Labour's tax policy is likely to include a capital gains tax and some form of wealth tax to keep the Greens and Te Pāti Māori on side
Opinion: Much of the comment about the impact of last week's Budget has overlooked the fact that Budgets rarely reset the political dial. At best, they reinforce the prevailing economic and social settings of the day, and at worst they have a Nero-like quality.
Two Budgets over the last generation or so stand out as breaking the traditional mould. The first was Sir Roger Douglas's 1984 Budget which introduced the country to what became known as Rogernomics, and the second was Ruth Richardson's 1991 "mother of all Budgets". Significantly, both those Budgets were the first of new governments and shaped their style and tone for their full terms of office.
READ MORE:
* Robertson becomes ever less the visionary leader
* Budget 2023: Climate fund slashed by $800m
* Budget 2023: Childcare relief slow to land for parents
Budget 2023 was not of that mould. It was a traditional election-year Budget, reeking of safety and responsibility, with just a little hint of things to come should voters be grateful enough to re-elect the Government. As always, it was styled as a Budget "for our times", oozing reliability and reassurance. Like all election-year Budgets, it acknowledged current problems as "challenges", alluded to possible solutions, but avoided any substantive detail until after the election is safely out of the way. It was a careful testing-of-the-water exercise of the public appetite for higher government spending and higher taxes to pay for it, giving the Government plenty of time before the election to further promote or trim back its approach, depending on the public reaction.
Election year Budgets are more about reinforcing a government's narrative of its stewardship to date, rather than setting bold directions for the future. Hence this year’s silence on tax issues, aside from logical lift in the trust tax rate to match the top marginal tax rate of 39 percent, introduced in 2021.
If a re-elected Labour-led government moves quickly after the election to bring in a capital gains tax along the Cullen lines, it could well do so under Urgency, meaning there would be no opportunity for public submissions or select committee examination
However, it is an open secret that Labour's yet-to-be-announced tax policy is likely to include the capital gains tax proposed by Sir Michael Cullen's working group, which was subsequently ruled out by former Prime Minister Jacinda Ardern in 2019. Labour may also propose some form of wealth tax as well to keep potential support partners the Greens and Te Pāti Māori on side. Finance Minister Grant Robertson's coyness about what might be in Labour's tax policy when it is eventually announced, countered by his assertion that tax will be a major issue come the election make those moves virtual certainties. He would not be talking about tax being a major election issue if he were not contemplating major tax changes after the election.
Just as certain is that a re-elected Labour-led government will move swiftly on the capital gains tax front, using the Cullen plan as its base, and legislate, probably before Christmas, to implement it. This would be like 2020 when Labour moved straight after the election to introduce its new top personal tax rate of 39 percent, effective April 1 2021. The wealth tax plan could proceed similarly quickly, although, because any proposal is not as well developed at this stage, it is likely to require more policy development work before it could be introduced. (This delay may even allow Labour to quietly back off the idea altogether if the reaction to the introduction of a capital gains tax is substantially more negative than expected.)
However, these new plans should have been laid out in last week’s Budget, not some yet-to-be-announced election policy. The same goes for the weekend’s announcement of a $140 million taxpayer subsidy to foreign-owned, multinational New Zealand Steel to cut its greenhouse gas emissions. Both prospective future tax changes and this significant taxpayer subsidy are major policy items that had they formed part of the Budget would have been subject to the normal process of post-Budget select committee and Parliamentary scrutiny now underway.
As it stands, Labour’s prospective tax changes cannot be subject to any pre-election Parliamentary scrutiny because they have not been announced, and because therefore they are not formally the Government’s policy, until adopted as such by Cabinet. If a re-elected Labour-led government moves quickly after the election to bring in a capital gains tax along the Cullen lines, it could well do so under Urgency, meaning there would be no opportunity for public submissions or select committee examination. Labour could try to justify this by arguing that all that could be said on the subject was presented to the Cullen working group, and therefore little would be gained by a further round of the same submissions.
The New Zealand Steel announcement (ironic given that a former Labour Government sold its interests in the company because it once considered it to be a bad 'Think Big' investment, only to now be bestowing corporate welfare upon it) looks to be an impressive achievement, at least according to the ministers who announced it. But it too will escape the major pre-election scrutiny it would have received had it been part of the formal Budget process.
This government has repeatedly shown itself to be more adept than most in media management. From its perspective, far better that people are talking positively about the Budget’s “goodies” – the extension of 20 hours free early childhood education to two-year-olds, axing prescription charges, and free public transport for primary school children – than arguing about how they might be hit by looming tax changes. That can be left for another day to be debated in the superficial atmosphere of an election campaign, where slogans rather than substance often prevail. Similarly, the New Zealand Steel announcement has enabled the government to avoid too much detail and just focus on emissions reduction.
Since the Muldoon days, successive governments have sought to make the annual Budget process more transparent and predictable. Thanks to Labour’s Public Finance Act and National’s Fiscal Responsibility Act, governments are now more accountable for their Budget decisions. But by keeping potential major tax changes and a major industry subsidy projects outside the scope of this year’s Budget, Robertson and his colleagues have thumbed their noses at the bipartisan Budget process so carefully developed over recent years.
