Friday 30 June 2023

Don’t Walk Away, Chippy – Labour Can Beat National On Tax.

Go Hard, Chippy! Being a magnet for every piece of bad news going is why Prime Ministers cannot afford to just sit still and hope for the best. A do-nothing government is a doomed government. If Chris Hipkins truly wants his government to survive October’s electoral winnowing, then he has to do something.

THE QUESTION upon which the forthcoming election will turn is: “How brave is Chris Hipkins?” If saving his government requires Hipkins to strike out boldly, with policies designed to seriously disrupt the status quo, does he have the cojones to do it?

There is nothing in his political career which suggests that he has what it takes to shake things up. He has succeeded by playing the percentages. Trimming his sails when he had to. Betting the farm when he was handed a sure thing. And it has worked. He is New Zealand’s prime minister. Not by dint of hard-won policy achievements, but by being a political cork. Chippy has floated to the top.

An important aspect of this political buoyancy has been his indifference to how well, or how badly, his policies are performing. Minister of Education for five years, he did not appear to care whether the measures he authorised were actually working. Having implemented party policy, he never looked back.

His pet project, Te Pukenga, was persisted with long after it became obvious that the forced amalgamation of the country’s polytechnics was a very bad (and eye-wateringly expensive) idea. Evidence that New Zealand was tumbling down the international education league-tables, and that the nation’s children were struggling to master the 3Rs, or even turn up to class, failed to produce a serious reappraisal of the Education Ministry’s performance.

Chippy’s choice, when things go wrong, is to keep on walking. It’s a remarkably effective tactic. Don’t hang around, don’t look back, just put as much distance between yourself and whatever is failing as you possibly can. Guilt and proximity go hand-in-hand. Ergo – don’t be found near the scene of the crime.

The problem with being the Prime Minister, however, is that there is nowhere to walk away to. Hipkins’ office is the destination for everything that has gone, is going, or will go wrong in New Zealand society. It’s the place where all the chickens of political failure come home to roost – even when, strictly-speaking – they’re not Chippy’s chickens.

With every passing week, New Zealanders are greeted with more evidence of just what an easy-osey administration Jacinda Ardern superintended. Stuart Nash, Michael Wood, Kiri Allan: how many more ministers and MPs will the news media find cowering under the rug with their fingers crossed? One can’t help wondering whether Ardern, herself, took a leaf out of Chippy’s playbook. Certainly, being able to say “Jacinda has left the building” has its upside – not least for Jacinda!

Being a magnet for every piece of bad news going is why Prime Ministers cannot afford to just sit still and hope for the best. A do-nothing government is a doomed government. Nor is it enough to simply throw unpopular government policies overboard – not when the person doing the throwing had a significant role in formulating and implementing the very same policies! No, if Hipkins truly wants his government to survive October’s electoral winnowing, then he has to do something.

In practical terms, Hipkins needs to announce new policies. Policies that provide the voters with a convincing reason for keeping Labour in office.

Like what?

Given that the 2023 General Election will be held in the midst of a cost-of-living crisis, and that Hipkins’ opponents are proposing to relieve the burden of constantly rising prices by lessening the voters’ tax burden, it would seem that fiscal policy is the battlefield upon which Labour, the Greens and Te Pāti Māori must take the fight to National and Act.

Hipkins’ and Labour’s most obvious first move, tax wise, is to adjust the tax thresholds to offset the impact of rising inflation, thereby eliminating “fiscal drag”. At a stroke, National’s flagship policy would be neutralised. Christopher Luxon and Nicola Willis might (with some justification) claim credit, but they would still be left gasping for political air.

Hipkins’ and Labour’s next step would be to address the Greens’ fiscal policies. Citing the extreme practical (not to say political) difficulties entailed in extracting significant revenue from the richest individuals and families on the Rich List, Finance Minister Grant Robertson should rule-out introducing a Wealth Tax. To soften that blow, however, he would signal Labour’s adoption of the Greens’ policy of making the first $10,000 of personal income tax-free.

On a roll, Robertson would then announce the re-instatement of the policy Labour took to the electorate in 2011: the removal of GST from basic food items. This measure would offer immediate cost-of-living relief to New Zealand’s poorest citizens.

Naturally, National’s finance spokesperson, Willis, and the Act leader, David Seymour, will demand to know how Labour proposes to fill the revenue hole created by such significant reductions in the overall tax-take. What spending plans are Labour planning to curtail and/or eliminate in order to pay for them?

