As New Zealand heads towards a crucial election, debate over introducing a capital gains tax (CGT) is becoming more vigorous.
Labour has proposed a 28% tax on future gains from residential investment and commercial property, with the money ring-fenced for health, while National has promised not to introduce any new taxes at all.
Australia, our cousins over the ditch who have a CGT, along with the different systems operating in the United States, Britain, Canada and Germany, may provide both useful lessons and cautions as we go to the polls in November.
How Australia taxes gains — and what it could mean for health
Australia has taxed capital gains since 1985. Its tax applies to investment property, shares and business assets, although there are exemptions and concessions, including a 50% discount for eligible assets held for more than a year.
New Zealand, by contrast, has no general capital gains tax. Gains can still be taxed in more limited circumstances — for example, when property was bought with an intention to resell, when property-dealing or development rules apply, or under the bright-line test, which currently taxes profits on residential property sold within two years unless an exclusion or rollover relief applies.
Australia's CGT revenue is pooled with other taxes; it is not hypothecated (earmarked for a specific purpose) to health for example.
Ben Phillips of the Australian National University explains: “Yes CGT goes into general revenue and can be spent on anything… It does contribute but it's not a substantial contributor.”
His assessment of the revenue is blunt. “Not nothing but not a lot either. Life would go on without it.”
Greg Jericho, chief economist at the Australia Institute says “CGT goes into consolidated revenue. Without it, there would be less revenue to pay for vital services.”
Asked what would happen if it were abolished or substantially reduced, he said: “Either cuts in spending on welfare payments or services, or higher debt.”
Labour expects its proposal to raise about $100m in its first year, rising to $385m in the second, $965m in the third and $1.35 billion in 2030. That produces an average of about $700m a year across its first four years. (Targeted capital gains tax on property, 2026)
Labour expects revenue to build gradually because only gains arising after July 1, 2027 would be taxed and, in most cases, the liability would not arise until a property was sold.
That $1.35b figure is a forecast rather than a guaranteed stream of revenue. The amount collected would depend on future property prices, the number of properties sold, losses available to offset gains and whether owners change their behaviour to postpone taxable sales.
Its proposal excludes shares, businesses, farms, KiwiSaver, inheritances, personal possessions and the family home.
For comparison, the much broader CGT proposal of 2018–19 by the Tax Working Group was estimated at the time to raise about $8.3 billion over its first five years and, once mature, revenue averaging about 1.2% of GDP. Those older figures are not directly comparable with Labour's current proposal, but they illustrate how strongly the breadth of the tax base affects the amount that can be raised.
Labour has therefore made a political and policy trade-off: its narrower tax would affect far fewer New Zealanders, but that same narrowness substantially limits its revenue potential.
CGT revenue is also inherently uncertain because it depends on asset prices and the timing of sales.
That raises a separate problem of whether a volatile tax should be directly tied to a steadily growing expense such as healthcare.
Robin Oliver, a former Inland Revenue deputy commissioner, said: “Most economists oppose hypothecated tax in most cases because it is likely to lead to sub-optimal expenditure, spending too much on one thing because the tax revenue is high or too little.”
He also points to the volatility of the revenue.
“A problem with CGT is that the revenue is highly variable and one limited to property prices more than most.”
Health needs, he stresses, do not rise and fall with property prices.
Norman Gemmell, Emeritus Professor at Victoria University of Wellington, makes a similar point.
“As house prices fluctuate and property sales vary, the CGT revenue could change quite a lot from year to year. This is one of the reasons economists rarely support hypothecated tax revenues.”
If health spending exceeded the amount raised, he said, the extra money would still have to come from other taxes or revenue streams.
In Australia for example their federal budget recorded about A26.4b in 2023-24 and A30.4b in 2024-25 (Australian Government, Budget Paper No. 1 2024–25, Table 5.7; Mid-Year Economic and Fiscal Outlook 2025–26, Table 3.5)
Fairness, distribution and who pays
Australian tax expert Chris Evans said: “It would raise more revenue, obviously, though not that much, but the strongest argument is that it makes the system fairer and more efficient. The revenue is at best a bonus.”
Australian figures also show gains and concessions are heavily concentrated towards the top.
Jericho said about 80% of the benefit from Australia's CGT discount accrued to the “richest 10 per cent”.
