The government’s Tax Working Group has released its much-awaited interim report to give Kiwi-voters the first-insight on how they are shaping their recommendations for New Zealand’s tax system – and the first look suggests that it is an exercise to present the tax on capital gains in a palatable manner to the voters.

For capital gain – is a rise in the value of a capital asset (investment or real estate) that gives it a higher worth than the purchase price – and the issue of taxing capital gain is one important area that political parties struggle to present to voters in a palatable manner that they escape from being punished at the time of election.

The issue of tax on capital gains will be an important issue in the lead up 2020 election.

Earlier the government had constituted the Tax Working Group under the former Finance Minister and Deputy Prime Minister Sir Michael Cullen with a mandate to provide recommendations to Government on NZ tax system by February 2019.

It sought input from a diverse and range of New Zealanders and ran a two-month public consultation between March 1 and April 30, 2018.

Towards this goal, the tax working group has released their first interim report on Thursday, September 20.

The interim report falls firmly in favour of broadening the existing narrow range of capital gains taxes to capture profits on the sale of a far wider range of assets than the current tax regime.

“We see clear opportunities to improve the balance of the system by introducing environmental taxes, while measures to increase tax compliance would increase the fairness of the system. We have also identified important issues regarding the treatment of capital income in the tax system,” Sir Michael said.

It is most likely that one’s reception of this interim report will depend upon how they are placed on the property ladder.

The chances are that if one is not yet on the property ladder, they might be okay with the first indications in the interim report, which is shaping up the tax on capital gains, whereas if one is on the extreme end of the property ladder, the chances are that they might find it less palatable.

Any increase in capital gains tax dampens the profits to be had from property investment and is therefore unpopular with landlords. And contrastingly, those who are not yet on the property ladder are warmer to the ideas promising more fairness in the distribution of wealth and equality in society.

Anticipating that challenge Finance Minister Grant Robertson has quickly instructed the working group to produce a final package of recommendations that "could" raise no more revenue that the tax system does today.

Also, the Tax Working Group has made it clear that the family home is already excluded from any consideration of a capital gains tax.

 “The Government has always been clear that no changes will be implemented this term and that there are key bottom lines. In particular, the family home, increases to income tax and GST, and an inheritance tax are off limits,” Finance Minister Grant Robertson said.

Indeed the government is treading the path cautiously.

However, it will be a challenge for the government to make sure that the message is delivered in a palatable manner so as not to invite voter’s wrath at the time of next elections, especially when the main opposition party and other detractors of the government are waiting for government to falter on this significant matter to New Zealanders. 

For now, it seems government is ticking all boxes, but the journey ahead is arduous and tricky.