Labour will struggle to implement capital gains tax policy within a term due to IRD systems, Dunne says; Claim rubbished by Labour's Cunliffe

Labour will struggle to implement capital gains tax policy within a term due to IRD systems, Dunne says; Claim rubbished by Labour's Cunliffe

By Alex Tarrant

Pressure on Inland Revenue's IT systems would make it very difficult for Labour to implement its capital gains tax policy within a first term of office, according to Revenue Minister Peter Dunne, a claim rubbished by Labour finance spokesman David Cunliffe, who says that despite technology issues at the IRD, the policy would be all go within 18 months of the November 26 election.

Interest.co.nz has previously reported the dire state of the IRD's 20 year-old IT systems would be a roadblock for major changes to the tax mix, with the sytems nearing breaking point due to pressures imposed by Working for Families and interest-free student loans policies. Last week it was reported those IT systems would be a problem for the timely introduction of a policy to index tax on term deposits for inflation, which is being considered by the government.

The IRD's original 1990s system, designed for taxation, has had additions attached on to deal with welfare policies, such as WFF, which were beyond the original task of the system. That means any major changes to the tax environment would have to overcome the hurdles of more work to make the systems compatable to government policy, or would have to factor in a more comprehensive revamp.  A complete revamp of the IRD's systems could cost over half a billion dollars, interest.co.nz understands.

Last month Labour announced a tax policy which included a 15% capital gains tax on assets other than the family home, a 39% top personal income tax rate, and a NZ$5,000 tax-free threshold for all income earners. Labour would also alter tax law to exempt fresh fruit and vegetables from GST. See more on Labour's policy here.

However, one source says there could be significant policy constraints for up to four years without a large investment to upgrade the IRD's systems, which would make it difficult for Labour to implement its tax package within a term.

'Very difficult'

Revenue Minister Peter Dunne, who is opposed to Labour's tax policy, told interest.co.nz it would be difficult for Labour to implement its policy.

“The pressure that the IRD system is under makes it very difficult to see major tax changes being contemplated, let alone implemented over the next two to three years," Dunne said.

'Bollocks'

But Labour's Cunliffe rubbished the claims that it would be difficult to introduce the policy within its first term following the November 26 election, saying Labour would immediately signal to the IRD that work would need to be done to bring systems in line with the policy. That could involve costs in the "tens of millions" of dollars, but certainly not the hundreds of millions being talked about.

“In terms of implementation that’s bollocks. We will be able to get a tax design through a white paper and a generic tax policy process in time for...[the target date of] 1 April 2013," Cunliffe told interest.co.nz

Labour would signal to IRD immediately on taking office that they should be programming their IT system to support the capital gains tax policy. The micro-detail of provision of some of the fine points of the tax would need to await the outcome of an expert panel, but that would be able to be worked in.

“It won’t cost hundreds of millions of dollars. It might cost a couple of tens of millions, which would be a big project, and I know that there are some technology issues there that they’re working with, but let’s not exaggerate," Cunliffe said.

“Peter Dunne has said he doesn’t like this tax on policy grounds – he’s welcome to that opinion. But let’s not confuse the preferable with the possible," he said.

"There are very strong economic reasons for doing this tax, it’s been very widely accepted and applauded around the country. Yes, there will be some implementation issues naturally. But if a clear signal is given to the IRD immediately on us taking office, and if resources are provided, then that work can be done in parallel with the white paper and the generic tax policy process.”

Cunliffe was confident Labour would be able to get the policy in place during its first term. The target date of April 2013 allowed a year-and-a-half for the IRD to get its systems in line with the policy.

“If people put the pedal to the metal, they can meet that target,” he said.

“Peter Dunne has just got used to National government timeframes. There’s a big contrast waiting to happen. We won’t spend a term in opposition and then come back to government wondering what to do, unlike Bill English.”

'It's why I probably won't go into govt with Labour'

Dunne acknowledged he was not in favour of Labour's recently-announced tax policy, which was the primary reason behind why it was very unlikely his party United Future would not go into coalition with Labour if the Phil Goff-led underdog won the November 26 election.

“We haven’t explicitly ruled them out, but I think it’s fair to say, given their tax policy – capital gains tax, higher taxes for higher income earners – all things that I’ve spent the last however-many years rallying against, and the last three years essentially dismantling, it’s pretty difficult to see how you’d then turn around and say, 'well we’ll go with you guys to put back in place the system we basically just got rid of,'” Dunne said.

“We just don’t see Labour as a viable option at this stage,” he said.

