Chris Trotter says National’s apparent decline in the polls may be bad news for those relying on tax-free capital gains to maintain their social status

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By Chris Trotter*

Strategic leaks from individuals in both major parties have National’s poll results falling below the psychologically important 40% barrier. The number mentioned, by both sides, is thirty-seven. A year after the 2017 election, National’s decade-long defiance of political gravity would appear to be coming to an end. For the New Zealand middle-class this could turn out to be very bad news indeed.

A National Party bereft of substantial coalition partners and polling in the mid-to-high-30s has no chance of forming the next government. A Labour Party polling in the mid-40s, on the other hand, will find itself well-positioned to dominate the government of the country for the next three years. One of the many reforms which such a Labour-led government will claim a mandate for is some form of Capital Gains Tax (CGT).

In spite of the fact that he once warned Labour against the introduction of a CGT (describing it as a sure-fire way of retaining the Opposition benches for a decade), Sir Michael Cullen and his Tax Working Group (TWG) have made it pretty clear that the present tax-free status of capital gains (most particularly those relating to property), will be the target of significant reform.

Whatever form Labour’s CGT takes, its impact on the life-world of the average middle-class New Zealand family will be enormous. One of the principal reasons for National’s decade-long defiance of political gravity was the so-called “wealth effect” of rapidly rising property prices – especially in the critical electoral cockpit of Auckland. So long as property owners could monitor the burgeoning value of their family home; the batch they inherited from their grandparents; the rental property they bought with Mum and Dad’s legacy; they felt safe. 

It was as if an entire social class had won Lotto. No matter how dark the world beyond New Zealand’s shores became; regardless of the stresses and pressures at work; always, at the back of their minds, sat a reassuringly large pile of $100 bills. If worse came to worst, then they could realise their capital gains and retire to one of the more respectable provincial cities.

The actor, Humphrey Bogart, liked to tell his Hollywood friends about the money he took care to salt away after every successful movie. His aim was to build the sum up to a point where, should the public turn fickle, or the moguls turn nasty, he would have enough money to simply shrug his shoulders and walk away. He called it his FU Fund.

That’s what John Key and the National Party’s hands-off policies allowed the New Zealand middle-class to build up – at least on paper. Their very own FU Fund. No wonder he and his party were so popular for so long. Low taxes are good – but no taxes at all are even better!

Labour’s promise that the family home will be exempt from any form of CGT is intended to reassure the middle-class that their FU Fund is safe. But, will it be enough? If the last 30 years have taught New Zealanders anything it is that no matter how modest the first step into forbidden territory may be, it is absolutely certain to be followed by another, slightly larger, step, and then another, and another, until, eventually, no forbidden territory remains at all. 

Over that same period of time, from 1984 to the present, tax-free capital gains have taken the place of so many of the things the New Zealand middle-class once took for granted. A secure, well-paid job; the ability to save the deposit on a house; not having to save money to send yourself and your children to university. While these options remained open, the middle-class’s confidence that their own social status and the social status of their children were readily defendable remained intact. Anybody with a smidgen of talent and an ounce of gumption could aspire to a middle-class existence in New Zealand. Social advancement on the basis of merit continued to be a reasonable proposition.

But, as the world of paid employment became ever-more precarious; as the sum required to secure one’s first property soared beyond the reach of more-and-more middle-class adults; and as the user-pays philosophy made ever-deeper inroads into the territory of the post-war social-democratic bargain (that the working-class and the middle-class would ascend the social ladder together), then the wealth accruing from capital gain assumed an ever-greater degree of significance.

For the first time in a very long time the promise of inherited wealth is playing a key role in the ordinary, moderately affluent family’s ability to retain their class status. Where, for earlier generations, a small inheritance from one’s grandparents or parents might pay for an overseas trip or renovations to the family home; the present generation’s ability to preserve their social status is increasingly dependent on the borrowing power, or outright inheritance, of the assets of the Bank of Mum and Dad.

Just as Donald Trump’s tweets can send jitters through the world’s financial markets, the merest whisper of a downward plunge in the value of the middle-class Kiwis’ property will likely send a devastating shock-wave through the New Zealand electorate.

Fear and greed, the economists tell us, are the prime human motivators. Any move in the direction of imposing a tax on the middle-class’s property-derived capital gains; any threat to the FU Fund they fondly believe their properties’ speculation-driven value represents; and the combination of the middle-class’s fear of falling with the greed it has been forced to nurture (ever since equity and fairness went out the window), will blow the political parties it deems responsible to smithereens.

The National Party’s numbers may be on the way down in November 2018 but that trend need not continue indefinitely. Mis-steps over the prospects and/or the timing of a CGT cost Labour dearly in the final fortnight of the 2017 election. Tell New Zealand’s middle-class voters that Labour, NZ First and the Greens are coming after their FU Fund, and their response is almost certain to be a very forceful ‘FU too!’

*Chris Trotter has been writing and commenting professionally about New Zealand politics for more than thirty years. His work my be found at This is his first fortnightly column for

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