Who Possesses The Plain, Old-Fashioned Common Sense To Say “No” To Labour’s CGT?

Yay Sayers: Prime Minister Jacinda Ardern and her Finance Minister, Grant Robertson, who recoil in horror at the very suggestion that Labour should tax the incomes of the very wealthy without mercy, remain absolutely convinced that taxing the local dairy owner’s capital gains will produce nothing but sweetness and light. They’ve run their blue pencils through Inheritance Tax, Land Tax, Financial Transaction Tax and Carbon Tax: but in spite of its emphatic rejection in two successive elections, they continue to give their CGT the big tick.

WHY CAN’T LABOUR take “No” for an answer? When the party first offered voters a Capital Gains Tax (CGT) in 2011 they responded by giving Labour 27 percent of the Party Vote. Undaunted, David Cunliffe and his team doubled-down on the CGT in 2014. Labour’s Party Vote slumped to a risible 24 percent. Point taken?

For a while it looked as though Labour’s ears had started working again. Cunliffe’s successor, Andrew Little, moved swiftly (if unilaterally) to take the twice-rejected CGT off the table. Which should have been the end of the story. But, it wasn’t. Within Labour’s caucus there remained a tight little clutch of CGT supporters who simply refused to let the policy go.

That tight little clutch: led by the current Finance Minister, Grant Robertson; which recoils in horror at the very suggestion that Labour should tax the incomes of the very wealthy without mercy; remains absolutely convinced that taxing the local dairy owner’s capital gains will produce nothing but sweetness and light. They’ve run their blue pencils through Inheritance Tax, Land Tax, Financial Transaction Tax and Carbon Tax: but in spite of its emphatic rejection in two successive elections, they continue to give their CGT the big tick.

Jacinda Ardern’s unopposed election to the Labour leadership provided a huge fillip to the CGT promoters’ club. With Little out of the way, the great crusade to tax the family bach could resume in earnest. Some insist that Jacinda’s “captain’s call”, to enact a CGT in the first term of a Labour-led government, was all her own work. Others claim that her dramatic policy adjustment was made at Robertson’s urging. Whoever was responsible, the sudden decline in Labour’s poll numbers was enough to give both politicians serious pause.

The upshot, of course, was the peculiar, two-stage, policy process whose radical recommendations New Zealanders are currently attempting to get their heads around. The most puzzling aspect of “Stage 1” – the Tax Working Group – was why the former Labour Finance Minister, Sir Michael Cullen, was roped-in to chair it.

In the media “lock-up” which immediately preceded the release of the Tax Working Group’s report, Sir Michael vouchsafed to journalists the following, typically cryptic, observation:

“I had a brief period as finance spokesperson for the Labour Party for some 17 years. You will not find a single comment by me publicly advocating a capital gains tax. You might draw your own conclusions from that fact.”

You think!

Cullen’s aside, properly decoded, offers up just one meaning: “This is a damn fool’s political errand, which I only accepted so that I could deliver these twerps a CGT of such breadth and bite that only a complete idiot would consider implementing it!” If that is not what it means, then we must, reluctantly, conclude that the former Finance Minister has lost his wits.

The problem exercising voters, now, is whether or not the behaviour of the CGT promoters’ club, consistent over an entire decade, admits of its members being anything other than twerps and idiots? In all that time, only one Labour politician, Andrew Little, has demonstrated the plain, old-fashioned common-sense to hurl the electorally and economically toxic CGT out the window.

What does it say about the Prime Minister and her Finance Minister that the very first thing they did following Little’s very own “captain’s call” (inspired, presumably, by Captain Oates’ heroic, if unavailing, act of self-sacrifice at the end of Robert Falcon Scott’s doomed Antarctic Expedition) was to rush outside, pick up the discarded CGT, dust it off, and replace it reverently on Labour’s table? Clearly, Ardern and Robertson are not the sort of Gen-Xers who enjoy being told that they are wrong!

The Greens, however, are much, much worse. Co-leader James Shaw has declared that, if the 2020 General Election arrives and a CGT has not been enacted, then his party does not deserve to be re-elected. The problem which he and his party may be forced to confront is that if the CGT proposed by the Tax Working Group is enacted next year (effective in 2021) then the electorate may feel moved to give the Greens exactly what they deserve!

Which leaves the responsibility for demonstrating plain, old-fashioned common sense to the politician who has spent 25 years insisting that only he and his party possess it.

Winston Peters.

This essay was originally published in The Otago Daily Times and The Greymouth Star of Friday, 1 March 2019.

Just Like “Rogernomics”, A Capital Gains Tax Would Traumatize The New Zealand Economy.

