Gordon Campbell on National’s tax cuts

dc3084060a739983c937Since tax cuts are never a free lunch, collecting the revenue to pay for them was always going to be the credibility test of National’s tax cuts package. For that reason, most people would have assumed Inland Revenue would be included alongside Defence, Corrections, Oranga Tamariki, Te Whatu Ora etc. on the list of government departments and state agencies exempt from having to deliver the $8 billion in “efficiency dividends” that National is counting on to help it pay for its planned $14 billion bundle of tax cuts, new taxes, and re-prioriations. (BTW, “efficiency dividends” are a euphemism for firing people, and cutting services.)

However, National has decided to levy IRD itself for savings. Even though IRD has recently shed 477 staff, it will still be required to cut itself further to the bone. For all of the centre-right’s tough talk about law and order, this evidently doesn’t include equipping IRD to detect and crack down on white collar crime. The tax cheats and the fast money crowd who – perish the thought – are surely not among National’s donors, seem to be on course to avoid having to face rigorous IRD scrutiny in future.

Ditto for the higher immigration levy that National is also counting on to help pay for the tax cuts, at the same time as the Immigration Service is being exhorted to speed up its visa processing times. Good grief. The Immigration Service happens to be part of MBIE – the empire that Steven Joyce built – and MBIE is the department from which National and the ACT Party are threatening to cut hundreds, if not thousands, of jobs.

Hmmm. How on earth is that going to work? Under National, foreigners will be required to pay more for the experience of visa delays made worse by National-induced understaffing, and – somehow – this will make New Zealand a more attractive destination for the globally scarce workers with the skilled talents we sorely need. Yes, in Australia the visa processing fees may be higher – but Australia has always offered far more direct routes to citizenship than we do. That’s why they’re winning the global competition. We take longer to offer less – and under National, we would be requiring applicants for work, study and residency visas to pay more for the pleasure. Good luck with that.

Revenue blues

How else is National aiming to generate the revenue required for its tax cuts? Yesterday, it announced a new 15% tax on the purchase price that foreigners pay to buy homes here worth more than $2 million. As Greens leader James Shaw has already pointed out, the numbers don’t stack up. Not even close.

To meet its revenue targets, National is planning on 2,000 sales of these luxury homes being sold in each and every year. Yet the last time that foreigners could buy homes here (in 2018) those kinds of luxury homes comprised only 5% of some 4,000 annual sales. As Shaw says… If the Greens offered costings that were out by a similar factor of 10, they would be torn to shreds for it.

Incidentally on this point… Despite National being dead against tax exemptions (such as taking GST off healthy food) Australians and Singaporeans will be exempt from paying this particular tax, because our free trade treaties with those countries forbid us from putting foreigners at a disadvantage to locals in any investment context. According to National, our other trade pacts (e.g. the CCTTP) don’t contain similar constraints. That is almost certainly untrue. Compulsory non-differentiation foreign investment used to be one of the prime selling points of those trade pacts. I can’t wait to see some disgruntled foreigner (C’mon, Peter Thiel) put National’s theory to the test, in court.

The gist

But what about the good news? Since the plan offers slim pickings when measured against the inevitable cuts to services, Christopher Luxon and Nicola Willis began their pitch by artificially doubling the bounty on offer. They did so in two ways (a) by expressing the dollar gains as “fortnightly” rather than weekly increases, and these gains would (b) be made available to “households (ie. of two people). Result: Double the apparent generosity in the headline figures.

A “household” couple without children earning a total of $120,000 a year, would each get back $25 a week, as would a single full time worker on $60,000 per annum. A minimum wage worker would get $10 a week, and a superannuitant couple would each get about $6.50 a week, or roughly one third of the price of a block of Mainland Tasty.

Revealingly, Natimal’s chart setting out the potential income gains has omitted everyone earning below $30,000 as if they don’t exist – and that’s an accurate reflection of how the “ bottom feeders” simply don’t register on the centre-right’s voter radar. So much so that anyone earning below $45,000 a year would receive only $2 a week extra from National’s tax relief package, and nothing at all from its fiddling with the tax thresholds and from tweaks to the Independent Earner Tax Credit, to Working for Families and to childcare rebates.

