National has launched a fresh attack on Labour’s proposed capital gains tax, warning property owners could end up paying tax on gains that reflect inflation rather than any real increase in wealth.
The criticism comes as tax policy emerges as another major dividing line heading towards the November election, with Labour campaigning on a targeted 28 percent capital gains tax covering residential investment and commercial property.
Under Labour’s proposal, the family home, farms, KiwiSaver, shares, businesses, inheritances and personal assets would be exempt. The tax would apply only to gains made after 1 July 2027 and would generally be payable when a property is sold.
National says inflation creates a hidden tax
National argues Labour’s policy does not adjust capital gains for inflation, meaning some of the increase in the nominal value of a property could be taxed even when its purchasing-power value has increased by much less.
The argument is relatively straightforward.
If an investment property increases in value over a long period, some of that increase may represent a genuine rise in its real value, while another portion may simply reflect the declining purchasing power of money because of inflation.
Without inflation indexation, the entire taxable nominal gain would potentially be subject to Labour’s proposed 28 percent rate.
National says that effectively means taxing inflation as well as genuine capital gains.
The criticism is particularly significant given inflation remains a political and economic issue heading into Election 2026, with Labour itself recently highlighting inflation running above four percent as part of its attack on the Government’s economic record.
Labour says tax is about property profits
Labour takes a very different view.
Its policy is designed to tax profits from investment and commercial property in a similar way to other forms of economic activity, while encouraging more investment into businesses, innovation and productive parts of the economy.
Labour says nine out of ten New Zealanders would not pay the tax on property they own.
Importantly, existing gains would also be protected.
An investment property worth $600,000 on 1 July 2027 that was later sold for $700,000 would have the tax calculated on the subsequent $100,000 gain — rather than increases in its value before the policy took effect.
However, Labour’s published policy describes the tax as applying to the profit or gain after 1 July 2027 and does not set out an inflation-indexing mechanism for calculating that gain.
That is the opening National is now targeting.
Health versus tax becomes election battleground
Labour has tied the policy directly to healthcare.
Revenue from the CGT would be ring-fenced for the health system, including funding three free GP visits every year for every New Zealander through its proposed Medicard.
Labour estimates its free GP programme would cost $393.3 million in 2027/28, rising to around $553 million annually once fully implemented.
That means the political argument is becoming about much more than whether New Zealand should introduce another form of capital gains taxation.
Labour will campaign on whether property investors should contribute more towards services such as healthcare.
National will increasingly focus on whether the tax is fair, how taxable gains are calculated and whether investors could be taxed on increases in property values driven partly by inflation.
Property tax battle could matter to Māori
The debate also has implications across Te Ao Māori.
Labour’s exemption for farms removes one potentially significant concern around whenua used for farming, while its broader exemptions cover businesses, KiwiSaver and inheritances.
But Māori investors, whānau holding residential investment property, commercial property owners and Māori businesses owning commercial premises will still want clarity about precisely how the regime would operate.
Labour says businesses themselves are exempt, although commercial property remains within the tax. Its policy also provides that small businesses selling premises in order to purchase larger premises would not pay the tax.
With the election campaign intensifying, expect capital gains tax to become one of the major economic dividing lines between Labour and National.
The argument is now shifting from simply whether New Zealand should have a capital gains tax to a much more detailed question:
What exactly counts as a capital gain — and should inflation be part of it?
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