By Pattrick Smellie.

For the third New Zealand election in a row, capital gains tax (CGT) is looming as a defining political issue.

In both 2011 and 2014, the NZ Labour Party went to the polls with policies favouring the introduction of a CGT, with exemption for the family home. Both times, this policy became the governing National Party’s strongest weapon against Labour.

(Pictured: Bill English, leader of the National Party and current Prime Minister and his wife Mary English. Photo by Phil Walter)

Under the new leadership of Andrew Little in 2015, Labour dropped explicit support for CGT in favour of appointing a tax working group to recommend tax system reform, including wealth taxes.

It was hoped this would allow Labour to campaign with the tax bogey neutralised in the campaign leading up to polling day this year on September 23. That strategy hasn’t worked.

While Labour experienced a stunning turnaround in its drooping poll ratings when 37-year-old Jacinda Ardern was catapulted into the leadership at the end of July, its rise is being blunted, in part, by resurrection of the “Labour taxes” narrative.

Ardern revived and exacerbated the issue by indicating a Labour-led government would legislate recommended reforms before the general election scheduled for 2020. Little had promised to seek a mandate for change. 

(Pictured: Jacinda Ardern, leader of the Labour party. Photo by Kerry Marshall.)

Adern reversed her earlier “captain’s call”, saying Labour would not implement any tax reforms recommended by the working group before the 2020 election. This is essentially a return to her predecessor’s position. 

As polling day approaches, Labour has led National for the first time in a decade in several public opinion polls and may be able to cobble together a parliamentary majority. Since New Zealand adopted proportional representation voting in 1996, coalition or minority governments have been the norm.

There is potential for a tight race to be determined by voter fears of Labour’s tax agenda, rather than the “time for a change” sentiment that Ardern has galvanised after nine years of a National Party-led government.

Labour’s policies for a regional petrol tax to fund Auckland infrastructure, a levy on commercial water use, an international tourist tax and discussion of a land tax rather than CGT have all added fuel to its political opponents’ narrative that Labour’s campaign slogan – “let’s do this” – should change to “let’s tax this”.

At CA ANZ, maintaining a coherent, low-rate, broad-based tax system is the most important consideration for New Zealand policymakers.

“Tax reform should be viewed as a long-term or quasi-constitutional exercise,” says the newly published commentary, Taxing Times, where CA ANZ argues New Zealand is likely to need to further broaden its tax base to reduce over-reliance on a small number of high-income earners. Around 3% of the adult population currently pays some 25% of all personal income tax.

“What we’d like to see is a considered approach to tax policy, avoiding ad hoc changes to the tax system that are designed to meet political objectives and do not comply with the principles of good tax policy design,” says New Zealand tax lead for CA ANZ, John Cuthbertson CA.

Pattrick Smellie is an owner of BusinessDesk, a New Zealand economic and business news service and a one-time NZ correspondent for The Australian.