On Monday evening, I sat on a panel at Foxglove on Queens Wharf in Wellington, where I was expected to play the neoliberal villain.

The Institute for Democratic and Economic Analysis is a think tank devoted to fighting poverty and political exclusion. It launched a new report on capital gains taxes, including the one Labour has proposed, and invited me to be one of the discussants.

A centre-left think tank, a Wellington audience and a Labour tax policy sounded like a home game for the tax. And I was presumably cast to declare that a capital gains tax would wreck the economy.

However, the evening did not follow that script.

For a start, my own position on capital gains taxes is more nuanced. Designed well, I think they could work in theory. My objection is that Labour’s plan is just not for that kind of tax.

But the bigger surprise, at least to me, was on the other side. Neither the report’s author, Xandi Cooke, nor my fellow panellists, Infometrics economist Brad Olsen and ecological economist Marjan van den Belt, nor indeed anyone else in the audience rose to defend the tax as Labour has actually proposed it.

This Wellington audience, I would have thought, must surely be the friendliest audience Labour’s capital gains tax policy will ever find. And yet, nobody on the panel liked it.

Unfortunately, there were no Labour politicians in the audience. Which is a shame because this finding should really unsettle a party which has built its election-year economic programme on it. But since Labour was not in the room, they should at least read Xandi Cooke’s report.

The report is nicely balanced and regards the usual claims on both sides of the capital gains tax debate as overstated. Instead, it finds a comprehensive capital gains tax more coherent, fairer and cheaper to administer per dollar raised than Labour’s narrow version. And since it was peer reviewed by Craig Elliffe and Robin Oliver, two of the country’s most serious tax specialists, the report is not to be easily dismissed.

My main objections to Labour’s tax plan are about the way it is calculated, the exemptions involved and the earmarking of the revenue. Let us go through them one by one.

Labour has ruled out any adjustment of their capital gains tax for inflation. To understand why that is a problem, imagine buying a rental property today for $1 million, holding it for 25 years before selling it for $2 million. If prices have risen 3 per cent a year over that quarter century, your $2 million buys less than your original $1 million did. You made nothing, but Labour would still want $280,000 for the privilege. That cannot be fair.

Then there is death. Under Labour’s proposal, dying does not count as a sale, and inheritances also go untaxed. Such a system would mean owners holding onto their investments for as long as they can because that is the surest way to avoid paying tax.

Then there are the exemptions. The family home is exempt along with farms, shares, KiwiSaver, inheritances and personal possessions. What remains, essentially, is the house you rent to somebody else. Far from steering money into productive investment, the tax widens the gap between occupying your own home and providing somebody else’s, in a country short of rental housing.

Where the revenue from Labour’s tax goes makes it no better. Every dollar is earmarked for three free GP visits a year. Except New Zealand is short of doctors, and subsidising visits does nothing to fix that problem. In fact, it makes it worse.

My fellow discussants had their own objections to Labour’s tax, so I certainly did not feel isolated on the panel. But just so the evening did not get too boring, it was up to Brad Olsen to provoke us. Yes, Labour’s tax is terrible, he said, but might it still be worth passing? If only to move the debate forward and (here is hoping) fix the design later.

You have to give it to Brad Olsen. It is the best argument one can find for a tax policy that is flawed to the core.

Except, it is not, because it would add to another big problem with tax policy in this country: its unpredictability.

You see, people make big investment decisions with time horizons running twenty or thirty years. But how can they do so with any confidence if the rules of the game keep changing?

Think about the bright-line test which began at two years in 2015, was then extended to five, eventually to ten, before going back to two in 2024. Similarly, interest deductibility for landlords was abolished, then restored.

This is not how one should run a tax system, and introducing a flawed capital gains tax in the hope of fixing it down the track would not help.

And so, it seemed to me that at the end of the evening, there was no clear agreement in the room on whether a capital gains tax was really needed.

But I felt some agreement that if there should be a capital gains tax, then it should at least be well designed. And that would mean it should be broad-based, indexed for inflation and not earmarked to specific spending pledges.

That was hardly the outcome I expected. But then again, I probably did not play the part the audience expected me to play, either.

To read this article on the NZ Herald website, click here.