Monday 1 May 2023

David Parker’s Tax Ammunition: Use It, Or Lose It.

For Pity’s Sake, Chris, Load Up! Chris Hipkins’ refusal to slip a few rounds of Parker’s ammunition into his prime-ministerial rifle and open fire on National, came as a deep disappointment to a great many of Labour’s members and supporters. Disappointment that was only compounded by his evident lack of enthusiasm for responding to the unfairness exposed in the IRD’s report with tangible tax reform.

NICOLA WILLIS, somehow managing to keep a straight face, claims to be the defender of working people. That the deputy-leader of the National Party, by no means a stupid woman, is prepared to offer up such a ludicrous proposition indicates just how deranged our politics have become. That there are working-class voters out there who will take Willis’s claim seriously should not, however, be received as proof that National has quietly embraced socialism. Rather, it should be taken as a measure of just how emphatically so many of Labour leaders have rejected it.

Not all of Labour’s leaders, however. Not while David Parker remains a member of Chris Hipkins’ Cabinet. Parker is a stern critic of economic inequality, most particularly of the way New Zealand’s tax system allows the über-rich to avoid paying their fair share of tax. For nearly two decades he has championed the introduction of a Capital Gains Tax (CGT) finding sufficient support among his own caucus colleagues and Labour’s rank-and-file to embed the policy in a succession of Labour election manifestos.

Not that this broad-based support within Labour was sufficient to propel a CGT across the line. At the summit of the party there has long been a junta of past and serving Labour leaders who invariably dismiss the whole idea of significant tax reform as electoral poison. Those members brave enough to defy this junta are subjected to the Labour eye-roll – a gesture signalling both political naivety and economic stupidity – from which its victim’s career seldom recovers.

It is worth teasing out both the causes and the consequences of the baleful Labour eye-roll. Above all else, it represents the idea that there are some policies which are simply unacceptable within the context of the neoliberal order introduced by the Fourth Labour Government and consolidated by its National Party successors.

New Zealand’s reasonably flat income tax, supplemented by its highly regressive Goods and Services Tax, is sufficient to keep the country’s no-frills welfare state coughing-and-spluttering along – but that’s all. More importantly, the filing of land, wealth, inheritance and (most especially) capital gains taxes in the “Under No Circumstances” file, makes damn sure the welfare state stays that way. More than that, New Zealand’s tax system presents no serious impediments to the steady accumulation of massive personal wealth. Nominally “progressive”, the tax system’s actual effect is to exacerbate inequality – not reduce it.

Those who position themselves as “centre-left’ on the political spectrum are supposed to know all this and, more importantly, to have come to terms with it. They are further supposed to understand that any attempt to change the arrangements that have now been in place for the best part of 40 years will, inevitably, be met with the most vicious resistance. Any politician, or political party, setting out with the intention of seriously addressing inequality – i.e. of dismantling the neoliberal status quo – are asking for the worst kind of personal and political trouble, and, most assuredly, they will find it.

All of which makes David Parker’s commissioning of the IRD’s and the Treasury’s reports into the “fairness” of New Zealand’s taxation system a decidedly subversive act. Not least because, for the first time, the New Zealand voter has been given the hard data on who gets what out of the system. The conclusions to be drawn are not exactly flattering to the very rich. If those advocating for a CGT and other redistributive tax measures may be compared to a revolutionary band hiding out in the mountains, then Parker’s reports are the equivalent of a bloody great ammunition dump!

The brute fact of these explosive reports on tax, like the brute fact of the controversial He Puapua Report, points to a Cabinet riven by powerful factions that must, somehow, be placated. Or, if placating them is not an option, bringing potentially dangerous moves to a sudden halt by issuing a “Captain’s Call”. Knowing that she could count on the support of Winston Peters, this is exactly what Prime Minister Jacinda Ardern did to prevent her own cabinet, caucus, and Green Party allies from introducing a CGT in her Government’s first term. She made it clear that a CGT would only be introduced over her dead political body.

Those who doubt this analysis should consider the recent statements of Foreign Minister Nanaia Mahuta. Questioned closely on New Zealand’s stance in relation to the AUKUS anti-China agreement linking Washington, London and Canberra, Mahuta stoutly stood by her assertion that the biggest threat facing her Pacific neighbours was Climate Change. Delivering a stinging blow to those public servants who have been briefing intensely on behalf of those who would have New Zealand become a sort of AUKUS auxiliary, Mahuta declared that her country’s foreign policy would be determined by “the Cabinet” – not unelected “government agencies”.

The only sensible reading of these comments is that serious disagreements exist within both Cabinet and the Labour Party caucus over the merits, or otherwise, of aligning New Zealand too closely with those powers seeking to “contain” China – still the country’s biggest trading partner. It is entirely possible that Mahuta, who (successfully) led the charge on Three Waters, has put herself at the head of the faction determined to confront the negative impact of colonialism in the South Pacific – not just in the past, but today.

