Speaker 1: Kiota.
Speaker 2: I'm Chelsea Daniels and this is the Front Page, a
Speaker 2: daily podcast presented by the New Zealand Herald. Labor has
Speaker 2: announced what Summer describing as a watered down version of
Speaker 2: a capital gains tax.
Speaker 1: Labour's targeted CGT would.
Speaker 2: Affect profit made after July twenty twenty seven from selling
Speaker 2: a commercial or residential property excluding the family home.
Speaker 1: Leader Chris Hipkins promises nine out of ten kiwis won't
Speaker 1: pay tax on what they own.
Speaker 2: And it'll allow everyone to get three three doctors visits
Speaker 2: a year. On the flip side, National's calling it an
Speaker 2: attack on investment and savings, with Finance Minister Nikola Willis
Speaker 2: saying it would put New Zealand's economic.
Speaker 1: Recovery at risk.
Speaker 2: Today on the front, infometrics economist Brad Olsen is with
Speaker 2: us to dive into the details of Labour's latest to
Speaker 2: pitch to the public. Brad, tell me what your first
Speaker 2: thoughts were when you saw this policy.
Speaker 3: Look, it was challenging to see when we got their
Speaker 3: policy announcement. It came out very early in the morning
Speaker 3: five o three am. I think that it didn't have
Speaker 3: some of the fairly basic policies that you might have
Speaker 3: inspected or basic elements of a policy on cats. It
Speaker 3: didn't have any numbers around it. We didn't know how
Speaker 3: much revenue this capital gains tax or limited capital gain
Speaker 3: tax and expected to bring in, So it was a
Speaker 3: bit challenging to start with, alongside the fact that you know,
Speaker 3: looking through the detail, it was clear that this was
Speaker 3: a very narrow capital gain sex. It was focused on
Speaker 3: the lacks of residential property outside the family home and
Speaker 3: commercial property, but it had a much longer list of
Speaker 3: exceptions that weren't included. And when you sort of have
Speaker 3: a policy that includes two bullet points of what is
Speaker 3: in and a whole lot of bullet point of what's
Speaker 3: cast out, you really do start to get the feeling
Speaker 3: that it's sort of quite constrained. The idea generally with
Speaker 3: a tax policy, certainly from an economics point of view,
Speaker 3: is you want it as broad based as possible so
Speaker 3: that reduces those administration costs. It means that income has
Speaker 3: broadly sort of taxed a similar way instead of at
Speaker 3: the moment, we now start to risk having a whole
Speaker 3: lot of different silos that things fall into. Probably one
Speaker 3: of the more challenging ones that we've started to uncover
Speaker 3: as we've started to get through the policy detail is
Speaker 3: the fact that this policy is expected to pay for
Speaker 3: a new healthcare policy for three VP trips per person
Speaker 3: per year. The difficulty is this, it looks like what
Speaker 3: we call a hypothicated tax that the money that is
Speaker 3: coming in from the capital gains taxes ring fenced and
Speaker 3: can only be spent on that new health proposal. So done,
Speaker 3: seeing a little bit odd to tie capital gains to
Speaker 3: health funding. Good to sort of see a connection in
Speaker 3: terms of the government wants to highlight a priority area,
Speaker 3: but seemed a little bit sort of specific to link
Speaker 3: those two parts together.
Speaker 1: First of a couple of things to unpack there. First off,
Speaker 1: can you tell me a little bit more about the numbers,
Speaker 1: how much.
Speaker 2: Do they actually expect to generate from this ring fenced policy?
Speaker 2: And secondly, can you even I mean, is it even
Speaker 2: possible economically to make sure that that specific money goes
Speaker 2: into this specific pot?
Speaker 3: I mean, certainly you can make sure that it goes
Speaker 3: into that specific pot. We have very limited sort of
Speaker 3: direct funding initiatives in New Zealand, but one of them
Speaker 3: is that likes of the National Land Transport Time. So
Speaker 3: all the money that goes from the likes of petrol
Speaker 3: text and similar goes into a separate pot that can
Speaker 3: only be spent on transport. So we do do that.
