Colin James: United front on tax

You don't have to go to an Act or National Party conference to get a contrary line to Labour's economic management. United Future will do. Labour is now at risk of finding itself in a minority.

Five years ago, leading a fresh government, Labour, in harness with the Alliance and the Greens, clearly represented a majority of voters. That majority wanted deregulation and asset sales halted, the social services rebuilt and radical policy-making replaced with moderacy.

That is what Helen Clark and Michael Cullen did - aided, ironically, by a strong economy that owed much to the very deregulation voters put them in to halt.

They lifted taxes, regulated more (electricity, telecommunications, building) and stopped selling SOEs. Truckloads of money were tipped into health and education. That programme was popular - even the tax hike generated little complaint.

But the mood has been shifting. The adverse media reaction - and public reaction, if the Herald DigiPoll is to be believed - to the Budget's stingy adjustment to income tax thresholds is an indication. Tax is not the non-issue Labour has been able to assume for the past two elections.

Of course, there is a lot more to economic policy than tax. But, now that memories of the 1990s are fading, the tax muddle may illustrate a bigger disjunct.

United Future epitomises that disjunct. Not that United Future is big. It is small and in danger of becoming smaller. Nevertheless, it is Labour's preferred partner. So when the two disagree, take note.

Cullen made a point of crediting the inflation-linking of tax thresholds to United Future's Gordon Copeland. It is a shadow of what Copeland argued for - he wanted thresholds of $43,000 for the 33c rate and $65,000 for the 39c rate. But Cullen said it was Copeland's pushing that prompted him to act.

But there the collegiality stops. Cullen has no intention of picking up the rest of Copeland's ambitious tax policy, which includes: lower personal income tax rates "as economic conditions allow"; a 30c company tax rate; more tax incentives for R&D; a lift to $1000-$1500 in the minimum amount that qualifies an expense as an asset; a 1 per cent discount for handling GST up to $200,000 a year; a tax-free holiday for new start-ups; no GST on rates; income-splitting for couples with dependent children; an expanded saving scheme (including education). That takes Copeland up close to - and in some cases beyond - National. Cullen and Labour are not going there.

Nor will Cullen and Labour follow Copeland into his proposed staged programme of up to 40 per cent public floats of shares in state-owned enterprises. That also goes beyond National: Key is talking only of 20 per cent.

Copeland reasons that there would be governance benefits from the minority holdings, so the SOEs would perform better. He also reckons he would scoop out $750 million to $950 million a year in capital and saved interest. He says the interest part will help pay for tax cuts - but, as Cullen points out, much of that would be offset by a corresponding cut in the government's dividend stream.

There's more.

United Future opposed much of Labour's workplace legislation (which, since 2002, has needed the Greens' support to pass) and its policy could readily line up with most, perhaps all, of National's programme. Its present line is a "review" of all workplace law to ensure it is "relevant to the realities of small business" in Paul Adams' words. It wants a probationary period for new employees. And it "strongly supports" competition in ACC. (National's policy is to allow such competition but not, as in 1999, force it.)

United Future wants lower compliance requirements for business, particularly small business (well, so does Cullen and he did some important things in the Budget to make the act of paying tax less fiddly and time-consuming).

United Future includes under that category changes to the Resource Management Act and a regular two-yearly review of the act. United Future is also a lot closer to National than to Labour on environment and conservation policy, being less inclined to lock up marine reserves and national parks.

In fact, United Future is generally closer to National than Labour, which makes the present marriage of convenience ungainly. If you remarry United Future to National and stir in Act, even more distant from Labour on economic policy, the parliamentary weight for less tax and a more liberal economy begins to look respectable.

Then add New Zealand First. It also generally favours a less taxed and less regulated business environment than Labour. Though it doesn't go as far as the other three (and is also antipathetic to free trade and liberal foreign investment, which is a minority position along with the Greens), it gets those who want a more liberal position on tax, workplace regulation and some other regulation close to a majority.

Although Labour and the Greens have got the votes in Parliament for now, is that the majority Labour wants to be stuck with in the next term? And will that be a majority in the country?

Skip across to health policy. Though broadly United Future is closer to Labour than National on most social policy, one of its health policies is to contract out routine hospital operations to the private sector - as ACC does and as used to be done before 2000.

This is at odds with Labour's essentially 1960s-70s state-centralist ideology for social services delivery, which the top Labour hierarchy grew up with.

But need it necessarily be at odds with Labour's priorities in the globalised and much less regulated 2000s in which, after all, it has become a free trade party? Answer: not really. Waiting lists are proving notoriously hard to trim, despite huge rises in the health budget.

Take another United Future preoccupation: income-splitting (dividing a couple's total income in two for income tax purposes, if they have dependent children).

This can be dismissed by left-of-centre parties as a conservative ploy to confine women to the home and advantage nuclear families over other sorts.

But those same left-of-centre people also insist that women at home are doing real work, which is not properly valued by society. Income-splitting can be seen as valuing that work - the breadwinner and the caregiver are each taxed as doing half the couple's total work.

The point of these examples is this: in a third term (if it gets one) Labour could recover its immediate post-1999 majority position by being a bit more flexible - in the way Cullen has already done by establishing the principle of linking income tax thresholds to inflation.

Voters' perspectives and preoccupations do change, as we are seeing on tax. Smart major parties which want to be long-run governments adjust as voters do.

There is a problem: even small steps bother Labour's left. The answer to that: blame it on coalition and support partners.

But for that imagination is required. Can a third-term government be imaginative? That is a poser for the voters on election day. And, before and after election day, a challenge - and maybe a small opening - for imaginative business lobbies seeking a bit more flexibility.

What's on offer

* Lower personal income tax rates.
* A 30c company tax rate.
* More tax incentives for R&D.
* A lift to $1000-$1500 in the minimum amount that qualifies an expense as an asset.
* A 1 per cent discount for handling GST up to $200,000 a year.
* A tax-free holiday for new start-ups.
* No GST on rates.
* Income-splitting for couples with dependent children.
* An expanded saving scheme (including education).