As Otago University academic Louise Delany tried to tell a sceptical Wallace Chapman on RNZ, the focus of National’s rhetoric on “the hard working middle income ordinary Kiwis” implied that people on lower incomes weren’t ordinary, or hard working. In fact, despite all the gaslighting about helping the “squeezed middle doing it tough” these tax cuts are socially regressive. Like other such packages before them, they will further increase income inequality, and reduce the quality and range of public services. In line with its history of climate change denial, National will strip $579 million from the country’s climate change responses, and divert this into consumer spending and/or mortgage repayments. Either way, National are in contact with the Reserve Bank’s attempts to reduce household spending.

In particular, the cost of public transport will rise significantly, to the detriment of the already disadvantaged. The cuts envisaged by National would deliver a $1.5 billion reduction in support for public transport. As Thomas Nash, chair of Wellington City Council’s transport committee put it

“Doubling the price of public transport for people on lower incomes, under 25s and disabled people is unfair and counterproductive. It transfers wealth from those with less to those with more and discourages public transport use meaning more congested roads and higher emissions,” says Nash, the council’s transport committee chair.

Even Auckland mayor Wayne Brown – no woke liberal– had qualms about scrapping Auckland’s regional fuel tax, unless there was something coming down the pike to replace it. National also plans to scrap Labour’s planned increase in the fuel excise tax, which was earmarked for road maintenance and repairs.

These flaws are symptomatic of the overall problem should a National government ever get to enact this plan in anything like its current form. ( If anything, the ACT Party will make it worse.) No surprise to find that much of the mooted giveaways will be spread thinly for precious little net gain. On the other side of the ledger, the revenue recouping measures look to be recklessly optimistic. Meaning: the subsequent social costs of rising unemployment deferred investment and reductions in social services will be far, far higher than any nominal individual gains. In that respect, ticking party vote National looks like being a ticking time bomb.

The sales pitch

In an attempt to paint herself as being one of the middle class Kiwi battlers, National deputy leader Nicola Willis explained that people on the top tax bracket that (under National) will now kick in at $78,100 will get the same extra $40 a week in tax relief as multi-millionaires. (BTW, this means that people now earning between $70,000 and $78,100 would face a lower tax rate under National, with the difference costing the public another $400 million a year in lost revenue. )

Here’s how Willis reacted when asked about how much she stood to personally receive from her party’s tax cut proposals:

’In our family of two incomes we’d get $80 a fortnight. And kids, that means instead of movie night meaning DVDs and Tip Top at home, we might go out to the movies.”

Really? Apparently, those poor Willis kids still have to watch movies on DVDs, rather than streaming them. One of the two incomes coming into the Willis household is worth $206,637 before perks. Can Willis be seriously suggesting that her family couldn’t afford to go out to the movies once a week, until National’s tax plan came up over the horizon?

There’s a similar air of unreality around her attempts to justify National’s phased-in multi-billion dollar tax handout to landlords and to property speculators. On this point, keep in mind that under National, landlords will once again be allowed to evict renters from their homes without needing to provide a reason. The ‘bright line’ test for property speculation will also be sharply reduced, thereby stoking property speculation by enabling houses to be bought and on-sold after only two years. To further encourage speculation in rental properties, landlords will gradually be able to treat the interest payments on their properties as tax deductible, at an estimated cost of $2.1 billion in lost revenue.

Yesterday, Luxon claimed that these moves would put downward pressure on rents. That’s pretty weird logic. National has long been sceptical that the supermarkets would pass on the GST savings on fruit and vegetables, but – conversely, National appears confident that landlords would pass on their tax breaks to renters. Willis again, seems to be living on a different planet than the one that renters inhabit. Here’s her take:

I’ve spoken to landlords.. Many of them are extremely good to their tenants. They have worked really hard to keep rents affordable during a cost of living crisis. But they are at breaking point. They’ve said to me: look, if the costs keep going up, I’m going to have to hike my rents more. So the choice is clear. We’re going to have to take the pressures away, so they won’t have to make the difficult choice for their tenants.

Agreed, not every landlord is a slum lord. Yet Willis is peddling a vision of landlords (a) trying their darndest to keep rents down on behalf of their tenants, and (b) reluctantly passing on costs and raising their rents, and then only when the cost pressures become intolerable. This vision is utterly delusional. Or totally cynical. In real life, landlords seem to treat each and every normal cost of doing business – including ensuring that their product doesn’t harm the health of their customers – as an unfair and intolerable burden that they can happily and ethically pass on to their tenants.

