Labour’s proposed 28% capital gains tax has sparked intense debate across New Zealand’s property and business sectors. In this episode, Mike and James explore what the policy means for investors, homeowners, and the wider economy - and whether now is the right time for such a significant tax shift.
Political Motivation Behind the Proposal
Labour’s announcement of a capital gains tax in 2027 wasn’t entirely unexpected. As one of the few OECD countries without one, the party’s move reflects a long-debated gap in New Zealand’s tax system. Yet timing remains a key concern.
Matt, Mike, and James argue that while a capital gains tax may be inevitable, introducing it when productivity is low and household stress is rising risks stalling economic recovery. The policy, which targets residential and commercial property, excludes shares, businesses, and farms – a decision the team believes is politically motivated.
As Matt notes, “Every government policy is designed to get the maximum amount of upvotes and the minimum amount of downvotes.” Excluding farmers – a core voter base in regional New Zealand – may help Labour appeal to rural communities while still positioning itself as addressing housing inequality.
How Would a 28% Capital Gains Tax Work?
If implemented, Labour’s 28% capital gains tax could follow one of three pathways:
Exemption for pre-2027 purchases – unlikely but favoured by property investors.
Valuation-based system – the most probable, requiring every property to be valued before the law comes into effect.
Universal tax on all assets – taxing gains accumulated since purchase, a politically risky move.
A valuation-based approach would trigger major demand for registered valuers, potentially distorting the market. As Mike explains, “If every property in the country needs a valuation on one date, the price for that service skyrockets.”
Beyond that, compliance costs would increase as lawyers, accountants, and solicitors navigate new rules and withholding taxes on sales.
Winners, Losers, and Unintended Consequences
Commercial investors appear to be “collateral damage” in the proposal – included to make the policy look broad and impartial. Meanwhile, farms are excluded, creating another two-tier tax system. “You’ll end up incentivising people to be part of the excluded group,” Mike observes, questioning how many chickens one would need to qualify as a “farm.”
The team also warns that tax distortions could push more assets into family trusts to avoid capital gains liability. “It’s always the lawyers and accountants who win,” James jokes, noting how past reforms have increased compliance costs without meaningfully simplifying the system.
Economic and Investor Impacts
The announcement arrives at a delicate moment. Inflation is still high, business confidence is low, and migration remains a challenge. National’s Nicola Willis labelled the tax “a grab that puts New Zealand’s recovery at risk.” While Mike agrees that property isn’t the most productive asset, Matt highlights the indirect benefits – “Money from property sales often ends up reinvested into businesses. Another tax just slows that cycle down.”
Even the discussion of a 28% capital gains tax could discourage investment. “We’re already hearing from clients who are delaying decisions because of what might happen if Labour gets back in,” says Matt. For many, uncertainty itself becomes a deterrent.
Property Investment: Is It Still Worth It?
Despite concerns, the hosts agree that property remains a viable long-term investment. While returns may stabilise at around 4-5% annually, the power of leverage continues to make real estate attractive. As Mike explains, “It’s still a good asset class – you just can’t borrow to buy and expect to make instant gains anymore.”
However, they caution listeners not to make knee-jerk decisions. “Headlines can be misleading,” James warns. “If you adjust your financial plan every time a new policy is announced, you’ll never get anywhere.”
Key Takeaways
- Labour’s proposed 28% capital gains tax targets residential and commercial property, excluding farms and business sales.
- Timing is a major concern, with economists warning it could hinder New Zealand’s recovery.
- A valuation-based model is the most likely implementation method.
- Commercial investors are likely “collateral damage” in a politically strategic policy.
- Exemptions risk creating inequality and new loopholes.
- Compliance costs and valuation fees will increase for property owners.
- The policy may discourage investment, at least in the short term.
- Property remains a sound long-term investment when managed strategically.
- Economic uncertainty shouldn’t dictate long-term financial decisions.
Next Steps:
Talk to Lighthouse Accounting to understand how the 28% capital gains tax could impact you – and how to plan ahead.
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Disclaimer:
The information in this article is general information only, is provided free of charge and does not constitute professional advice. We try to keep the information up to date. However, to the fullest extent permitted by law, we disclaim all warranties, express or implied, in relation to this article – including (without limitation) warranties as to accuracy, completeness and fitness for any particular purpose. Please seek independent advice before acting on any information in this article.
