The NBR has interviewed tax experts who say that Labour’s expert panel couldn’t sort out the complexities of the CGT in time to prevent a revenue hole.
The print edition has fuller coverage by Rob Hosking which says that wishful thinking and invention play too large a part of Labour’s fiscal policies.
. . . The questions do not just involve the much discussed capital gains tax – although this certainly features prominently.
Also under question are assumptions about an unspecified tax crack-down which is supposed to net $200 million ain extra tax revenue a year.
But more critical is the framework of all this – something highlighted by Labour leader David Cunliffe’s floundering response to a challenge by Prime Minsiter John Key in this week’s leaders’ debate in in Christchurch . . .
One over-riding problem with the plan is the need for the panel to resolve technical issues and tax changes ready for the next financial year.
“I just can’t see them being able to do that,” says Ernst & Young tax partner Aaron Quintal. . . .
Deloitte technical director of tax Robyn Walkers . . . also warns the capital gains tax could be higher than Labour is promising. . .
Labour’s policy is for 15% CGT but the Green and Internet Mana parties want it to be levied at the individual’s marginal tax rate which will mostly be the top one.
The other question that could affect that narrow surplus target is promises for even bigger tax crack-downs that Inland revenue has been running in recent years.
Labour’s budget plan involves an assumption this crackdown will bring in $200 million a year in tax revenue.
“That is just a made-up figure says Deloitte tax specialist Alex Mitchell. . .
The other ‘revenue hole’ comes back to the capital gains tax and this is to do with the gap between rhetoric and the reality of such a tax.
The political and emotional attraction of a CGT is that it will combat inequality but it doesn’t gather enough to do that.
“Capital gains taxes do not raise much revenue,” Mr Quintal says. “In the UK it is around 1% of the tax take: in Australia it is half of 1%. . .
” . . . In New Zealand realistically we are only looking at something around $500 million a year probably.
“That is not going to do what they say it is going to do.”
The $200 million in extra revenue isn’t the only thing that’s been made up, so is the assertion that IRD have been consulted on the CGT.
Duncan Garner asked David Cunliffe if he’d consulted the IRD on Labour’s capital gains tax.
Cunliffe said he hadn’t personally but the party had.
Garner asked IRD and got a response saying they’d had no discussions on it:
Labour’s big spending promises are based on more and higher taxes based on rhetoric which won’t be matched in reality.
That would be bad enough if the party was able to govern alone. The higher spending and tax policies of the mis-matched group of parties it would need to from a government make the outlook under a labour-led government even more dire.
If the numbers don’t stack up nor will any of the other policies which depend on them.
John Armstrong says Labour is the living dead after its tax fiasco.
It’s suffering from a variety of self-inflicted wounds, not least of which is that its numbers don’t stack up.