Dunne: Labour’s ham-fisted handling of tax reform

It is a mystery how Labour has managed, in the space of a few weeks, to get itself virtually sidelined on what was one of its major issues, writes Peter Dunne.

There is an adage in politics - never ask a question until you know the answer. Or, never hold an inquiry unless you know the outcome it will produce.

When the coalition Government set up the Tax Working Group it was generally assumed that it knew precisely the outcome it wanted.

It was further assumed that appointing a Labour loyalist, ex-Minister of Finance to head the group, meant the group would have had very clear riding instructions on what the Government expected. (After all, Labour had made it clear during the election campaign that it wanted to introduce an extended capital gains tax, and would be looking to the Tax Working Group to advise it how to go about it.)

So it was not unreasonable to expect that the Tax Working Group would have had very clear riding instructions on what the Government wanted.

On this basis, when the Tax Working Group did finally report, the Government would be well prepared and able to respond, swiftly and clearly, with its plan for the future. This sense was reinforced by the group's issuing of a water-testing report last October, and its giving the Government a copy of its final report three weeks in advance of its public release. Everything seemed to be moving according to a pre-rehearsed plan.

As the Tax Working Group was a Government initiative, with its terms of reference drawn up by the Government, most people would have assumed that its final report would come as no surprise and that, upon its presentation, a very slick operation would set in to make clear the Government's response, and to sell that to voters.

The mystery is that in reality the Government's response has been so hamfisted, bordering on downright incompetence to leave the strong sense that it has been taken by surprise by the report and the reaction to it.

In its defence the Government would say that its decision not to state its position just yet is a deliberate move to allow both the public and its support partners to digest the report's contents and have their say first.

But that argument is utter poppycock.

First, having campaigned on capital gains tax in 2011 and 2014 (and losing heavily both times) and only pulling back to the idea of a Tax Working Group in 2017 because it risked becoming a third time loser, Labour is not all that interested in what the public thinks.

It is determined, somehow, to bring at least the investment property sector into the capital gains net, and, now that it is in Government, is not likely to give up on the idea because of an adverse public reaction. Even more so, since, reportedly, the capital gains issue is close to the Prime Minister's heart.

The claim that it is important to give the support parties time to reach their own decisions holds little water either. It beggars belief to suggest that neither the Greens nor New Zealand First have not seriously thought about capital gains tax until now; and that neither discussed the issue during their post election negotiations with Labour.

Moreover, both would have seen the Tax Working Group's interim report nearly six months ago - it was a public document after all - and both would have received an advance copy of the final report. And it is more than likely that both would have been party to the periodic briefing (one assumes) the Minister of Finance was giving to Cabinet on the progress of the Tax Working Group.

To suggest that both now need to come to their own positions on the report, and to engage in discussions with their respective partners is as insulting to New Zealand First and the Greens as it is fallacious.

Labour's only demonstrable strategy in the wake of the report seems to have been to rely on the personal standing and communication skills of the Prime Minister to sell whatever the message is. (Every other Minister seems to have taken a vow of silence.)

However, the Prime Minister's cringing speech to Auckland business leaders recently (with its extraordinary assertion that she fully understood the concerns of the business sector, small business in particular, because she had worked in a fish and chip shop after school) was simply embarrassing.

That, and her subsequent petulant responses to questions in Parliament and media interviews on the subject have raised questions about how deeply she actually understands the issue she apparently feels so passionately about.

The consequent vacuum created by Labour has provided opportunities for both the Greens and New Zealand First to stake out positions, to shore up their respective brands.

The problem for the Government, though, is that both have chosen to move in opposite directions, making it more difficult for a consensus to be achieved between the governing parties.

"She is left looking more and more like our version of Theresa May ..."

First was James Shaw's amazing comment (for a Minister) that the Government would not deserve re-election if it failed to introduce a comprehensive capital gains tax. 

But that quickly paled alongside his co-leader Marama Davidson's simply weird statement (and even more bizarre subsequent media interviews) that a comprehensive capital gains tax should be only the start of increasing a whole range of taxes on those she saw as higher income earners.

Meanwhile, New Zealand First has focused on the complexities inherent in an extended capital gains tax, making it clear it will be not party to any moves that make the tax system more complicated.

It has suggested a grandparenting arrangement similar to that applied in Australia when capital gains tax was introduced, whereby the tax applied only to assets acquired after it was introduced, certainly reducing complexity, but equally reducing the likely revenue take.

It has also suggested that while the Government might reach a decision on an extended capital gains tax before the election, it does not need to legislate for it in advance. Rather, it should take it to the election as policy, to be implemented in the event the government is re-elected.

Of course, this also relieves New Zealand First of having to disclose its hand in a Parliamentary vote before the election.

Labour now sits squeezed increasingly uncomfortably between its two partners.

Rather than showing bold and decisive leadership, Labour has actually surrendered the initiative to them, and the best it can now hope for is some sort of workable compromise being reached between the trio.

In this regard, reports that the Prime Minister is not ruling out the New Zealand First suggestion of no legislation before the election is telling, and shows how compromised Labour seems to be becoming. She is left looking more and more like our version of Theresa May, trying to navigate Brexit through the House of Commons.

The mystery remains as to how it is that Labour has managed in the space of a few weeks to get itself virtually sidelined on what was one of its major issues.

Whatever else, it has surrendered any remaining high ground it held on the issue to its partners, and thrown an electoral lifeline to the National Party. It has been an extraordinarily inept display of political management so far.

Just like KiwiBuild, just like the health reforms. Maybe there is a pattern there, after all.             

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