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Political Roundup: Has the Government lost the public debate on the capital gains tax?

Perhaps the public has looked at the Tax Working Group proposals for a capital gains tax and come back with a “no”. Certainly, the opinion poll published last night about the tax proposals looked quite definitive – the headline for Tova O’Brien’s Newshub scoop was: Large majority of New Zealanders don’t want capital gains tax – poll.

According to Newshub, a poll by Reid-Research – the polling company contracted to TV3 – “shows an overwhelming majority of voters – 65 percent – don’t think a CGT should be a priority for the Government. The poll found that just 22.8 percent think it should be a priority.”

More importantly, nearly 50 per cent opposed a capital gains tax on housing (with the family home exempt), against 39 per cent in favour. On the issue of businesses and farms being included, 54 per cent disagreed and 32 per cent agreed. And 69 per cent disagreed with a tax on shares, and 90 per cent disagreed with another tax on KiwiSaver.

Based on this poll, Newstalk ZB’s Mike Hosking has come out this morning to say the Government will ignore this poll at its peril: “If these numbers don’t wake them up, it might well be the break National have so badly been waiting for” – see: Numbers don’t lie, time for the Government to wake up over CGT.

In particular, Hosking says, it’s New Zealand First who will be most concerned: “these numbers, I would have thought, are about the final nail in the coffin for New Zealand First, who most see as the moderator of any excess that comes out of the Cullen report. If they weren’t hesitant to sign up before, surely the polling we’ve seen now is about as rock solid by way of proof as you could ever possibly want.”

Business NZ’s questionable data

However, Newshub’s Reid-Research poll wasn’t actually commissioned by them, but was instead paid for and set-up by Business New Zealand, a lobby group which is strongly opposed to the introduction of the full capital gains tax proposals. And, as always, the polling questions help determine the type of data produced.

So not only did Newshub report the survey in a questionable way, but the actual survey questions are rather unusual. For example, the headline figure is based on whether New Zealanders see the capital gains tax proposals as a priority. It is a useful question, with useful results, but it’s far from indicative of whether New Zealanders oppose the proposals.

Likewise, questions about whether the issue has harmed the government – 48 per cent say it has, against 33 per cent who say it hasn’t – are interesting, but not entirely useful. Similarly, it’s difficult to interpret the fact that 25 per cent of respondents say the issue would change how they vote, against 58 per cent who say it wouldn’t.

In general, when looking at the poll results, keep firmly in mind that the source is a lobby group with an interest in slanting the results a certain way. Similarly, the business group recently released research to show “estimates the ‘economic drag’ over the first five years of the proposed CGT regime at between $2.75 billion and $6.81b” – see Liam Dann’s Capital Gains Tax could cost NZ economy billions – Business NZ.

The head of Business NZ, Kirk Hope, explained that these concerning figures had been independently assessed by economists, and that the assumptions and estimates were actually “conservative” – i.e. the real figures are likely to be worse. However, this is all strongly challenged by Tom Pullar-Strecker in his article, What’s behind BusinessNZ’s claim CGT would cost $5 billion?

It turns out that many of Business NZ’s claims are less than rigorous. In fact, one of the economists, Chris Evans, who is cited as emphasising the likely high compliance costs of the new tax has been quoted out of context. Evans actually said “that the compliance costs would not be excessive”, and Pullar-Strecker reports his belief that the proposed CGT “would compare favourably with those in other countries, including Australia”.

Pullar-Strecker concludes his investigation into the lobby group’s report stating “BusinessNZ says it wants to start a debate, accepting its numbers aren’t perfect. But its figures may be better viewed as politicking dressed up as a study.”

This doesn’t mean that Business NZ are the only ones who might be accused of massaging the figures and evidence to suit their own arguments. Even the Tax Working Group and Treasury are being criticised for their questionable use of wealth inequality data to make their arguments in favour of change – see Troy Bowker’s Why argument of Capital Gains Tax fairness is based on unreliable data.