It is all very reminiscent of National arguing that in the wake of it scrapping Fair Pay Agreements and giving back to employers their 90 day fire-at- will powers, that this will magically cause wages to rise. The claim by Luxon yesterday that minimum wage workers will get more help from National than they do under Labour is a variant on this argument.

Again, reality begs to differ. Despite shedding crocodile tears about the plight of people struggling to survive the cost of living crisis, National chose to oppose every attempt to raise the minimum wage, and ACT is even promising to freeze the minimum wage entirely during the first term of a National/ACT government.

For the record: during its two terms in power, Labour, raised the minimum wage by 45%. Over the course of three terms under the last National government, the minimum wage went up by only 30%. National needs to stop posing as the champion of battlers on the minimum wage. For many on low incomes, the looming extra cost of public transport alone will quickly outweigh any pittance delivered by what National is offering them in its tax cuts package.

Footnote One: Buyers beware. The last time the National Party was in government there is ample evidence that it ran public health into the ground, leaving New Zealand totally unprepared for the Covid pandemic. It also neglected investment in schools, hospitals, housing, defence and cybersecurity. If National had been the government during the pandemic, it is likely – by reliable global estimates – that some 10,000 New Zealanders alive today would not have survived National’s determination to re-open the borders for business, even before we had a Covid vaccine.

Like the Bolger-led party did in 1990, National is riding high in the polls and could well be swept into office on a tide of public anger and disappointment with the Labour incumbent. Within three years though, the Bolger government became as widely detested as its predecessor. History will repeat itself if David Seymour – who toxically combines the worst of Ruth Richardson and Roger Douglas – is allowed anywhere near the reins of power.

Footnote Two: Beware of those sales pitches. When National releases its fiscal plans in a couple of weeks time, its timetable for getting back into surplus will doubtless be based on not setting adequate funds aside for contingencies (another pandemic?) and/or for the risks of major weather events generated by climate change. In a similar vein, Nicola Willis has already claimed that National will spend “more” on health and education in each year of its first term in office. This is another misleading sales trick.

To be meaningful, those promised extra spends on health and education (a) have to be at levels as high, or higher than the rate of inflation and (b) need to comprise a rising share of the nation’s GDP. Anything less is a funding cut in real terms. That’s especially the case given the increasing size of the population partly driven by the recent influx of migrants, and – more importantly – due to the rapid ageing of the New Zealand population. This demographic reality will bring rising healthcare needs in its wake. Unfortunately, National has an abysmal track record when it comes to investing in New Zealand’s future health needs, in everything from staff recruitment and retention, upskilling, remuneration levels and capital expenditure.

All of these areas were epic failures under the last National government. When Tony Ryall was Health Minister, he was routinely praised for keeping a lid on health spending. Look where that got us.

Footnote Three: For its part, Labour’s four billion austerity drive announced on Monday has also been an exercise in political cynicism. The demonising of consultants and contractors has been something Labour has shared with National. Along the way, it has been grimly amusing to watch the PSA seek to justify the attacks on contractors when Labour mounts them, but decry them when National does take the same line.

The scale of the proposed cutbacks by both major parties has been astonishing. Keep in mind that Labour also proposed $4 billion of spending cuts in the May Budget, and produced a further $4 billion in cutbacks, delays and re-prioritisations this week. National’s proposed $8 billion of “efficiency dividends” will come on top of all that. This will be carnage. Has there ever been untold billions of spare funds sloshing around in the back rooms of New Zealand’s public service? Hardly.

More than anything, what Labour was doing this week was to pre-emptively remove the easy pickings from the system, regardless of merit – not because the scrapped or delayed projects were bad or unnecessary, but because they would have been readily available to National as the sacrificial offerings to finance its tax cuts.

By removing so many traces of aspirational spending, Labour was trying to ensure that National would be forced to cut into the bone and sinew of existing social services to fund its tax cuts. Hey, mission accomplished. But at what price to the rest of us? It seems entirely apt that this act of hara-kiri should be Labour’s parting gift to its supporters, and to the general public.