“Wealth is very poorly taxed,” he said.
He argues that the perception of unequal treatment can have broader political consequences.
“This can lead people to believe the system is rigged against the working class and promotes support for more extremist political parties.”
New Zealand's 2018–19 Tax Working Group similarly highlighted the unequal treatment of wages, which are taxed as they are earned, and some capital gains which may escape taxation, arguing that people earning the same amount can face very different tax obligations depending on the source of that income. (Tax Working Group, 2019, Future of Tax: Final Report, Vol. I, paras 15–17)
Does CGT hurt investment?
One of the central arguments against CGT is that taxing gains discourages investment.
Asked whether Australia's experience showed a material negative effect on investment and entrepreneurship, Evans' said“Evidence suggests that it has not materially affected business investment. There are more than enough (I would argue, more than are needed) business start-up reliefs, business restructuring reliefs and business roll-overs to ensure that businesses are not adversely affected by a relatively benign CGT.”
Australia's own Treasury has also noted that one of the original arguments for introducing CGT in 1985 was that leaving gains untaxed could itself distort investment decisions, encouraging money to flow towards assets producing capital gains rather than taxable income. (OECD, Taxing Capital Gains: Country Experiences and Challenges, 2025; Australian Treasury, A Brief History of Australia's Tax System, 2006)
Evidence from Britain adds more detail to that question.
Arun Advani, Professor of Economics at the University of Warwick and Director of the Centre for the Analysis of Taxation, has researched tax design, inequality, investment and the behaviour of wealthy taxpayers.
He says policymakers need to distinguish between encouraging somebody to invest in the first place and encouraging already successful entrepreneurs to reinvest after selling a business.
Advani accepts that, all else being equal, a lower CGT rate can encourage investment more than a higher one. But he argues that simply cutting the rate is a poor way to achieve that objective because governments must ultimately replace the lost revenue elsewhere.
He says an investment allowance — protecting a normal return on the money originally invested before CGT applies can be more effective.
“The intuition is that low CGT rates only benefit the winners, while the thing that puts you off investing is the risk of losing,” Advani said.
Research he cited found that a higher CGT rate combined with such an allowance could be better for investment and growth, while also being more equitable.
Advani also questioned the argument that low CGT rates encourage successful entrepreneurs to reinvest the proceeds from selling businesses.
In forthcoming research with Andrew Lonsdale and Andy Summers, he said they found “no evidence supporting this hypothesis”.
“To the contrary, we find that low rates encourage entrepreneurs to exit and retire a bit earlier.”
National argues Labour’s CGT would make rental property less attractive to investors, reduce rental supply and put upward pressure on rents.
In Australia, Greg Jericho takes the opposite view.
“Taxing capital gains does not reduce housing supply or increase rents,” he said.
New Zealand's Tax Working Group found no evidence of a general rise in rents or fall in house prices following the introduction of capital gains taxation in Australia, Canada and South Africa. It nevertheless expected that extending capital gains taxation in New Zealand could place some small upward pressure on rents and downward pressure on house prices, although it considered those effects likely to be small compared with more fundamental housing-market forces. (Tax Working Group, 2019, Future of Tax: Final Report, Vol. I, paras 59–60)
Housing supply, interest rates, construction costs, population growth and credit conditions can all have a greater influence on rents and house prices than any single tax setting.
Australia’s experience also illustrates why CGT cannot be considered in isolation. Its tax system has combined a capital gains tax with negative gearing — allowing deductible property expenses to be offset against taxable income — and preferential treatment of gains on investment property.
Australian tax academic Chris Evans argues that this combination may itself have distorted investment towards housing.
“There is an argument, however, that the Australian CGT regime — which completely exempts an individual's home and also gives tax advantages (until 30 June 2027) to property investors, by only taxing half the gain but allowing deductions for 100% of the outgoings — may have encouraged over-investment in housing to the detriment of business investment,” Evans said.
“As a result, home prices may have grown more quickly than would otherwise have been the case and first-time home buyers may have lost out to property investors.”
Australia's expensive housing market therefore does not necessarily demonstrate that CGT pushes up rents or house prices. Evans' argument is that the particular combination of exemptions, discounts and deductions in the Australian system may have encouraged capital to flow into housing rather than other forms of investment.
