Lab-Greens need 'golden rule' strategy

James Shaw
James Shaw
National is an income-tax-raising party. Act New Zealand's David Seymour has the numbers. So what's this talk about cuts?

Bill English comes off a farm so he knows how to dog-whistle. Last week, he again whistled possible income tax cuts. Too late, said Mr Seymour, who has recently got scathing about National over tax, superannuation and the Resource Management Act.

No cuts, Labour sort of said, but no rises either, Labour sort-of said. The Greens still want a capital gains tax, co-leader James Shaw said. National already has one, the two-year bright-line test for buying and selling houses, and Labour and Mr Shaw have said they will slightly extend it. The rest of the Green tax story will come nearer the election.

Meantime, on Friday, Mr Shaw, Andrew Little and Grant Robertson will issue a fiscal ``framework'' to guide Labour-Green budgets if in government. This is a strategic move.

But how come National has been raising taxes? Because it has not raised the thresholds as people's incomes go up, so some cross a threshold and pay a higher proportion of their incomes in tax.

That is called bracket creep. You can see why: it is a bit creepy. It used to be known as fiscal drag, which suggests cross-dressing.

Mr Seymour got the Parliamentary Library to calculate how much more income tax Mr English and Steven Joyce will drag in this fiscal year than they would have got if they had lifted thresholds in line with price inflation since 2010 when thresholds were last adjusted.

The estimate is $577million. Add $167million for fiscal 2017-18. A cut taking effect next year needs to be discounted by $744million.

The detailed numbers can be debated. Income inflation would be a better adjustment. And National is hinting at far more than $744million. But Mr Seymour's general point holds.

It holds good for Labour, too. Quietly, Labour (and the Greens) concede the need to address bracket creep. Not least, some of Mr Little's former union constituents will have ouched over the top $70,000 threshold.

Also, Labour's proposed post-election working group would be asked to explore wealth and land taxes. Add to those topics a carbon tax, offset by lowering other tax, as the Greens proposed in 2014 and will again and as some US and British conservatives are proposing (see my February 28 column).

But the focus in Friday's fiscal ``framework'' will be on spending.

The detail is under wraps for managed release to media. But the detail is less important than the strategy.

One aim is to calm potential middle-ground Labour voters' doubts about idealistic Greens.

While polling suggests middle-ground voters do want more resources in health, education and housing, they worry that in the wrong hands that might blow the budget.

Importantly, the Green Party made the initial proposition for the fiscal framework.

The second strategic aim is to convince business (and financial journalists) that fiscal policy will not destabilise the economy, as it has in many advanced-economy countries. The theory is that if business does not go ape with fiscal worries, middle New Zealand is less likely to shy off.

For this, new Labour deputy Jacinda Ardern and Mr Shaw are key figures. They rated 1 and 2 among opposition MPs in the New Zealand Herald's ``mood of the boardroom'' survey. Both have good linkages in the business sector, largely out of media sight.

(In that light, Ms Ardern's rise has clearly scarified National, evidenced in its personal attacks on her in Parliament last Wednesday - shades

of its 2015 Northland

by-election panic.)

So the framework will prioritise debt reduction and running operating surpluses over the economic cycle - the so-called ``golden rule''.

It will also prioritise long-term investment in such as superannuation and transition pathways to the 2020s economy in which many current jobs are set to disappear. Again, Mr Shaw and Ms Ardern (and, just, Mr Robertson who would be finance minister in a Labour-Greens cabinet) are visibly of a younger generation who will live through those times.

It will also promise an independent fiscal advisory council, similar to those in other countries, to monitor Treasury's numbers and ministerial custodianship.

For the Greens, the framework is another stride down the path set by Jeanette Fitzsimons and continued by Russel Norman to accepting that being in government requires living with compromises.

So Mr Shaw has widely canvassed it within the party, including with an advisory panel as well as the executive and council. Mr Shaw and co-leader Metiria Turei have an extensive speaking schedule.

So does Labour's Mr Robertson.

The fiscal framework does not buy Labour and the Greens the election. But it is a step no two parties have taken jointly before - and a step on from the past three elections when there was not an alternative government to vote for.

There is another landmark event today: a Vivid Economics technical report commissioned by an all-party group of MPs on a net-zero-carbon economy. That poses a 2020s question for Mr English: can he get up to speed?

Colin James is a social and political commentator. ColinJames@synapsis.co.nz

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