All of which suggests that Labour’s ability to hold the neoliberal consensus together is nowhere near as strong as it was under Helen Clark and Michael Cullen, or the troika that emerged triumphant from the ideological conflicts that divided Labour between 2008 and 2017 – Jacinda Ardern, Grant Robertson and Chris Hipkins. Thanks to Peters, NZ First, and Covid-19, Ardern was (just) able to keep Labour’s lid from blowing-off during her first term. Paradoxically, by leading Labour to an absolute majority in 2020, Ardern only made it more difficult to say “No” to her cabinet and caucus.

The carefully planned “coup” which (with Ardern’s assistance) placed Hipkins in the Prime Ministership on 22 January 2023 may now be viewed – at least in part – as an attempt by the Troika to re-establish its control of the Sixth Labour Government’s overall direction – mostly by reining-in the factions’ more outré policies. Clearly, this attempt has met with only partial success. Pressure is building inside Labour for serious change, and Hipkins is struggling to contain it.

Certainly, his refusal to slip a few rounds of Parker’s ammunition into his prime-ministerial rifle and open fire on National, came as a deep disappointment to a great many of Labour’s members and supporters. Disappointment that was only compounded by his evident lack of enthusiasm for responding to the unfairness exposed in the IRD’s report with tangible tax reform.

It is this perception of Labour not being willing to take the bold steps necessary to improve the lot of working-class New Zealanders, that Nicola Willis is exploiting for all she is worth. Those disillusioned by Hipkins’ reticence are, however, unlikely to spot the contradiction in the National Finance Spokesperson’s position.

What is National defending working people from, if not Labour’s refusal to do anything meaningful about the inequities of the tax system? But, if Labour’s not going to do anything about tax, then why is she insisting (on the basis of at least two independent sources!) that redistributive tax reform is exactly what Hipkins, Robertson and Parker are plotting to announce just days out from the October election? Both of these claims cannot be true.

Leaving us with another, related, question: What is a massive pile of ammunition most likely to call into existence, if not the people, and the guns, to use it?

This essay was originally posted on the website of Monday, 1 May 2023.


Guerilla Surgeon said...

It's interesting but not surprising – the rich and their spokespeople/flunkies have already started the campaign against taxes on wealth in general and capital gains tax in particular. "The wealthy already pay a 3rd of the tax in NZ as it is." Honestly, so what? They don't have to rely on what remains of our National Health Service, or failing transport infrastructure. I think Peter Jackson never took the car over the hill from the wire wrap to Wellington while he had the use of a helicopter.
And on radio New Zealand this morning CGT? – it's too hard, it's too complicated, you don't get any results for years, and it doesn't bring in enough money. Interesting then that every other country in the developed world seems to have one. Do they know something we don't?
And again, somebody on that cesspit MSN said that every country that's introduced a capital gains tax has had no economic gains since they did it. Which I find a little hard to believe.
But they make a lot of noise, and they scare the crap out of most NZ politicians.

God help us, I wish we had someone like Katie Porter who will question CEOs of large companies and hold their feet to the fire – pointing out their overwhelming hypocrisy. Even someone like that old warhorse Bernie Sanders, who is worth 10 of the corporate Democrats/Labour MPs. And maybe Ocasio Cortez, who – judging by the way she's attacked by conservatives particularly male conservatives – must scare the living crap out of them. Is not very often I watch a YouTube that contains the words "destroyed" "schooled" or anything similar to that, but I'll watch her or Katie any old time.
Our politicians are too scared to put their head above the parapet – could be a function of us being such a small country I guess but it's disappointing even so. I wouldn't mind if they weren't Unionist social Democrats even. As long as they were willing to go toe to toe with big business. But I guess that's too much to ask for in these days of focus groups and lack of any real accountability to their voters.
To be honest, the cynic in me suggests that nothing will be done. Perhaps a few tweaks around the edges, but the wealthy will continue to be taxed at a much lower rate than the rest of us, largely because they seem to be able to make enough noise to scare enough people into thinking that Labour is coming for their money. There are interesting parallels between that and the Fox News styled gutter press that keep the US in a state of fear about guns being confiscated. Largely in order to get donations from people who sell guns.

Honestly, even cynical old me has been shocked by the level of corruption of politicians in general and Conservative politicians in particular in the US and Britain. I'm pretty sure it's not on the same scale here, but even so being such a small country, and a general wink and a nod is often all that is necessary between friends I suspect.
I'm thinking that to keep it relatively uncorrupted, it's probably about time we started taking the private money out of politics. Not hopeful about that either though.

Gary Peters said...

Yet the report clearly showed that the current system is far from fair when the lower 40% of income earners pay zero income tax or can even be considered to be "negative" taxpayers.

National have not only agreed to retain the tax credit system but inflation adjust the tax bands which will lead to an even higher number of "non tax payers"

So maybe Nicola's straight face was because National are looking at putting more money in "workers" pockets but maybe that's not iedological for some, just good financial management.

