In February 2019, then Leader of the Opposition Simon Bridges of the centre-right National Party responded to the Government’s freshly released Tax Working Group report, calling its centrepiece proposal of a comprehensive Capital Gains Tax (CGT) an ‘assault on the kiwi way of life'. This marked the beginning of the end for one of New Zealand’s biggest policy talking points of the last decade - whether, and how, to plug the gap in a tax system which taxes earnings from income, but not from assets. Bridges’ response was met with derision from progressives, but beneath it lie some important lessons for why such a reasonable and well supported policy has been so comprehensively thrown on the political scrap heap.

There is some truth to Bridges’ assertion, although perhaps not in the way he means. A CGT, particularly its application to gains from the residential property market, would attack a fundamental pillar of this country’s shameful wealth inequality - an ever more prominent feature of our “way of life”. The median house price in New Zealand has ballooned 20% in the year to October 2020, with the median price in Auckland hitting $1,000,000 for the first time, even under the chaotic economic conditions of COVID-19. The preference housing is granted under the tax system is perpetuating a cycle of asset price inflation and the continued commodification of housing. Even the economists of private banks are admitting that tax policy and cheap credit are an important factor of this crisis, rather than simply a lack of housing supply - the main reason cited by both major political parties. This all feeds a desperation to get onto the “housing ladder”; a socio-cultural pressure to “keep up with the Joneses” combined with the anxiety to avoid a life of tenancy in one of the world’s most hostile and unaffordable rental property markets.

But more significant than Bridges’ unintended description of the “kiwi way of life”, was his appeal to values of “fairness” and “hard work”, and his attacks on Labour’s politics of “envy”, which echo John Key’s attacks on Labour’s tax policies in previous elections. Bridges is appealing to ideas of freedom and fairness, and defining these ideas as New Zealanders’ material aspirations and the protection of their livelihoods from “envious” government tax policy. These values-based arguments are at the heart of people’s motivations around tax, and they can be deployed with effect from both the Right and the Left.

In April 2019, following the release of the Tax Working Group report, and contrary to its recommendations and the glaring need for a CGT, Prime Minister Jacinda Ardern not only ruled out implementing the policy in this term of parliament, she ruled out ever doing so as leader of the Labour Party. Ardern claimed, with Labour having campaigned on it for three elections, there was simply a lack of mandate among the public for the tax. But is this true? How did such a hot-button topic, debated for so long, end this way?

Data from the New Zealand Election Study (NZES) indicates New Zealanders were evenly split on the policy from 2011 to 2014, and were unmoved between these elections.

Yet the same study has also consistently indicated the public felt strongly that wealth and income inequality is a major problem that must be addressed. In 2011, 60% either strongly agreed or somewhat agreed that the income gap is too large, while only 18% disagreed. In response to whether there's ‘one law for the rich, one for the poor’, 52% agreed, with only half that amount disagreeing.

In 2011, a whopping two thirds of people also agreed that ‘ordinary working people don't get a fair share of the country's wealth’, and in 2017, almost 60% said that ‘the government should remove tax breaks for property investors’, signalling that people were aware of the connection between wealth inequality and a privileged property market.

A poll referred to in the media in the lead up to Ardern’s decision, however, painted a different picture - claiming a ‘large majority of New Zealanders don’t want’ the tax. This poll was commissioned by BusinessNZ, a business lobby group who opposed the CGT, and faced criticism for including leading questions which could skew the results. A separate poll taken shortly before this one, which was not commissioned by anyone and undertaken in the public interest, showed that 44% of the public supported the tax, with 35% opposed.

The evidence shows that broad public buy-in for a CGT was there to be won, even up until Ardern’s decision. The way in which Labour campaigned on the policy has been key to its eventual demise. Labour’s desire to tap into the centre of National’s voter base - and defend against their charges of being untrustworthy managers of the Treasury - explains both their approach to arguing for a CGT as well as the failure of that approach.

In the 2011 debate featuring the famous ‘show me the money’ line from former Prime Minister John Key, then Labour leader Phil Goff stumbled, sidetracked, and defended against a direct question from Key on the CGT. He then promised to use the revenue from a CGT to reduce government debt to zero by 2022. Similarly, in 2014, the new Labour leader David Cunliffe couldn’t answer a simple question about the detail of the CGT policy, sidetracked, and then said Labour’s “tax” plan was to run surpluses every year and pay down government debt. It was noticeable however, that the biggest cheer for Cunliffe in this segment was when he attacked the Key government’s tax cuts for the wealthy.

Labour wedded themselves to neoliberal fiscal positions of balancing the books and paying down government debt, desperate to prove their “economic management” credentials. They allowed themselves to be bogged down in detail, yet were still unprepared on the specifics of their own policy during these important debates. This approach distracted them from values-based arguments around fairness and equity, which the evidence suggests underpins people’s opinions on a CGT.

Labour’s tax policy also became steadily less progressive in the lead up to the 2017 election, helping to shift the Overton Window on tax to the Right. In 2011 under Goff, Labour committed to an increase in the top income tax rate to 39% on income over $150,000, the first $5,000 of income tax free, removing GST on fruit and vegetables, and a comprehensive CGT at a rate of 15%. In 2014, the top income tax rate in their policy was lowered to 36%, and the tax-free threshold and GST changes were scrapped. Upon winning the Labour leadership after the 2014 election, Andrew Little immediately dropped the CGT policy. Then in 2016, Labour indicated an election year dodge on detailed tax policy, announcing a Tax Working Group would be set up to look at ‘the overall fairness and balance of the tax system’ but ‘we will have some specific things to say about the tax system before the election’.

In August of 2017, Labour still reserved the right to enact the Tax Working Group’s recommendations in their first term. However, as the election neared and polls slipped, they quickly backtracked on this too and committed to taking any proposed tax changes back to the electorate at the next election. This trend continued during the 2020 campaign, with Labour repeatedly ruling out considering the Greens’ proposal for a Wealth Tax should a Labour/Green government be formed.

Labour’s own tax policy of a tiny income tax increase for the top 2% of earners was widely criticised for not going far enough. Labour continued to adopt a defensive and technocratic posture, with Grant Robertson playing down the number of people the new tax would impact, and stating its purpose is to “raise revenue” for core public services and to “pay down COVID-19 debt”. These narratives of tax as government revenue - rather than a tool to manage incentives and equity in the economy - along with the heated, right-wing rhetoric of “taxpayers’ money”, “tax burden/tax relief”, and “left-wing tax and spend” governments, now completely dominate the discourse around tax.

If we want to begin to undo our housing crisis and the growing inequality which ever more defines our “way of life”, it is clear that arguments for progressive tax reform must be assertive and appeal to values of justice and equity. Labour’s managerial and defensive approach has failed to build support for this reform from the public. As they have shown no signs of changing direction, leadership on this issue must come from elsewhere - both inside and outside the parliamentary sphere - or this crisis will only continue to deepen at pace.

Paul Kelland is a Data Analyst and Fiscal Policy Nerd

The Kiwi Way of Life: Arguments for a Capital Gains Tax and Why They’ve Failed