The first decade of Dunne’s political career was as a Labour MP between 1984 and 1994, before he left to become an independant, joining United Future a year later. Dunne has been Revenue Minister since 2005, firstly under Labour Prime Minister Helen Clark, and now under the John Key-led National government.

Despite those connections early in his career, it was a “different Labour” back then, Dunne said.

“The biggest problem we have [now] is the policy mix. We’ve always taken it from the point of view of, have we got policy compatibility with Labour or National, and if we have, well and good, if we haven’t, well you can’t do a deal,” he said.

(Updates to cross out 'not' in final section to make clear Dunne is not likely to go into coalition with Labour)

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42 Comments

Dunne has of course got his vast ground-swell of support to back up his views

"A TV3 Reid Research poll released tonight showed .... United Future had no support."

http://www.stuff.co.nz/national/politics/5481958/Labour-failing-to-close-gap-poll

Labour, of course, can hardly show strong voter suppot for CGT based on its 28.8% support.  However you need to add the Greens 9.3% support. 

Dunne has got a good point here, in that Labour introduced a lot of complexity into an overloaded system at IRD.  However, that is no excuse for not having an equitable tax system. 

I guess the other point Dunne could make is, this is the reason we don't collect much (any?) from the existing taxation of capital gain, that he and other opposers assure us we already have in the present system. A system will deliver an outcome it's design dictates - so I guess leave it as is then - if we want to continue on with an unbalanced economy, eh Mr Dunne?

The thinking is as warped as that behind the reaction that rents will have to increase to compensate for loss of capital gain income - all while supposedly 'intent' on 'investing' (ha, ha) for dividend income. 

Damn right Labor will struggle with CGT  ... who wants to pay more tax when we are already battling with middle class poverty ? Just remember Governments produce nothing tangible in the economy ... nothing whatsoever .. so any additional tax will be wastefully spent  or simply transferred to people on handouts  

Of course they'll struggle to implement it, especially in it's current form.  It's just got too many holes to be a viable revenue policy.

What's Peter Dunne's role again?  He's just a political whore who jumps into bed with whoever is in power.  I'd bet that if Labour miraculously won in November, Peter Dunne nothing would be offering his soul to keep his ministerial position at the trough.

CGT is a one time that will not grow, if the rhetoric is to be believed it will encourage investment into more productive assts, then this tax will not grow and eventually fall as investment moves away from holiday homes which is the tax base for CGT.

IRD cant even answer their phone so fat chance of their  IT coping with more coplexities

Hey if I vote for:

Labour I will pay more tax

Greens; I will pay even more taxes, made to feel guilty to drive my car, turn on the lights and water

NZ First: Will be asked to leave the country since I am not a NZer

National: I will pay my electricity, gas to some overseas shareholders.

Darn what choices do I have?  none

It is your duty to pay your " fair share " ..... to assist all those incredibly wonderful people who are not as well off as you ....

...... and think of all those outstanding services which the government provides for free to you .

Remarkable value for money that ever so many folk  get in NZ , ...  just not you , Chairman .

A tax on capital gains, er, is anyone expecting to achieve any capital gains in the next 10 years?

That is a valid criticism . Of all the options open to them , Labour took a truely dumb one . The potential returns are not a known , if markets continue to stagnate . And the set up is costly & messy . IRD are trying to get that message across , but David Cunliffe thinks he knows better than they do .

.... a land-tax ! .. Comparatively simple to introduce , immediate cashflow , a reliably steady stream of income to the government ..... and it pings those rich off-shore investors , who possess trophy properties around the country .

The only hope for NZ Labour in the coming election , just 96 days away , is if John Key swaps sides ..... and displaces Phil Goff ....... aha de haaaaaaaaaa !!!!

"These two problems can be solved simultaneously by following what classical economists recommended: basing the tax system on “free lunch” income: land rent and monopoly rent, while keeping as many natural monopolies as possible in the public domain to provide services at subsidized rates or freely (as in the case of roads, water, etc.)." Hudson

As for the 'quotes' for the IRD system .... Half a billion / tens of millions - Crikey , reckon both Mr Dunne and Mr Cunnliffe should be appalled by  these costings - who's quoting?

 

The idea of the CGT comes from the tax working group?  and seems to be a valid idea, that of taxing all income....equally...Of course Gummy you would have to pay tax on your shares then eh? cant have that can we? 

Labour dead in the water, yep, for now.....Goff gone by Lunchtime, suspect so....no replacement out there for him mind I can think of....so he might hang on through this defeat...