As an aside, the report also used a rather spurious method on measuring income. Remeber, a capital gain is not made until the asset is sold.

Are you as keen to see a system where losses can also be included in income or does that not "smack" the rich pricks enough?

oneblokesview said...

While I enjoy your philosophical posts Chris.

Lets both agree, you are not an economics wizz.

Taxing paper gains, means allowing tax deductions for paper losses.
Back in the day of 66 cents in the dollar tax.
Their were teams of smart young minds working on schemes to mitigate such taxes.

Yes, films and racehorses springs to mind. I admit to throwing a bunch of money in to the Footrot flats movie because it advantaged my tax situation.

So while your ideology makes you think some of these grandiose tax schemes are worthy.

They dont work.
Examples abound including the UK 95 pence in the pound, French 75% tax rate, and recently the Norwegian increase in wealth tax.

May I suggest that an envy tax(ie supposedly taxing rich pricks.) always bites the government of the day in the arse.

Jason Barrier said...

Chris - it is not a matter of loading more collection 'bullets' but looking at the expenditure 'targets'. There is plenty of tax to go around - but we have a government prepared to spend it on all the wrong things. 24B on light-rail and up to another 24B on offshore carbon credits soon, all to appease the handwringing green voters in Meadowbank and Merrivale. Meanwhile our poor and our needy sleep in cars, cardboard boxes and gang-infested motels. It is our priorities and our productivity that are the real problems today and taxing 'a few more a bit more' will do absolutely nothing to resolve that.

Anonymous said...

Your ammunition motif Chris is quite apposite. Nicholas mischief making is indeed instructive pointing to her preemption ofabours

David George said...

Chris: "avoid paying their fair share of tax"

Good luck trying to define "fair share" when it comes to taxes. "What exactly is your 'fair share' of what 'someone else' has worked for?" Thomas Sowell.

The tax burden - including GST and transfers is currently:

Decile 1: -52%
Decile 2: -55%
Decile 3: -36%
Decile 4: -2%
Decile 5: 6%
Decile 6: 18%
Decile 7: 21%
Decile 8: 23%
Decile 9: 26%
Decile 10: 29%

So the bottom 40% of income earners receive more in transfers than they pay in tax. Even those in the 5th decile only pay an effective tax rate of 6%, because the vast vast bulk of tax is paid by those in the top deciles.

Of course the report's sensationalist headline: "New Zealand’s wealthiest paid 9.4 per cent of their total incomes in tax" was (deliberately?) misleading since it lumped rising asset values in to income. It's not.

Odysseus said...

Taxing unrealized capital gains which have been for the most part created by inflation owing to the government's economic mismanagement is an invidious idea that spooks every homeowner in New Zealand. That's electoral poison.

Ernie Hall said...

The sole emphasis being placed on a CGT appears a bit of a deliberate misdirect to me. Dividends, interest, and rents most certainly most certainly do generate income. Regularly

Anonymous said...

Love the redirect with the sole emphasis on CGT. The report also mentioned dividends, interest and rents, all of which are spendable income

David George said...

Odysseus: "Taxing unrealized capital gains which have been for the most part created by inflation owing to the government's economic mismanagement is an invidious idea".

Yes, and worse, it's a clear deceit. I suppose you could make a case for taxing gains on sale after adjusting for inflation (even that has significant injustice; in the situation where someone needs to sell and acquire a similar asset in a different location for example) and allowing for a tax deduction on capital losses. But that is not what is being suggested.

Envy and resentment will never be sated. Pouring petrol on that fire, that vile impulse? A very bad idea.

Gary Peters said...

"The report also mentioned dividends, interest and rents, all of which are spendable income"

And all of which are taxed, generally at source including any profit on a Kiwisaver. Every landlord we act for makes a full return declaration to the IRD as they have little choice.

Why do people who have no understanding of the subject feel the need to comment?

Guerilla Surgeon said...

"The sole emphasis being placed on a CGT appears a bit of a deliberate misdirect to me."

Never a truer word was said. They're taking a leaf from the NRA's playbook. Or maybe the NRA has taken a leaf from theirs. 😇

"First, “Say nothing.” If media queries persist, go on the “offence, offence, offence”.

These people aren't stupid, just selfish and malign. They will obfuscate and misdirect towards the gains on houses, because that hits home to everyone who has a house. Even though in most countries AFAIK the family home is protected. They will ignore everything else, because the average person doesn't get dividends, interest in any meaningful sums, or rents.

David George said...

GS: " the average person doesn't get dividends, interest in any meaningful sums, or rents"

Over three million Kiwis have $89 thousand million invested in Kiwisaver alone - plus whatever additional savings and investments they may have. Their investments, their retirements, are indeed dependent on dividends, rents, interest received and any change in capital value - obviously.

Guerilla Surgeon said...

David. And how many of them know this? Given that it's pretty much compulsory I suspect most people go into it knowing nothing.

adamtheapteryx said...

Curious: where are these figures documented?