Labour Risks Fouling Up Tax Policy - Again

29 August 2024

DUNNE’S WEEKLY

Over recent elections, tax policy has proven to be Labour’s Achilles Heel.

Its coyness on tax in the 2011 campaign led to John Key’s famous “Show me the money, Phil” retort to leader Phil Goff on Labour’s spending plans. When Goff could not answer satisfactorily, Labour’s campaign was sunk amidst a public suspicion of new taxes looming to pay for Labour’s policies. So, in 2014 Labour resolved to be more specific, explicitly promising to introduce a capital gains tax. But that did not work either and Labour was again heavily rejected by voters.

By 2017, Labour had fudged its intent somewhat, promising to establish an independent working group to review the tax system. It duly recommended the capital gains tax Labour had long hankered after, but, when the crunch came, Prime Minister Ardern baulked at the idea, saying the government lacked the political support it needed. She further added that even though she personally still supported a capital gains tax, she would never introduce one, so long as she was Prime Minister.

After her resignation in 2023, it became known that the Ministers of Finance and Revenue had been quietly working on a tax-switch package for the 2023 Budget under which a new wealth tax would be introduced for the “super wealthy”, to pay for making the first $10,000 of income tax free for all income earners. That plan was vetoed by then Prime Minister Hipkins, who also ruled out revisiting such ideas were his government to remain in office after the 2023 election.

One would have thought that Labour might have got the message by now. Apparently not, however. This week reports emerged that former Revenue Minister, David Parker, is working on a yet to be specified capital income tax aimed at the wealthiest New Zealanders. But showing the indecision that has plagued Labour on tax over the years, Opposition leader Hipkins could not quite bring himself to confirm what was happening, defensively saying it was just an “internal debate at this stage” and that more attention should be paid to the government's plans to bring in "new taxes".

The problem with this type of response is that it just confirms ingrained suspicions in many voters’ minds that a future Labour-led government will increase taxes on the wealthy when next in office. But Labour has never really come to grips with the political problem that causes for itself. While its lower income supporters will always welcome such moves, upper income earners and those middle-income voters aspiring to be wealthy – the voters Labour needs to win elections – will be less impressed or inclined to vote Labour accordingly.

To have any chance of succeeding, therefore, Labour will need to be far more transparent about its tax policy development, otherwise suspicions will mount. Labour must spell out the tax problem to be remedied as it sees it, explain why it is a problem, and how their plans will resolve that. But that is a risky strategy, given the electorate’s overall twitchiness about tax policy, which may not work. However, it is far preferable to the timid, non-committal approach that Hipkins has taken over the last year, which did not work then, and will certainly not work in the lead-up to the next election.

At a wider level, the tax issue exemplifies Labour’s current overall conundrum. Conventional wisdom strongly suggests it is unlikely to win the next election with Hipkins still leader, and after just one term in Opposition. But then it seems just as unlikely that it would do any better were there to be another leader. Moreover, both the leading alternative names suggested – Kieran McAnulty and Barbara Edmonds – have so far emphatically ruled themselves out of leadership consideration. Each would face major credibility issues if they were to about-face on those unequivocal commitments now.

For the foreseeable future, therefore, Hipkins’ position as leader seems safe, and with it his tendency to prevaricate, to Labour’s detriment, looks likely to continue. This week, for example, he emphatically denied that Māori ceded sovereignty when they signed the Treaty of Waitangi, only to add later that “that doesn’t mean the Crown doesn’t have sovereignty now, but that Māori didn’t cede sovereignty in signing the Treaty.”   

For Labour’s sake, Hipkins’ needs to understand that such obfuscation aimed at keeping all Labour’s potential supporters on-side, ends up pleasing no-one. And that while Labour continues in this vein, hoping that the government will eventually trip itself up, it will make little impact or be taken seriously. 

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