Geof Nightingale: independent tax expert weighs up Labour's proposal for capital gains tax

The rate Labour settled on for its capital gains tax policy is partially below the recommendation made by the tax working group six years ago.

The proposed 28 percent rate would apply to commercial and investment properties from July 2027 - with the revenue going towards health system.

Independent tax expert Geof Nightingale weighed up whether this proposal would bring in what Labour's promising.

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Episode Transcript

Speaker 1 (00:00):
Now there is some concern that Labour's capital gains tax
might not bring in as much money as they hope.
On the show last night, Nicola Allla said Labour's policy
was already falling apart.

Speaker 2 (00:08):
Based on their own statements today. They've based their costings
on the Tax Working Group proposal, and that proposal, if
you sold a property and received a gain on it,
you would pay a tax. What he said in your
interview was if you sold a commercial property but you
then bought a new one, you wouldn't pay tax on

(00:30):
the previous sale.

Speaker 1 (00:31):
Now, Jeff Nightingale is an independent TAXIX but who was
actually a member of the aforementioned Tax Working Group. Hi, Jeff,
hi ever is Nicola writer. She got a point there.

Speaker 3 (00:41):
Well, I think she's got a point in the sense that,
as I understand it anyway, Labour's proposal has this thing
called rollover relief in it because it's modeled on the
Tax Working Group, and we had proposed rollover relief for
small businesses businesses the turnover of less than five million
who were selling business assets to reinvest in the business.

(01:04):
You need to do that to preserve economic growth and things.
So I think she's right on that perspective. But what
I also understand those Labour's done its own costings of
the revenue that they propose, and they've included all the
assumptions are the design assumptions and that revenue costing. So
to that extent, I suspect they are standing. They'll stand

(01:26):
by their numbers.

Speaker 1 (01:27):
Okay, so they are forecasting an average of about seven
hundred million dollars being brought in over the first four years.
That sound about right to you, And you know, having
what one point three billion in the first on year four,
does that sound right?

Speaker 3 (01:40):
Yeah? Look it does sound about right. Look, look you've
got to realize there's are forecasts, right and the one
thing you know about them is they'll be wrong. But
when so labors CGT policy is modeled on the minority
view of the Tax Working Group. There was a minority.
I was in the majority, eight out of eleven was

(02:02):
voted for a comprehensive capital gain tax. A minority of
three put up and said, let's just extend it to property.
And in that minority report they said that residential property
will be about thirty nine percent of all revenue forecast
for the capital Gains tax, and Treasury in twenty nineteen,
long time ago, it suggested that after ten years, the

(02:24):
comprehensive capital gains tax might be six point two billion
of revenue per annum after ten years and thirty nine
percent of that's a couple of billions, So Labour's estimate
of a billion after four years doesn't seem out of
skew to me.

Speaker 1 (02:39):
Now, yesterday Chiulpy said to me, it's not inflation adjusted?
Should it be?

Speaker 3 (02:45):
Yeah, I heard that. It's a great question in theory.
Yes it should be, because we should be taxing inflationary gains.
We should only be taxing real gains. But introducing inflation
adjustment is really difficult and produces real complexity. So what
most jurisdictions around the world do is either discount the

(03:06):
rate to allow for inflation, or only include part of
the game as a proxy really for inflation. So you know,
you could argue that at twenty eight percent, it's already
a slight discount for an individual or a trust whose
top rate is thirty nine, but it's not a discount
for companies.

Speaker 1 (03:23):
No, And I mean, geez, it's not much of a discount,
is it. Would you do if you had if you
designed it to account for inflation.

Speaker 3 (03:30):
Well, when we did the working group, we didn't. We
recommend it not to account for inflation, and the reason
being that we come off of this period of historically
low inflation, but as we've seen in the last couple
years of inflation can get away and make a hell
of a difference. So I do think you need to
in principle account for inflation. It's probably too hard to
do it precisely, and a CPI adjust the cost base,

(03:53):
So it's probably best to apply some proxy and discount
the rate or discount the rate of inclusion of the
capital gain in order to say we recognize it. It's
a pretty rough measure, but it does recognize inflation if
you do that.

Speaker 1 (04:06):
Jeff, what does your gut tell you? I mean, it
looks to me like this is a trojan horse, right,
because I don't really understand what the point is in
bringing in a tax or introducing at tax to bring
in review and immediately spending the vast majority of what
it brings in on something that we don't need right
as widespread as free GP as its for. So would

(04:26):
you say, looking at that that this is just the
startup something and it expands from there, and it's being
something more comprehensive, like what you'd like.

Speaker 3 (04:35):
Yeah, I think some people will see it like that.
I mean, this approach is consistent with what New Zealand
has done for capital gains all along. It's coherent with
our current policy. So we don't have a comprehensive capital
gains tax, but we do tax some capital gains where
they occur systematically and they start to look like income.

(04:56):
So we tax financial arrangements, we tax property developed, we
tax payments around leases, and so we fire rifle shots
in law at these things. And this is another rifle shot.
It's not a broad base yet, but you know, some
people will see it as a we'll start here and
then we'll add some more asset classes in. And in
fact that that was what the minority report of the

(05:16):
Tax Working Group said, only add asset classes in as
you can justify that the revenue will outweigh the complexity
in compliance costs.

Speaker 1 (05:24):
Jeff, it's good to talk do you. Thank you so
much for your time in your expertise. Jeff Nightingale, independent
tax expert and former member of the Tax Working Group.

Speaker 3 (05:31):
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