Election 2023: Labour's Chris Hipkins rules out wealth tax, capital gains tax

Labour leader Chris Hipkins has ruled out a wealth tax or a capital gains tax for after the election.

It comes as new Budget documents reveal the Government considered - but didn't go ahead with - a tax switch that included a tax-free threshold and a wealth tax.

National leader Christopher Luxon is calling it "cynical politics", while Greens co-leader James Shaw said only the Green Party is standing for progressive change.

In a statement on Wednesday morning, Hipkins said he wanted to deliver certainty and continuity.

"I'm confirming today that under a Government I lead there will be no wealth or capital gains tax after the election. End of story," Hipkins said. 

"With many Kiwi households struggling, now is simply not the time for a big shake-up of our tax system."

The Labour leader said that when he became Prime minister in January, he said he wanted to lead a Government focused on the basics.

"Experimenting with a wealth tax doesn't fit that approach which is why I’m ruling it out. My position on CGT is a continuation of the position the Government has held since 2018.

"While work was already underway on a potential wealth tax and CGT as part of a tax switch in the Budget I ultimately made the call not to proceed with it. We simply didn’t have a mandate to implement those tax changes."

Hipkins said further details about Labour's election tax policy would be released soon. 

"New Zealanders can be assured the Government I lead is listening and will be focused on making life a little easier without implementing big uncertain changes."

The announcement from the Labour leader comes as the Government releases documents developed as it put together its Budget. 

One of the documents shows it was proposed the Government could introduce a $10,000 tax-free threshold, which was estimated to reduce individuals' tax bills by up to around $20 per week. There also could have been a $10 per week increase to main benefits and an additional $10 per week for main benefit recipients with children. 

Other proposals for personal tax changes included an increase to the bottom threshold of the 30 percent personal tax rate from $48,000 to $50,000, costing about $600 million per year.

However, these changes would have come alongside a new net wealth tax. This 1.5 percent tax would have applied to net worth (assets less liabilities) over $5 million, catching about 46,000 New Zealanders. It wouldn't have applied to the family home and some other personal assets. It was forecast to collect $3.4 billion in 2024/25, increasing to $3.7 billion in 2026/27.

The costings of the Government policy, before it was ditched.
The costings of the Government policy, before it was ditched. Photo credit: Treasury.

"Work was undertaken on a range of proposals for a tax switch, particularly based on a revenue-neutral switch that would have seen a tax-free zone created of up to $10,000, funded by increased tax on the wealthiest New Zealanders," Finance Minister Grant Robertson said.

"This work began in 2022, but ultimately the decision was made not to go ahead with it given the significance of the change in difficult and highly uncertain economic conditions."

Robertson said Cabinet agreed to raise the trustee tax rate to align with the top tax rate of 39 percent. He said this would bring "more fairness and equity" to the tax system and in line with other countries. It also "removed the risk of trusts being used to avoid paying tax,” Grant Robertson said.

"We also considered a levy on the excess profits of banks in order to assist with the rebuild costs from the North Island weather events. There are many pros and cons with a proposal like this, but ultimately we did not progress this idea as there was enough space in the Government accounts to manage the recovery and rebuild without it."

The new documents reveal officials recommended against progressing with a wealth tax for Budget 2023.

Advice presented by Treasury to ministers in March on a wealth tax shows officials believed it would have met the Government's objective to raise revenue to fund personal tax cuts and make those with higher wealth pay more.

However, it would have come with "economic and integrity costs". 

"While there is uncertainty over the costs of the tax, these could be large. Some of these economic costs are inherent to any tax increase, but some are due to the nature of the wealth tax. Your decision on whether to progress with the wealth tax will depend on the weighting of your distributional objectives."

Other options, like a capital gains tax and inheritance tax, would also meet the Government's objectives "at lower economic and integrity costs". These are "common in OECD countries and would raise revenue from high-wealth individuals with significantly lower economic costs".

A wealth tax is being proposed by the Green Party as part of its income guarantee package. 

It would cost about $11b and includes a tax-free threshold of $10,000, further adjustments to tax rates resulting in anyone earning under $125,000 receiving a tax cut, a replacement to the Jobseeker benefit and Working For Families, and payments to all tertiary students.

To pay for it, the Greens proposed a wealth tax on net wealth over $2 million for individuals and $4 million for couples. A trust tax of 1.5 percent would be introduced, while the corporate tax rate would be hiked from 28 percent to 33 percent. A new top-income tax rate of 45 percent would be applied to any income over $180,000.

James Shaw, the Green Party co-leader, on Wednesday, said Labour was sending a message that New Zealanders need to vote for the Greens to get progressive change.

"Households are struggling, our tax system has never been more unfair, and the solutions have never been clearer. The time for tinkering is over, the time for political courage is now - the only option this year is the Green Party," said Shaw.

"Everything we need to make life better for people in Aotearoa exists. What’s missing is the political willpower to use it. So, my message today is clear: if people want a government that will build an Aotearoa that works for everyone and a fairer tax system to pay for it, then we need more Green MPs."

He said it's up to the public to decide what happens before and after the election.

"Nothing Labour says now will stop the Green Party from fighting for a fairer tax system."

National leader Christopher Luxon reacted on Twitter by calling it "cynical politics".

"It's been confirmed Labour was plotting a wealth tax or capital gains tax for months. Now, Chris Hipkins is desperately trying to rule them both out - it's cynical politics. You can’t tax your way to a strong economy. National will reduce the tax you pay - it’s part of our plan to fix the economy, lift incomes and solve the cost of living crisis." 

In a statement later, Luxon said Labour couldn't be trusted on tax. 

"The Coalition of Chaos is plainly divided on tax, with the Greens hugely in favour of wealth taxes and Labour fighting internally over them.  The chaos has come before the coalition. There is division within the parties on the Left, and between them on this core aspect of economic policy."

ACT leader David Seymour said he believes the Greens and Te Pāti Māori could still force Hipkins to introduce a capital gains tax.

"Hipkins’ arm wouldn’t be that hard to twist. He’s on the record wanting a CGT, the only reason he’s saying this now is that he wants to be elected in October more."

A Newshub-Reid Research poll in May revealed that 53.1 percent of New Zealanders supported the Government introducing a wealth tax, while 34.7 percent opposed it.

A report released by Inland Revenue earlier this year found the effective tax rate paid by New Zealand's wealthiest families is less than half of that of middle-income Kiwis.

This is because wealthy families "got most of their economic income from increases in the value of businesses, property and financial portfolios they own or control" - that's capital gains - rather than from a salary or other personal taxable income.

The capital gains are mostly not taxed, bringing down the effective tax rate paid by the families.

After being elected Labour leader Hipkins said the Government should "always look at how we can make the tax system fairer". 

"I think overall there are some New Zealanders who perhaps aren't contributing their fair share [of taxes]," he said.

Hipkins has also said there will eventually need to be adjustments to tax thresholds due to wage inflation, just not yet.