According to Bowker, the CGT report was based on wealth statistics gathered by Statistics New Zealand, which were used to show that few New Zealanders would be subject to the new taxes. However, “By the Department of Statistics own admission, it contains data that is so unreliable they cautioned against its use.”

Other capital gains tax surveys

There has been some other public polling about the tax proposals that provide additional and alternative information. The most recent was published just over a week ago, by the Horizon Research company, and this is best covered by Liam Dann in his article, More Kiwis support capital gains tax than oppose in new poll. Most notably, this survey showed much stronger support for the tax proposals: “44 per cent of New Zealand adults supported introducing a capital gains tax and 35 per cent opposed it. A further 16 per cent are neutral on the new tax, while 6 per cent did not know.”

This poll was particularly interesting and useful, because it also indicated how different voters and asset-owners felt about the proposals. Here’s the different political party supporters in favour and against: Labour (60 per cent support; 14 per cent oppose), National (23 support; 62 oppose), Greens (75 support; 14 oppose), and NZ First (30 support; 55 oppose).

In terms of asset owners: those with shares (56 per cent oppose), with rental properties without a mortgage (66 oppose); with rental properties with a mortgage (74 oppose); and those with farms or large lifestyle blocks (90 oppose).

Some farmers are actually showing increased support today for a capital gains tax on farms, particularly when the asset is brought and sold in a short space of time. Newshub reports today that “Federated Farmers vice president Andrew Hoggard told Newshub people’s gains from quickly selling on farms need to be targeted first” – see: Farm flippers should be taxed – Federated Farmers.

It’s also interesting to look at a survey of business owners, which was carried out by the MYOB company, and showed that opposition from this sector wasn’t as clear as might be assumed: “Most business owners are against a capital gains tax but a survey found fewer than half were strongly opposed and a fifth were supportive” – see Tom Pullar-Strecker’s Capital gains tax compromise inevitable, accounting body believes.

This article shows that “Backing for a CGT was strongest among ‘Gen Y and Z’ business owners – with more than a quarter of them happy to stomach the tax – and from business owners in Wellington, while ‘baby boomers’ were more likely to be opposed.” In addition, research in New Zealand from the Certified Accountants Australia found that “there was a minority of business owners who did not like a CGT but who felt it would be necessary to meet the country’s future social and economic challenges”.

New public debate on CGT

A new campaign was launched yesterday to provide a pro-CGT perspective in the current debate. The Tax Justice Aotearoa launch at Parliament is best covered by Tom Pullar-Strecker, who points out that “Much of the lobbying over a CGT to date has come from groups opposed to the tax, which include the Taxpayers Union”, and the new campaign is meant to even up the disparity – see: CGT supporters and Taxpayers Union take tax wrangle to Parliament.

The article reports concerns about the political independence of the new campaign, as well as whether taxpayer funds are being used to assist it, especially because of the involvement of the Public Health Association, which receives funding from the Ministry of Health. The article reports: “PHA chief executive Prudence Stone clarified it had not provided any cash or resources for Tax Justice Aotearoa to date but did not rule out doing so in future.”

The campaign has established a petition: Tell Jacinda we want a capital gains tax. It’s time to join the modern world, which currently has 1,200 signatures.

Although Tax Justice Aotearoa’s petition appears to implicitly support the Government’s Tax Working Group proposals for a capital gains tax, including the exemption of a family home and the package being fiscally-neutral, two of the campaign’s organisers explain in more detail their advocacy of tax reform, which involves going further than what is currently proposed – see Paul Barber and Louise Delany’s Why we’re shouting about a capital gains tax.

In line with some of these messages, it’s also worth reading today’s opinion piece by Alison Pavlovich who emphases some of the selling points she believes are missing from the debate on the current proposals, such as the importance of equity in the tax system, and pairing of tax cuts with the CGT – see: The point being missed in the capital gains tax debate.

Finally, for humour on the tax proposals, see my updated blog post, Cartoons about the proposed capital gains tax.