Comment

Cut taxes and earn the right to reform

A tax cut for working people would win trust, and lay the groundwork for a much wider tax reform, writes Joe Pagani 

If recent polling hasn’t sent shockwaves through Labour then we haven’t been paying attention. 

This week’s Colmar-Brunton poll showed the latest in a growing trend. Voters who flocked to Labour earlier in the year have taken a look, and don’t like what they see. National is on the rise. Despite an unpopular leader, and a dearth of policy ideas, they may stumble into government.

Based on the average of polls, Labour can still govern. But it should worry us that we haven’t capitalised on Jacinda Ardern’s popularity - either to make lasting economic change, or win new voters to Labour’s cause.

The coming election will be close, and Labour should not risk a Simon Bridges government that would roll back even the small progress the country is making under Labour. 

Luckily, Labour has a policy that would stifle National’s growing support, and seal the next election - a tax cut for working people.

The ammunition is already there; a budget surplus and record-low interest rates make public debt the least of our worries. So too is the economic case; as the world economy slows. the government needs to spend money to keep our economy running. 

Grant Robertson’s announcement on new infrastructure spending is a welcome addition to repair our crumbling roads and nightmarish public transport. But big projects take years to plan and instigate - whereas a low-income tax cut could put money in workers' pockets within months.

Strongest of all is the political case. National has struggled to differentiate itself from Labour, failing, as Labour did, to redefine itself in opposition. But as we saw in 2017 they still have one message left: voters can’t trust Labour on tax.

Unlike National’s flawed tax cut in 2017, a Labour tax cut should target earners on the bottom end, rather than those above $50,000 per year. A cut in the bottom rate, or even better, the creation of a tax-free bracket which exists in many other countries, would help the rich and poor alike, including welfare recipients, pensioners and minimum wage workers.

But a tax cut is not enough for a transformational Labour government. It must be used to lay the groundwork for further reform of our dysfunctional tax system. 

The way we pay tax is fundamentally flawed - the burden falls too heavily on those who earn, rather than those who own. Unfortunately, coalition politics has made a switch to capital gains taxation unfeasible for the government. But other, bolder avenues for reform are still open - notably a tax switch toward wealth or land, in exchange for lower rates on income. 

As new research shows, a wealth tax would make the economy run better by forcing investors to seek more productive assets. It also lessens the burden on the factory worker, the teacher, or the nurse. 

A land value tax would capture the windfall gain for landlords in our largest and most productive cities. It would incentivise the creation of denser, more affordable housing, and by definition, target owners of land, rather than earners of income. 

Both would inevitably trigger attacks from the Opposition. But how effective would these be if Labour has already let people keep more from their paycheques? National would be backed into a corner, as Labour was in 2015 when the Key government raised benefits - forced to choose between supporting the tax cuts, and voting against the government. National’s best talking point would be nullified. A Labour Green government after the next election could finally embark on the tax reform our country needs. 

Cut taxes, push National from the centre ground, win the public’s trust, and become the transformational government we were promised.

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