It is said that politics abhors a vacuum. Too right it does.
If you don’t fill such vacuums, other politicians will do so. And, moreover, usually to your distinct and definite disadvantage.
The refusal of the Labour Party’s two foremost figures to respond in any meaningful fashion to the review of New Zealand’s taxation system which they commissioned is very much a case in point.
The reluctance exhibited by both the Prime Minister and her Minister of Finance to comment on the recommendation made by the Tax Working Group that the country implement a regime to tax capital gains is understandable.
The last thing Jacinda Ardern and Grant Robertson want to do is to paint themselves into a corner by declaring which assets they believe should be subject to a capital gains tax and which ones should be exempt.
Not yet anyway.
The “national conversation” about tax sought by the working group could go anywhere. Or — far more likely — will go nowhere.
Nevertheless, it is best that those at the forefront of the debate have the capacity to be flexible.
Before they make a final decision as to whether to proceed with such a tax and in what form, Ardern and Robertson will have wanted to hear which sectors of the economy are squealing the loudest through falling under the ambit of the tax modelled by the Sir Michael Cullen-chaired working group.
They will want to know whether the griping is justified.
They will want to know how big the risks are for Labour as they gauge the wider public reaction to the prospect of a new impost being added to the arsenal of revenue-raising instruments already at a Finance minister’s disposal.
On top of that, Ardern and Robertson can hardly pre-empt pending negotiations with New Zealand First and the Greens on the make-up of such a tax.
In keeping some distance between the findings of the Cullen review and themselves, however, Ardern and Robertson have created a vacuum — one which Simon Bridges has been most pleased to fill. All of a sudden National’s besieged leader is the veritable pig in muck.
Jacinda Ardern encouraged debate of recommendations from the tax working group, but called some statements “inflammatory”.
Using the licence of Opposition where exaggeration is the currency of the day, Bridges has put some severe dents into Labour’s strongest argument for implementing a capital gains tax — fairness. Labour’s riposte has been silence.
Ardern and Robertson Ardern aren’t fools. You can bet your bottom dollar that a considerable amount of thought went into how to best manage the release of the Tax Working Group’s report.
But they are hamstrung. Robertson could conceivably have held back the report’s release until the upcoming back-room negotiations between the governing partners have concluded and the various trade-offs, compromises and concessions are firmly nailed down.
That would have been unusual. It would have risked compromising the working group’s independence.
It would consequently have made it that much harder to get public buy-in to the introduction of a capital gains tax.
That will be hard enough as things already are.
It is not advisable to jump to conclusions based on who is shouting the loudest.
But the hostility directed at the working group’s recommendation suggests that not a lot has changed in Voterland and that opposition to such a measure is as deeply entrenched as it ever was.
Securing even a grudging acceptance of the fact that a capital gains tax is justified on the grounds of fairness alone requires a shift in the mindset of the New Zealand voter of seismic proportions.
Most people have no problem with paying tax on the income they receive by way of wages and salaries.
They regard cash derived from selling assets — be they shares, rented properties or whatever — as a return on risk or a reward for being clever enough to spot money-making opportunities.
The notion that cash windfalls from asset sales be added to assessable income and that income tax be paid on the overall total is regarded as completely alien. Yet that is exactly how capital gains are taxed in Australia
Robertson has endeavoured to shift the debate in that direction by making reference to a “capital income tax” rather than a capital gains tax. Few would have noticed.
Shifting the public’s mindset is going to take a lot more than that. Neither is it something that can happen overnight.
Ardern’s and Robertson’s non-committal stance of ruling nothing out and ruling nothing in was supposed to continue for the next two months while the wheeling and dealing by the Government parties continued.
Barely two working days had passed, however, before Ardern was flip-flopping and backtracking on her previously stated intention to say nothing about the options Labour favours for inclusion in the enabling legislation which will be required before the new tax can take effect.
Some time after the release of the working group’s recommendations on Thursday last week and her post-Cabinet press conference last Monday, Ardern was struck by a bad case of the political heebie-jeebies.
She sought to use the latter platform to go on the offensive.
She instead ended up sounding the opposite as she sought to correct misinformation about the working party’s recommendations.
She then proceeded to do the very thing that she had insisted she would not do. She dropped a very big hint that the owners of small businesses and farmers would not be hit by a capital gains tax anywhere as hard as they feared.
It is a fair bet that she was flagging that someone who has owned and built up a business over a number of years and who is near retiring will not have to pay tax on the capital gain realised from the sale of that business.
It is likewise a fair bet that another one of the myriad number of decisions that the Cabinet will have to make in order for any capital gains tax to function would see ministers considerably expand the size of lifestyle blocks before their owners became liable to pay such a tax.
Ardern’s very deliberate decision to suddenly go off-message might well have been motivated by other factors than the fact that in dabbling with a capital gains tax, she is juggling with politics equivalent of sticks of dynamite while simultaneously seeking to refill the vacuum created by her and Robertson.
For starters, Ardern has been through one Winter of Discontent. One is one too many. She will do her utmost to avoid uncertainty over a capital gains tax being used by grumps in the business community as an excuse for a repeat.
Ardern’s mentioning that she was listening to the concerns of small business and farmers was also designed to send a message to a wider audience. That message is that any capital gains tax that emerges from Labour’s negotiations with its coalition partner and its support partner will be a much watered down version than the one to be found in the Tax Working Group’s report.
If so, then the working group will have done the job asked of it by Labour. It will have softened up the electorate for what — initially at least —is increasingly and probably correctly expected to be a pretty tame levy on a limited number of assets.
There is certainly a widespread view that the model proposed by the Cullen review is at the tough end of things.
That is highly debatable. In Australia, “collectables” such as paintings, sculptures, drawings, engravings or photographs valued at more than A$500 are subject to tax if sold. Likewise “personal use” assets such as boats, furniture or electrical goods if worth A$10,000 or more.
In contrast, the Cullen review recommends all such items be exempt.
But don’t tell anyone that. Ardern and Robertson need to keep alive the notion that the working group’s suggestions are far to onerous and that the tax Labour is contemplating will be far more moderate — even if such a claim is not accurate.
That is about the only way they are going to be able to sell something to voters that most voters don’t want.
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