Comment: Every election cycle we appear fated to revisit the same old tax debates.
One side of politics warns that any new or increased taxes will punish hard work, dampen investment and entrepreneurship, and complicate our simple tax system. The other suggests the wealthy are not paying their fair share, tax settings favour asset owners over wage and salary earners, and inequality is being entrenched rather than addressed.
This is a problem because tax is too important to be trapped in predictable partisan posturing. Tax is how we fund the things most New Zealanders value: healthcare, education, infrastructure, pensions, and a basic level of income security.
But when the public debate reduces tax to a battle between “tax and spend” from one side and “let people keep more of their own money” on the other, little progress is made to improve societal outcomes.
New Zealand’s broad-based, low-rate tax model has real advantages. It is comparatively simple, administratively efficient, and avoids some of the compliance burdens found in more complex systems overseas. But those strengths should not place it beyond scrutiny. The model that has influenced tax policy since the mid-1980s was developed for a different economic and social context, and we now need to consider it in light of the needs of Aotearoa today.
Those changed pressures are impossible to ignore. New Zealand’s population is ageing, health costs are rising, and infrastructure deficits are visible in roads, hospitals, schools, water systems, and housing.
Climate adaptation requires sustained investment, not fluctuating political enthusiasm. Younger New Zealanders are facing high housing costs, student debt, and a labour market where wages often struggle to keep pace with living costs.
On top of this, New Zealand is projecting a $8.7 billion deficit in the 2027 financial year. Therefore, arguing for lower taxes is not a serious fiscal strategy. But neither is proposing changes to the existing system without honestly explaining how they will work, who will pay, and what public value they will fund.
Capital gains tax has been part of New Zealand’s tax debate for several election cycles. This year, for the first time, it has been adopted as a formal policy by one of the two major parties. Labour is proposing to impose a 28 percent tax on gains from selling commercial and residential investment properties. The tax would apply to any gain made from 1 July 2027.
Like most capital gains taxes, this proposal excludes gains on the disposal of the family home. However, Labour’s proposal is a partial capital gains tax rather than a comprehensive one. By applying only to commercial and residential investment property, it excludes many of the asset classes through which the wealthiest New Zealanders typically realise gains.
Inland Revenue’s high-wealth individuals research project showed the very wealthy do not invest heavily in residential rental property. Instead, most of their gains come through businesses, which account for 51 percent of (largely untaxed) economic income, compared with 19 percent from property. This helps explain why the median effective tax rate on economic income for this group is only 8.9 percent.
By excluding other forms of assets, Labour’s proposed capital gains tax reduces its capacity to redistribute wealth and address inequality. It also misses what could be a substantial source of new revenue from the country’s wealthiest people.
Labour rationalises its decision to target land over other assets by saying the current tax system “encourages investment into property speculation instead of Kiwi businesses”. It has, however, potentially missed an opportunity to generate new revenue from what could be regarded as low-hanging fruit.
Though Labour is right to encourage investment into productive businesses, capital gains tax typically applies upon exiting those businesses which is not, in itself, a productive activity. In other words, taxing the gain realised when an owner sells their interest in a business still allows investment and business growth to occur, while ensuring that private accumulation of untaxed wealth is brought within the revenue base.
This example illustrates a wider problem: tax proposals are too often assessed as isolated political promises rather than as part of a coherent framework for raising revenue fairly and sustainably.
I suggest a mature tax debate would begin with three principles.
Transparency. Politicians should be honest about what current revenue can and cannot fund. If New Zealanders want Nordic-quality public services, low taxes will not deliver them. If they want lower taxes, they need to be informed on which services will shrink, which investments will be delayed, and who will bear the consequences.
Intergenerational fairness. The tax system should not entrench a divide between those who have accumulated assets and those now trying to build secure lives in a much more expensive economy. Is it fair to ask younger generations to work harder while the tax system supports untaxed wealth gains?
Sustainability. Tax policy should be designed for the long term, not just the next election cycle. The tax system must be capable of funding future needs, adapting to demographic and economic change, and maintaining public confidence over time. This allows businesses and individuals to make informed decisions about their futures without the potential for the next election to advantage or disadvantage them.
New Zealand does not need a tax debate that is more ideological. It needs one that is more honest. The right question is not whether tax should be high or low, but whether the system raises sufficient revenue to support the society we want in a way that is efficient, sustainable, and fair.
Are we destined to remain stuck on repeat? Not necessarily. That one of the major political parties has been brave enough to introduce a policy to tax capital gains demonstrates a shift in attitude.
But breaking the cycle will require political courage and a more serious public conversation.
This article was originally published on Newsroom.
Lisa Marriott is a professor of Taxation and dean of the Faculty of Graduate Research at Te Herenga Waka—Victoria University of Wellington.