Labour leader Chris Hipkins says any policy to broaden the tax base would be designed to avoid hurting younger people’s ability to buy farms.

In an interview on Newstalk ZB’s The Country, the opposition leader said the party was talking about proposing a capital gains or a wealth tax but hadn’t finalised any policy yet. 

“One of the things that we’re working through is … all of the potential impacts that might have on different groups that could be affected, to make sure that we design a policy that’s robust and that actually is not going to have adverse consequences,” he said. 

Agricultural land was included in the capital gains tax proposed by the 2019 Tax Working Group, and wasn’t explicitly included from a draft wealth tax considered by Labour in 2023.

Hipkins was asked whether a hypothetical tax might exclude the family home, but still target family-owned farms — something he said was a “fair question”. 

He had been talking to farmers about how many current owners had received significant capital gains on their properties, but the next generation of farmers weren’t likely to see similar returns.

“So if you’re, say, buying your family farm off your parents, you’re not going to get the same capital gains that they got. And so that is, that is something we have to factor in [to our tax policy design]”.

“It’s much harder to buy a farm now than it was 40 or 50 years ago. I’m very, very aware of those issues for the next generation of farmers, and I don’t want to make those problems worse,” he said.

Generally, he said any policy design would be focused on reducing the incentive to buy and sell residential property and encouraging New Zealanders to invest in productive assets.

The Taxpayers’ Union claimed these comments showed Hipkins was unwilling to rule out imposing a capital gains tax on farms and the family home. 

Farmers worry a capital gains tax could affect their ability to pass a farm to their children as part of a succession plan. Such transfers are currently untaxed, allowing the full value of the asset to stay within the family.

Under the 2019 Tax Working Group proposal, these transfers would have triggered a tax on the gain, with only limited deferral in some family succession cases.

It is highly likely a family home would be excluded from any tax as in the 2019 proposal, which also excluded a home on a farm and up to 4500 square metres of surrounding land.

Un-comprehensive CGT

A minority of the 2019 working group recommended only taxing residential investment properties. This was reflected in the extension of the Bright Line test to ten years, and is generally popular with voters. 

It is possible Labour could choose a more limited version of a capital gains tax if it wants to maximise its chances of turning the Coalition into a rare one-term government.

CPA Australia, an accounting group which also operates in New Zealand, recently told Inland Revenue it supported the implementation of a more fulsome capital gains tax.

Angus Ogilvie, chair of the group’s local tax committee, said it was unusual for an OECD country to not tax most capital gains and it was an obvious way to expand the tax base.

“We are not bringing in sufficient revenue to cover the cost of the existing welfare system and running the government, which is problematic,” he told RNZ. 

“Pretty much every OECD country has some form of CGT, Australia certainly does but New Zealand does not. If we want to broaden that base, we need to consider a CGT”. 

Ogilvie said NZ couldn’t claim to have a broad-base, low rate tax system with a top personal income tax rate of 39%, a high corporate tax rate at 28%, and no tax on many capital gains.

Practical, not ideological 

There is broad support for a capital gains tax across the professional services sector, government department, and community advocacy groups. 

Often those who oppose the tax do so because they believe it will be complicated to administer and won’t raise enough revenue to be worth the economic downsides.

Bryce Wilkinson, from the business think-tank NZ Initiative, wrote in February that his problems with the tax were “practical, not ideological”.

His colleague, Eric Crampton has argued lifting consumption taxes (with a rebate for low-income earners) would be the “least awful” way to raise revenue if a future government insists on raising taxes.

Mark Lister, an investment director at Craigs Investment Partners, said untaxed capital gains fueled Kiwi’s “love affair with property”, which contributed to rising inequality and many of the country’s social issues. 

“As much as I’d like to see that change, I fear the politicians will get it wrong when it comes to the detail and implementation,” he wrote in a blog post. 

Lister said the 2019 proposal suggested taxing international shares differently to local ones, and that it would be tricky for farms and privately owned family businesses to manage. 

“I also worry about the possibility of unintended consequences on asset classes like shares and businesses. That concerns me, as we need to push capital and savings toward those productive, job-creating parts of the economy,” he said. 

While Hipkins has been suggesting Labour’s tax proposal will be designed to discourage housing speculation, a broad capital gains tax would catch investments of all kinds.