Speaker 3: It is an option, but it's unusual to link something
Speaker 3: like capital gains and health If you were to link
Speaker 3: health money into health money out maybe, but to have
Speaker 3: something sort of quite different on the INDs and the
Speaker 3: outside as unusual. You can technically do it. But to
Speaker 3: first question around how much is expected to be brought in,
Speaker 3: it's not going to be nearly as much of anyone
Speaker 3: probably would have thought of before. Capital gains just aren't
Speaker 3: nearly as strong forecasts into the future, and so you know,
Speaker 3: the figures are in sort of the low hundreds of
Speaker 3: millions of dollars that have been talked about, and Labor
Speaker 3: themselves highlighted that the expected amount coming in is expected
Speaker 3: to be small and to sort of scar up over time.
Speaker 3: I think that's understandable given where the likes of the
Speaker 3: property market and SMAR is. But we're not talking a lot.
Speaker 3: It's not billions of dollars a year that we're going
Speaker 3: to be generating if from this sort of proposing going forward,
Speaker 3: if it were to come into action.
Speaker 2: Well, if we speak hypothetically as well, if it did
Speaker 2: come into action, I can see everybody selling off stuff
Speaker 2: before the tax takes effect.
Speaker 1: Does that usually.
Speaker 3: Happen Potentially, I think that'll be a little bit short
Speaker 3: sighted from people, I mean, and realistically that's because of
Speaker 3: one of the biggest misconceptions of the capital gains taxes
Speaker 3: that oh, well, I've got all these gains that are
Speaker 3: going to be taxed for the last fifty years. No,
Speaker 3: the policy is quite clear that it's not retrospective. It
Speaker 3: starts from I think the first of July twenty twenty
Speaker 3: seven if it were to be enacted. So it means
Speaker 3: that you could buy a house right here today, it
Speaker 3: might make let's say, fifty thousand dollars between now and
Speaker 3: twenty twenty seven, and then after twenty twenty seven you
Speaker 3: make another fifty thousand dollars, so one hundred k all
Speaker 3: up before you sold it in I don't know twenty
Speaker 3: twenty nine. You'd only pay tax and it would be
Speaker 3: twenty eight percent of the profit. So the additional gain
Speaker 3: that you'd make, which would be the fifty thousand dollars
Speaker 3: made after July twenty twenty seven, so you might have
Speaker 3: had an asset for forty years, doesn't matter how many
Speaker 3: how much of a capital gain it has made. None
Speaker 3: of that would be taxes only sort of going into
Speaker 3: the future. So I'd find it pretty hard to believe
Speaker 3: that there'd be a whole bunch of people out there
Speaker 3: who would have an asset at the moment and he'd go,
Speaker 3: you know what, I'm going to sell it off and
Speaker 3: then do what with the money, presumably buy another APT
Speaker 3: in the future. So there's a lot of talk about it.
Speaker 3: I just don't think it would be necessarily as sensible
Speaker 3: to do it. Quite different though, this proposal from the
Speaker 3: Lakes and All wealth tax, where no matter if you
Speaker 3: sold it or not, you were going to be paying
Speaker 3: a whole bunch of pecks out each and every year,
Speaker 3: which is generally why capital gain sex is a much
Speaker 3: more appropriate way to move things to the tech system
Speaker 3: than to go for something like the wealth tax.
Speaker 2: I only say that because a lot of people sold
Speaker 2: their houses and cars before the rapture was meant to
Speaker 2: be coming, so I know that there will be a
Speaker 2: few people selling off their farm or their commercial property beforehand.
Speaker 2: In terms of so that I know that they want
Speaker 2: they're allowing for I think she's Aishaverel said four point
Speaker 2: five million extra doctor's visits.
Speaker 1: A couple of hundred mil. Do you reckon that that'll
Speaker 1: cover it?
