Taxing task: Labour vs capital

The 40 year policy gap

Our politicians have spent forty years kicking the fair taxation can down the road while the wealth gap gets bigger. The wealthy and connected have been happy to have labour (wages and salaries) taxed highly and unavoidably, while capital largely escapes any equivalent liability. Those who work pay their full taxes; those whose money earns for them either aren't taxed on it, or can easily avoid the tax. A nice earner for those who hold capital, or its proxy, property. A heavy burden for those who go to work. 

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Inland Revenue's own research bears this out. Its 2023 High-Wealth Individuals Research Project found that counting unrealised capital gainds as income — how a wealthy individual's net worth grows year to year — New Zealand's wealthiest adults, those worth more than $50 million, pay on average just 9% of their income in tax. That's less than a minimum-wage worker, on around 10.5%, and under half what the average New Zealander pays, at around 22%. Two people with the same economic gain in a year can face wildly different tax bills, depending only on whether that gain showed up as a payslip or a property revaluation.

It's galling that a country espousing social values and equity puts up with this, burying it under double-speak about working hard to get where we are, entitlements and deserved-ness. The real reason is that New Zealand's capital is held in the family home or farm: for most households, the family home isn't an asset class, it IS the asset, full stop. Decades of house price growth running ahead of wages have concentrated the country's wealth into housing rather than shares or business — a nice wee earner hiding what low productivity would otherwise expose, and a political minefield for anyone trying for a fair taxation model.

Every few elections, someone proposes tax equity. Every time, the proposal gets caricatured into oblivion, and we go back to raising revenue mostly from wages and consumption (GST). Going into the 2026 election, three live proposals are on the table — from Labour, the Greens, and Opportunity (formerly The Opportunities Party, or TOP). The coalition, by contrast, seems intent on driving labour's contribution further and entrenching the inequity — more on that later. Solving this massive, underlying problem opens the door to less poverty and fairer funding for things we mostly agree we need, like better infrastructure and health systems, and some redistribution of wealth. New Zealand is unusual in its reluctance to tax capital properly: for years it was the only OECD country without a general capital gains tax, and still raises markedly less than the OECD average from taxes on capital transactions, estates, inheritances and gifts.

Three policies

Labour's capital gains tax is the most modest of the three. It taxes only realised gains, profit made when you sell, on investment and commercial property, at a flat 28%, from mid-2027. The family home is exempt, along with shares, farms, KiwiSaver, and business assets. The revenue (roughly $700 million a year on average, climbing to $1.35 billion by 2030) is ring-fenced for free GP visits, maternity scans, and cervical screening. Chris Hipkins has been explicit that this is the ceiling, not the floor: no wealth tax, no inheritance tax, and no budging if the Greens want to go further in coalition talks.

The Greens' package is broader and considerably more ambitious on paper: a wealth tax, an inheritance tax, a landlord tax, a bank tax, a big tech tax, and higher corporate and income tax. The two pieces that matter for this comparison are a 2.5% annual levy on net assets above $10 million (family home exempt) and a 33% Capital Acquisitions Tax on inheritance or gifts above $1 million. But the threshold has been retreating with each election cycle, from catching the wealthiest 6% of New Zealanders in 2020, to the top 0.7% in 2023, to a “super-rich” framing now, which tells its own story about what's politically survivable.

Opportunity's land value tax is structurally the odd one out. Rather than taxing a gain or a stock of net wealth, it taxes the underlying value of land itself, every year, at 1.75% in urban areas and 0.5% in rural areas — and there's no family home exemption. It's paired with a Citizen's Income of $19,400 per adult per year, funded by the land tax revenue. Hardest hit are "asset rich, cash poor", often older homeowners and/or farmers who may be “incentivised to make different choices” in their lives, like downsizing. There are no exemptions, but there is deferral, with the tax accruing against the property until sale. There's also a top-up to the Citizen's Income that keeps current superannuitants at today's NZ Super rate.