That illustrates why one tax cannot be viewed in isolation.
How other countries tax capital gains
33 of the 38 OECD countries have a capital gains tax on individuals. Australia, Canada, Britain, Germany and the United States used as examples in this article, all tax capital gains, but in different ways.
Canada
Canada has taxed gains since 1972. Half of a capital gain is generally included in taxable income, while the principal residence is exempt. (Calculating your capital gain or loss, 2025)
Canadian Economist Jack Mintz points to the “lock-in effect”, where investors hold assets simply to avoid triggering tax.
“There is an issue of people holding inferior assets to avoid triggering capital gains taxes,” he said.
An investor may therefore continue holding an asset even when the capital could potentially be put to better use elsewhere.
Mintz argues that taxing gains as they accrue rather than waiting until assets are sold would treat them more like employment income.
“To tax capital gains similar to employment income, one has to tax accrued capital gains — not on a realization basis,” he said.
But this creates another problem: private businesses, property and other assets can be difficult to value every year.
The Canadian experience therefore demonstrates a central design trade-off. Taxing gains only on realisation makes administration easier, but can influence when people choose to sell.
Britain
Britain uses separate CGT rates from employment income, generally 18% or 24%, as well as an annual exemption and relief for the main home.
Advani says Britain's experience demonstrates the risks created when gains are taxed significantly more lightly than earnings.
He said there is “clear evidence” that taxpayers respond by changing the form in which they receive income.
One method involves setting up a company, retaining excess profits in the business and later extracting the money as a capital gain. Advani said this is particularly common in service industries such as management and IT consultancy.
For that reason, he argues CGT rates should be aligned with income-tax rates — or, for gains arising from businesses, the relevant dividend rates.
“CGT rates absolutely have to be aligned with income tax rates,” he said.
“Not doing this will lead to distortions that are bad for growth, as people change how they work.”
Advani argues that an investment allowance is a better way of recognising the capital genuinely put at risk.
Rather than giving every successful investment a lower CGT rate, the allowance increases the base cost of the investment over time so that a normal return on the original capital is effectively protected.
“This directly ‘follows the money’, so removes the risk of gaming/repackaging,” Advani said.
Britain also demonstrates the importance of what happens when assets are inherited or their owners leave the country.
Advani said gaps in a CGT system can encourage people to hold assets until death or move overseas before realising gains.
The latter may be particularly relevant for a small country such as New Zealand if successful entrepreneurs are able to leave before selling an asset and thereby escape tax on gains accumulated while living here.
Advani said one response would be a deemed disposal when somebody leaves the country, paired with rebasing when somebody moves into New Zealand so that newcomers are not taxed on gains made before arriving.
Stuart Adam of Britain's Institute for Fiscal Studies adds an important caution.
“It's difficult to answer those questions without knowing what the rest of the NZ tax system looks like and exactly what alternative CGT is being compared with,” he said.
The UK experience therefore suggests that the headline rate alone does not determine the economic effects of a CGT. Allowances, the treatment of income and gains, and what happens at death or emigration all influence behaviour.
Germany
Germany does not have a single capital gains tax applying uniformly to every asset. For private investors, gains from shares, funds and other financial investments are generally taxed at a flat rate of 25%, plus the solidarity surcharge and, where applicable, church tax. An annual €1,000 allowance applies to capital income for an individual.
Property is treated differently. Gains on privately held real estate are generally taxable when the property is sold within 10 years of purchase, although exemptions apply to qualifying owner-occupied homes. After the 10-year period, a gain on privately held property will generally not be taxed.
Florian Neumeier of Germany’s ifo Institute said: “Compared to a situation where capital gains are not taxed at all, a capital gains tax increases the progressivity of the tax system.”
For Neumeier, the issue is also one of equal treatment. “One can argue that people with the same income should pay the same tax, irrespective of the source of their income,” he said.
But he also cautions that taxing capital gains is not necessarily a major source of government revenue. “It is meaningful, but not the most important source of tax revenue.”
Germany therefore illustrates how differently countries can design capital-gains taxation: financial gains are subject to a relatively simple flat-rate system, while property gains depend partly on how long the asset has been held.
