Bryce Edwards: Political Roundup – Labour gives up on tax transformation

Bryce Edwards: Political Roundup – Labour gives up on tax transformation

Will the rich get richer under Labour’s latest tax policy? Based on the analysis in reaction to yesterday’s announcement, the answer would seem to be yes. The consensus from commentators is that inequality and severe economic problems will remain unchanged or even be made worse by Labour’s new policy.

Although the policy incorporates a small increase in tax to be paid by those earning over $180,000, the central point of Labour’s new policy is to rule-out reforming the taxation system. In particular, there will be no new wealth or property taxes.

Of course, the counterpoint to all of this is that the decision is electorally clever as Labour doesn’t have to convince voters of the need for reform at this crucial juncture. Labour can instead focus on getting elected and making the hard economic decisions later when in power.

Although most commentators are critical of how conservative this policy is, there has been praise from some quarters. The Public Service Association put out a press release celebrating Grant Robertson’s new policy – see Jason Walls’ Labour’s ‘balanced’ tax plan draws flak from political allies and Rich Lister.

While the union sees the tax announcement as a step in the right direction, the same article reports property developer Troy Bowker (reportedly worth $84 million) complaining that “the policy is a clear signal that this Labour Government appears to have given up its agenda to redistribute wealth via the tax system”. He says, “Far from being radical, this policy could easily have come from the National Party.”

Many other rich New Zealanders are coming out to say that Labour isn’t taxing the wealthy enough in this policy. Madison Reidy reports on one business owner calling for higher taxes than Labour is willing to impose, as well as tax expert, Geoff Nightingale, of PwC, saying “Under a future Labour government, the rich will still get richer” – see: High-income earners say ‘rich will still get richer’ under Labour’s proposed tax policy. Nightingale points out that property will still be significantly under-taxed under Labour’s proposals.

Although Labour proposes the top 2% of income-earners will now pay a marginal tax rate of 39% for their incomes over $180,000, according to this article, this is very low by OECD standards: “A 39 percent tax rate is low when compared with the highest tax rates internationally. The United States charges 43 percent, the UK 45, Australia 47, Japan 56 percent, and Sweden’s 57 percent is the priciest in the OECD.”

Nightingale is also reported saying that it’s a mistake to focus taxation on income at the moment when there are extremely high profits being made in property and business: “Labour income gets taxed harder and we still have the gap of untaxed capital gains which will be fuelled by quantitative easing… This exacerbates the current distortion in the system” – see: Labour’s ultra-cautious tax policy will be a relief to the wealthy.

The author of the article, business journalist Tom Pullar-Strecker, says “Labour’s long-awaited tax policy will come as a relief to the wealthy, but risks frustrating the party’s traditional supporters.” He suggests Labour’s announcement was “more cautious than expected” but is “good politics”.

These political calculations are explained by RNZ’s Craig McCulloch, who says Robertson has come up with a policy so conservative it gives little room for the National Party to complain – see: Labour’s tax plan framing around Covid-19 both clever and cynical.

McCulloch argues Labour had a chance to be transformational on taxation, and they had public support for change, but have deliberately decided to appeal to business interests instead: “With its sky-high polling, Labour now has more license to drive political change, but Ardern is not willing to risk it. Labour is convinced it has done the unthinkable and become the party of choice for the business community. It is determined to cement its hold on the middle.”

The policy doesn’t seek to deal with the worsening crises of inequality and housing nor seek to raise much money to repay debt, and McCulloch says that Labour doesn’t even acknowledge those problems. Whereas in the past, Labour have described their tax policies with the words “fair and progressive”, he notes this has been dropped. Overall, he says “Left-wing voters may well be disappointed, but they should not be surprised.”

Similarly, Herald political editor Audrey Young has written about the smart politics of the announcement, saying it effectively disarms National’s best weapon against Labour: “Labour is not going put a bullseye on itself again this election, not when some polls suggest it could govern alone. So it has decided this time not to have a tax policy – well almost not have one. What Finance Minister Grant Robertson announced today is more of a gesture than a policy” – see: More of a gesture than a tax policy (paywalled).

Young says the policy will have the desired effect: “It is a policy symbol designed to placate the party’s base. The party can’t be accused of doing nothing to make the rich pay a little more. But it hardly going to be policy that scares former National supporters into detaching themselves from Labour. At the margins, it is so insipid it may push a few of Labour’s hardline left into the arms of the high-taxing Greens. It leaves National with a very small target against Labour.”

Some on the political left have been extremely unhappy with the announcement. The No Right Turn blogger posted his immediate response to accuse Labour of being anti-poor and favouring the entrenchment of the status quo for their own benefit: “that’s the modern Labour Party, isn’t it? A bunch of rich pricks all paid at least $160,000 a year, sitting on investment properties and hidden wealth in trusts, pretending to care about people poorer than them in a cynical effort to gain power. But when you look at what they actually do, as opposed to what they merely say, it turns out that what they’re about is protecting and profiting from the unjust status quo” – see: Is that it?.

He’s followed that up with a more detailed critique of the policy, arguing that by forgoing tax reform, future governments will not be able to afford important spending, and that in the current circumstances the decision to ditch reform amounts to a wasted opportunity – see: If not now, when?.

