Tax changes: What's been suggested so far?

Tax is back on the table this election, and a number of parties are proposing new taxes that could be levied on New Zealanders.

But what are they, and do we need them?

Here's a rundown of what's been discussed.

Capital gains tax (CGT)

Labour revealed early on that it would campaign on a narrow capital gains tax, covering residential and commercial property but excluding the family home and farms.

It said this would raise revenue to fund three free doctor visits a year for all New Zealanders. It would be applied at a rate of 28 percent.

There would be no tax on any gains made before 1 July next year.

Westpac chief economist Kelly Eckhold said a CGT had become a relatively mainstream idea. "The devil is in the detail on these things … but I've never thought that a capital gains tax is particularly difficult, at least applied to property when you've sold it, on realised gains. It gets more complicated if you want to apply it more broadly."

He said if there were a lot of exemptions from a capital gains tax, it could become more difficult to convince people it was fair.

But he said New Zealand was unusual in not having a CGT. "The tax treatment of property here is relatively advantageous compared to most jurisdictions where there would be some sort of capital gains tax."

Simplicity chief economist Shamubeel Eaqub said the whole tax system needed a rethink, and a move away from such heavy reliance on income taxes.

"I think the reliance we have on income tax and GST at the moment is increasingly regressive. I think we need to start moving away from that. You can only do that if you tax all forms of income including income from capital. Most income from capital is already taxed. So for example your KiwiSaver income is taxed, so it's only around land, farms, property business."

Land value tax

The Opportunity Party proposes a 1.75 percent annual tax to the value of urban land and 0.5 percent on rural land. It says deferrals and exemptions could apply to farmers and retirees who are "land rich, cash poor". It would use the tax to fund a citizen's income of $19,400 for each adult.

Eckhold said the challenge would be that it was potentially being charged when people did not have the money coming in to pay it. "In that sense I guess it isn't dissimilar to residential rates because you have the same challenge with residential rates, don't you? If you're a retired person, you don't necessarily have as much income coming in each year to pay for those."

Simplicity chief economist Shamubeel Eaqub said a low-level land tax would make sense because it could not be dodged, although he was not necessarily endorsing a land tax in the Opportunity form. "That's the cleanest, most fair, efficient kind of tax we can use."

Eaqub said any decisions about tax would need to be politically enduring through economic and political cycles. "I don't think we're there yet. So there's a difference between what I think should happen versus what I think is likely to happen."

Capital acquisition tax (CAT)

The Green Party would implement a capital acquisition tax on assets and gifts worth more than $1 million, except for family farms and family homes.

Deloitte tax partner Robyn Walker said this was essentially an inheritance tax.

"I am not sure whether the new name of capital acquisitions tax is a branding exercise on the basis that the term 'inheritance tax' tends to get a bad reaction. If there were to be a CAT put in place, the policy document indicates that there will be some exemptions, which may result in estate planning becoming more popular.

"In particular an exemption when passing down the family home provides the 'feel good factor' that a child wouldn't be forced to sell their family home to fund a tax liability, it does provide an incentive to keep wealth tied up in houses (this outcome may also arise under the Labour CGT, where inherited properties remain exempt from the tax).

Eckhold said the challenge with asset taxes was that tax base could move and make it harder to tax. "The tax base can disappear on you. There may be some challenges in being able to value it as well.

"In the UK they have an exit tax, so if you were going to sell or leave the country to avoid the tax, they would tax you on exit anyway. But these will get progressively more complicated, potentially undesirable. That's the problem with taxing wealth as opposed to immovable things like land or income or GST for that matter."

But he agreed with Eaqub that the tax base needed to be extended. "If we're getting into the 2030s and beyond, the combination of increasing healthcare costs, superannuation, basically means we're going to need a whole range of tools to be able to stabilise the fiscal situation. I'm sure part of that is going to be taxation.

"I've never seen a tax that's been proposed that everybody has said yeah that's great. Inevitably, in this debate, when you're talking about raising additional tax revenue, you're going to have some winners and some losers. The challenge is setting it up in a way that's reasonably efficient, that doesn't drive behaviours that are detrimental to the economy."

A tax-free threshold

The Greens would also introduce a tax-free threshold of $10,000 and introduce a new higher tax rate for income over $160,000. NZ First has also previously proposed similar policy.

Australia has a tax-free threshold of $18,200.

Walker said it was an appealing idea but it could be expensive. "You're foregoing tax on the first dollar that everybody's earning … so while it's being compensated [in the Green plan] by increasing the top tax rate to 45 percent for those earning $160,000 and over, everybody is still getting that first $10,000 free of tax. It adds up to a big number quickly. "

Children would benefit from a tax-free threshold but most other people would earn some income that would be taxed.

She said she felt there was enough tax being collected for current spending. "All of the analysis around how the world will look in 2065 if we don't change anything would indicate we don't have enough tax in the future. That's more saying we need to make some incremental changes in all sorts of settings between now and then."

She said it would be interesting to see how Treasury's forecasts might change with a higher KiwiSaver contribution rate.

Super rich tax

The Greens would introduce a 2.5 percent tax on net assets above $10m, with an exemption for the family home.

Walker said this replaced the wealth tax proposed at the last election and was more limited in its application because it only kicks in at $10m of individual assets, compared to $2m in 2023.

"With that said, wealth taxes will not be popular with many New Zealanders. As a new form of tax, it is likely to be complex to design and implement, with the fiscal plan indicating it would be in place from mid-2027. While there was some initial design work undertaken on a wealth tax for Budget 2023, which was abandoned, it was clear from the papers released in 2023 that it was not a simple tax."

The Green Party would also return the corporate tax rate to 33 percent for the biggest corporations. Walker said that would make New Zealand's rate high by international standards. "I think 21 percent is the average company tax rate globally. So we're already at the high end being 28 percent."

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