen, chair of the TWG, admitted introducing a CGT could discourage people from selling their assets, which could stagnate the economy. Investors may also take fewer risks and invest less if there's more tax to pay.
But he said the TWG estimated that if the Government implements its CGT recommendations, it could generate $8 billion over the first five years.
He said the TWG believed tax-free capital gains have been "mostly enjoyed by our wealthiest households", and therefore "taxing them would help reduce the gap between rich and poor".
But not everyone in the TWG was on-board. Business NZ has highlighted how three members - Business NZ CEO Kirk Hope, former Bell Gully tax partner Joanne Hodge, and former Inland Revenue Deputy Commissioner (Policy) Robin Oliver - did not agree on recommending a CGT.
Their view, it noted, is that administration costs and complexity would "outweigh the revenues that could be gained from a comprehensive capital gains tax as proposed", and that it would "not significantly reduce overinvestment in housing or increase tax fairness".
Federated Farmers vice-president and commerce spokesperson Andrew Hoggard said a CGT would impose hefty costs, both in compliance for taxpayers and in administration for Inland Revenue, and it will do little or nothing to ease the housing crisis."
ACT leader David Seymour said the proposed CGT was "offensive to New Zealand values", saying the Government should be encouraging people to invest in assets - not scare them away from it.
"This tax will reduce saving and investment in productive assets - the very assets an economy needs to grow and prosper - by double taxing them."
The Canterbury Employers Chamber of Commerce also raised concerns about a CGT, with chief executive Leeann Watson saying on Thursday the recommendations of the TWG report were "disappointing".
"We support the Government's review to ensure that our tax system is fit for purpose for a changing business environment," she said.
"However, there is very real concern that taxing both shares and business assets under a comprehensive capital gains tax regime would create double taxation.
"This could disadvantage New Zealanders owning shares in New Zealand and create inconsistencies around overall taxation on investment."
Nevertheless, she said the level of consultation around the proposed changes is a positive sign: "There has been considerable engagement on this issue, with submissions in the thousands from New Zealanders including iwi, businesses and unions."
Support for capital gains tax
There is support for a CGT however, with a body representing over 2000 accountants noting how New Zealand is an "outlier amongst developed nations in lacking a capital gains tax, one of the recommendations of the report".
"In our submission, we clearly stated the most appropriate vehicle for broadening the tax base is via a broader based capital gains tax," Paul Drum, head of external affairs at CPA (Certified Practising Accountant) Australia, said.
It would come as no surprise that the Green Party has also welcomed the recommendation of a CGT. The party's finance spokesperson James Shaw saying the recommendations would enhance New Zealanders' wellbeing.
"New Zealand's tax system has it strengths, but there is plenty of room for improvement," he said on Thursday.
"That is why the Green Party is incredibly pleased to see the Tax Working Group put forward a report that proposes taxation that is fair and progressive."
New Zealand already has a variation on a CGT. The Taxation (Bright-line Test for Residential Land) Bill requires income tax to be paid on any gains from residential property that was sold within five years of purchase.
However, the bright-line test does not currently apply a person's main home, nor does it apply to property acquired through inheritance.
Prime Minister Jacinda Ardern said on Thursday the Government will give its response to the TWG recommendations once the public has had the opportunity to respond. The official response will be given in April.
Introducing a CGT will be a hard sell for the Prime Minister. She scrapped Labour's capital gains policy a week before the 2017 election in the face of immense criticism and attack ads from the National Party.
She announced in a speech to the business community earlier this month that changes will be made to the tax system this year, but did not elaborate.
A Newshub-Reid Research poll found that the majority of New Zealanders do not want a CGT, with 54 percent saying "no", and just 32 percent saying "yes."
Newshub.
