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ANALYSIS: Labor’s fiscal policy is not really about paying the cost of Covid-19.
At the end of Thursday, just over a day after the policy was announced, the government will head to the market to borrow another $ 950 million, well above the $ 550 million that Labor plans to raise in tax revenue.
That is in addition to the $ 950 million it borrowed last week and the $ 950 million it plans to borrow next Thursday.
Recessions, like the one we’ll officially be in after Stats NZ releases its next dataset eight days from now, are expensive.
The question of what to do with New Zealand’s debt pile remains open. Officially, National favors cuts of some yet unknown description, while Labor favors a small tax increase.
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In reality, both favor the gradual reduction of the debt pile, and the main reduction in debt comes from the growth of the economy such that debt contracts as a percentage of GDP (gross domestic product). This makes some sense; punishment cuts to essential public services are politically unpleasant, and even at the peak of this crisis, New Zealand’s debt-to-GDP ratio will only exceed 50 percent. High by our standards, but never ending in the world.
That is not to say that we should not focus on reducing the accumulation of debt. There will be other recessions and the pleated faults that make up our topography pose a constant risk to our public finances.
Today’s announcement isn’t about taxes, either.
ROBERT KITCHEN / Things
Finance spokesman Grant Robertson with revenue spokesman Stuart Nash en route to announce Labor tax policy.
A good tax does not solve problems, but a bad tax can create them.
Politicians love to solve things with taxes. Is the cost of living too high? Remove the GST from fruits and vegetables. Too many people smoking? Cigarette walk.
It is easy to see why we do this. Taxes are the biggest lever a government has to shape the economy, but tax surgeries are often more troublesome than they are worth.
Even relatively successful tax changes, such as excise tax increases on tobacco, eventually reach a point where they become inefficient and ineffective.
New Zealand’s income tax system is relatively robust. The underlying low-rate, broad-base principle generates a good chunk of revenue while giving higher-earners little reason to evade their payment obligations. That said, raising the top rate to 39 percent to an even lower threshold of, say, $ 85,000 – the equivalent of where former Prime Minister Helen Clark set her top tier – wouldn’t be the end of the world, though it creates an inconsistency. with the fixed tax rate applied to trusts.
The most important and obvious thing the Labor Party would do if this tax policy were really taxation is to review the capital gains tax or even the wealth tax of the Greens.
With the Reserve Bank pumping tens of billions of dollars in monetary stimulus into the economy, asset prices are already beginning to rise. Low interest rates make loans cheap and the tax advantages residential properties enjoy are second to none, so it’s no wonder investors continue to encroach on the residential real estate market.
Fixing that inconsistency would not solve the housing affordability crisis, but it could prevent it from getting worse as a result of the stimulating environment.
But this ad was not about that.
It was about politics.
The work has long pondered a way to tilt the tax system towards its way of thinking and Covid-19 provided the perfect opportunity.
Clark’s broader political project was to make Labor the natural party of government in New Zealand, as National had been during the second half of the 20th century.
Robertson has inherited that project in many ways. Her personal and financial goals are always refracted through the prism of what is politically possible, and Robertson’s view of what is politically positive is highly conservative, having suffered nine years of tough opposition.
Labor takes pains to point out that, despite strong party polls, it takes nothing for granted. This tax is certainly proof of this.
Robertson used the Clark-era tax rates to suggest that his changes were a return to normalcy, rather than something fundamental. He is right about that. Even the National Party entered the 2005 elections with a rate of 39 percent at a lower level (adjusted for inflation). By that metric, Robertson’s tax policy is to the right of Archbishop Don Brash.
But as much as Robertson liked to promote this tax as a return to the rules of the Clark years, when it comes to politics he is pure John Key.
Key, the former leader of the National Party, infuriated supporters on the right by tiptoeing into popular conservative political projects, such as fundamental pension, welfare and tax reforms, despite his popularity. Key was quite frank about why he disappointed these fans; He said that by spending political capital on unpopular policies, he would abuse the trust that led people to confer political capital on him in the first place.
Political capital, in Key’s view, had an exponential relationship with trust. Spend a little and you will lose everything; accumulate it, and it will most likely last for years.
It’s a fair answer, but it corners politicians when it comes to a necessary and unpleasant change. Postponing the inevitable only makes change more painful when it finally arrives.
