Brian Fallow National stuck in the 1980s
National’s economic plan suggests it learnt nothing from losing last election
The economic blueprint released by the National Party this week suggests it has learnt nothing from its electoral defeat two years ago and is, if anything, reverting to neoliberal type.
Underlying the discussion document is a creed which goes something like this: People need jobs, right? And somewhere to live. Well, employers provide jobs and landlords provide housing. So policies which benefit those groups must serve the public interest. Simple as that.
Remarkably, when if any single thing can be said to have cost them power in 2017 it was the housing crisis, their prescription for addressing it is this: reform the Resource Management Act (which the current Government has embarked on but National never quite got around to in its nine years in power) and roll back the nearest thing we have to a capital gains tax on property investors, pushing the bright line test from five years back to two.
They also propose to scrap the ring-fencing of tax losses from property investment, restoring the ability to use negative gearing to shelter other income from tax. That’s great for aspiring property investors; not so great for aspiring first-home buyers competing with them in a supply-constrained market.
Like the curate’s rotten egg, however, the document is good in parts.
The policy of indexing income tax thresholds to inflation, announced by Simon Bridges earlier this year, makes sense. Bracket creep goes some way to explaining why in the year ended March, the PAYE tax take rose 7.7 per cent while the combined gross earnings of wage and salary earners, as measured by the quarterly employment survey, rose 5.3 per cent.
The statisticians reckon that since thresholds and tax rates were last reset following the 2010 tax review, the average tax paid by wage earners has crept up by more than 1c in the dollar.
On the other hand, New Zealand is unusual among developed countries in not having a payroll tax to fund the public pension, which typically adds about 10 per cent to the cost of employing someone.
That is one of the reasons National is on shakier ground in hinting heavily that it favours a cut in the company tax rate.
It’s true that New Zealand’s company tax rate puts it in the top quartile within the OECD and the tax as a share of gross domestic product is relatively high, but that has to be seen in the context of other offsetting peculiarities of our tax system: the absence of a capital gains tax or a payroll tax, and the imputation regime which avoids the double taxation of distributed profit that is normal elsewhere.
One interesting suggestion — no more than that — the document makes is to only tax the real interest rate savers receive. Business borrowers are able to deduct the full nominal interest they pay, while
It is all about the defence of vested interest and devotion to the doctrines of the neoliberal revolution of the 1980s, heedless of how the world has changed since then
savers are taxed on the full nominal interest they receive. This is one of the ways in which the tax system encourages borrowing and discourages saving.
Overall, though, the thrust of the policy approach is to cut taxes which, when combined with a commitment to balanced budgets (at least over time) implies pressure on the spending side of the Budget.
Hence the proposal to undermine the position of public sector unions, by allowing non-members to free-ride on any gains the unions secure. More generally, it says, evidently with a straight face, that union-friendly changes to industrial law the Government has introduced will “return us to 1970s-style adversarial union activity”.
On one of largest and fastest growing areas of public spending, New Zealand Superannuation, it reaffirms the policy it took to the last election, to start raising the age of eligibility in 2037. As that is six elections away, it lacks any credibility. On the other hand, toughening the residency requirement, albeit less than the Retirement Commissioner recommended, does make sense.
It is fatuous to portray the Government’s planned move from a point target of 20 per cent of GDP for net debt, to a range of 15 to 25 per cent, as some kind of fiscal irresponsibility, when the average for that ratio among advanced economies is 76 per cent.
The discussion document rightly acknowledges New Zealand’s lousy productivity level and growth rates as a fundamental challenge. It promises a “relentless focus” on productivity growth and suggests a target of 1.7 per cent a year, which would be an improvement on the 1.2 per cent a year averaged during National’s last nine years in office.
It recognises a low capital-tolabour ratio among New Zealand businesses as a key driver of our productivity underperformance. Its solution to that focuses heavily on attracting foreign investment rather than, say, addressing the reasons for our chronically negative household saving rate.
On the infrastructure deficit, it says: “It makes sense to use private capital to stretch New Zealand’s limited capital budget so we get more built.” But that begs the question why the capital budget — if it is referring to the Government’s — is limited, when 10-year Government debt is trading at a yield of barely more than 1 per cent and net debt is 20 per cent of GDP.
National’s solution to capital shallowness seems to be to attract more foreign investment by amending the Overseas Investment Act. It says the current regime is the most restrictive in the OECD, which is hard to square with the fact that foreign equity investors, direct and portfolio, collectively earned more than $15 billion from their New Zealand assets in the latest March year.
It asks whether there should be a “level playing field for foreign investment into forestry and farming”, as if that kind of investment did anything to lift productivity in the business sector.
Rather, it is about allowing those looking to sell land to command the highest price, while aspiring Kiwi farmers looking to buy are more likely to have to settle for being, in Sir John Key’s phrase, tenants in their own country.
That is consistent with the policy approach enshrined in the discussion document as a whole. It is all about the defence of vested interests and devotion to the doctrines of the neoliberal revolution of the 1980s, heedless of how the world has changed since then.
To the extent that that reflects the views of National’s new finance spokesman, Paul Goldsmith, it lends weight to Labour MP Michael Wood’s description of him when he took over the role from Amy Adams two months ago as “Milton Friedman’s love child”.