OPINION
How splendid, to open the Herald last week and discover that natural order has been restored to the world. Air New Zealand has turned a $591 million loss in 2022 into a $412m profit.
A billion-dollar turnaround in a single year. “Staggering,” said the paper. It “could be the biggest turnaround in New Zealand corporate history”.
There are two reasons for this success and I scanned the coverage closely, curious to see how chief executive Greg Foran would explain them.
The first is a new fare structure that ruthlessly exploits New Zealanders’ desire to travel again. I’d call it price gouging, but that is just a personal opinion.
As the Herald report noted, Qantas, with a similar turnaround, has offered a million sale-price fares and extra points for frequent flyers. Air New Zealand passengers have not been so lucky.
Instead, Foran airily advised us to “book early”.
The second reason his airline has done so well is taxpayer support. The Government kept it afloat during the pandemic with more than $2 billion in funding and loan guarantees. Foran didn’t mention that at all.
More news on this front just yesterday. A research paper from First Union, ActionStation and the CTU suggests corporate profits were responsible for over half of the recent surge in inflation. Air New Zealand’s customers may not find that hard to believe.
Still, it’s good to know the airline is thriving. Christopher Luxon will surely be thrilled.
Which brings us to tax.
Until November last year, the National Party planned to remove the 39 per cent top personal income tax rate and reduce corporate tax as well. Both policies are under review and the party’s new tax plan is still said to be a few weeks away.
Matthew Hooton weighed in with a fascinating insight last week. He said National’s finance spokeswoman, Nicola Willis, should follow Margaret Thatcher and Ruth Richardson, not Ronald Reagan and Roger Douglas.
The difference? The women, unlike the men, did not cut taxes in their first terms.
And the reason for that? Reagan and Douglas “believed tax cuts paid for themselves by boosting economic activity. That turns out to be true only if tax rates are very high”. They are not very high today.
Richardson didn’t cut tax, Hooton wrote, “because she knew it would have worsened the fiscal deficit, undermined the fight against inflation and caused higher interest rates. Thatcher even raised taxes in the early 1980s in her battle against inflation and debt”.
Hooton didn’t extrapolate from this, but I will. One of the great tragedies of liberal democracies is that they have been overwhelmed by the idea that cutting taxes is the central purpose of Government.
“You can keep more of what you earn”: it’s easy to make that sound like a right for citizens and a duty for politicians.
But it’s bogus. Taxes are our contribution to the functioning society we choose to live in. Citizens have many genuine rights, one of them being the right to expect the services we pay for will be fit for purpose.
Tax cuts are not the goal, or necessarily even the problem. We do need tax cuts, but only in the context of progressive tax reform. That is, tax cuts for middle and low-income households, with new taxes on unearned income and assets and higher taxes on the very wealthy.
Tax reform should not reduce the income of government.
If it does, the inevitable result is the underfunding of essential services. We’ve had decades of it, in everything from hospitals to schools to climate action, and the exemplar for them all is potholes.
During the term of the last National Government, 2008-2017, the number of vehicles on our roads grew from 3.4 million to 4.3 million. That’s a 26 per cent increase.
At the same time, new regulations allowed the maximum weight for trucks to rise from 44 to 53 tonnes. There are now 5000 of those big rigs on the road and each one of them does as much damage as 10,000 cars.
At the direction of Steven Joyce, National responded to all the extra wear on the roads by freezing the maintenance budget. No extra spending. Tax cuts were the goal.
Since Labour got into office at the end of 2017, our vehicle fleet has grown by another 200,000, or 5 per cent. But Labour grew the state highways maintenance budget by 65 per cent. There were 54,544 potholes repaired in 2022, up from 39,652 in 2018.
But they’re really struggling to keep up now.
Act argues that the problem is inefficiency, red tape and wasteful spending, but this is nonsense. It’s true public services could often be more efficient, but the money to be saved is pennies compared to the pounds those services need.
Again, potholes are instructive. National wants to create a new $500m potholes fund, which transport spokesman Simeon Brown says will be possible using money currently allocated to road safety marketing, speed reductions and “excessive speed bump installations”.
But as Transport Minister David Parker says, Waka Kotahi NZ Transport Agency has funding for a $38.7m safety campaign this financial year.
In other revelations last week, RNZ reported that since 2021, National has received 7.5 times more large donations than Labour.
That’s $8,206,101 against $1,085, 563. Act received $4,236,393.
The Greens and New Zealand First, like Labour, received just over $1m; Te Pāti Māori less than $100,000. These figures all relate to donations of more than $20,000.
What do those donors to National and Act expect for their money? I keep asking this, hoping they will tell us.
They can’t honestly believe Labour is bad for business. At least, not the corporate business they tend to be associated with. See Air New Zealand, above.
It can’t be fear of falling property prices. Labour has overseen a bigger boom in the housing market than perhaps any Government in history.
And it won’t be all those complaints about a “woke” Government “stoking division”, either. Corporate New Zealand, on the whole, has many strong links to mana whenua, has promoted women in the workplace and says it’s keen to embrace the challenges of climate action.
Is it because Labour has introduced a raft of progressive regulations for business, including fair pay agreements, stronger safety regulations, better childcare support and an indexed minimum wage?
These things do get complained about, a lot, especially by business groups like the Employers and Manufacturers Association. But they are fair, they are needed and they would not exist without Government regulation.
If you’re looking for a way to describe the Labour project of the last six years, it’s hard to go past this. They have been determined to prove that progressive labour regulations can co-exist with strong business profitability. It is, you might say, the “natural order” they believe in: fairness at work and wow, look at those Air New Zealand profits.
I’d say this is one of the things they have most clearly succeeded at. Yet they get no thanks for it from business.
Why, really, are those big donors pouring their money into National and Act’s coffers? It’s not about personal tax, is it?
Labour has failed to introduce genuinely progressive tax reform, although they know the surveys say it would be popular. But I imagine they also know - have always known - that any attempt to do this would be met by a wall of money. Superwealthy donors would spend whatever it takes to prevent it happening.
Donors who don’t want the fairer society Labour hopes for and the Greens and Te Pāti Māori have the policies to help achieve, because it would cost them a bit more of their own money.
Labour doesn’t want anyone to build that wall.
The tragedy is, it’s there anyway. The money’s in.
But there is always hope. Perhaps, when National announces its tax policies later this week, it will declare that in these difficult times, tax cuts can no longer be the central purpose of government. That would be the responsible thing to do.
Or perhaps Labour’s Chris Hipkins will abandon his fear of the wall of money, fess up that he got it all wrong, and announce progressive tax reform.
Go on, Chris. You want a “policy bonfire” to set the election alight? We could really warm to that.
Simon Wilson is an award-winning senior writer covering politics, the climate crisis, transport, housing, urban design and social issues, with a focus on Auckland. He joined the Herald in 2018.
