In the debate that will rage around Labour’s tax policy announced today it is important to recognise and focus on one thing: Our economy is in crisis. It remains dangerously reliant on the primary sector, despite efforts to create a diversified export economy. Our tax system distorts the economy by discouraging investment in the productive sector while encouraging non-productive property investment. We continue to fall behind Australia in productivity and income levels, and housing has become unaffordable to ordinary New Zealanders. We are falling far short of the prosperous future our parents thought their children would enjoy, and something needs to change.

First and foremost, Labour’s Capital Gains Tax policy is designed to address this situation. Alongside already announced policies – such as the re-introduction of Research and Development tax credits and broadening the tools available to the Reserve Bank to control currency fluctuation – Labour's tax package hopes to rebalance our economy and encourage the channelling of investment in to businesses that will earn us export dollars. Without those dollars, we have no prosperous future.

That is the context in which Labour’s policy must be judged.

Labour’s tax policy will see the introduction of a Capital Gains Tax, with the following features:

·Capital Gains taxed at a flat rate of 15%

·It will only cover future gains from the date of the legislation being implemented.

·The CGT will apply to all capital assets including shares, secondary properties, businesses and farms

·The CGT will recognise the special status of long-held, owner operated small businesses. Someone aged 55 or over who has held their personal business for 15 years or more gets a tax-free exemption for their first $250,000 of capital gains.

·A small, owner-operated farm qualifies for this exemption. Labour has removed the special privileges usually granted to farmers in New Zealand by treating small businesses and farmers alike in the application of the $250k exemption.

·The CGT will not apply to the family home or the residential property on a farm

·Traders income from the sale of shares will be traded as total taxable income and will be taxed at the applicable marginal tax rate

·The CGT will not be applied to personal assets such as cars and personal artwork

·The Capital Gains Tax will be paid upon the sale of assets in the case of inheritance rather than on the transfer of assets.

·It will be exempt on all real estate, land and buildings within the Canterbury CERA area for at least five years.

·You will be able to carry forward losses on assets and count those against future capital gains.

At its core this is a plan that recognises the need to create a diverse export sector and the Government’s role in creating the right environment for such businesses to flourish. Phil Goff says that: “It’s about promoting investment in the productive export economy where wealth and jobs are created, not in the speculative economy where the only thing that is created is inflation”.

A CGT will encourage more investment in the productive economy by reducing the tax advantage from investing in property. That’s no bad thing and exactly what our economy needs.

A CGT will also help prevent income earners from escaping their tax obligations through the reclassification of assets.

Labour has, as expected, said it will raise the top tax bracket from 33% at $70,000 to 39% at $150,000. That’s a tax that will hit only 2% of the population and is lower than in Australia. Offset against this is the plan to make the first $5000 of income tax-free.

But both parties know we need to repay debt and the money has to come from somewhere. With gains from the CGT taking a long time to kick in, Labour has turned again to the top income earners. National for its part sees asset sales as the answer. Neither plan is desirable, but Labour’s leaves us with the assets. While you can alter a tax rate at a later date, you cannot buy back State assets once sold, and the history of State asset sales in this country is undoubtedly one filled with regret.

The introduction of a Capital Gains Tax will help raise revenues to plug our fiscal deficit and will help New Zealand retain its productive assets. Labour’s policy will retain SOE ownership, which is better for long-term growth prospects, will reduce our debt and encourage diversification of our economy.

The R&D tax credit is crucial to this plan. Many New Zealanders may not understand just how crucial it is but if we ever hope to pay off our huge foreign debt while lifting the average wage of New Zealanders then it will have to come through increasing the value of the productive economy. Of equal importance is the plan to give the Reserve Bank the tools to better harness our wild exchange rate, so that exploitation of our dollar does not continue to crush our exporters.

It’s also important to note that there is nothing radical in introducing a CGT. Labour’s CGT reflects existing Capital Gains Tax systems in like-minded countries such as Australia, the United Kingdom and the United States. The structure and rate of Capital Gains Tax provided by Labour’s Tax package makes it comparable to successful systems in other like-minded countries.

Indeed, the repeated mantra since news of this broke has not been that CGT is a bad idea, but that it is “political suicide”. Labour is putting two unpopular measures – the CGT and the high top tax rate – on the table because it knows there are no easy solutions.

We all, to some extent, operate out of self interest. To date, National’s policies have pandered to the individual’s self interest at the expense of the national interest. Labour’s policy is the opposite. Those who put their own interests first should stop and think hard about this: no one’s interests are served by having our economy continue its downward slide. Labour has seen a future it wants to create. National appears to see only a past it wants to preserve. New Zealand was created by people who came here looking for a better future. As a nation we need to continue that journey.

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