Pushing CGT Uphill: The prospect of collecting a tax-free capital gain at the end of a life of hard work and deferred gratification is what keeps “Middle New Zealand” going. The farmer, the small businessperson, the professional couple who diligently paid off their mortgage and then leveraged the freehold into a second property: these are the people whose undying enmity will destroy any party foolish enough to enact a CGT.

LATER THIS WEEK, the recommendations of the Tax Working Group will become public. It is highly likely that a Capital Gains Tax (CGT) of some description will be near the top of the Working Group’s “To Do” list. How should Labour handle this extremely hot potato? The tax which all the experts tell us we have to have has much to recommend it theoretically, but, in the bluntest of practical political terms, it could very easily destroy this government.

The most important aspect of the CGT issue, and the one the Coalition Government should keep in mind at all times, is that the expectation of capital gain is now “baked in” to the economic expectations of a huge number of New Zealanders. One might even say that it is the beating heart of this country’s economic culture. The prospect of collecting a tax-free capital gain at the end of a life of hard work and deferred gratification is what keeps “Middle New Zealand” going. The farmer, the small businessperson, the professional couple who diligently paid off their mortgage and then leveraged the freehold into a second property: these are the people whose undying enmity will destroy any party foolish enough to enact a CGT.

Only those who conceive of our society as some sort of mechanism could possibly advocate a CGT. These are the people who believe that with a just few judicious adjustments to the social mechanism everyone’s lives will be immeasurably improved. Doubters will find themselves wondering what all the fuss was about when they see how brilliantly the technical changes are working. Opponents should be ignored. They just don’t get it.

Anyone who lived through the “technical adjustments” of the Rogernomics era knows that this line of argument is complete and utter bollocks. The “short-term pain for long-term gain” mantra that was advanced by the Fourth Labour Government (and amplified to ear-drum rupturing levels by the news media) was a lie.

Very few of New Zealand’s social indices have registered a clear improvement in the lives of New Zealanders as a result of the so-called “Rogernomics Revolution”. The wage-earner’s share of company surpluses has reduced in comparison to the shareholder’s. The number of New Zealanders owning their own homes has declined sharply. The dramatic surge in average life expectancy that distinguished the 30 years following World War II has plateaued.

The explanation for New Zealand society’s resolute refusal to be improved by the Fourth Labour Government’s neoliberal “reforms” is very simple. Society is not a mechanism, it is an organism. Ripping things out from, or cutting them off, a living system doesn’t improve it. All that happens is that the system is left wounded and bleeding. Given sufficient time, an organism may adapt to the loss of a limb, or an organ. Wounds do heal. But attempting to pass off the maimed subject of your surgery as a vast improvement over what existed before, is a fool’s errand. Trauma endures.

Has this government, dominated as it is by the Labour Party, learned anything from what happened between 1984 and 1999?

If it politely receives the Tax Working Group’s recommendations, only to consign them, quietly, to the archives, then we may be confident that Labour has absorbed the lessons of its recent history. If, however, Labour presses ahead: proclaiming, once again, the mighty improvements that are bound to follow the suggested adjustments to the mechanism; then we must anticipate the same disastrous consequences.

What farmer (who is not a corporation) will persist with the heartbreak and stress of extracting value from the land, if the tax-free reward awaiting him at the end of his stewardship is transformed into a crippling tax bill?

Will the small-business owner be content to pay herself less than the staff she employs; will she continue to pour her blood, sweat and tears into her enterprise; if a third of the capital gain she hopes to realise at the time of its eventual sale is payable to the IRD?

Will the professional couple with some capital to invest continue to put it into a rental property if a CGT is introduced? Will they go on putting-up with the often appalling behaviour of delinquent tenants? Will they continue to spend a small fortune keeping their properties warm and watertight? They might as well put all their savings into KiwiSaver.

Which is, of course, exactly what the economists want them to do. But will KiwiSaver rent out properties to students? Will it give young tradespeople somewhere decent to live while they amass the capital resources necessary to fulfill the Kiwi Dream of becoming one’s own boss?

Money flows around the social organism we call New Zealand in a unique way. We are not Germany, with its hugely facilitative regional banking structures and its comprehensive tenant protections. Nor are we the USA, with its vast domestic market and its middle-class households’ longstanding propensity to invest in stocks and shares. Ours is an economy driven by delayed gratification: by putting in the hard yards now, on the promise of tax-free capital gains later. Rip that expectation away from aspirational Kiwis, and the economic organism will suffer yet another massive trauma.

Those responsible for inflicting a Capital Gains Tax on New Zealand should not expect to be re-elected for a generation – at least.

This essay was posted simultaneously on The Daily Blog and Bowalley Road of Tuesday, 19 February 2019.

