'THE NATION'
BILL ENGLISH
Interviewed by DUNCAN GARNER

Duncan Well Labour says its tax policy is broad based, comprehensive and fair to all New Zealanders. National says it will take the country backwards, hype taxes and spending, and see borrowing rise for the next eight years. I've been talking to Finance Minister Bill English, and I started by asking him given most OECD countries have a form of Capital Gains Tax, and given the Treasury, the OECD and the IMF all recommend one, why don’t we have one?

Bill English – Finance Minister
Well look we just have our own tax arrangements and they're different in a number of respects from other countries. Generally we've got a simpler tax system than most countries. The government had a look at CGT earlier on, but it didn’t fit within our package. We are currently taking about 800 million a year out of the property sector because of the decisions we made in Budget 2009. So we put in place tax measures that help to encourage the flow of investment into asset classes other than property, and we're satisfied with that result.

Duncan But we could do more though couldn’t we by moving money out of that property sector and into a more productive side of things by having a CGT. Do you accept that there's an argument for that?

Bill Well look there's some discussion about CGT. Some of the official advice that we got was that it was a good idea, but in the context of where the economy is right now we don’t believe that more tax and more debt is going to give us more growth. In fact that’s the problem from the last ten years that shrunk this economy. So our packages have been focused on reducing debt and reducing taxes.

Duncan Yeah but the problem also for the last ten years is that we over invested in housing, it didn’t produce much of a result, and now it's gone backwards. Do you accept that in some way we need to put more of our money into the productive sector and not into fuelling another housing bill?

Bill Oh I certainly think that and there's been a number of significant measures put in place to see if we can avoid that in another cycle. There's no sign of it right now I have to say. We're going through a pretty orderly adjustment in our housing market. Prices have dropped about 5%. Real prices have dropped about 15%. So we don’t see the need for further radical measures on top of what's now significantly increased tax take out of the property sector. Ironically the CGT will cut the rate for people who actually trade in property and shares, so the very speculators that Labour say they're after currently now pay full income tax rates on their profits, and that’s gonna be halved to 15 cents in the dollar.

Duncan But you're saying it won’t work at all?

Bill Well look it's a hodge podge of bits and pieces that are much more about Labour focusing on trying to stop the Greens get at their vote, and it's more of the same tax and spend. More taxes, more spending. Well that'll grow the government but it won’t grow the economy.

Duncan What did you mean when you said that it was theoretically the right thing to do. A Capital Gains Tax was theoretically the right thing to do, and that’s a direct quote of yours.

Bill Well a number of the – some of the tax policy specialists tell us – and have for a while – Treasury's believed for 20 years that some sort of comprehensive Capital Gains Tax would be the right thing to do, and by comprehensive they mean comprehensive, no exemptions for artists would you believe like Labour have put in place. No exemptions for housing. We certainly do not support that.

Duncan No but do you believe theoretically that a Capital Gains Tax is okay, that it is the right thing to do? What did you mean when you said that I suppose.

Bill Well that’s the advice that we've got from the tax theoretical policy makers. But the government's dealing in the real world with the economy as it finds it, and we believe we've made significant changes in the taxation of investment property. We're collecting about 800 million a year extra from the decisions made over the last couple of years.

Duncan You could collect a lot more though couldn’t you in the long term of 15 years out, by bringing in a Capital Gains Tax?

Bill Well that’s possible that Capital Gains Tax would collect more than 800 million a year, but take quite a long time to see whether that’s the case, and you'll see grow. You can see the political pressure already where Labour have had to create a number of exemptions for older small business owners, for people who buy art, various other categories, and that will just continue. So you do end up with a very complex system. Right now the economy's getting on its feet, we don’t believe more taxes or more debt which are the other result of that package, are going to grow the economy.

Duncan But where's the evidence that it would slow the economy, would it not just shift investment into other more productive areas. I mean Russel Norman said this to us last week, this is not a fiscal argument, it's an economic argument.

Bill Well no, it is a fiscal argument.

Duncan Well it is initially in those first give years because they go into debt.

Bill No, it's a fiscal argument because Labour have said this is all about Capital Gains Tax versus asset sales. Well if you look at their numbers, their package of the hodge podge of confusing tax changes, leaves out any income to cover the fact that they would not have the mixed ownership model and the partial sale of government energy companies. So they're going to end up billions short. They’ll have to borrow billions. So in the end it's a fiscal argument. If they can't get a tax package that fills that debt hole, that will be bad for the economy.

Duncan But what you're saying as National Party Finance Minister is that the sky would effectively fall in if Labour got to power and there was a Capital Gains Tax coming. I mean isn't that going a bit far?

Bill Oh no, what we've said is if that package was put in place New Zealand would end up with higher taxes, bigger spending, bigger government. That was the problem of the last ten years. We'd also have to go out into volatile international markets and borrow a lot more money. We're focusing on taking the opportunities …

Duncan Shouldn’t these people – and Gareth Morgan has said this to us in the last week or so, that the filthy rich are getting away with murder under the current regime because they're not paying their way. Shouldn’t they pay more, cos it looks like you're protecting them.

Bill No, well we agree that the rich should pay their way, and when we became the government we found a tax system riddled with loopholes, particularly because of the large gap between the two tax brackets.

Duncan And the loophole remains Minister, doesn’t the loophole remain by not taxing the profits, like Selwyn Pellet said, yes I know he's a Labour man, but he said yesterday of the eight million in shares that he sold, he didn’t pay any tax on it. Surely that’s wrong? Is it wrong?

Bill We believe we've taken the measures that are adequate measures to close the loopholes, and in fact this package as presented would open up a whole lot of loopholes.

Duncan Look is it wrong – just on the Selwyn Pellet issue, is it wrong that he didn’t pay any tax on eight million dollars' worth of sales of his shares?

Bill Well look I presume he followed the tax rules as they're laid down, and it's not a matter of whether it's right or wrong.

Duncan Morally then does it appear wrong to most New Zealanders that he's not paying any tax on that transaction?

Bill No I don’t believe it does appear morally wrong. I mean New Zealand wants to be a country that encourages entrepreneurs. If someone can start off you know with one shop or one van in their plumbing business and build that into a big business, I don’t think New Zealanders are envious about that in the same way that Labour hopes they would be.

Duncan Just final question. Will this stop a housing bubble. Would this stop a second housing bubble bringing a Capital Gains Tax?

Bill Oh well one of the problems – if you look around the world a whole lot of people who have got Capital Gains Tax like Australia had bigger housing bubbles than us. So no it doesn’t stop housing bubbles, but we believe we've taken sufficient measures and we're collecting about 800 million a year out of that investment property sector, and that is leading to a moderate adjustment in housing - which is what we need, we don’t want to crash the value of people's assets – and a redirection of investment into the productive sector.

Duncan Alright. Bill English, thanks for joining us on The Nation this morning.

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