OPINION
Among the most pointless words in politics, as in life, are “if only”.
Still, everyone finds it hard to ignore sunk costs and lost opportunities. Jenny Shipley must wonder what would have happened if only she had called a snap election the night she sacked Winston Peters.
Would Gordon Brown still be British Prime Minister (and Britain still in the EU) had he backed his instincts to go the polls in late 2007 after rolling Tony Blair? In New Zealand, Bill English would almost certainly still be Prime Minister had he sought a personal mandate against Andrew Little in early 2017.
Chris Hipkins must also be asking “if only”.
As I suggested in February, Hipkins’ best bet was always to call a snap election for April 15. Every poll in late March and early April had Labour-Green-Te Pāti Māori beating National-Act and Hipkins materially ahead of Christopher Luxon.
By election day, we’d have known Stuart Nash didn’t like Jacinda Ardern’s commercial rent relief package and thought the police and courts should be tougher on crime. But Customs Minister Meka Whaitiri would still have been with Labour, Jan Tinetti would still be assumed to be a competent Education Minister, Transport Minister Michael Wood and Justice Minister Kiri Allan still regarded as potential prime ministers, and Finance Minister Grant Robertson and Revenue Minister David Parker not publicly contradicting Hipkins on tax.
As I also suggested in February, tax was the perfect issue for Hipkins to justify a snap election and put National on the wrong side of public opinion.
As the Beehive was then hinting, and Treasury papers confirm, Robertson and Parker were working on giving everyone earning over $10,000 a year a $20-a-week tax cut, paid for by a 1.5 per cent wealth tax on families with net assets of $10 million, excluding family homes, baches and other “personal consumption assets” such as cars, yachts, aircraft, jewellery and artwork.
A family with a $10m home, a $5m bach, a $4m boat, $2m in art, $1m in jewellery, a modest $6m Spectrum Aeronautical S-33 private jet and $25m in other investments, leveraged with $10m in debt, would have had to pay a wealth tax of $75,000 a year.
Capital gains and inheritance taxes would have been permanently ruled out.
It’s surprising a Labour Government didn’t think this was ideologically and politically sound, and even more surprising that Hipkins didn’t back himself to sell it, but less surprising that Robertson and Parker have publicly sulked.
Hipkins even ruled out any new capital gains or wealth taxes, leaving only an inheritance tax on the table.
If Hipkins had more courage, he could have justified an April 15 snap election by saying Labour had promised no new taxes this term, so it needed a mandate for Robertson and Parker’s tax switch to be the centrepiece of the Budget the following month.
With National certain to have campaigned against both the wealth tax and the $1050-a-year tax cut for everyone, Hipkins would surely have been re-elected convincingly.
Still, it’s too late now for “if only”.
Tax and the associated issues of fiscal credibility nevertheless remain Hipkins’ best bet to get out of his current mess, just 66 days before early voting.
Luxon this week confirmed National’s unorthodox decision to publish its tax and fiscal plan before Treasury’s official pre-election Economic and Fiscal Update (Prefu) on September 12.
It’s now likely soon after Labour’s tax effort, believed to be imminent.
That’s a big call because, unless National has a Treasury mole, it is operating with asymmetrical information. While Robertson already has a good idea of what will be revealed in the Prefu, National doesn’t, so whatever economic and fiscal assumptions Luxon uses for his tax policy, they threaten to be contradicted by the official data on September 12. He risks having to modify and re-issue his tax promises during the heat of the campaign and leaders’ debates.
It wouldn’t be the first Luxon U-turn on tax.
He launched himself in March last year with bold promises to abolish the top tax rate of 39 per cent on income over $180,000 and increase other tax thresholds to what they were in real terms when English handed over to Ardern.
Fiscal and political reality quickly killed the top-rate promise, at least as an immediate priority, but the threshold commitment remains — kind of.
When first announced, thresholds needed to rise by about 11.5 per cent. Luxon said that would cost $1.7 billion in the first year, but has since conceded it is more like $2b.
Maintaining the spirit of the policy now demands thresholds go up by at least 22.4 per cent.
With that costing around $4b a year, fiscal reality has arrived again, forcing National to abandon the original concept to cut real income tax back to where it was under English.
Instead, National commits only to increasing thresholds by the 11.5 per cent Luxon promised 16 months ago.
As National says, that’s still a decent tax cut of $950 a year for someone on the average wage of $75,000, over half the $1770 Act is offering the same taxpayer.
Those on $75,000 currently pay $15,670 in income tax to Robertson, taking home $59,330. National’s tax cuts would give those on $75,000 a year a 1.6 per cent after-tax pay rise, compared with 3 per cent from Act.
Assuming National would increase the $180,000 threshold by 11.5 per cent to $200,700, those on $200,000 would get the same 1.6 per cent after-tax pay rise from National, compared with 2.1 per cent from Act.
The numbers are unimpressive with inflation at 6 per cent, but National and Act will pitch them as better than nothing, which they assume Labour will offer.
They might be surprised. Labour has had a taste of giving $20 a week to pretty much everyone, at a cost of just $500m a year more than National’s threshold changes.
Everyone earning up to $80,000 would get a bigger tax cut under Robertson and Parker’s plan than Luxon’s. A family with two earners on the living wage of $50,000 would get an extra $40 a week, a 2.5 per cent increase in after-tax income. Luxon’s plan would give them just $13.88 a week, less than 1 per cent more in the hand. Act’s plan would increase their income tax.
Would Hipkins back himself to sell that? Having ruled out wealth or capital gains taxes, he just needs another way to pay for it. A new top tax rate of 45 per cent on income over $250,000 would bring in the extra $500m he needs.
- Matthew Hooton has previously worked for the National and Act parties and the Mayor of Auckland.
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