Grant Robertson’s “Mini-Budget” Presents Progressives With A “Maxi-Problem”.

 Same As The Old Boss? Robertson’s fetish for paying down Crown debt and amassing government surpluses will limit this government’s options to doling out some extra cash to beneficiaries and the working poor; increasing public servants’ pay; and making a handful of modest improvements to the nation’s infrastructure.

IT’S OFFICIAL – there is now no prospect of this government living up to its promises of introducing “transformational” change. Thanks to Grant Robertson, the Labour-NZ First-Green Government will, with one exception, be fundamentally indistinguishable from the Clark-Cullen ministry of 1999-2008.

The exception? After its initial “Free Tertiary Education” and “Families Package” spending splurges, the Ardern-Robertson ministry intends to keep new spending at levels well below those of both Clark-Cullen and Key-English. Robertson’s fetish for paying down Crown debt and amassing government surpluses will limit this government’s options to doling out some extra cash to beneficiaries and the working poor; increasing public servants’ pay; and making a handful of modest improvements to the nation’s infrastructure.

Now, don’t get me wrong, all of these things are “nice to have”, but we must be very clear about the sort of economic policy Robertson’s “Mini-Budget” is locking-in. Essentially, what we have is a new government offering to be – at best – a slightly more generous version of the government it replaced. At worst, we may be looking at an initial burst of generosity followed by years of the most flinty-faced parsimony. Very much a case of “meet the new boss, same as the old boss”.

Conservative politicians and commentators are forever telling us that problems cannot be solved simply by “throwing money at them”. This simply is not true.

If a business is failing to grow; if it’s employees are being lured away by promises of higher wages; if the technology in use is out-of-date and prone to breaking down: what does the business owner do? If he’s smart, he borrows additional capital and ploughs it into the business. With the additional funds he buys new technology which, in turn, allows him to employ fewer staff at higher wages. The resulting uplift in the business’s productivity generates higher profits, out of which he repays the borrowed capital sum.

Throwing money at problems works a treat. If it didn’t, Capitalism would never have gotten off the ground.

Unfortunately, Robertson does not appear to grasp the critical fact that if New Zealand is to be “transformed” then he, as Finance Minister, is going to have to lay his hands on a very large sum of money. But, not only is Robertson averse to increasing the level of Crown Debt (even though it has never been cheaper for governments to borrow money) but he is also absolutely determined not to use the most important tool which governments – and only governments – possess: the ability to raise “capital” by levying taxes.

Raising taxes is important not only because it would allow the government to accumulate the financial resources necessary to do more than deliver a one-off lift in the incomes of the poorest New Zealanders, but also because a significant increase in the taxes of the wealthiest New Zealanders would begin to undo the transformation that the neoliberal policies of the past 30 years have already accomplished.

The transformation I’m talking about is the transformation which brought an end to the humane and generous social-democratic society for which New Zealand was renowned internationally, and which, in its place, erected the brutally competitive and grossly unequal society the vast majority of New Zealanders are required to live in today. If that society is to be transformed into something more decent and caring, then a substantial redistribution of wealth and power will have to be accomplished.

That could have been the brief of the much-ballyhooed “Tax Working Group”. (On the subject of which I penned a small political fantasy for The Daily Blog back in September.)  But, once again, Robertson erred on the side of caution – not transformation. The Tax Working Group, chaired by Robertson’s mentor and political patron, Sir Michael Cullen, has been given a ridiculously narrow brief, whose less-than-transformational outcomes will not come into effect until after the 2020 General Election.

By when, of course, it will be much too late to rescue this government from its all-too-evident parsimony and political gutlessness. Robertson’s tight rein on spending can hardly fail to set the coalition partners at each other’s throats. And as for that “Hallelujah Song” of emancipation and transformation, which Jacinda Ardern somehow convinced Winston Peters of Labour’s willingness to sing. Her ruthless finance minister will, long since, have truncated its stirring verses to a few discordant bars.

There will be some who take umbrage at my uncompromising pessimism. To them I say: “It is only because I have been here before.” I remember another inspirational Labour leader who put an end to nine long years of National Party rule by promising to take New Zealand “up where we belong”, and who then allowed his Finance Minister to wreak havoc on the expectations and aspirations of his party’s electoral base.

David Lange’s was a “transformational government” and no mistake. As transformational in its way as the First Labour Government. Except that, the transformation Labour wrought was not the transformation the people who’d voted for it were expecting.

“Rogernomics” was able to destroy New Zealanders’ humane and generous society because the political resistance to it was too little, and came too late. If the members and supporters of this government similarly fail to act immediately and decisively against the give now/withhold later policies of Finance Minister Robertson, then the best chance New Zealanders have had in 30 years to heal the harms of the neoliberal “revolution” will be lost.

