OPINION
Labour members will gather in Auckland today for the first of the party’s regional conferences.
Labour being out of Government, party higher-ups will be well represented, including leader Chris HIpkins.
Members will swap war stories, whinge about the Tories, compare the quality of catering with previous regional conferences and, most importantly, strategise for re-election in 2026.
Top of the agenda, and why this conference season is not quite like the others, is a debate about tax.
Labour members love to talk about tax, much to the chagrin of leadership and election strategists who think the path to victory lies in talking about “how to spend it”, not “where it comes from”. Many members think differently and look at tax as a way of rinsing the right, as well as a means for building schools and hospitals.
The fact Labour’s recently elected Policy Council, the body charged with facilitating members’ debates on policy, includes two alumni from the office of Grant Robertson suggests members are keen for a debate.
It’s likely to go one of three ways. The party may choose a capital gains tax like Labour campaigned on in two elections (arguably three, let’s be honest, 2017′s promised Tax Working Group had one job: recommending a CGT), it may decide on a wealth tax like the one worked up by Robertson and David Parker last year, or it might decide to do nothing.
Let’s not overstate the relative unimportance of this discussion. This process is on the party side of the Labour Party and will culminate in a remit to amend the party’s policy platform that will be worded in a way that will not commit the party to one form of tax or another. It’s likely to say something about taxing all forms of income equally, which will allow the top brass, the party council and the parliamentary party, who decide on election policy for the manifesto, to fill in the “CGT vs wealth tax” detail.
Where members’ power lies is in making clear by implication which direction they would prefer the party goes.
The decision is likely to land upon something fairly progressive, unlike taking GST off fresh and frozen fruit and vegetables, the policy Labour reanimated.
This is largely because of where Labour is in the lifecycle of political parties. After six years in office, fatigued by the daily disappointment of compromise, the leadership needs to reconnect with members, who naturally harbour greater ambitions than MPs whose sights are dragged earthwards under the weight of the baubles of (potential) office. GST off fresh fruit and vegetables just won’t cut it.
Hipkins knows this. He also knows that as the leader who cleared the decks of some of Labour’s most progressive policies last year, including a planned wealth tax, before losing the election, that the party’s unity depends on his ability to bring together pragmatists and idealists.
As the Herald has previously reported, Hipkins’ much-publicised rollback of a decision to “rule out” while leader any wealth tax or CGT was part of a bargain with members of his caucus for another uncontested shot at the top job. That doesn’t mean Labour is going to run on either of those taxes, but it does make it quite likely. The progressive part of the party cannot stomach another serving of moderation, GST-free or otherwise.
Hipkins knows that after a stint in Government, where the parliamentary party naturally grows apart from its members, he needs to engage in some reconnection. He’ll be going to all of the party’s regional conferences in person, meeting members face-to-face in a way that would have been impossible when he or Jacinda Ardern occupied the Ninth Floor.
He’ll rark up members with his second large speech of the year. By chance, the speech will also use the same structural device as Prime Minister Christopher Luxon’s from earlier this year: setting out a vision of New Zealand in 2040 (although Hipkins might use the word Aotearoa, which didn’t make it into Luxon’s speech). Hipkins had been thinking about using the device before Luxon’s speech - the fact that Luxon used it too clinched it, with Labour seeing an opportunity to present obvious contrasts.
The tax that Labour members and, eventually, the Labour manifesto eventually alight upon will depend on
two obvious criteria, economic and political.
A capital gains tax has good cover economically. The likes of the OECD (Organisation of Economic Co-operation and Development) and the IMF (International Monetary Fund) have been urging politicians to implement one for as long as anyone cares to remember. They’re more popular than not overseas.
It’s a fairly easy tax to understand, and taxpayers would only pay it when they realise their gains. The right will run a scare campaign against the tax, but it’s hard to make a CGT too scary, especially when CGTs are popular in countries vastly wealthier and more productive than ours.