Speaker 3: Well, I mean, look, they've done some costing, so at
Speaker 3: least we've got some numbers now. So far we've sort
Speaker 3: of were operating a little bit in the blind always
Speaker 3: nice and a little bit more detail behind them. But look,
Speaker 3: all sort of work with what we've got for the minute. Look,
Speaker 3: I think going forward, there's a question of, you know,
Speaker 3: how does that sort of change demand for health care
Speaker 3: in general? But also, I mean one of the questions
Speaker 3: and the challenges here why universal? Why do people who
Speaker 3: earn I don't know, two one hundred thousand dollars a year,
Speaker 3: what do they need three free GPS? It's a year
Speaker 3: that seems like an expreme amount of funding to sort
Speaker 3: of put universally for something like that, rather than targeting
Speaker 3: it to those who need it the most. And I
Speaker 3: mean part of that seems to come down to an
Speaker 3: ideological sort of divide. We have some groups and parties
Speaker 3: and similar who going while everything should be universal, others
Speaker 3: who think it should be quite sort of specific and targeted.
Speaker 3: Look generally, personally and economics. So I generally lean into
Speaker 3: more of the let's get it to the specific people
Speaker 3: that need it can because that's where you then can
Speaker 3: reduce some of the costs, so you don't have to
Speaker 3: sort of put it out to everyone. But look, there
Speaker 3: will be a question I think around the likes of
Speaker 3: resourcing and similar in the health system, given it's already
Speaker 3: under pressure, but getting more money into frontline services and
Speaker 3: through that sort of proactive preventative work that GPS do
Speaker 3: is important. If you can get more resource in there,
Speaker 3: then you don't you shouldn't have to put as much
Speaker 3: resource into the other end of the spectrum because people
Speaker 3: will actually go and get their issues sorted earlier rather
Speaker 3: than waiting and waiting, waiting, going to the hospital late
Speaker 3: and then costing a whole lot more. So I can
Speaker 3: see that part of the approach on balance as being
Speaker 3: quite efficient. It's just can you resource it? And look,
Speaker 3: they're the challenge there at the moment. I think there
Speaker 3: will be an ongoing challenge in the future.
Speaker 4: Other countries have been doing this for years across the
Speaker 4: Tasman Australia has had a capital gains tax for decades.
Speaker 4: BIT treats rising wages, better conditions and strong public services
Speaker 4: as signs of success and New Zealand should do the
Speaker 4: same in terms.
Speaker 2: Of the exemptions for family homes, farms, ki we saver
Speaker 2: business assets, that kind of thing.
Speaker 1: Why do you think they've taken this approach?
Speaker 3: Look in my mind, the exemptions that they've made with
Speaker 3: this narrow capital gains tax, it's very much sort of
Speaker 3: politics over economics. There is an argument for a capital
Speaker 3: gains tax at a comprehensive level, and in my mind
Speaker 3: as an economist, that would include the family home, just
Speaker 3: so that you don't have this sort of ability for
Speaker 3: everyone to sort of play games with it, and you know,
Speaker 3: you sort of say, well, my family home is the
Speaker 3: one I grew up in, and my partner's family home
Speaker 3: is the one that they grew up and so we
Speaker 3: get to, you know, all that sort of question around
Speaker 3: inheritance and everything else. You know what happens to that
Speaker 3: sort of farm if you then sort of divide something
Speaker 3: off and you add an extra property onto it, is
Speaker 3: that a second home or is that just a farmster
Speaker 3: which becomes exeent. Like you just get into this really
Speaker 3: big challenge of sort of ruling in, ruling out that
Speaker 3: causes for an administration, you need to get the accountants
Speaker 3: and the lawyers and all that involved. So I find
Speaker 3: that a bit challenging, but I think that's pragmatic from
Speaker 3: the Labor Party because they want to manage the politics
Speaker 3: of this hit. The form glorries around a more comprehensive
Speaker 3: capital gains tax and wealth tax on similar that would
Speaker 3: be quite broad. This time it's sort of focused very
Speaker 3: much into areas that I except they think as a
Speaker 3: political party has a little bit more ability to influence
Speaker 3: the electorate if you're sort of looking to taxing people
Speaker 3: who have a second home that's on a particularly large
Speaker 3: large group, or those commercial properties that's not sort of
Speaker 3: it shouldn't be inhabiting business activity itself and everything else.
Speaker 3: I think that's the argument, and that came through in
Speaker 3: the release from the Labor Party focusing on the fact
Speaker 3: that I think nine to ten people wouldn't be hit
Speaker 3: by this narrow capital gains tax. So again, there's sort
Speaker 3: of a variety there in terms of what they're trying
Speaker 3: to focus on politically as well as economically.