Not that you’ll hear the National Party and their friends complaining. The low debt and large surpluses bequeathed to them by Grant Robertson will be more than enough to fund yet another round of generous tax cuts – for the rich.

The right-wing transformation of New Zealand will continue apace.

This essay was originally posted on The Daily Blog of Friday, 15 December 2017.

Tales From A Possible Future: Expanding The Tax Working Group.

A Very Different Proposition: "But surely you see, Grant,”, Prime Minister Ardern is said to have continued, “a tiny group of experts primed to deliver what have already been pretty clearly signalled as the new government’s tax policy objectives, will be met with entirely justified public scepticism."

THE FIRST SIGN that Jacinda Ardern’s would be a very different sort of Labour Government came early.

On the subject of the much-ballyhooed “Tax Working Group”, the near universal assumption had been that it would be comprised almost entirely of the Treasury’s “usual suspects”. The pundits were equally certain that the Group’s terms-of-reference would be exceedingly narrow and its findings untroublingly predictable. A technocratic solution to a political problem born of Labour’s chronic ideological muddle. So far, so conventional.

Quite what the Finance Minister, Grant Robertson, thought when Jacinda responded to his short list of reliable experts by presenting him with a much longer list of her own making, he has, so far, kept to himself. Those present in the room all agree that he looked shocked. His definition of a “working group”, and the Prime Minister’s, were clearly a long way apart.

Rather than simply gathering half-a-dozen senior accountants, bank economists and professors of economics, the Prime Minister’s list brought together a much larger, and more representative, group of New Zealanders. Using the “Water Forum” (created by the former National Government to come up with a consensual solution to the vexed question of how to manage New Zealand’s water resources) as her model, Jacinda had nominated groups and individuals with a proven interest in fashioning an equitable taxation system. Business groups and trade unions, churches and charities, academics and activists; the Prime Minister’s Working Group would be tasked with presenting her and the Finance Minister with a set of recommendations based on the broadest possible societal consensus.

The scuttlebutt doing the rounds of the Press Gallery has Robertson objecting in the most direct fashion that the Prime Minister’s version of the Working Group had not been presented to the electorate before the election and represented a radical departure from their expectations about its composition and scope. “What’s more,” he is said to have added acidly, “neither myself nor Treasury have been appraised of your intentions on this matter.”

The Prime Minister’s response was to reassure him that the expanded Working Group she was proposing couldn’t possibly proceed without the endorsement of the Finance Minister. Her Revenue Minister, David Parker, had been adamant on that score.

“But surely you see, Grant,”, the Prime Minister is said to have continued, “a tiny group of experts primed to deliver what have already been pretty clearly signalled as the new government’s tax policy objectives, will be met with entirely justified public scepticism. By radically expanding the Working Group’s membership, and giving them the broadest possible terms-of-reference, we can generate an unprecedented level of public interest and engagement in the project. Instead of a cynical exercise in bog-level perception management, the inquiry I’m proposing will become a full-scale and exciting exercise in participatory democracy. People will know that our ‘Let’s do this’ tagline is something more than just another of those election slogans that last for the duration of the campaign and then get thrown away.”

Robertson warned Jacinda that if she persisted with her plan, her Government would be torn apart by the media for attempting to turn New Zealand into the South Pacific’s very own version of Venezuela.

“Are you really telling me,” the Prime Minister responded, “that the only experts acceptable to our friends in the media are those who haven’t the slightest idea what it’s like to live on the minimum wage, or exist on a benefit? That they simply will not concede that there is more than one type of expertise when it comes to the effect of taxation on ordinary people’s lives? Surely, you’re not suggesting, Grant, that our government’s room-for-manoeuvre politically extends no further than the prejudices of New Zealand’s most reactionary journalists?”

Robertson then demanded to know whether the Greens and NZ First had been involved in the formulation of the policy she was putting forward.

“I have discussed the possibility of using National’s “Water Forum” as the model for our Tax Working Group, yes. And I have to tell you, Grant, that both James and Winston are enthusiastic. Like me, they see this as an excellent way of showing the electorate that their new government is a very different proposition from any of its predecessors. That, when it comes to economic and social policy, this government is determined to take the people with it. That the days of a dangerously isolated, neoliberal political class telling voters what’s good for them are over.”

Robertson is said to have remained silent for what seemed, to all those present, a very long time. Then, signalling his acceptance of his long-time friend and ally’s proposal with a wry grin, he is supposed to have said: “You’re not by any chance hiding a trio of dragons on the Beehive’s Ninth Floor, are you, Jacinda?”

This essay was originally posted on The Daily Blog of Saturday, 9 September 2017.