Labour’s self-inflicted vulnerability

COMMENT:

If there's one monotonous bump in Jacinda Ardern's rollicking chariot ride to September 23, it is from an over-worn wheel, a tax policy that has sent things out of shape and possibly off course.

Each time the wheel rotates, Ardern and Co are jolted from their electoral reverie. And the public can see things starting to wobble.

The cause is, of course, the decision to out-source to a Tax Working Group the big calls Labour wants considered on everything from capital gains tax (not on the family home), land tax, asset tax, and who knows what else - estate and death taxes, gift taxes, income and company taxes.

Ardern's predecessor Andrew Little had opted for the Tax Working Group but - and it is a big BUT - had decided anything the group recommended and Labour intended to go with would be put before the public at the next election before being implemented.

The new leader ditched that pledge. She argues the urgency of the crisis in home ownership and housing affordability means a government needs the answers and then the right to take action.

It is a big call. Possibly the biggest call of this campaign.

Former National leader John Key made an art form out of promising to put controversial policies to the public before bringing them in. The most celebrated instance was over National's policy (developed in its first 2008-2011 term) to sell parts of its premier commercial state assets, the energy companies. Key knew the risks asset sales presented and pledged and put the issue to the public in the campaign of 2011.  And won.

There were other instances of that approach. National also, as Labour points out repeatedly now each time its working group plan jolts its campaign ride, introduced a tax working group of its own after 2008 without warning. It subsequently increased GST to 15 percent, without giving the public a say.

This Ardern decision, presumably inspired by finance spokesman Grant Robertson and influential MP David Parker, not to promise the public a say in 2020 just didn't need to happen.

While the housing affordability issue is urgent, by Ardern's own reckoning a TWG might take 18 months or so to come up with its findings. That would be just 18 more months until an election and an opportunity to make the case and seek public endorsement. 

Moving urgently, say, on a capital gains tax is odd because Labour's current, 2017 election, policy is to extend National's own "pseudo capital gains tax" - a so-called bright line test set at two years before investors can flick a property - to five years.

That will have its own early effect on housing speculation, affordability and ultimately ownership rates. Labour's Kiwibuild policy to build 100,000 affordable homes over 10 years will also play its part.

Moreover, there is no revenue in the first year and little in the early years from a capital gains tax. It is a real slow burner. Even in full swing after a long time the revenue to a government is middling in comparison to other taxes. In fairness, Ardern recognises this and says the change would not be about raising money, just changing the behaviours that have led to the housing crisis.

National's big own goal this week in trying to accuse Labour of having an $11.7 billion hole in its fiscal policy was possibly borne from frustration at not being able to damage Labour over the tax working group and what it represents.

But with two weeks to go it won't give up on the tax attack.


View the Morning Report finance debate at radionz.co.nz


This morning on RNZ Morning Report's finance debate, Robertson's most uncomfortable moments were in defending the TWG decision. National's Steven Joyce was belligerent, working away at that wheel.

Labour's vulnerability is not on family homes, which Ardern and Robertson have successfully exempted in the public mind but when their opponents quiz them on whether a capital gains tax might apply to people buying and selling a business, or a farm, a bach or a boat.  Or what the scope of a land tax or assets tax might be.

Robertson tried to argue that New Zealand is one of only three OECD countries that do not tax capital gains, quizzing Joyce on why New Zealand wouldn't. Joyce latched onto that as Robertson making the argument, right there, for the working group and Labour to bring in a capital gains tax.

The other issue with the working group is it might not recommend just one new tax. It could feasibly present a capital gains tax and a menu of other measures for which various parts of the public will have to pay - but now knowing they will not get a say in 2020 before they are brought in.

But an uncomfortable 15 days lies ahead for Labour. In each debate, setpiece interview  and public meeting the questions posed by interviewers and opponents will be about what taxes, on what, Labour is prepared to rule out. By not ruling anything out it allows opponents to rule them in and to make whatever mischief they want with voters who might be affected.

It is a self-inflicted vulnerability.

Ardern argues it is inconsistent for people to treat tax initiatives differently from any other initiative a government can take. Governments need to govern, take the hard decisions.

Quizzed a week ago on the issue, she said: "I don't want to be in a position where that working group comes back and there's some ideas in there that might make a difference for that next generation to get into housing and to deal with some of the inequity in our tax system - to have to sit on that for another couple of years just doesn't seem right to me.

"My view is though that certainly voters still get a way to feed back to us whether they think we are right or not. There will be another election, probably within 18 months of us acting on that review and if they don't agree with what we've done I'm sure they'll tell us that."

She is trying to make a virtue from telling people a working group will look at all options. "I would rather be transparent over our direction of travel than say nothing."

But Labour clearly doesn't want to go to any election advocating a capital gains tax or a land tax. It fears the reaction.

Instead it is going with the old maxim that it is easier to seek forgiveness than permission.

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