The three policies side by side

Feature	Labour — CGT	Greens — wealth + inheritance tax	Opportunity — land value tax
What's taxed	Realised gain on sale of investment/commercial property	Net assets >$10m (annual) + inheritance/gifts >$1m (transfer)	Unimproved land value, annually
Rate	28% flat	2.5% wealth; 33% inheritance	1.75% urban / 0.5% rural
Family home	Exempt	Exempt	Not exempt
Stock vs. flow	Flow — taxed only on sale	Stock — taxed annually whether or not sold	Stock — taxed annually whether or not sold
Who pays	Property investors only	~0.3% of population (wealth); ~1,100 people/yr (inheritance)	Almost every landowner, incl. ordinary homeowners
Protection for vulnerable groups	N/A — narrow base by design	High threshold is the protection	Deferral (not exemption) for superannuitants & farmers
Projected revenue	~$700m/yr avg, rising to $1.35b by 2030	$15.8b/4yrs wealth; $4.1b/4yrs inheritance	$24b/yr
Stated use of revenue	Ring-fenced: free GP visits, maternity scans, cervical screening	General revenue, part of wider package	Funds Citizen's Income ($19,400/adult/yr)

What the coalition is doing instead - going the other way

National has ruled out a capital gains tax outright, with Christopher Luxon calling Labour's plan an “economic wrecking ball” and “a tax on every single business in New Zealand.” ACT leader David Seymour has gone further, calling the very idea “divisive” and arguing New Zealand doesn't have a revenue problem in the first place — “it's not that New Zealand lacks government revenue... It seems to be about that old chestnut, the tall poppy.” Winston Peters' objection is narrower but just as final: he's said a CGT wouldn't raise enough to fund Labour's promised healthcare expansion anyway, so why bother with the political cost.

However, the coalition's actual tax-adjacent moves have run counter to the equity-gap framing entirely. Early in the term, National sped up the restoration of interest deductibility for residential landlords making property investment more attractive. Most recently, the government proposes KiwiSaver reform that puts more ‘taxation’ on labour and leaves capital untouched again. The proposal to make contributions mandatory for all workers from 2028, rising to 6% each from employers and employees by 2032, and NZ First pushing an even more aggressive 8%, rising to 10% is a forced-savings mechanism on labour income, not a tax on capital. It nudges people to convert wages into capital over a working life; it doesn't touch capital that's already accumulated.

So we have the governing parties ruling out anything resembling a capital, wealth, or land tax, set against three opposition parties offering three different versions of one. Whichever of the three wins the argument will need either an outright majority or a coalition partner willing to concede ground that, on current form, none of National, ACT, or NZ First show any sign of conceding.

What the rest of the world tells us

Each of the three proposals have real-world test cases with mixed results. Note: Australia is itself mid-reform: from 1 July 2027, the 50% CGT discount for investment assets is being replaced by cost-base indexation and a 30% minimum tax — tightening the tax on investor gains while leaving the main residence exemption untouched. It's the same structural choice Labour is proposing for the first time here: squeeze investors, leave the family home alone. 

International comparators and durability

	Closest model	What that model shows	Durability signal
Labour's CGT	Australia (investment property taxed, main residence exempt)	Main residence exemption forgoes ~AUD$47.5b/yr in revenue — the exemption is structurally where most household capital sits, untouched	High — stable, least disruptive to capital
Greens' wealth tax	Switzerland (durable) vs. Sweden/France (repealed)	Broad-base, low-rate designs persist (Switzerland: 4.3% of tax take); narrow-base, high-rate designs get repealed via capital flight (Sweden pre-2007, France pre-2018)	Mixed, trending toward the narrow/high-rate pattern history repeals
Greens' wealth tax (counter-case)	Norway	Revenue rose 78% (2021–23) even as departures continued — broad base of payers cushions losses, but NOK 142b left in 2022–23 regardless	Likely depends on a credible exit tax
Opportunity's land tax	Estonia (exclusive LVT, no building tax)	Survives partly because ~90% owner-occupancy already existed; few exemptions, even public institutions are taxed	Low-risk where home ownership is high and entrenched
Opportunity's land tax (cautionary case)	Denmark	A century of cross-party consensus eroded once asset-rich, cash-poor retirees and farmers felt the tax directly	Low — the no-exemption design is exactly what broke Danish consensus

Wealth taxes: Failures and exceptions

Europe's wealth tax experiment has mostly failed. Fourteen European countries had a broad wealth tax at some point in the past sixty years; almost all of them repealed it. France lost an estimated 12,000 millionaires in 2016 alone before scrapping its version, and the government's own analysis found it lost roughly twice as much in other tax revenue as the wealth tax itself raised. A pretty big fail!

Ireland's now-defunct wealth tax had compliance costs eating 18.5% of the revenue it raised, before government administration costs are even added.

The pattern that emerges is that narrow-base, high-rate wealth taxes get repealed (Sweden, France, Germany, Ireland); broad-base, low-rate ones survive and raise money. Switzerland is the proof — its wealth tax, covering nearly all assets at rates between 0.1% and 1%, raised the equivalent of 4.3% of total tax revenue in 2023, the highest share of any OECD country. The Greens' own threshold trajectory — narrowing from the top 6% to the top 0.7% to a vague “super-rich” framing now — is moving in exactly the direction the international record says gets repealed, not the direction that survives.

