Sir Michael Cullen forecast in 2018 that it might then be "now or never" for a capital gains tax.

OPINION: Sir Michael Cullen is trying to calm fears about a capital gains tax, but in doing so he makes it sound like the tax could be voluntary, or easy to manipulate.

His statements create many questions, which need to be answered, quickly.

Last week I warned the TWG's preferred method of bringing in the new tax which would force every asset to be valued, as at a certain "valuation date", adding billions of dollars in compliance costs across hundreds of thousands of New Zealand's small businesses.

Cullen, the TWG's chairman, accused me of "blatant scaremongering" but I stand by the reasoning. So does the TWG's own report, the only one the public is able to work from.

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"A valuation day approach does mean there is a need to value all assets that are to be subject to the new rules as at a given day," the TWG's report states. "This will impose significant compliance costs on many taxpayers."

Robin Oliver, a former IRD deputy commissioner and TWG member has described the mass valuation as "challenging".

Oliver's business partner, Mike Shaw, made a submission to the TWG on November 7, saying the valuation date would be "very costly and very uncertain" and was likely to lead to "many disputes with the IRD". Shaw, who also put the cost of valuation day in the billions, made it clear that Oliver was not involved in the submission.

MAARTEN HOLL/STUFF Sir Michael Cullen, chairman of the Tax Working Group responded to warnings about the cost of introducing a capital gains tax by saying Inland Revenue may allow valuations of businesses which were "close enough".

Cullen's response was to insist that no one was suggesting all businesses would have to be valued on a single day, revealing that the TWG may give businesses years to get the valuation. But this would simply spread the cost, not mitigate it.

But Cullen also claimed the costs would be lower than I believed, for astonishing reasons.

He said it didn't matter if business valuations were not accurate and that business valuations could be "rough and ready" and would be accepted if they were "close enough". If they are artificially too high or too low, that was not as important to him than getting CGT into law.

That should be scary news for Finance Minister Grant Robertson and Revenue Minister Stuart Nash.

ROBERT KITCHIN/STUFF Wellington businessman Troy Bowker writes that Sir Michael Cullen attempts to play down the potential costs of a capital gains tax simply raise more questions.

As anyone who has filed one knows, tax returns are supposed to be true and correct – and taxpayers have to attest to that on the forms.

Imagine a tax system where a "rough and ready" and "close enough" test replaces a sworn accuracy test.

The reason why valuations are absolutely critical to CGT is that there are only two components in the simple formula to work out how much tax you pay when you sell an asset. The price you sell it for minus the valuation of the asset on valuation day.

This creates a massive incentive to inflate the value of your business on day one, because it will mean you pay less tax, or even no tax, when you sell it.

Cullen seems to think it does not matter much, but it could determine how much revenue a tax earns for decades to come. If businesses are allowed to inflate the value of their businesses, it will effectively make the tax voluntary for a generation of ownership.

His remarks open up so many questions that need answering now, not later.

How inaccurate are you allowed to be? Will the IRD extend this "rough and ready" approach to calculating income tax? Are the IRD going to cancel their rights to challenge and impose penalties on valuations if CGT is brought in?

On Wednesday, Cullen confirmed a majority of the TWG were ready to recommend a CGT to the Government, but there was disagreement about the "how".

How you bring in a complex piece of tax law such as CGT is just as important as what and when you bring it in. The "how" in tax really matters.

What should bother us most is Cullen's dismissive reaction to any form of criticism. The TWG's very existence is at the behest of the Labour government. He is no longer a politician. He is a civil servant doing a job that we as taxpayers are paying him to do.

Cullen said today New Zealand was drinking at the last chance saloon for introducing a CGT. Businesses in New Zealand are not sure they want to be sharing a drink with Labour, but at least need to know what Labour proposes to serve them. Otherwise, Labour may be left drinking alone.

The business community is sceptical of Labour's intentions and tax policy agenda is central to the acceptance of their economic credibility. Their cause is not helped by Cullen dismissing and glossing over important issues that need explaining. An explanation sooner rather than later is needed.

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