One can easily imagine Hipkins asking Robertson the same question when Labour’s campaign team are war-gaming the party’s radical fiscal strategy. Recalling John Key’s killer line from the 2011 General Election, one can hear the Prime Minister commanding his Finance Minister to: “Show me the money!”

This is the point at which Hipkins will be required to step out of his political comfort zone and embrace a policy that would shake New Zealand’s neoliberal order to its very foundations. The same point Jim Anderton’s Alliance arrived at back in the 1990s when it, too, was tasked with filling the fiscal hole created by its even more generous tax policies.

And, no, the answer is not a Capital Gains Tax (CGT). Upon the foundation of tax-free capital gains New Zealanders have constructed a politically sacrosanct economic model. It’s what keeps the small business-person working all the hours God sends. It’s what underpins the financial security of home-owners in their old age. Capital gain is the pot-of-gold at the end of the Kiwi rainbow – and governments will tax it at the peril of their political lives.

The answer Anderton and his Alliance came up with, the fiscal instrument adopted to fill a gaping fiscal void that would otherwise have to be filled by cuts in government spending so savage that publicly funded health and education could hardly survive them, was the Financial Transactions Tax (FTT).

The FTT is a levy on legislatively designated types of financial transactions. Infinitesimal in itself, when multiplied by the millions of financial transactions which take place every day an FTT soon mounts up to serious money. What’s more, the institutions from which FTTs tend to reap the most spectacular revenue harvests – the banks and finance houses – seldom elicit much in the way of sympathy from the general public. On the contrary, most voters are of the view that the banks “have it coming”.

Indeed, it is difficult to imagine a proposal more likely to inspire fear and loathing at the big end of town that an FTT. Those big-enders will tell you that an FTT would crash the markets, derange the banking system, provoke capital flight, and utterly fail to achieve the objectives of its promoters. Many of the bankers’ objections are rehearsed in an excellent video on the FTT (a.k.a the “Robin Hood Bank Tax”) fronted by the incomparable Bill Nighy. Watch it here.

This, then, is the challenge confronting Hipkins. To embrace a suite of policies that offer genuine cost-of-living relief to the overwhelming majority of New Zealand taxpayers, while, at the same time, stripping National and Act of their principal election sweetener, and throwing into the sharpest relief the difference between tax policies designed to assist the rich, and tax policies intended to uplift the poor.

Not an election strategy for the faint-hearted, it would call upon all the courage and political skills this government and its allies possess. If successful, however, it would, at long last, allow the New Zealand Left to shatter the bonds of neoliberalism and break free into open ground.

Don’t walk away from this one, Chippy.

This essay was originally posted on The Daily Blog of Friday, 30 June 2023.


The Barron said...

I have been a fan of FTT since the late Jim Flynn used his considerable intellect to write it into Alliance policy. Not only is it a far more fair and progressive way of indirect taxation than GST, but has the ability to slow market panic, the only thing to fear is fear itself...and a transaction tax.

Unfortunately, I have a proviso. The real politik is that NW is too small an economy to lead on this. We need a major economic group to take the lead. The EU, BRICS, USA or even within the CER with Australia. This is a reluctant conclusion, but I no longer believe our economy is robust or large enough to go it alone in an integrated global economy.

Guerilla Surgeon said...

I don't know about it kins, but Labour lost its collective gut years ago. There are 2 taxes that hurt poorer people quite badly, both regressive. The fuel tax and GST. If they were to have the collective guts to get rid of all or some of these, I don't have the glamour of other policies but it would help ordinary people a fair bit. Particularly if they took GST off food, and the hell with the naysayers who go on about how it's "difficult". They like these of course because they're cheap to collect. And because they are neoliberals at heart at the moment. So I'm not holding out for it to be honest. Or for anything innovative for that matter. They've drunk the Kool aid.

Cricklewood said...

Lets not mess with gst, it will provide scant benefit to the consumer but it will paid the profits of the duopoly. There is no chance our experience would be any different to what happened in the uk.

DS said...

Hipkins is the sort of person who would rather lose conventionally than win unconventionally.

Kat said...

I would suggest the reintroduction of a 21st Century Ministry of Works would also likely "inspire fear and loathing at the big end of town".

It has become blindingly obvious that the design, management and well being of the country's critical infrastructure should not be in the control of private enterprise.

sumsuch said...

How this right-winger can recover reality. Do you think his focus groups will allow him?

Good series of punches the p...k can make. 4 decades of hope for the official Left.

