Sleeping bear lies in wait as Labour contemplates tax policy

LABOUR is having a sale of the merchandise on its website — Labour Party Tshirts from the last election, when ‘‘Let’s Do This’’ was the slogan, and posters, lapel pins and badges.

The clearance sale points to a new slogan and branding ahead as the party turns its mind to the 2020 election.

Part of an election year is getting people excited about what is on offer.

In terms of building up a bit of buzz around 2020, National has a bit of head start over Labour. It has issued policy papers on a range of areas, from primary industries to education, and has more coming.

These include some rather bonkers proposals, such as fining parents of school dropouts, that are unlikely to see the light of day but have nonetheless had the desired effect of getting people talking.

National’s candidateselection process is also getting people talking — not least this week’s announcement that former Air NZ chief executive Christopher Luxon was standing for Parliament.

On the other side, Labour has just started its first tranche of candidate selections. There are, as yet, no exciting names being bandied about.

And when Prime Minister Jacinda Ardern was asked recently when Labour was going to start putting up policy ideas for 2020, her response was that ‘‘when you are in government, every day is an opportunity to demonstrate your ideas and roll out your programme’’.

It does not bode well for a surprising new policy package from Labour, and the party does need to take a good hard look at those policy offerings.

It can hardly simply roll out the leftovers and ‘‘did not achieve’’ policies from its 2017 campaign.

One area on which Labour has said it will have new policy is tax.

It effectively did not have much of a tax policy in 2017, having shelved it away to a Tax Working Group, saying it would instead campaign on any changes in 2020.

So tax is Labour’s most anticipated unveiling.

Tax is a touchy subject for Labour so it is no surprise that one minister’s mention of a sugar tax was swiftly soured by the Prime Minister almost before the minister’s lips stopped flapping.

That happened after Peeni Henare, the Associate Health Minister, told

The New Zealand Herald this week he saw some merit in such a tax to try to address diabetes and undertook to lobby his colleagues on it.

It is not the first time Labour has flirted with a sugar tax.

But Labour’s approach has been to treat it as a sleeping bear — giving it a gentle prod to see how loudly it roared and then retreating again.

Other taxes have also been roared off by the angry bear. Sometimes that bear comes in the form of NZ First, sometimes the wider public, and sometimes plain old political common sense.

Political common sense has kept the sugar tax at bay, while NZ First roared off the capital gains tax and Labour’s plans for a water tax on commercial use such as irrigation.

The capital gains tax was roared out of existence altogether; others are simply suspended and waiting for another day.

Labour will turn its mind to that day as it prepares for the election. The biggest question is whether it will put up income tax cuts.

The opening of the books this week, complete with a bonny, bouncing

$7.5 billion surplus, has inevitably been something of a trigger for calls for income tax cuts.

Once various factors are taken into account, precious little of that is actually available for spending.

That does not mean income tax cuts will not be in play.

Asked this week after the government books were released how likely tax cuts were, Ms Ardern said such decisions were made ‘‘in alignment with Budget cycles and, of course, with election policies’’.

There was perhaps a further hint in the line she repeated twice: that the books ‘‘put us in a position to continue to make decisions that will strengthen the economy’’.

The surplus has been valuable for Labour politically, by way of proving it can manage the books. But it has also confronted Labour with the problem of the perception it is raking in more in tax than it can spend.

Labour cannot argue that it has not tried to spend all that money.

Government spending has increased by $11 billion in the past two years — an increase it took the former National Government seven years to hit.

And the Reserve Bank has urged the Government to spend more — preferably on something that will stimulate the economy, such as infrastructure or — oh gosh, tax cuts.

Labour’s support base will clamour for any leftover money to be spent on the areas Labour has described as ‘‘neglected’’, such as health, housing and poverty.

But the political merit in Labour offering tax cuts would be in the appeal to ‘‘middle’’ New Zealand, more and more of whom are finding themselves moving into the top tax bracket.

National’s tax package, like Labour’s, is still under wraps beyond its pledge to start adjusting income tax thresholds to account for those very people.

Labour will be looking at targeted taxes, as well as what to do about income taxes. It has ruled out a sugar tax and a capital gains tax, but is still looking at others.

Such targeted taxes are often portrayed as simple revenueraising actions, a portrayal nobly assisted by the Opposition’s depiction of any tax as a bid to drive up the grocery bill, or an assault on the household budget.

However, Labour does believe in the power of a tax to act as an incentive to change behaviour and choices. That covers a plethora of areas, from smoking to driving to emissions.

Hence the proposed tax on gasguzzling cars.

The difficulty is in making them palatable to the public.

In that regard, Labour could offer up income tax cuts as the payoff for those targeted taxes.

As National did when it raised GST, Labour too, could come up with a neutral ‘‘tax switch’’ by imposing targeted taxes that draw in enough revenue to compensate for an income tax cut.

The question is whether they dare take on the sleeping bear.