2014? there is a lot of disquiet building I think....we wont see a recovery in the next 3 years, and I cant see us paying off our debt....so that leaves tax rises...

Land tax, I suspect this will come also...not post this election, sure....but like a CGT it will come......

regards

Just to correct you , Michael Cullen brought in a " deemed rate of return " on overseas share investments , of 5 % per year ..... taxable at your highest marginal income tax level , of course .

.. in a manner , this is an annual capital gains tax , on un-realised capital gains .

What a splendid fellow he was ........ Grrrrrrrr !

You sneaky old bugger Gummy...land tax indeed...and there you are with an 80 foot yacht in a protected yacht harbour a stone throw from the boozer and food barns....land tax..hah...hey row across ( you need the exercise)and we'll sink some Rum....this tax free living is such fun...the yacht's name is Loophole...90 footer..the one with the chopper at the back.

Yes, Gummy's right. It is a very valid criticism. Labour, if elected, will force this bizarre policy through regardless of the state of the economy - I mean who cares about that - because they are I know better than you ars*holes. Share markets are on the verge of becoming bear markets. Trillions have already been lost from share values. Residential and commercial property values are flat to soft, and look to remain that way for years.  Where is all this capital growth supposed to be coming from that is so easily and rightfully taxed?

Yet Labour will force their tax policy through in spite of the fact that it will cost the heavily indebted NZ govt. 10s millions of dollars to upgrade IT at IRD, 100s of millions to remove GST on fruits and vegetables and to give every NZ $5000 pa income tax free. And then billions in borrowings to make up for the shortfall in revenue that a CGT fails to bring in because no-one is making any capital gains to be taxed. Labour are economic dancing fools.

Am I the only one who wishes that somebody would get up and swipe the flaccid arrogant jowls of David Cunnilife with a sharp blow? Come on, Annette, size him up and take aim. Go out with a bang luv.

 

"this bizarre policy" lol yeah it's so out of the box and bizzarre that almost every other OECD country has it, gez how radical can they get, what next.

If you're making losses why would you care less about a capital gains tax then? it won't apply.

It's bizarre (and perverse) because of the economic climate we are in. And who cares what other countries do? If we just followed what every other country does because what they do must be right, can you please explain to me then why New Zealand is the only country to have nuclear free legislation and such strict GE laws? Or does it only matter what other countries do when it just so happens to coincide with what you want?

Yup , just because other countries got it so badly wrong , why should we copy them ?

... come to think of it , if we were creating a new list of OECD countries today , would NZ even make the cut ?

philthy , the USA has a 9000 page tax code ; the USA has a higher GDP / person than NZ , does it then follow that  to emulate America we should have at least 9001 pages in our tax code ?

... Australia has halved their capital gains tax . It has proven a boon for accountants & taxation planners , but not for private citizens , business owners , nor even for the government . Why bother !

[..DB : Cunny does share a similar arrogant smart-arse attitude to Labour's  previous clown-prince of finance , Cullen . .. I understand how you feel . Go on Annette , snot the smug so & so ! ..]

"It's bizarre (and perverse) because of the economic climate we are in"

Is that climate the one where the government is borrowing in record numbers, pushing up the Kiwi dollar killing off exporters.

Because it cut taxes it couldn't afford to do, and is scared of bringing in any other taxes.

But won't make the cuts to the middle class welfare like WFF according?

Gotta secure those votes Philthy...got any better ideas?

Chapter 2 , " Hateful Taxes " , of Niall Feguson's book " The Cash Nexus " provides an excellent history of taxation , from Roman times until year 2000 . .... He lays it out clearly as to where monarchs & governments have screwed up , over-milked the peasantry , to their peril .

Overmilking is one thing,  but how would you describe running record deficits and borrowing the difference? - buying votes, and expecting future taxpayers to foot the bill?

I agree with you . Gummy is appalled by the behaviour of both Labour & National . The government controls nearly 40 % of the nation's GDP . Is it any wonder that the economy has refused to grow for a decade or so , despite Treasury's upbeat forecasts .

I'm not aware of any evidence that shows the current values of the NZ dollar is "killing off” our exports as you claim. Perhaps you can enlighten us with some concrete examples of where that has actually happened?

No the climate I'm talking about is the one that is completely beyond New Zealand's control, but that nevertheless still sets our economic agenda, and that's the world economy. Introducing a CGT to pay for ever more welfare spending and election bribes by Labour while North America, Japan and Europe are on the verge of recession is just plain bizarre.