Tellingly, a questioner at Finance Minister Nicola Willis’ pre-Budget speech to the Hutt Valley Chamber of Commerce grumbled at the fact businesses were missing out on investment because investment incentives were so weighted in favour of property.
There are shortcomings too. As members reading policy discussion documents distributed by the Policy Council will discover, CGTs don’t raise much money very fast, particularly in an economic environment like the current one, when there aren’t very many capital gains to tax. Labour’s 2018-2019 Tax Working Group reckoned a CGT would raise just $400m in 2021/22 the first year it would have taken effect. By the end of the decade, however, the group reckoned it would take in $5.9b a year, or 4.2 per cent of all tax revenue.
The main reason politicians hike taxes is that they reckon the public would rather money be spent somewhere else. That would be a difficult case to make for a capital gains tax right now. Labour would wander into a political storm to make the case for the tax, which in the short term would probably raise enough money to pay for a few months’ cost pressure in the health system.
The problem with a CGT is the risk is borne by the Government that implements it, while the reward is reaped down the track after some serious gains have been accrued.
A wealth tax is the opposite. Wealth taxes are fairly rare overseas, with only five of the OECD countries having one.
The idea has some political benefits. Labour’s scrapped wealth tax of 1.5 per cent tax on net wealth above $5 million would only have hit the wealthiest 0.5 per cent of Kiwis (to pay for large tax cuts for about 4.5 million income earners). That’s far, far far, fewer people than would be hit by a capital gains tax, even if it excluded a family home.
The smart behind the wealth tax is that if you even think you’re wealthy enough to pay it, you probably aren’t (people with net assets worth more than $5m generally know it). A lot of ordinary Kiwis have two homes - or aspire to.
The wealth tax brings in a lot of revenue fairly quickly - more than $3b in its first year. This was enticing to MPs spoken to at Labour’s caucus retreat this year, who could be observed mentally spending the revenue such a tax would gain, not unlike the way one contemplates, in great detail, the purchase of swathes of the French Rivera in the period between the purchase of a Lotto ticket and 8pm on Saturday night.
The real kicker of the wealth tax was the fact that Parker had designed it to be a “tax switch”, raising taxes on 0.5 per cent of people to cut taxes for everyone else. This might have contributed to the tax’s longevity - a future Government trying to get rid of it would have the unenviable task of raising 4.5 million people’s income taxes by $20 a week (for most) or finding $3.5b a year through cuts or other taxes.
For evidence of how impossible that might be, witness the pain National has endured finding a third of that sum in public service cuts this year.
If it all sounds too good to be true, well, it might be. The too-good-to-be-true argument is always the strongest against the wealth tax, partly because it’s impossible to prove or disprove until New Zealand actually tries it. Treasury and the Inland Revenue Department (IRD) thought that on balance, the tax could be accomplished with minimal capital flight, but the fact so few countries had gone down the same path would have made it a challenging sell for Labour.
Hipkins, instinctively more conservative, might eventually land on a CGT as a compromise position. The caucus position is difficult to tell, with a few diehards on both sides of the debate (skewed slightly towards CGT), and most MPs in the “persuadable” camp.
He’ll come under intense pressure from the party membership who, bored of elections fought and lost on a CGT, are enticed by the boldness of a wealth tax, and what it could promise the electorate. Running two elections in a row on regurgitating failed tax policies from the 2010s may simply be unviable.
Hipkins, weakened by the election loss, might not have the power to resist them this time around and the last thing a leader wants is for a policy discussion to become a de facto referendum on their power within the party. Whatever the party decides, it needs to do it in a way that makes it look happy and unified. Hipkins and Parker emerging from a room with the red outline of “YTTEKIP” slowly fading from the former’s forehead simply won’t cut it.
A capital gains tax has much going for it including the balance of senior Labour members (as Labour has argued for more than a decade), but the political winds from the membership feel behind a wealth tax.
Thomas Coughlan is deputy political editor and covers politics from Parliament. He has worked for the Herald since 2021 and has worked in the press gallery since 2018.
Expectations tempered around return to surplus in 2027/28.