John Roughan: Everything rides on Labour's fiscal plan

Back when the National government was young and fresh, circa 2009, it set up a tax working group that told it only half of income earners in the top tax bracket were actually paying the rate. The only reason we know that is that the new Finance Minister, Bill English, was deeply disturbed to hear it and said so publicly, several times.

The tax working group was looking at a range of capital and wealth taxes to capture those people but not much came of it. The 2010 Budget did no more than lower the top tax rate to 33c and increase GST. I suspect English would have liked to have done more. He was always more fiscally conservative than his Prime Minister, and more interested in social equity.

Jacinda Ardern and Grant Robertson have obviously never forgotten how English talked about tax avoidance back then when they were new MPs. Now they plan to set up a tax working group of their own to suggest a "better balance" between taxes on capital wealth and incomes. It is scary and it should be. Taxing rental housing properly is one thing - a good thing, not only for lowering house prices but for diverting investment into the productive economy.

Labour's determination to stop house buyers using negative gearing to reduce their income tax is reason enough to welcome a change of Government. Extending National's capital gains tax and giving tenants more security should be welcomed too. But how much further would an Ardern-Robertson government go?

Small business is the lifeblood of every sound economy. People who take the risk to start a business, go heavily into debt, put in long hours of hard work to build it up, take on the awful responsibilities of employing other people and eventually begin to reap the rewards, deserve a break.

They certainly deserve to keep all the capital gain they will make if they can sell the business well. I'm not even sure they should have to pay the same income tax rate as someone like me who faces none of the risks and responsibilities they do. I'd like to see their top rate reduced to the company rate (28c), since that is probably what they are using to avoid the top income rate anyway.

But all of this is best discussed in the kind of exercise Ardern and Robertson propose. I just wish they would give business people a clearer idea of their thinking before the election.

Until now the economy has been flying on four good engines: good government (which means above all controlled spending), business confidence, population growth and a strong currency. Loosen control of public spending and all those engines start to splutter. If business confidence drops, immigration drops and the dollar drops it is going to be ugly. Growth will stall, import prices will rise, interest rates will have to go up against inflation, house prices will tumble and heavily mortgaged owners are going to be in trouble. I hope this is not where we are next year.

That is why spending control matters. The hole Steven Joyce found in Labour's fiscal plan this week is important. The media were outraged that he calmly stood his ground against a consensus of their own commentators but he made a point. It seems to be accepted that Labour has made no provision for unforeseen costs outside its big items of education, health and welfare in two and three years time. It was not encouraging to hear Robertson taking refuge behind his Berl consultants.

Labour governments are Christmas time for state service salaries. Nurses did particularly well out of the last one. This time the party is promising to lift minimum rates of government employees to the Combined State Union's "living wage" and extend that rate to contractors' staff eventually. Meanwhile, the big public spending professions are expecting Labour to be a soft touch for higher funding. The rumbling about "underfunding" from hospital doctors and other branches of the free-health industry has reached a crescendo on John Campbell's RNZ programme.

I need to hear some hard-headed sentiments from Ardern. I want to know what she wouldn't fund, much as she would like to.

She has moderated her tax impulses since the initial flurry. The decision not to increase the top rate was a good one. Anybody who has ever had to hand a third of some earnings to the Government, as opposed to getting after-tax pay, will know what I mean. And she is wise to leave the company rate where it is.

On spending, it was at least good to see her so angry in defence of her fiscal plan.

I hope it is economics and not just politics that made her so sensitive on the subject. It really matters.