A decision on whether the Government will adopt a capital gains tax (CGT) is imminent after almost 10 years of campaigning by Labour.
With the prospect of a CGT looming, discussions about the pros and cons of such a tax have ramped up - so here are the arguments for and against it.
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Capital gains tax refresher
The Government has said it's trying to make the tax system fairer because capital gains largely go untaxed in New Zealand, while people who work for a living are expected to pay up a portion of their income.
Profits made from the sale of assets and investments such as rental properties and shares would be taxed just like income - if the Tax Working Group's recommendations are accepted.
The tax would be set at the income-earner's top income tax rate, which would likely be 33 percent for most people.
It's important to remember New Zealand already has a variation of a CGT: the bright-line test, which requires income tax to be paid on any gains from residential property that was sold within five years of purchase.
The recommendations were made in in the TWG's report published in February, chaired by former Finance Minister Sir Michael Cullen. Gains could be calculated after April 2021 so any gains made before then would remain untaxed.
If your rental property is valued at $600,000 in 2021 and then sells for $630,000 in 2023, you'd be taxed on the $30,000 gain, probably at a rate of 33 percent. You'd be paying around $10,000 of tax on the $630,000 house.
Not all members of the TWG agreed on the approach to include all land and buildings, business assets, intangible property (like intellectual property) and shares in a CGT.
But it was agreed the tax would not apply to personal items, like bikes, boats and art.
Would a CGT be fair?
The TWG believes the current system is unfair because property is taxed less than income, creating a perverse incentive to buy up houses in an already inflated housing market.
It wants to reduce those investment biases, and improve the "fairness, integrity and fiscal sustainability of the tax system".
It said taxing capital gains would mean the Government could reduce taxes on wages and salaries, since that income would instead come from the sale of investment properties, businesses and shares.
Tax Justice Aotearoa New Zealand believes any move towards including a CGT within wider tax reform would be a step forward in achieving a fairer tax system.
But National's leader has come out strong against any form of a CGT, saying this week he wants New Zealanders to "keep more of what they earn" and urged the Government to drop the prospect "completely".
"This is a Trojan Horse Tax because we know both Labour and Greens want to go further and they will if they get another term. This Government can't be trusted on tax."
The Minority Report
Three members of the TWG didn't agree with a full capital gains tax, but they did agree there should be a capital gains tax on rental properties.
There's been speculation the Government's final decision will more closely align with this report, not the full Tax Working Group report.
They said they would prefer to extend the tax system "carefully over time".
In their judgement, benefits would be outweighed by slowed efficiency in the tax system and increased fiscal risk.
The minority report argues New Zealand's reputation for ease in doing business could be at risk under the perception that a CGT would complicate the tax system.
Complicating a tax system
New Zealand's tax system is frequently praised for its simplicity.
Business NZ - which has been running a lobbying campaign against a broader CGT on business assets - argues a CGT could cost the Government $4.2 billion over five years in administration costs.
ACT leader David Seymour has reflected that view, saying there would be only one winner if the Government introduced a comprehensive CGT: the accountancy industry.
"You go to Australia or Canada or worst of all the United States, basically everybody has to employ an accountant in order to do their taxes. We don't want that."
Bridges said it would lead to "boom times for tax lawyers and accountants".
The TWG itself said that if the Government decides to proceed with a CGT, "it is crucial that Inland Revenue is fully resourced".
It said the tax could generate $8 billion over the first five years, rising to a long-run average of 1.2 percent of gross domestic profit (GDP) per annum.
What about rollover relief?
The prospect of rollover relief could provide some reassurance for those who fear the implementation of a CGT in New Zealand.
Deloitte New Zealand Partner in Tax, Patrick McCalman, said if low performing assets were stung with a CGT bill, businesses wouldn't be able to afford to reinvest in a higher yielding asset.
But McCalman said the TWG met this risk by recommending rollover relief where funds are reinvested. However, that would only apply to businesses with turnover of up to $5 million.
The TWG report says rollover treatment "provides a deferral from taxation in certain situations", but that rollover treatment "does not mean that a gain or loss is never taxed".
It also notes that rollover treatment "reduces the revenue potential of the tax and is a source of much of the complexity in capital gains taxes in other countries".
Fears for farmers
Farmers have voiced concern about how a CGT would affect the industry - agriculture contributing approximately 5 percent of New Zealand's GDP ($10.6 billion).
Federated Farmers vice-president and commerce spokesperson Andrew Hoggard says it would impose hefty costs. From 2021, the sale of farms would be subject to CGT as it would apply to all the land, apart from the 4500 metres around the family home.
Farmers could also face a fertiliser tax, a tax on water pollution and could have to pay for carbon emissions - all proposed by the TWG.
A recent Reid-Research poll commissioned by Business New Zealand found that 54.3 percent of respondents did not think there should be a GCT on things like businesses and farms.
Prime Minister Jacinda Ardern signalled in February farmers and small business owners could be getting a carve out, saying: "I want to be clear that the effects on them will be top of my mind when assessing options."
Rent increases
Bridges has said the prospect of a CGT has already prompted rental prices to increase in New Zealand.
While Ardern rejected the assertion, the TWG's own workings estimated a CGT would result in small rent increases initially. It said that would be offset by more people exiting the rental market as home ownership became more accessible.
And will KiwiSaver be safe?
The TWG has proposed taxing gains on Australian and New Zealand shares -and therefore KiwiSaver funds would be taxed as part of a CGT.
That would be in addition to the current system whereby KiwiSaver funds are taxed using the portfolio investment entities (PIE) regime
This current tax is deducted from your KiwiSaver provider, who then pays the tax to the Inland Revenue on your behalf.
The TWG has also proposed refunding employer's superannuation contribution tax for KiwiSaver members earning up to $48,000 per annum, as well as reducing the lower PIE rates for KiwiSaver funds by five percent.
And while that might make some people feel better about Australian and New Zealand shares being taxed under a CGT, economists have pointed to how complicated the policy changes would be to provide compensation.
As McCalman pointed out, the question of whether a CGT is right for New Zealand "is far from black and white".
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