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Shouty McShoutface. Photo: Getty
Shouty McShoutface. Photo: Getty

PoliticsApril 18, 2019

On capital gains, the powerful people took on the better argument, and won

Shouty McShoutface. Photo: Getty
Shouty McShoutface. Photo: Getty

Jacinda Ardern’s government has abandoned the idea of a capital gains tax, and it’s a victory for self-interest and disingenuous debate, writes Jesse Mulligan

Well that was fun. The Capital Gains Tax “debate” (let’s call it that, though it often felt like we were only hearing from one debating team – the one dropped off by parents in European cars) ended up being an instructive demonstration of the way political decision making works: it’s not the best argument that wins, it’s whatever the guys with the power want.

This time it was about all sorts of power – the power of people who get asked to write opinion columns, the power of the wealthy to lobby for the protection of their own money and the power of Winston Peters to veto good ideas. But we shouldn’t only blame those people – they wouldn’t be able to get away with it if more of us were willing to vote against our own perceived interests.

It was always going to be a, well, a fucking shitfight. But the Tax Working Group proposal was holey enough that people against a new tax could say, “I’m not against a new tax, it’s just that this one has been so poorly designed that it won’t achieve what people want it to achieve”. Simon Bridges told me on The Project that in order to be effective the CGT needed to include the family home – it was a sensible objection, but nobody believed he wanted the family home taxed too.

There were other solid objections to the proposal – that it would put people off investing in Kiwisaver, that it would scare businesses off investing in themselves – but these arguments were almost invariably made in bad faith. Most of the people using them were just being selfish, but tweeting “I don’t want a Capital Gains Tax because it will make me marginally less rich” wouldn’t have been received well. You could tell they weren’t motivated by genuine policy concerns because they were trying to destroy the tax idea, not fix it.

I made some hyperbolic comments about the CGT early on, because I wanted our team to have access to the same emotional buttons that the bad guys on talk radio do. Later, I researched deep for a CGT essay I was writing for an offshore publication and decided that a lot of the objections to Cullen’s report were legitimate. One of the most compelling was Matthew Hooton’s typically insightful observation that for all that this was pitched as a generational battle, the baby boomers’ house price gains were already locked in – the new tax would apply only to gains made after 2021, disproportionately affecting (you guessed it) millennials and first home buyers. But you have to start somewhere, and any new tax will create these sorts of paradoxes.

(“Not a land tax!” some will protest. “We should bring in a land tax!” Unfortunately you’ll never be able to sit down five million people and convince them on a land tax. Trying to explain anything complicated is futile, as the prime minister clearly realised when she nixed the CGT without ever really arguing for it. When it comes to public policy we, the voting public, are more of a “vibes guy”.)

I’m reminded of my first-year philosophy class, when the lecturer explained to us the difference between teleological arguments (“this idea will work”) and deontological arguments (“this idea is morally right, even if it doesn’t work”). For me, the most compelling arguments for the Cullen proposal were in the latter category – pro-CGT people might have been better to answer objections around unintended consequences with the simple reply: “but it’s more fair”.

In the end though these pro-CGT people were hard to find – just 400 signed a petition in favour. Ten showed up in person to a demonstration at parliament. Millions of low income New Zealanders might have benefitted from a capital gains tax, but they had other things to do.


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