Norway is the complicated middle case. Wealth tax revenue rose 78% between 2021 and 2023, even as departing residents took the equivalent of billions of dollars out of the country in the same period. So, both capital flight and higher tax revenues happened with this legislation. Norway's answer was to tighten the exit door. If you're a Norwegian tax resident with unrealised share gains and you move offshore, Norway now taxes that gain as if you'd sold the day before you left, at the same 37.84% rate that would have applied had you stayed, payable immediately or over twelve years. The old five-year loophole — leave for five years and the tax disappeared — is gone. So is the credit for tax paid in your new country. 

The lesson from Norway is that a wealth tax without a credible exit tax will leak and likely fail (in Europe anyway).  Worryingly, none of the three NZ proposals on the table pair their capital tax with anything resembling an exit tax.

Land value tax: rare, durable where it exists, fragile where it meets retirees and farmers

Land taxes are the road less travelled internationally. Estonia is the closest to Opportunity's design — a tax on land value alone, with no separate building tax and almost no exemptions, not even for most public institutions. It has survived for over thirty years, helped considerably by Estonia's unusually high (around 90%) rate of outright home ownership, a legacy of its post-Soviet privatisation.

Denmark is the cautionary tale.  It had cross-party consensus on land value taxation as a central plank of public finance for the better part of a century, but it still eroded, as the tax gradually shifted from ownership to usage once the politics of asset-rich, income-poor households (retirees, farmers) became unavoidable. A hundred years of agreement wasn't enough to survive contact with exactly the constituency Opportunity's own policy document names as the hardest hit.

The CGT comparator nobody's policy improves on

Australia already runs something very close to Labour's proposed model — investment property taxed, family home exempt - which makes it a useful comparator. The problem is the same one Labour's policy will inherit: Australia's Treasury estimates the main residence exemption alone forgoes around AUD$47.5 billion a year in revenue. A targeted CGT is a step from untaxed to taxed capital, but it’s a very small one because it leaves the biggest pool of capital in the country (the family home or farm) almost entirely alone.

If you exclude the family home or farm, you are excluding the biggest driver of capital gains in the country.  Labour's CGT and the Greens' wealth tax both do this.  Excluding that great source of capital gain essentially leaves the labour-to-capital imbalance largely untouched. 

If we are to balance the tax regime, make it fairer and improve its outcomes, we have to get past ring-fencing the family home or farm

Exempting the family home or farm from capital/land/wealth taxation is a politically survivable policy rather than anything that rebalances the system.  Sadly, the only asset big enough to matter is also the one asset no party with an eye on the median voter is willing to touch.

So which one could narrow the gap?

Run side by side against the international record, the three options don't fail in the same way.

Labour's CGT is the most politically durable because it's the least disruptive to capital and mirrors a model that's been stable in Australia for a generation.  It’s acceptable because it doesn’t do much. It’s a shame that Labour has said this is the ceiling, not a floor it might raise, and it's arriving at a moment when the thing it taxes is least likely to generate much to tax. House prices nationally are still around 17% below their 2022 peak — roughly 30% down in real, inflation-adjusted terms. Labour’s own revenue projection assumes 3% average house price growth across the forecast period to make its numbers work. A capital gains tax pitched as the fix for tax inequity, arriving just as the gains it taxes have largely stopped materialising may not be able to fund its commitments to free GP visits and other health benefits.

The Greens' wealth and inheritance tax is aimed more directly at capital, but its own design history is retreating along exactly the path that preceded repeal elsewhere — narrowing the base while keeping the rate high is the Swedish and French story.  The  Swiss one might be worthy of more exploration.

Opportunity's land tax is the most theoretically robust against capital flight, because land cannot emigrate, and it's the broadest base of the three, but it offers the least political insulation to the group every comparable international case shows will resist hardest: people with substantial assets and modest cash income. Pairing Opportunity's land tax with the Citizen's Income changes this calculus a bit. Because the same household is usually both payer and recipient, Opportunity can credibly claim a majority of New Zealanders end up net positive.

None of the three, on the evidence elsewhere, manages to be broad, durable, and disruptive to accumulated capital all at once. My conclusion is that closing the equity gap between labour and capital looks achievable in principle, but every version of it that's been tried somewhere in the world has had to trade away at least one of those three things (broad, durable, disruptive) to survive. More work required.