Labour's Tax Policy Problems and The housing crisis.

Tax has become a lightning rod in this election. It’s a worry, therefore, that Labour has been caught out for making up its tax policy on the hoof and have rapidly back-tracked. Meanwhile National are too timid to move from the status quo, despite glaring holes in the current tax system. 

TOP is a new party but we’ve done the leg-work to identify the problems with our tax system and come up with well-integrated, fiscally neutral policies. TOP’s tax reforms will not raise one additional dollar of tax, and in terms of pollution, water, food, etc any revenue raised via charges will be used to reward best practice. That means, in a fiscal sense, our policies simply add on to those promoted by the government of the day – there is no net additional revenue collection. We’re just doing stuff better from a public policy perspective.

Contrast that approach to say NZ First that has a massive fiscal hole in its pledges. Over a three-year term these would amount to $55bn – made up of three years worth of $12.5bn shortfalls and total one-off costs of $18bn. As we heard on Morning Report, their leader Winston Peters doesn’t even understand the cost of his own policies.

But the most significant tax policy failure has come from Labour. Rather than have a well-formed policy to put in front of voters, it floated the idea of a capital gains tax on property, said the details would be based on the recommendations of yet another tax working group, and then clumsily ruled out the family home (including the land it sits on). The latter makes a tax working group and indeed the whole idea of tax reform a waste of time. Better to have stuck with increasing the current capital gains tax (or so-called ‘bright line test’) on residential property from two to five years. What exactly have Labour been doing in opposition for nine years?

Labour left voters clueless about what would happen to tax under Labour, but no doubt some of those that voted for them early did so in the hope that Labour would do something. Those hopes were dashed yesterday when Labour confirmed their party’s lack of commitment to meaningful tax reform by pushing out any changes to beyond the next election in 2020. Two Tax Working Groups in a row have recommended meaningful reform and had it rejected by career politicians too timid to provide leadership. What makes anyone think Labour will do anything in 2020? Let’s do this? Yeah, nah.

Besides housing, Labour has announced a series of taxes on freshwater, pollution, climate change, tourists, but there’s precious little detail on how the revenue raised will be spent. Without the revenue and spending matched or even defined, the fiscal path under Labour is a total unknown. That is not a good look for a party aspiring to be the major player of a governing coalition. Actually it’s a shocker.

National has been busy exploiting voters’ fears of new taxes. But this is a party that’s too timid to address glaring tax loopholes, hasn’t the courage to acknowledge there’s a housing crisis, and is too scared about upsetting their mates to even consider environmental taxes and charges. Instead of pricing water, they prefer to stick with the first come first served basis for allocating this precious resource, even when they admit it is failing.

National’s nonchalance to the ongoing concentration of property wealth is perhaps best illustrated by former Prime Minister Sir John Key’s experience.

Mr Key didn’t draw his Prime Ministerial salary, which is currently $460,000 plus a $22,000 tax free allowance. So over his eight years in office he forewent roughly $3.5m in taxable salary. He deserves thanks for saving the taxpayer this significant sum.

But because National is happy to keep the tax loophole on housing wide open, Mr Key among many others made a great deal more from his home than he could from his day job running the country.

Mr Key was a wealthy man before he entered politics and part of his wealth was invested in a grand Remuera house, which he’s just sold for a reported $20m. In 2006 a North & South article estimated the property was worth around $2m. Let’s say that by 2008 when he became the Prime Minister the property was worth $5m. He was in office for eight years, so that’s a tax free income from his house of approximately $1.8m a year – about six times the Prime Minister’s current salary package.

The point I’m making here is that it is in the interest of the property-owning elite to continue to sponsor property price inflation – it is a ready way to ensure more and more of the country’s wealth effectively ends up under the control of property owners. If that’s the New Zealand you want, then by all means, continue to vote Labour or National. Remember, even if Labour had their way and introduced some form of tax on housing, the family home would have been exempt, so Sir John would still have pocketed his $1.8m per year tax free.

TOP’s tax reforms would address this absurdity. Yes, a small annual tax would apply to all property including the family home. But every dollar is returned via a drop in income tax rates. TOP is about removing a tax privilege. Neither National or Labour are up to that ideal it seems.