The Government has begun a programme of wide ranging reforms of the tax system to widen the tax base and to reduce the rate of personal tax. The fringe benefits tax and the goods and services tax are already in place, and proposals to introduce a full implementation scheme for company shareholder taxation, all form part of the extensive reform of the system. So far, however, no consideration has been given to the introduction of a capital gains tax. Such a tax has been regarded over time as politically unacceptable and yet forms of capital gains tax are already part of the New Zealand tax system. Capital gains taxes are operated in most other western countries.

If the objectives of widening the tax base and reducing the level of personal tax are to be pursued all forms of taxation need to be considered. This paper reviews the rationale for introducing such a tax; discusses the disadvantages inherent in the present system including such aspects as equity and tax minimisation; and also examines the problems of introducing such a tax.

The Taxation of Capital Gains in New Zealand was commissioned by the Institute of Policy Studies as part of its research programme on business taxation.