Speaker 2: And the fact of the matter is Labors spent years
Speaker 2: avoiding the issue of a wealth tax or a capital
Speaker 2: gains tax. Will they won't they?
Speaker 1: What do you reckon? Shifted the dial with Hepkins.
Speaker 3: Well, I mean probably a little bit of the response
Speaker 3: to the last time they tried this. I mean, remember
Speaker 3: that last time that labor was in government. I think
Speaker 3: this is probably one of the worst ways you could
Speaker 3: ever go about tax policy, to be clear, is telling everyone,
Speaker 3: telling the electric, telling the people, no, it's not happening,
Speaker 3: We're not looking at it's not going to happen, designing
Speaker 3: a whole system behind everyone else's back, and then done thing.
Speaker 3: It's sort of a month or so before the budget,
Speaker 3: which is exactly what we saw. And I think twenty
Speaker 3: twenty three we need to have a conversation about tax
Speaker 3: and I absolutely think that's true, But we need to
Speaker 3: have a good conversation rather than sort of a bit
Speaker 3: of a bat and switch where you tell everyone one thing,
Speaker 3: do the other, and then you just undermine everything because well,
Speaker 3: at the moment, who sort of would trust what later
Speaker 3: says on tax that That's the challenge that I think
Speaker 3: they has, which is also why I think they've come
Speaker 3: out with this fairly narrow approach and going well, look,
Speaker 3: this is not going to knock this, so of everyone,
Speaker 3: that's a sort of a more quite constrained option. It's
Speaker 3: a constrained tax policy being taken on. It's a more
Speaker 3: sort of and softly approach. The risk, of course with
Speaker 3: that is that what does it do enough to sort
Speaker 3: of change the dial And after a period where let's
Speaker 3: be clear, canceital gains of runne course a little bit,
Speaker 3: maybe not fully, but some of your bigger capital gains
Speaker 3: happened over the last sort of ten twenty years, and
Speaker 3: with house prices currently down on a year ago depending
Speaker 3: on the measure, years not looking particularly strong to have
Speaker 3: those in the future. What I think changed is political polling.
Speaker 3: You know, you've seen continued support actually in the last
Speaker 3: couple of years for a capital gains tax, at least
Speaker 3: at this more sort of narrow level. So it does
Speaker 3: give an ability to say, well, look, people are asking
Speaker 3: for it. It's clearly a want as well to invest
Speaker 3: more into health. So I think that's where coming bringing
Speaker 3: everything together, there was an economic reason as well as
Speaker 3: a political reason.
Speaker 5: Now I watched Chris Hipkins stand up. There were three
Speaker 5: words he refuses to say capital gains tax. Mark my words.
Speaker 5: That is what labor is proposing and far from what
Speaker 5: Hipkins and Edmonds have claimed. This is a broad capital
Speaker 5: gains tax. It will include all commercial property that is
Speaker 5: to say, land and buildings that are not residential. That
Speaker 5: is effectively a tax on every are you business in
Speaker 5: New Zealand.
Speaker 1: It's a disappointing that they haven't gone the.
Speaker 3: Full hog though, oh as an economist, I think it
Speaker 3: is a missed opportunity to not have done the whole thing,
Speaker 3: or to be honest, have thought about what we could
Speaker 3: do or should do more broadly around the likes of
Speaker 3: the tax system in terms of how you sort of
Speaker 3: support more economic activity, but also sort of the efficiency
Speaker 3: and the equity of the tax system. Like the idea
Speaker 3: here right should be that you bring together as much
Speaker 3: money as you need to fund the government from as
Speaker 3: broad of a set of sources as you can, so
Speaker 3: that there's sort of no one area that doesn't get text,
Speaker 3: which means that another area has to get text a
Speaker 3: whole lot more to make up for it. And so
Speaker 3: in my mind, having something like the comprehensive capital gains
Speaker 3: tax does seem sensible. It might not make a lot
Speaker 3: of revenue at the moment, that's fine, but also looking
Speaker 3: at other options like a land value tax or similar
Speaker 3: or importantly, trying to reduce the top tax rate, which
Speaker 3: at thirty nine percent, really does diminish the ability for
Speaker 3: people to want to or the ability to invest in
Speaker 3: businesses to quite the same degree because when they get
Speaker 3: those returns will once they get over a certain amount
Speaker 3: they get you lose a sort of you know, nearly
Speaker 3: forty percent all at once. So there is a challenge there,
Speaker 3: I think around this sort of cohesiveness of the entire
Speaker 3: tax system. I think it is a missed opportunity to
Speaker 3: have done more. But at least we're having the tax debate.