Footnotes, Labour sending me out an actual letter trying to sell me on them based on their minimal budget. He doesn't know what he's doing. Jace was just brighties who could deal with immediate crises.

Who should lead us? The Greens obviously but they can't gain the ground. A good talker for the Left has a straight lane to power, but they haven't talked for many a long year.

Patricia said...

Well, that is a good suggestion BUT as New Zealand is a sovereign country and can issue its own currency then they can do that without doing anything else. However as nobody seems to believe that is possible then your suggestions is probably more politically acceptable.

larry said...

Hey Chippy. Just pick up these election winning policies ... en masse... and the transport by limo can contnue.

#tag " Trotting to Victory ".

larry said...

Just do all this Chippy. Give due credit ... #trottingtovictory.

Odysseus said...

It's too late for Chippy. No one believes a single word of Labour's promises any more. The evidence of Labour's failures is everywhere to be seen. They affect almost everyone, and not in a good way. Chippy should be thinking about a new role - is that why he met with Klaus Schwab in Beijing this week?

Gary Peters said...

What you fail to comprehend is that "corporates" don't pay tax, they collect it from their customers, that's you and I, and hand it over to the government.

Why is that guys like yourself, you know ... lefties, immediately think the way forward is more tax? Surely in your life you have encountered times when your income was not meeting your expectations or wishes and I'm quite sure you just cut back your expenditure a little. Why is it that our government, particularly labour ones, find that so hard to do?

Local bodies are the same as it seems are universities at the moment. Cut costs ya morons, it isn't that hard. Maybe start with only one airforce plane to ego boost with on your next trip chippy or be like the rest of us and catch commercial!

Chris Morris said...

Taking GST off "basic" food is a simplistic Teeshirt slogan wich is a very bad policy. As overseas experience shows, there are massive problems enforcing it. Take bread for example - Are all breads exempt or only those under say $2 a loaf, excluding all those fancy arisan ones? Experience is that the major beneficiaries are the rich. It creates a big bureaucracy arbitrating the minutea.
What makes our GST so good is there aren't exceptions. Far better to support the "poor" is the equivalent of food stamps that can only be used for those goods. Abuse would still occur but at least it could be targeted.

David Stone said...

I once had a phone conversation with the economist who was acting for the Ailiance on the formulation of this idea. He was very keen , but it seemed to me that although the level of proposed taxation was a very small percentage of each transaction, the return on each transaction was also very small, andnot by any means always in a positive direction. The money is made by making a huge number of transactions in a very small space of time with very large volumes of mostly other people's money. This meant as far as I could see that even though the percentage to be taxed was very small it would be enough to reduce the probability of net gain from a huge proportion of these transactions and they would stop happening almost completely.
That is not to say that such a tax would not be doing a very good service to the real economy in eliminating this activity as it is completely parasitic on the real economy and very desirable for this reason. But in terms of it collecting a transformative volume of revenue , I don't think it would.

larry said...

Bank profits in New Zeeland, principally "earned" (I use the term advisedly), by Foreign financial institutions, deserve a special taxation treatment.

Nothing wrong with a transaction tax apart from its "transactional costs" and complexity.

A way more direct and simple method of netting banking super-profits is to single them out ... and impose super tax on their super profits.

A penal rate well above the present corporate rate would fix the problem and would likely reap at .50c in the dollar; around $3 to 4 Billion pa.
I don't see any downside ... You?

Patricia said...

Barron, I think you are wrong saying that New Zealand is too small to be a globe setter in economic matters or social matters. You did qualify that by saying in an integrated global economy. We were the first in the world to give women the vote. The first in the world to give its citizens a universal superannuation the first in the world to make its Reserve Bank independent - a great mistake I think. So you a see the pattern which continues today. Use New Zealand as a laboratory. So a FTT can be tried out here

The Barron said...

I wish I could have your confidence. I think that capital would redirect investment to get around the NZ FTT. This could lead to some drain of investment and a relocation of the few listed on the NZ stock market. China would seek markets with less compliancy, and we would possibly breach some free trade agreements.

I wish we had an independent economy, but instead we have one of the most vulnerable to globe pressures and changes. FTT is a tax I support (and I am usually critical of indirect taxation), but successive governments have increased our economic dependency since the Alliance put it forward.

sumsuch said...

Recent news suggests even more Labour needs to lead. GS's suggestions about cutting the fuel tax and GST would do it. Simple as cupcakes, 'gems' and scones.