Executive Summary

New Zealand faces a challenging economic future. We face the seemingly contradictory goals of both remaining competitive in the increasingly global economic environment, while at the same time attempting to manage one of the key roles of government, reducing inequality and encouraging human flourishing. We are not succeeding.  One area that is continually singled out for potential improvement is New Zealand’s current rules around capital gains. Our rules are messy, contradictory and often ill-enforced. Currently, they encourage tax sheltering in capital. This allows those in the top decile brackets to avoid paying their fair share of tax. This both reduces our economic efficiency and reduces the progressivity of the tax system. This report analyses the best options for the implementation of a comprehensive capital gains tax (CGT) in New Zealand. The report exposes the inequities and inefficiencies inherent in the current rules around capital gain taxation. The report follows with an assessment of the scholarship around options for the implementation of capital gains tax, and the costs and benefits associated with them. The experience of Australia, which has had a capital gains tax since 1985, is used as a guide for implementation in New Zealand. The report finishes by recommending the implementation of a capital gains tax in New Zealand, the parameters of which will be guided by the discussion and analysis.