My son’s a builder in Australia. Hard physical work, long hours, and he pays tax on every dollar he earns. His neighbour down the street? He also pays tax when he sells his investment properties for a $500,000 gain. The Australian Tax Office takes its cut.
Back in New Zealand, my son would still pay tax on his wages. But his neighbour? That $500,000 in property gains would walk away completely tax-free, as long as he holds each property for just two years and one day. That’s the problem we need to talk about.
A builder earning $80,000 pays about $15,000 in tax. Someone making $500,000 in capital gains on property pays zero. Where’s the fairness in that?
In 2023, an Inland Revenue audit found New Zealand’s wealthiest families pay an effective tax rate of just 8.9%. Middle-income earners pay over 20%. The reason? 93% of wealthy families’ income comes from capital gains on property and business assets, which largely escape taxation. Only 7% is subject to personal income tax. Meanwhile, working New Zealanders pay tax on practically every dollar they earn.
We’ve ended up with one of the worst wealth gaps among developed nations in the OECD. That’s not just morally questionable—it’s economically stupid.
Our current system actively distorts investment decisions. Because capital gains on property aren’t taxed beyond the two-year Brightline, we’ve created massive incentives to pile money into residential real estate rather than productive businesses. Why risk investing in a startup when you can buy a rental property, watch it appreciate tax-free, and collect rent in the meantime?
Every dollar bidding up existing housing stock is a dollar that could have gone into creating jobs, developing new products, or building productive capacity. Australia, Canada, the UK, and the United States all have capital gains taxes. They haven’t collapsed. Most developed economies recognise that you need to tax all forms of income if you want a system that doesn’t distort economic decisions.
Labour has tried this before. Phil Goff campaigned on it in 2011. David Cunliffe in 2014. Both lost. In 2019, Michael Cullen’s Tax Working Group recommended a comprehensive capital gains tax, but Jacinda Ardern couldn’t get it through Cabinet—Winston Peters blocked it.
Now Labour’s back with a narrower version: capital gains tax on investment properties only, excluding the family home and farms. They’re being cautious, probably too cautious, but at least they’re being realistic about what’s politically achievable.
The typical objections are predictable. “It’ll hurt mum and dad investors!” Well, if those investors are making substantial untaxed capital gains while their kids pay tax on every dollar earned, maybe it’s time to question whose interests we’re protecting.
“But the wealthy already pay most of the tax!” True, the top 21% of earners paid 68.5% of income tax in 2021. But that statistic is about income tax only—and it includes successful professionals whose income genuinely is mostly salary. When you look at the truly wealthy—the 311 families the IRD researchexamined—the picture changes dramatically.
For this group, only 7% of their total economic income comes from taxable wages. The other 93% comes from capital gains, which largely escape taxation. Their effective tax rate? Just 8.9%. The “they pay their fair share” argument works for high-earning professionals, but it falls apart for the genuinely wealthy.
“It’ll crash the property market!” Maybe. Or maybe it’ll just slow the relentless inflation of house prices that’s made homeownership unattainable for young New Zealanders. Either way, a property market depending on perpetual tax-free gains probably isn’t sustainable.
“It’s too complex!” Australia manages it. Canada manages it. The complexity argument is really just code for “we’d rather not bother.”
If we’re serious about addressing wealth inequality and fixing our distorted investment incentives, we need a capital gains tax. Not in five years, not after another working group—now!
Labour’s current proposal is a start, but it’s too narrow. Investment properties should be included, absolutely. But we should also look at business assets. The family home can stay exempt—no one’s arguing otherwise. But everything else that generates wealth through capital appreciation should be taxed at a reasonable rate.
The revenue could fund tax cuts for low and middle-income earners, or be invested in infrastructure, health, and education. This isn’t radical socialism. It’s basic fairness and sound economics. Most developed countries already do this.
The pattern is clear: politicians have always known a capital gains tax makes sense. They’ve just been too scared to say so. Labour opposed it when they had the numbers. Now they’re backing it because they’re desperate for votes. It’s a political grenade—everyone knows it needs dealing with, but no one wants to hold it when it explodes. Politicians need to do what’s right for the country, not what focus groups tell them will play well in marginal electorates. Sometimes leadership means having the courage to implement good policy, even when it’s unpopular.
So here we are again, having the same tired debate we’ve had for decades. We can keep electing politicians who tell us what we want to hear—that we can have world-class infrastructure, health care, and education without asking the wealthiest to pay their fair share. Or we can demand leaders with enough backbone to fix a system that’s been broken for years.
A tax system that treats income from labour completely differently from income from capital makes neither economic nor moral sense. It distorts investment, inflates house prices, and lets those who can afford to pay the most contribute the least proportionally.
The choice isn’t really about capital gains tax. It’s about whether we want politicians who govern based on principle and evidence, or politicians who rule based on polls and fear. I know which one I’d rather have running the country.
Steve Baron is a New Zealand-based political commentator and author. He holds a BA with a double major in Economics and Political Science from the University of Waikato and an Honours Degree in Political Science from Victoria University of Wellington. A former businessman in the advertising industry, he founded the political lobby group Better Democracy NZ. https://stevebaron.co.nz