Speaker 3: The concern, of course, is that this has already started
Speaker 3: to turn into you know, a real misinformation while people
Speaker 3: talking about tax you know, I've seen some parties who
Speaker 3: are opposing this saying, you know, this is coming for
Speaker 3: the businesses, and no it's not. It's coming for the
Speaker 3: profit on someone who's got a commercial holding, so they
Speaker 3: might have a twenty five million dollar factory or something
Speaker 3: that they've had for thirty years, if it makes sense
Speaker 3: for thirty thousand dollars over the next couple they will
Speaker 3: pay twenty eight percent tax on the thirty thousand dollars
Speaker 3: more not on the entire value of the asset. Like
Speaker 3: there is some real stupid scare mungering out here that
Speaker 3: I think misses the issue. But at the same time,
Speaker 3: as an economist, yeah, I would have definitely liked a
Speaker 3: more comprehensive option, if not having thought even more broadly
Speaker 3: about the tax system.
Speaker 2: Yeah, and certainly not small businesses as well, who I
Speaker 2: assume would be renting their premises or or the shops
Speaker 2: or whatever they're working out from. Why do you reckon
Speaker 2: they stopped short at introducing a wealth tax?
Speaker 1: I mean, do you reckon that?
Speaker 2: They had to look at the Greens and saw the
Speaker 2: backlash they got on all of their wealth tax stuff
Speaker 2: from that Green budget, and they just want backed off
Speaker 2: and said no, like, we're not We're not dipping our
Speaker 2: toe into that.
Speaker 3: I mean potentially, I sort of expect as well that
Speaker 3: they will have done quite a bit of work in
Speaker 3: the background, and I know, you know, you've talked to
Speaker 3: people that seem to have a little bit more inside
Speaker 3: knowledge and they highlight that over time they have been
Speaker 3: discussions within the Labor Party over which way the sort
Speaker 3: of tack on this. But the evidence around the likes
Speaker 3: of wealth tex I just I don't think it stacks up.
Speaker 3: I mean, you can see them in terms of how
Speaker 3: many countries developed countries actually have a walth text in comparison,
Speaker 3: a comparison to something like a capital game stick and
Speaker 3: some of the advice that was coming through from Trusury
Speaker 3: when Labor last tried to look at when they were
Speaker 3: in government, there was a much greater focus on careful
Speaker 3: gastacks or doing something more in that area. So I
Speaker 3: sort of think that it's a combination of politics and
Speaker 3: and economics again trying to find the best middle ground.
Speaker 3: But the questions with how narrow a policy this is,
Speaker 3: both in terms of the money it brings in and
Speaker 3: what it pays for. Isn't enough to turn the doll
Speaker 3: because you know, you've seen a lot of calls from
Speaker 3: some political borders saying it needs to be a whole
Speaker 3: lot more investment in government. If there's not the ability
Speaker 3: to sort of raise a huge amount of revenue from
Speaker 3: the policy, are we spending a lot more time on
Speaker 3: a policy then it's actually going to sort of influence
Speaker 3: in our daily lives potentially.
Speaker 1: Yeah, And they could know that as well.
Speaker 2: The hesitancy, you know, tacking it on to such a
Speaker 2: big issue.
Speaker 1: Like health and what.
Speaker 2: I don't know whether you saw the press conference with
Speaker 2: Barbara and Ben's Chris Hepkins and Aisheveril, but a majority
Speaker 2: of it was talking about help right. They started off saying, look,
Speaker 2: they led with aspirations of a better healthcare system. They're
Speaker 2: saying Luxon's bringing the country backwards. There are Kiwis leaving
Speaker 2: the country. And this is all before they mentioned the
Speaker 2: word tax, mind you, So that kind of seems to
Speaker 2: me like they were hesitant with their so they've tacked
Speaker 2: it onto something that Kiwis care about.