In contrast, Newsroom’s Bernard Hickey says he’s personally “thrilled” by the announcement because “the unearned capital gains on his properties will go untaxed”. But on a political level he’s “despondent” because “Labour has wasted the chance of this Covid-19 crisis to properly tax wealth and give the young and the poor some hope for the future” – see: The even wealthier can breathe easier till 2023 at least.

Hickey details how the rich are getting massively richer under the current Government: “Reserve Bank figures show households that own property and have money in stocks and term deposits made over $250 billion of tax-free capital gains in Labour’s first term.” He suggests that Robertson has made a decision to allow this rampant inequality to continue, complaining that “Labour has again reneged on its inequality-fighting rhetoric”.

Writing for BusinessDesk, Jenny Ruth has also suggested that Labour’s new policy will just fuel the housing crisis. She points to research by Westpac chief economist Dominick Stephens which suggests that a lack of a comprehensive capital gains tax combined with a higher marginal income tax rate will nudge the rich to put their money into housing, pushing up the prices significantly – see: Raising top income tax rates will push up house prices: Westpac.

Also at BusinessDesk, Pattrick Smellie says the new policy won’t bother those with quickly escalating wealth. He points out that Robertson has “announced perhaps the smallest tax policy ever unveiled by a Labour Party, taking a faint dab at the top 2 percent of income earners, most of whose houses and share portfolios have shot up in value this year and will remain untaxed anyway. The calculation is that the vast majority of taxpayers will be happy with this” – see: Labour’s election recipe: cautious populism (paywalled).

Herald business journalist Liam Dann emphasises how conservative Labour’s new policy is. He argues that the policy “might be a political winner but it does not shift the dial on New Zealand’s economic challenges in the post-Covid world” – see: Tax change is ‘symbolic’, doesn’t address economic challenge (paywalled). According to Dann, Labour (like National) is foregoing increasing taxes significantly and have to either make spending cuts or base their fiscal plans on obtaining economic growth via dairying, tourism, or immigration – all of which are now almost impossible.

Dann also points out that the extra tax raised by the new marginal income tax rate – said to be $550 million per year – is so small it “would take more than 180 years to pay off the new debt with this new revenue”.

Similarly, the Herald’s Hamish Rutherford points to how little will be raised: “in the scheme of the tens of billions of dollars of spending Robertson has approved since March, the increased revenue from the tax for those on super high incomes is a drop in the ocean. Labour estimates the move will help raise $550 million a year. That is about the same as the cost as two weeks wage subsidy payments” – see: Labour’s tax policy will cost those earning $200,000 less than the cost of a cup of coffee a day (paywalled).

Rutherford argues that this is not a “transformational” policy, and shows how conservative Labour has become: “The Labour Party though is consigned to being the party which in three years has transitioned from promising major structural change to one where its tax policy is about creating as little fuss as possible.” Labour supporters “might get a sinking feeling” from the announcement.

According to Newsroom’s Sam Sachdeva, “Labour’s tax policy provides further proof Jacinda Ardern and Grant Robertson are conservative triangulators”, in the sense that they are adjusting their policies to outmaneuver their opponents rather than to create a better society – see: Labour’s tax triangulation. He argues that the tax announcement has kept swing voters and the business community onside while ensuring National will struggle “to find a compelling critique”.

For Stuff’s Thomas Coughlan the policy was all about political power rather than doing the right thing. He paints Robertson as a conservative in the John Key tradition, more interested in helping his side obtain power than in actually fixing the country – see: Grant Robertson’s tax policy isn’t about tax or debt.

Robertson’s conservatism is so strong, that the new tax policy is, according to Coughlan, to the right of Don Brash: “Even the National Party went into the 2005 election with the 39 per cent rate kicking in at a lower level (adjusted for inflation). By that metric, Robertson’s tax policy is to the right of arch-Tory Don Brash.”

Conservative commentator Liam Hehir also paints the proposed new tax rise as being minimal, saying “Robertson has gone for a half-measure” and, “If Labour wanted to increase revenue the threshold would have kicked in much lower. A 39 percent rate of tax on all incomes over $90,000 per annum would, for example, have matched the settings that Helen Clark implemented in 1999. Alternatively, an intermediate step could have been introduced (say, a rate of 36 percent on incomes over $140,000)” – see: Labour’s tax rise: a half-measure with not much payoff.

Like other observers, Hehir also points out that there could be a problem with having such a big gap between the new top rate of income tax and corporate and trust rates: “Labour proposes to leave the company tax rate at 28 percent and the trust tax rate at 33 percent, which will leave the door open to tax minimisation through good planning.”

Finally, leftwing commentator Chris Trotter says that Labour’s “timid” new policy has progressives talking about the need for a new leftwing political party, but such thinking is futile – see: Winning joke: Why the traditional left will just have to live with Rainy-Day Robertson’s disappointing tax policy.


Dr Bryce Edwards is Political Analyst in Residence at Victoria University of Wellington. He is the director of the Democracy Project.

This article can be republished under a Creative Commons CC BY-ND 4.0  license. Attributions should include a link to the Democracy Project.