Evidently you think it’s Ok for Labour to borrow more money to cover the revenue shortfall that a CGT will produce in an environment absent capital gains.

  "the outcome of an expert panel".....harrrrrrrrrrrrhahahaaahaahahahaaa....oh jeez this cunny is a load of laughs. Let's see if we can pick the panel...bloke named Little for sure to keep him away from cunny's back...and Phil of course who will need a job...oh and let's not forget Pagani as a reward for plugging the socialist rubbish for so long....hell even BH could get a look in....!What about the big Kahuna as the Chair!

Other than Cullen, I can't think of a worse Revenue Minister than Dunne. The LTC legislation and retrospective dumping of QC's is nothing short of a disgrace, and the incompetence of LTC rules are stunning. Key's continued promoting of Dunne, should earn him a place in electoral hell from all lovers of individual freedom (and from farmers, whom Dunne obviously hates).

There must be times , Mark , many times in fact ... when you totally despair of the idiotic MMP voting system , and in the poor decisions of voters . Until MMP is chucked out , and a half reasonable voting system  such as STV replaces it , the Kiwi economy will succumb to vote bribing populist policies .

..... David Cunliffe wants to expand WFF ... need I say more ! .. Seriously dopey shite such as  WFF ought to be scrapped completely ... Dunne & Dusted !

Oh right lets pick a voting system that favours the right....lets not have a system that actually gets pretty close to representing the % of the people....oh no cant have that....Why would STV stop bribary? the only difference then is ACT would have to be bribed.....but thats OK eh?

Bribary, take a look at the US, that doesnt have much of a MMP system and has to be close one of the most corrupt and vote buying "democractic" systems in the world.....or the UK....

WFF, (you have a url for cunliff?) now I do agree with you on wff it should go, Gareth Morgan has the most interesting idea Ive seen yet. The left also doesnt have a corner of stupidity selling SOEs is equally idiotic....

regards

Steven...which is more important to you...a system that is "pretty close to representing the people"....or a system that leads to an economic platform similar to that which the Swiss enjoy. ?

Look at this from another angle....is it better to confine the petty bitching about policy to within major parties and keep it one step away from the House...or is it more important that every voice and every voter have a say in what the House decides?.....Do you favour Californian style politics where decisions are made by the voters on a day to day basis...?

If you do, are you not then concerned about what can manipulate the voters on a day to day basis....ie garbage media!

bribary ?  try  bribery

the general standard of  bloggists spelling is pretty sad

 

Actually NZs  big challenge is the Apathy of its citizens - but then who cares !

Arhh errr shouldn't that be "bloggist spelling"....save the ess for later use!

Where 2 or more are gathered , henceforth they shall be known as the bloggi .

....... praise be for the bloggi

Thus sayeth our Lord , the Hicki

GBH: "It is your duty to pay your " fair share " ..... to assist all those incredibly wonderful people who are not as well off as you ...."

Yeah, I am a typical middle-income earner paying more than my fair share of the taxes.  So I guess I will have to work even harder beacuse thousand of people on welfare (like yourself ???) are depending on me...And Labour is proposing just that..!

Moa work and taxes for you boy...my pension's due soon.

Actually , it's getting close to half the entire population who receive some sort of hand-out / bail-out / lift-up / pension / entitlement /  subsidy .. from the government .

... sadly , Gummy has never been smart enough to understand how  rort the system .

Question is , will voters eventually realise this , and rebel against political parties who offer pork-barrel policies ?

To rort or not to rort Gummy, that is the question.

I've never ever recieved any form of welfare benefits from the Govt - worked every school/uni holidays and got a full time job straight away from the day I graduated.  So will they have my vote for more taxes?  Well they can stick it up.. you know where!

I think I love you !

I am in Aus so it will have to be one of those long distance relationship thingie!

I wonder how much it would cost to remove,  for example,  WFF from the tax system. 

Maybe we are sticking with all these policies because the 'systems'  can't be undone....

Removing WFF would save the government around $ 2.8 billion annually ... Save !

... it was only jammed in recently  , to beat Don Brash in the 2005 election . And that part of Cullen's plan worked .

Got that Mr Bear,

I'm intrigued by the admin/computing costs quoted. An edited series of Dilberts would probably put it better than I can. Worked, many moons ago, for a 'greenfield' site where some very good systems had been put in place . All those involved in the creation of those systems then left. Years later nobody knew  the thinking  behind those systems, but they all followed them slavishly and unthinkingly... and never challenged the fundamental assumptions because they didn't know what they were.... :(  Fool On The Hill stuff really...