Speaker 3: Yeah, definitely. Look, I think the challenge going forward for
Speaker 3: all political partings is how you sort of square the
Speaker 3: current finances that the government has where we are still
Speaker 3: expected to spend more as a government than it will
Speaker 3: earn all the way out to something like twenty thirty,
Speaker 3: but at the same time needing or certainly expecting from
Speaker 3: New Zealand, it's more money going into the healthcare system
Speaker 3: because of some of the challenges. So there's a real,
Speaker 3: I think difficult balance there. We're on one hand, you
Speaker 3: need more money generally to try and balance the book
Speaker 3: seed through higher revenue or not spending as much, but
Speaker 3: you also need to be spending more apparently on the
Speaker 3: healthcare system to increase those outcomes. That means that again
Speaker 3: it's sort of still got this tension there where even
Speaker 3: under these sort of policy settings and still have a
Speaker 3: deficit or half a decade or so, it's still pretty
Speaker 3: unpalatable for a lot of New Zealanders. So a lot
Speaker 3: of difficult choices I think ahead, a lot of balancing
Speaker 3: to be done.
Speaker 2: And lastly, does this latest policy, because I know that
Speaker 2: this is just a nugget of Labor, the Labor Party's
Speaker 2: fiscal policy that they'll obviously announce ahead of the next election,
Speaker 2: does this make you excited for it or a bit hesitant?
Speaker 3: Oh? Look, I don't know if economists ever gets sort
Speaker 3: of too excited before we get details and similar So look,
Speaker 3: we'll continue to open see and assess how that happens.
Speaker 3: And that's true sort of of all political parties. You know,
Speaker 3: all of this stuff is important. It makes a big
Speaker 3: difference to people's lives. It has been consequences for the government,
Speaker 3: so we do look at that and try and understand
Speaker 3: what it means. But look, so far we're always withhold judgment,
Speaker 3: and probably most importantly as economists, we're looking at this
Speaker 3: from a policy perspective. Yes, there's politics involved, and simply
Speaker 3: there's to be some sort of more personal politics involved
Speaker 3: all the time at the moment, but we're looking at
Speaker 3: it from a policy point of view. What does it
Speaker 3: mean for the country, what does it mean for the economy,
Speaker 3: what does it mean for people in society. So that's
Speaker 3: sort of how we're focused on it, and we'll take
Speaker 3: all the information that continues to come through and try
Speaker 3: and understand what that means and hopefully add a little
Speaker 3: bit more context through what is a usually quite politically
Speaker 3: charged conversation. We want to make sure there as economists
Speaker 3: that we're bringing a little bit more of the sort
Speaker 3: of underlying facts to it.
Speaker 1: By the fact of the matter is this just hasn't
Speaker 1: let the world on fire.
Speaker 3: No, And to be honest, maybe that's a good thing
Speaker 3: from a text policy point of view, because you know
Speaker 3: the way that text policies go, they can either like
Speaker 3: the world on fire in a good way. I can't
Speaker 3: think of one that's really done that in recent times,
Speaker 3: or in various various shades of people getting quite concerned
Speaker 3: about it. So potentially a slightly small one, is a
Speaker 3: lot more politically experient and more efficient, but certainly economic. Cly,
Speaker 3: it feels like a little bit of a missed opportunity
Speaker 3: to have sort of more comprehensively laid out how to
Speaker 3: structure things in a better way, but as usually, politics
Speaker 3: probably will rule the day. There.
Speaker 1: Thanks for joining us, Brad.
Speaker 3: Thank you.
Speaker 2: That's it for this episode of the Front Page. You
Speaker 2: can read more about today's stories and extensive news coverage
Speaker 2: at enzidherld dot co dot nz. The Front Page is
Speaker 2: produced by Jane Ye and Richard Martin, who is also
Speaker 2: our editor.
Speaker 1: I'm Chelsea Daniels.
Speaker 2: Subscribe to The Front Page on iHeartRadio or wherever you
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Speaker 2: behind the headlines.