Hey, there’s a choice. National will flog off energy companies. Labour will tax for-rent houses. Each is playing to its own. Which is riskier? Which party is on top of the politics?
In January when he as good as committed his government to sell down its stakes in the four energy companies and Air New Zealand, John Key focused on debt.
This is a short-term argument. Some capital is freed, so there is less need to borrow and interest costs are lower but that interest gain is offset by lower dividend income.
Last Tuesday in Parliament Key widened his range of reasons: “to free up capital on behalf of taxpayers to fund public assets like schools and hospitals and growth-promoting investments such as infrastructure and broadband; to broaden the pool of investments for…savers; to sharpen commercial disciplines, increase transparency and provide greater external oversight of the companies involved…; and to provide opportunities for those companies to obtain more capital in order to grow.”
The middle two are stronger arguments.
In a thin share market and after the collapse of dozens of finance companies, retail investors wanting security and a steady income are stuck with little more than property, bonds or deposits. Utilities usually provide a steady flow of dividends. Though many Contact shareholders sold out, it still has the largest share register because many small investors have valued the dividends.
Iwi, too, want long-term investment opportunities.
There is also an argument that boards will not be loaded with party hacks, so will be sharper, and that the market will take an active interest. Now, we depend on Treasury monitors to keep state-owned enterprises efficient.
But when they want to raise new capital the part-privatised firms will, as now, need to go back to the government though for only 51 per cent of the new capital. That is the point at which a future government will be tempted to sell the remaining 51 per cent.
And that is where the political risk for National lies. Over-40s remember the fire sales and subsequent buybacks of Air New Zealand and KiwiRail after they went bad under incompetent or extractive private owners.
Focus groups told National it was not the hot potato it once was but Labour now has something on which it can rally at least its core vote — which it badly needs to do if it is not to get a smaller vote share than its 34 per cent in 2008.
But won’t Labour’s capital gains tax chase across to National some still-Labour voters of modest means who have scraped up enough for one investment property?
Probably if Labour can’t fix its political management.
It has been known for some time that some MPs were pushing a capital gains tax. But the decision to go with it was made by a small group of senior MPs, as part of a broad economic strategy to be launched this coming Thursday. It got leaked, in a garbled form covering only houses when it is intended to apply also to shares and other assets (though not to personal items and collectibles — and death and separation will not count as events triggering the tax).
The fact that it was leaked indicates incompetence or a white ant within. Then Labour’s silence left the “debate” to be framed by the Greens to Labour’s left and National plus assorted vested interests to its right.
Result: Phil Goff’s political management is again in question. Parties that can’t manage their politics lose voters’ trust. (Labour also last week failed election 101 on an asset sales pamphlet, which the Electoral Commission has sent to the police.)
But is capital gains tax the suicide policy National thinks it is?
Not if Labour can convince voters most will pay little or no tax and only on a gain above a valuation set at a future date.
Not if Labour can convincingly join the Greens making the point that it is a progressive tax — one the better-off and wealthy pay far more of.
And not if Labour can get across the point that all income should be taxed because it is unfair that better-off and wealthy skip tax on some of their income and thus cause less-well-off and middling people to be taxed more than they need be. As Sir Roger Douglas argued in the 1980s, a broad tax base allows rates to be lower. Concessions to special interests (Labour’s promise on fruit and vegetables GST, National’s to property and share owners) force general rates up.
And not if Labour can convince voters it is trying to be strategic on tax, to go with wage-enhancing innovation and productive investment as ingredients in a long overdue rebalancing. The government has yet to convince business, ACT and many voters that its economic management is strategic.
Labour wanted Thursday’s big announcement to look strategic. The leak wasn’t strategic and put the other three “nots” in doubt.
Goff might claw it back. And by 2014 if Labour sticks to the policy, it might gradually win support on its merits. But he and his senior MPs will need to lift their game a long way. So what’s new?