If New Zealand is going to have a capital gains tax it needs to include everything, says economist Cameron Bagrie.
The Government is tipped to unveil its plans this week, but with the family home off the table and various exemptions likely, many are wondering what the point is.
"Should New Zealand have a comprehensive capital gains tax? The answer is hell yes," Bagrie, former chief economist of ANZ, told The AM Show on Monday.
It should include the family home and all assets.
National leader Simon Bridges opposes any capital gains tax, but also predicts it'll be a watered-down version of what the Tax Working Group recommended.
"You have to ask why? Why are you doing this?"
The Government's said it's trying to make the tax system fairer. At present capital gains largely go untaxed, while people who work for a living are expected to cough up a significant portion of their income - and people who make money from capital gains tend to be wealthier.
By having the family home off the table from the start, Bagrie says the Tax Working Group "started behind the eight-ball right from square one".
You either kick it for touch, or else we dilute things further
He told the AM Show "I suspect we're going to go down the dilution route."
But this will reduce the amount of tax revenue the Government will get from its capital gains tax, making any corresponding tax cuts for wage and salary earners likely to be lower.
"Potentially they will be off the table," said Bagrie. "I say potentially, because you could look at other revenue sources - redirecting other expenditure programmes."
And there could be bigger reasons why the Government might struggle to justify tax cuts in the coming years.
During the 2017 election campaign, Steven Joyce claimed there was an $11.7 billion hole in Labour's spending plans. Virtually every prominent economist disagreed - Bagrie among them - but he's now flipped.
"Steven Joyce is ultimately going to be proved right at some stage - but that story's two to three years out."
That's because in his view, the Government is being too optimistic about GDP growth over the next few years.
I think they've been far too optimistic on what the growth numbers are going to look like for the New Zealand economy over the next two to three years.
He said it could be even bigger than $11.7 billion if the Government doesn't come up with a plan to rapidly transition the economy.
"I think most people accept that New Zealand's old-school economic model of more cows on the land, more investment in non-renewables, a turbo-charged property market and growth from migration gains, it's not the right economic model."
"So we're dishing out some hits to rein those sectors in… we need to find replacement sources of growth on the other side of the ledger, and pretty damn fast."
He suspects there won't be anything of the sort in this year's Budget, which is expected to focus on inequality and child wellbeing.