National Says Labour's Capital Gains Tax Will Tax Inflation, Not Real Gains

New Zealand's National Party claims that Labour's Capital Gains Tax (CGT) will unfairly tax inflation, not just real gains. According to the party's campaign chair, Simeon Brown, Labour could have excluded inflation from the CGT, but instead chose to capture it.

Labour's modelling shows that in a scenario where house prices rise by 3% and inflation sits at 2%, most of the revenue collected from the CGT comes from inflation rather than real gains. This means that Kiwis could face large tax bills not because they have genuinely increased their wealth, but because inflation has pushed up the value of their assets.

For example, a couple who buys an $800,000 rental property and sells it five years later for $927,000 would have to pay a tax bill of $35,600. After accounting for inflation, this amounts to an effective tax rate of 81% on the couple's real capital gain.

The National Party argues that Labour's CGT is 'theft with extra paperwork' and that there is no principled justification for designing a CGT that taxes inflation. They claim that this will impact not just property owners, but also small businesses and KiwiSaver accounts.