The New Zealand government has abandoned plans to impose a capital gains tax (CGT) due to lack of public support.
Prime minister Jacinda Ardern ruled out a CGT under her leadership, saying that no consensus was able to be reached within the government, despite being one of the main issues she campaigned on with the view that it could make the nation's taxation system fairer.
The CGT was recommended in February by the Tax Working Group, which the government spent NZD$2m on to review inequities in the nation's taxation system. The proposed capital gains tax covered assets such as residential rental homes, investment properties, land and buildings, business assets, intangible property and shares.
While I have believed in a CGT, it’s clear many New Zealanders do not. That is why I am also ruling out a capital gains tax under my leadership in the future"
"I genuinely believe there are inequities in our tax system that a capital gains tax in some form could have helped to resolve. That's an argument Labour has made as a party since 2011," Ardern said.
But due to no consensus being reached within the Coalition government and poor public support, the CGT proposal was abandoned.
The surprise decision went against the position Ardern's Labour Party had taken for more than a decade.
"After almost a decade campaigning on it, and after forming a government that represented the majority of New Zealanders, we have been unable to build a mandate for a capital gains tax," the prime minister said.
"While I have believed in a CGT, it's clear many New Zealanders do not. That is why I am also ruling out a capital gains tax under my leadership in the future."
The proposed capital gains tax covered assets such as residential rental properties, land and buildings, business assets, intangible property and shares.
Ardern came to power in 2017 promising to pour money into social services and rein in economic inequality. Her government has lifted minimum wages and boosted benefits for poor families but business confidence has been sinking.
The debate over the new tax has been raging for months, with government critics and some property experts warning that it could hurt the housing market by compelling some investors to sell to avoid the tax.
One of the arguments against introducing a capital gains tax was that it had not worked in overseas markets.
Across the Tasman, the Australian Labor Party's proposed housing affordability plan to limit negative gearing to new housing and reduce the capital gains tax discount from 50 per cent to 25 per cent has been met with strong criticism.
New modelling from the Property Investment Professionals of Australia (PIPA) found that by limiting negative gearing and reducing the CGT discount, the government would lose NZD$32bn in revenue over 10 years.
PIPA chairman Peter Koulizos said that the research found that Labor's assertion that their policy would save NZD$32bn over a decade was a "flight of fancy", claiming that the reverse would be true if investors are driven out of the market.
"Investors already pay almost four times in capital gains tax what they receive in negative gearing benefits over a 10-year period, so the government is already ahead financially," Mr Koulizos said.
Industry pundits have also warned that Labor's proposal would exacerbate the fall in dwelling values, with the data from property research group CoreLogic revealing that national home prices fell by 7% in the year to 31 March 2019.
BusinessNZ chief executive Kirk Hope said a CGT would have hit businesses hard, reducing funds available for investment and job growth and increasing their compliance burden.
"Our members have been very clear that they did not see the justification for an expensive new tax that would have reduced the competitiveness of the New Zealand business sector for no discernible gain."
Bridges said the Government had dropped its "flagship tax policy" but still had a range of taxes on the table.