Bidding war dangerously uneconomic

Big numbers can be mind-numbing for voters, especially when they are batted around in television debates. So it helps to keep the biggest numbers clearly in mind. The central issue between National and Labour at this election is the need for the “tax cuts” (raising the income thresholds) National has budgeted to start in April next year. Labour proposes to leave the thresholds unchanged, which will give it about $8 billion to spend over the next five years.

But it proposes to spend nearly $20b in total on health (additional $8b), education ($6b) and social welfare ($5b). Those are big numbers, even spread over five years. On top of that spending, Labour proposes to restart contributions to the Super Fund, launch a $2b house building programme, recruit 1000 extra police and begin the construction of light rail trams in Auckland, provide passenger trains between Hamilton and Tauranga and commuter trains in Christchurch.

Besides the $8b Labour would gain by keeping the tax thresholds as they are, it is banking on additional revenue from taxes against negative gearing and capital gains on investment property ($300m over five years), cracking down on multinational tax avoidance ($900m) and an international visitor levy ($300m). Together those revenue gains do not come close to funding its $19b of promises in education, health and welfare so it will need a substantial harvest from the tax working group it plans to set up to find, “a better balance between how we tax assets, wealth, income and consumption”.

Voters need to hear much more about the assets Labour has in its sights. It is simply not credible that its senior MPs have no particular assets and wealth taxes in mind, no matter how much they want to await the results of the working party. If it listens to an expert working party it might well tax annual increases in value, not just realised capital gains. Taxing property is one thing, taxing productive assets quite another. Labour calls that suggestion “scaremongering” but unless it provides some reassuring details of its thinking, business owners and shareholders have reason to be scared.

National, meanwhile, appears to be treating this election as a spending contest and has started to make offers on top of the Budget it delivered just three months ago. First it was boot camps, then a $10b highway improvement plan, then a $290m education package to improve maths teaching and provide a second language in primary schools, boost IT for senior school students and give parents of primary pupils detailed reports of their progress against national standards. On top of that, National will fund a $120m rugby stadium for Christchurch.

Both major parties have committed themselves to keeping the Budget in surplus and reducing net government debt below 20 per cent of GDP, Labour a year later than National. Net debt is a measure of the country’s ability to cushion itself against international economic upheaval as it did after the 2008 crisis. Under National it will be 2025 before the economy is as well cushioned as Labour left it in 2008. Both sides need to pull back from this bidding war.