The numbers add up – it's an actual plan. Half the money comes from CGT, the other half comes from the new top tax rate, bringing agriculture into the ETS earlier and other tax changes. Labour has mapped out an actual path back to eliminating our debt.
If I sound a little incredulous, that's because I am. Policy making in opposition generally amounts to trash talk – anything goes, because they don't actually have to implement it. That's what I thought the GST on fruit and veg was (and still do).
But Labour's pretty goddamn serious about this one. They are budgeting around – and I don't use this word lightly – conservative estimates of revenue from CGT. Few would have quibbled if they'd just used Tax Working Group figures. But instead, they revised it downwards to reflect a more pessimistic view of the property and share markets.
It's more than a credibility issue for Labour, it's a credibility issue for the plan – they've gone out of their way to prove that CGT is an absolutely credible way to bring our fiscal situation back in order.
The fact that this plan will bring about more debt in the next few years is (still) completely irrelevant. Let's get this message through: It's not a short-term problem. There is no short-term problem.
The fact that our debt in 2018 will be higher is virtually meaningless. Credit rating agencies are not going to freak out at a short-term hit on our debt, especially when it's perfectly clear that CGT will grow in a few years to put us in a better position. In other words, it's clear we're good for it.
People who go on about the short-term debt increases completely miss the point.
They miss the point because they never got what the point was in the first place, back in 2008. When the recession hit and people started to freak out, there was no plan. Not from Labour, not from National. They just changed the rhetoric: Instead of pork barrel spending and vote-buying, they called them “stimulus packages”, and instead of “I hate those dicks”, they called it “cutting back on waste in these tough times”.
Oh, and some mumbling about “brighter something today or tomorrow”, and “trust us not the other guy because he's, you know, whatever”.
Nobody in the world knew what was going on, or how bad it was going to get – it took time to figure out. What emerged in the these few years was the realisation that we weren't on solid ground at all, and that we'd been foolish to psych ourselves up for endless tax cuts and WFF handouts.
We needed to unwind all of that and plot a new path, based on a more realistic assessment of what we have – but it took asset sales to make this happen. Goff actually said that it was National's asset sales plan which “inspired” them to go the whole hog on this tax reform. And it's great – we finally have competing, credible long-term plans.
Labour's plans has some solid advantages. Aside from the emotive stuff about ownership, Labour's “medicine” is inherently delicious – that is, CGT is not just a way to generate revenue, it's also intuitively fair that those who earn capital gains pay taxes like everyone else. In fact, it's a downright travesty that they don't. But that's just shooting property investors in a barrel.
Parker made a much more nuanced and difficult argument:
- The problem with debt is we have to pay interest to overseas creditors. This saps our economy.
- CGT encourages Kiwis to invest in productive businesses, which means businesses don't have to borrow as much overseas.
- Asset sales will result in SOEs in foreign ownership, with dividends going overseas, so it's just as bad as debt.
- This is why CGT is better than asset sales.
It's a sophisticated argument that underwrites their “Own the Future” slogan. It makes sense, except that the exemptions included in this package will really undermine these economic arguments (but they still have the fairness argument, which is MIGHTY).
In fact, there's a lot of sickly sugar that's been added to the medicine in this package. For starters, I'm still not a fan of the GST exemptions. But let's think about the whole package itself. CGT has captured all the attention, but it only accounts for half the revenue. The other biggest contributor is the hike in the top tax rate. And only a quarter of the revenue in the package is going to pay off debt – the rest is going back towards tax cuts. Between the new tax bracket and the tax cuts, there's a damn big "tax switch" going on, independent of the CGT.
The point is that CGT raises enough revenue to pay off debt without asset sales, and it's fair. It's about, you know, Pwning the Future.
The other stuff – tax free thresholds and GST cuts – is just... there. No reason, just some money sitting on the table, you know the drill. But all their posters say “Own the Future”, so when they talk about it, the only thing that comes out is CGT. This other stuff is like a Trojan Horse that they build, then park in the garage while they go knock on the front gate – it's a little weird.
I guess they still don't believe that you can win an election without throwing money at people. Well, to be fair, nobody in this town does.
Appendix 1 of 2: Costings
The CGT revenue modeling was done by BERL, using Tax Working Group and IRD data, and winding down the property appreciation assumptions. Their assumptions for the growth of the property and stock markets was more conservative than the TWG's.
The dodgiest part of the costing would be their (Labour's, not BERL's) “anti-avoidance measures”, which assumes they can recover $300m of tax defaults and dodgers every year, as if National/Dunne aren't trying to squeeze the same stone. It's the Left's version of the Right's belief that you can constantly squeeze more productivity out of those public sector slack-arses.
Appendix 2 of 2: WTF
"Small business assets, up to a maximum of $250,000, sold for retirement, where the owner is above a certain age (e.g. 55) has held the business for 15 years and has been working in the business, will be exempt [from CGT]."
This would, presumably, be passed as the Tax Exemption for Working-Class Self-Employed Too Young To Love Winston But Maybe Too Rich to Vote Labour Despite Thinking John Key is a Banker Prick Act.