Opinion: Labour not ducking tax issue, but it's dangerous ground

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Is Labour drowning in its water tax? Is the major Opposition party choking from having overestimated the public’s appetite for a capital gains tax?

In the wake of the surprise finding of last night’s Newshub-Reid Research poll, those questions now carry much more resonance in the hothouse atmospherics of an extremely tight election campaign.

The latest Newshub poll not only defied the prevailing wisdom that next week’s general election will produce a change of government.

Source: 1 NEWS

It threw up the possibility that National could govern alone.

There is only one thing the pundits can do when confronted with such volatility — throw away the polls and instead make a bulk purchase of chicken entrails.

What is indisputable is the major shift in the dynamics of the campaign over the past week.

National has bounced back from Steven Joyce’s “fiscal hole” blunder with a vengeance to be expected from a party suddenly confronted with losing power.

National has gone totally on the offensive. In focusing on what Labour’s opponents might describe as Labour’s Dance of the Seven Taxes, Bill English has his party’s old enemy where he wants it, namely facing the age-old accusation that it is the tax-tax-tax-and-spend-and-spend-and-spend party.

We are talking about five new taxes, in fact. And one of them is actually a $25 levy on international visitors, not New Zealand citizens or residents.

Another is a potential alternative to a capital gains tax. Another is a capital gains tax by a different name.

To sum up, the list includes a water tax, a regional petrol tax, a tourism levy, a capital gains tax — renamed by English as an inheritance tax — a potential land tax — which would be an alternative to a capital gains tax — and Labour’s intention to scrap the income tax cut announced in last May’s Budget.

Labour can quibble over the contents of the list, especially the inclusion of the last item given the tax cut does not come into effect until next April.

National registered an approval rating of 47.3 per cent compared to Labour's 37.8 per cent in last night's Newshub poll.
Source: Breakfast

But then English and Joyce, his finance minister, have the patter to make a tax rise out of the scuttling of a tax cut of which people have yet to receive a single cent.

Whatever way you look at it, this is a heck of a lot of new taxes to burden yourself with in an election campaign. The tax talk has been accompanied by Ardern’s daily announcements of extra government spending here, there and seemingly just about everywhere.

Labour insists its spending is fully costed in its fiscal plan. But few voters read such documents. Labour’s long list of spending promises leaves an impression of Budget surpluses for the burning rather than fiscal rectitude.

Labour should have been onto a winner with its water tax. It would have been had the policy been limited to forcing water bottling companies to pay royalties.

The policy ventures into very complicated and very sensitive territory in grappling with irrigation, however. National has turned the policy into what it is painting as a textbook example of Labour not caring a jot about rural and provincial New Zealand.

When it comes to its patently obvious intention to introduce a capital gains tax, Labour might be putting too much faith in opinion polls which suggest a majority of New Zealanders now support such a measure.

Many voters respond to such surveys by telling interviewers what they think the latter want to hear rather declaring what they actually believe.

The easy option for Ardern and Grant Robertson, Labour’s finance spokesman, would be to keep a capital gains tax off the table.

To do so would be to forego using a tax instrument which is essential in ensuring equity in the tax system —something which goes to the heart of the party’s ideology.

The matter has haunted the party for too long. Labour can no longer ignore it. And to Ardern’s and Robertson’s credit, they are not ducking the issue.

What the pair well understand is that including a pledge to introduce such a measure in the party’s election manifesto along with detail of which assets would be subject to such a tax is the fast route to ensuring it never happens.

Thus the pretence that such a tax is not necessarily on the table. Thus the pretence that the decision on the best means of enhancing fairness in the tax system and property market will be made by a working group of tax experts.

These ruses have enabled Ardern and Robertson to avoid questions about how the tax would work beyond confirming that the family home will be exempt, and the land beneath it will likewise not be subject to any land tax that Labour might introduce instead of a capital gains tax.

Hundreds of Canterbury farmers cheered the National Party leader as he promised never to introduce a water tax.
Source: 1 NEWS

The tactic is intended to frustrate English by offering him nothing he can grasp and use as a means of ridiculing such a tax.

It is clever politics. But is it clever enough?

English’s masterstroke has been to turn the debate in his favour by transforming the notion of a capital gains tax, which Labour claims only the rich will pay, into an inheritance tax which everyone would have to pay, for example, if they sold the house passed on to them following the death of their parents.

Ardern has sought to blunt this line of attack by ruling out an inheritance tax while accusing National’s leader of telling lies, scaremongering and creating “fake news”.

There was presumably nothing fake about the provision in Labour’s proposal for a capital gains tax which it promoted at the 2011 and 2014 elections.

That policy spelled out very clearly that a house inherited by a family member would be subject to a capital gains tax if the gain on the asset was realised through the sale of the property.

Is Ardern saying those homes would also be exempt? If so, the capacity for a capital gains tax to curtail property speculation would be accordingly much reduced.

The Labour leader made the announcement after government forecast a $3.7 billion surplus.
Source: 1 NEWS

The devil lies in such detail. No wonder Ardern and Robertson do not want to mention it.

With Winston Peters — who will more than likely end up being Labour’s coalition partner — joining English in demanding more detail from Labour of its intentions, Ardern will face intense pressure to front up with policy detail — and not just with respect to an assets tax.

She can talk about fake news all she likes. But the impact of Ardern’s blatant hoodwinking of voters could yet have a very real impact on her chances of becoming prime minister in 10 days’ time.

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