United States
The United States taxes long-term gains at federal rates of 0%, 15% or 20%, with some higher earners also paying a 3.8% net investment income tax. (Capital Gains Tax: Definition, Rates, and Ways to Save, 2025)
Owen Zidar, Professor of Economics and Public Affairs at Princeton University, points out that the distribution of those gains is heavily concentrated.
“The top 1% of households get about three-quarters of all long-term gains,” he said.
The United States also generally taxes gains only when they are realised and provides a “step-up in basis” for inherited assets, meaning appreciation during the previous owner's lifetime can escape capital gains tax.
Zidar contrasted that with employment income.
“A household living on wages pays tax on every paycheck. A household whose wealth grows through a rising stock portfolio or business can pay very little on that growth over a lifetime.”
He said the difference also encourages people to restructure income to obtain more favourable tax treatment.
“Without a broad capital gains tax, people have a strong incentive to take income as untaxed gains, especially through property and closely held businesses.”
The US experience therefore highlights not only the rate at which gains are taxed, but when tax is triggered and whether gains can ultimately escape taxation altogether.
Design matters
Labour's proposal would be different again.
Its 28% tax would apply to gains from residential investment and commercial property but exclude the family home, farms, shares, KiwiSaver, businesses, business assets, inheritances and personal possessions.
This means the groups most likely to pay the tax would be owners of rental properties and commercial property investors, particularly those with multiple or higher-value properties. Homeowners who live in their own property, most farmers, business owners and those with savings in KiwiSaver would not be directly affected.
As a result, the tax would mainly affect individuals and entities that own investment property or com
PwC New Zealand has described Labour’s proposal as “considerably narrower” than the recommendations of the 2018–19 Tax Working Group, whose majority favoured a broad, realisation-based capital gains tax. PwC said Labour’s plan is closer to the group’s minority approach, although it goes further by also including commercial property. mercial real estate, groups which tend to hold greater asset wealth. (2026). Tax Tips: 2026 General Election – Tax Policy Update, 8 September 2026.
That narrow base limits the number of people affected, but it also limits the revenue collected and creates boundaries between investments that are taxed and those that are not.
A person making a gain from an investment property could therefore face tax while somebody making a similar gain from shares or a business would not.
That distinction is one reason the design of the tax may ultimately matter as much as the existence of the tax itself.
Politics and public buy-in
Introducing or extending CGT is politically difficult.
New Zealand has debated a capital gains tax for almost six decades without introducing a comprehensive one. The 1967 Ross Committee recommended a realised CGT on equity grounds. In 1989, the fourth Labour Government under finance minister David Caygill again examined taxing previously untaxed capital income, including capital gains, but the proposal was never implemented. Labour returned to the idea as party policy from 2011, and in 2019 the Tax Working Group chaired by Sir Michael Cullen recommended, by eight votes to three, extending taxation to a broad range of gains including investment property, shares and business assets. The Labour-led Government abandoned that proposal after its coalition parties could not agree, with Jacinda Ardern saying at the time it had been “unable to build a mandate for a capital gains tax”. Australia on the other hand took a different path. It too had no general CGT before the 1980s, but the Hawke Government's 1985 tax reform programme argued that untaxed gains created inequities, encouraged income to be converted into capital gains and distorted investment decisions. Australia consequently introduced a broad federal CGT on realised gains from assets acquired after 19 September 1985, while exempting the owner-occupied home. Australia, by contrast, is currently pushing ahead with changes to its CGT discount and negative-gearing arrangements following intense political debate.
Canada subsequently abandoned a plan to increase the proportion of gains subject to tax.
Labour's narrower New Zealand proposal may therefore be politically easier to sell than a comprehensive tax, but narrowing the tax also creates the design problems identified by several of the experts interviewed.
It means fewer people pay, but it also means less revenue is raised and different forms of capital gain receive different treatment.
Who pays for healthcare?
Rejecting Labour's CGT does not remove the health bill.
Treasury modelling suggests healthcare and pension costs will continue to increase as New Zealand's population ages. (Binning et al., 2026)
The alternatives include higher income taxes, greater reliance on GST, borrowing, spending cuts, new tax bases or some combination of them.
Each option has trade-offs.
Higher income taxes can make the tax system more progressive, but may affect incentives to work or invest.
GST provides a broad and reliable tax base, but consumes a larger proportion of the income of lower-income households.
