Can Labour’s capital gains tax pay for three free doctor’s visits?

Author: Kieran Trass Head of Research, Staircase. Property cycle analyst and author of five books on the New Zealand market.

Partly. The revenue is real, but it only arrives when investors sell, and the design rewards not selling. That is the finding of the first Housing Compass report, which tested Labour’s capital gains tax against Labour’s own claims.

Read the full Housing Compass report

What Labour says

Labour has proposed a 28% tax on gains made after 1 July 2027 when residential investment property or commercial property is sold.

Labour’s policy document says every dollar the tax raises will be ring-fenced for health. The first use is three free GP visits a year for every New Zealander.

Labour’s policy makes four claims for what the tax will do. The doctor’s visits are the only one with a number attached.

What Labour expects the tax to raise

Labour forecast what the tax would raise in each year:

Labour's own forecast of what the capital gains tax raises each year, ring-fenced for health. The dashed line marks the average of about $700m a year over the first four years. Source: Labour policy document

The catch: no sale, no tax

The tax is only paid when an investor sells. Holding is free, and holding until death means the tax is never paid at all. So the revenue depends on how many investors choose to sell, and the design gives them a reason not to.

Cotality estimated about 18,000 investor sales in the first year of the tax, against 30,000 to 35,000 in a normal year. Fewer sales means less tax collected.

The same investor, two choices: sell and pay 28 percent on the gain since 1 July 2027, or hold until death and pay nothing. Below, Cotality's estimate of 18,000 investor sales in the first year of the tax, against 30,000 to 35,000 in a normal year.

Who covers the gap

The doctor’s visits are funded either way. If the tax brings in less than forecast, the shortfall comes from general taxes. The question is not whether the visits get paid for. It is who pays: property investors, or everyone.

Kieran Trass, Head of Research at Staircase, puts taxpayers on the losing side of the ledger for this reason: they cover the visits until the tax actually comes in.

Labour’s two goals pull against each other

Labour wants money out of property, and it wants money for health.

The report suggests four changes to bring the tax closer to Labour’s goals. Three of them help one aim by shrinking the other:

The four changes suggested in the Housing Compass report, and what each does to Labour's two aims. Only the first, taxing the gain at death or passing the starting value to heirs, serves both. The other three shrink the health revenue.

Only the first change serves both aims. It removes the tax-free exit at death, so investors have less reason to hold forever and the revenue comes in sooner.

How we will know

This is the one claim that can be checked against Labour’s own number. If the tax goes ahead, the report sets a baseline of the twelve months before it starts, then checks the results on three dates:

When the claim gets checked. The baseline is the twelve months before the tax starts, then results are re-scored on 1 July 2028, 2030 and 2032 against two measures: revenue collected versus Labour's forecast (Treasury, Inland Revenue) and investor sales versus the 18,000 first-year estimate (Cotality, REINZ).

Read the full Housing Compass report