Perhaps the Tax Working Group was fatally compromised from the outset when the taxation of the family home was excluded from its terms of reference. My view is that too often proponents of a capital gains tax default to arguing the difficulties and are therefore on the back foot from the outset.

Even so, the decision to not expand the taxation of capital gains in any form is extremely surprising, not just to me but probably also even to groups such as the New Zealand Property Investors Federation.

But the question of a CGT was just one of the issues the Tax Working Group (TWG) examined. Its final report contained 99 recommendations across the entire tax system. The government’s response to these recommendations breaks down into five categories:

• rejected and no further work;
• the recommendation is a high priority for the tax policy work programme;
• the recommendation should be considered for the current tax policy work programme;
• the recommendation represents policy work which is already underway; and
• endorsed because the TWG agrees with the present policy settings and the government agrees with the recommendation.

Also dead in the water alongside CGT are 13 other recommendations, including all the TWG’s proposals for using the proceeds of a CGT to reduce personal income tax, a framework for applying any new “corrective taxes” and the development of a clearer articulation of the government’s goals regarding sugar consumption and gambling activity.

Finally, there will be no new environmental tax proposals beyond those already on the tax policy work programme. This also means that this parliamentary term there will be no resource rentals for water or input-based instruments such as a fertiliser tax.

The lack of significant environmental taxation changes is perhaps as big a surprise as the CGT decision. This is not only because it represents a clear rebuff for the Green Party, but also because during the media lock-up at the launch of the TWG’s final report, Sir Michael Cullen made much of recycling environmental taxes to help farmers transition to a lower-emission economy.

Not proceeding with a CGT means the TWG’s suggestions over using the proceeds to reduce income tax particularly for lower income earners will not proceed. This leaves the government with the problem of what to do about income tax thresholds which now have not been adjusted since 2010. Pressure for some movement on these will continue to build up until and beyond next year’s election.

The 11 recommendations that the government considers a high priority for the tax policy work programme are a mix of system integrity issues such as a review of tax loss-trading, better compliance around debt collection, and more politically visible initiatives like seismic strengthening work (which given it’s been more than eight years since the Canterbury earthquakes is something which really should have been resolved by now).

Devising rules for land speculators and land bankers is also a high priority but there’s not much detail at the moment. The TWG suggested that local government should levy residential land taxes on vacant land and the government has told the Productivity Commission to include this issue as part of its inquiry into local government funding and financing. We shall have to wait to see more detail on this initiative.

The TWG made a number of recommendations regarding compliance costs for businesses. All of these have been put into the “consider for inclusion in the tax policy work programme” category. It would have been good to see these be given higher priority, as several measures which increased thresholds such as that for provisional tax would be very helpful for smaller businesses. Instead, the tax policy process means that it could be two, or more likely three, years at the earliest before these recommendations become law.

To be frank, although the TWG’s recommendations around business compliance costs are welcome, they are also on the timid scale. For example, there’s nothing which compares with the proposal in the recent Australian Budget allowing small businesses to instantly write off assets costing less than A$30,000.

All of the TWG’s proposals regarding international taxation are already in the work programme. This means that an Inland Revenue discussion document about a digital services tax will be released in May.

Watching international developments on equalisation, or diverted profits taxes, is part of the current work agenda. It’s interesting to note that Britain’s HM Revenue and Customs has seen its tax take from diverted profits tax rise from £31 million in the 2015-16 tax year to £388 million in 2017-18. HMRC puts part of the increased tax take down to behavioural changes by multinationals following the introduction of the diverted profits tax. Could a diverted profits tax have a similar effect in New Zealand?

The TWG’s recommendations relating to retirement savings such as reducing prescribed investor rates of KiwiSaver funds for those earning below $48,000 have been parked in the “consider for inclusion” pile.  And the deferment of this work highlights one of the issues a CGT was intended to address: the imbalance in tax treatment between various asset classes.

With the decision to walk away from a CGT, property investors retain their significant tax advantage over ordinary savers and those investing via KiwiSaver funds. It is this continuing imbalance in treatment plus the wider concern of growing wealth inequality which means that despite her decision today the prime minister has, as Macbeth lamented, “scotch’d the snake not killed it.” We will be re-litigating these issues in another ten years if not sooner.

This article first appeared on The Spinoff