Borrowing can spread costs over time, but increases debt and leaves future taxpayers to service it.
Spending cuts may reduce expenditure but can also mean fewer or lower-quality public services.
Other tax bases, such as environmental or wealth taxes, could diversify government revenue but bring their own political and practical difficulties.
Each choice also distributes the burden differently. Higher income tax places more of it on workers. Higher GST spreads more of it across consumers. Borrowing shifts part of the cost onto future taxpayers. A capital gains tax places more of it on owners of appreciating assets.
There is no option in which the cost disappears.
That creates an intergenerational issue as New Zealand's population ages.
If increasing health and retirement costs are met primarily through taxes on wages, a greater proportion of the burden falls on the working population.
If governments borrow instead, some of that burden is transferred to taxpayers in the future.
A CGT shifts some of it towards people whose assets have increased in value.
None of those choices is automatically fair.
National's answer is to meet health pressures through existing revenue, economic growth, savings and spending restraint.
Labour argues some of the future cost should instead be met by taxing gains from residential investment and commercial property.
International experience cannot tell New Zealand which choice to make.
What it does show is that the real debate is much wider than whether a country has a capital gains tax.
How the tax is designed affects investment, avoidance, fairness, revenue and who ultimately carries the burden.
A capital gains tax could make New Zealand's tax system fairer and provide additional revenue, but it may not by itself solve the health-funding challenge.
Its value may instead lie in adding another source of revenue while changing how the burden is distributed between income earned from work and gains made from assets.
But Labour's narrow proposal also demonstrates the trade-off involved: exempting most New Zealanders may make the tax politically easier to introduce, while simultaneously limiting how much revenue it can raise.
The burden of paying for healthcare still has to fall somewhere — on wage earners, consumers, asset owners or future generations.
As the election approaches, that may be the more important question: Who should pay for the services we all use?
Rejecting Labour's CGT does not remove the health bill.
Treasury modelling suggests healthcare and pension costs will continue to increase as New Zealand's population ages. (Binning et al., 2026)
The alternatives include higher income taxes, greater reliance on GST, borrowing, spending cuts, new tax bases or some combination of them.
Each option has trade-offs.
Higher income taxes can make the tax system more progressive, but may affect incentives to work or invest.
GST provides a broad and reliable tax base, but consumes a larger proportion of the income of lower-income households.
Borrowing can spread costs over time, but increases debt and leaves future taxpayers to service it.
Spending cuts may reduce expenditure but can also mean fewer or lower-quality public services.
Other tax bases, such as environmental or wealth taxes, could diversify government revenue but bring their own political and practical difficulties.
Each choice also distributes the burden differently. Higher income tax places more of it on workers. Higher GST spreads more of it across consumers. Borrowing shifts part of the cost onto future taxpayers. A capital gains tax places more of it on owners of appreciating assets.
There is no option in which the cost disappears.
That creates an intergenerational issue as New Zealand's population ages.
If increasing health and retirement costs are met primarily through taxes on wages, a greater proportion of the burden falls on the working population.
If governments borrow instead, some of that burden is transferred to taxpayers in the future.
A CGT shifts some of it towards people whose assets have increased in value.
None of those choices is automatically fair.
National's answer is to meet health pressures through existing revenue, economic growth, savings and spending restraint.
Labour argues some of the future cost should instead be met by taxing gains from residential investment and commercial property.
International experience cannot tell New Zealand which choice to make.
What it does show is that the real debate is much wider than whether a country has a capital gains tax.
How the tax is designed affects investment, avoidance, fairness, revenue and who ultimately carries the burden.
A capital gains tax could make New Zealand's tax system fairer and provide additional revenue, but it may not by itself solve the health-funding challenge.
Its value may instead lie in adding another source of revenue while changing how the burden is distributed between income earned from work and gains made from assets.
But Labour's narrow proposal also demonstrates the trade-off involved: exempting most New Zealanders may make the tax politically easier to introduce, while simultaneously limiting how much revenue it can raise.
The burden of paying for healthcare still has to fall somewhere — on wage earners, consumers, asset owners or future generations.
As the election approaches, that may be the more important question: Who should pay for the services we all use?
Jason Howells is a writer/researcher based in Ohakune. He has a degree in Communications and a Diploma in Journalism. His interests include public policy and politics.
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