The1979 Boat Tax

When Prime Minister Robert Muldoon and his National Government implemented a 20% tax on new boats in 1979, it changed our marine industry forever.

DStory

uring the 1960s and 1970s successive New Zealand governments found it increasingly difficult to balance the country’s books and, as raising taxes was deemed too risky at the voting booths, offshore borrowing increased.

Led by Prime Minister Robert Muldoon, National won the 1975 election from Labour. Muldoon had been Minister of Finance from 1967 to 1972 and he retained this portfolio alongside his Prime Ministerial duties. This dual power base and his dominant personality gave him unparalleled influence over Cabinet. In hindsight, there was too much power in one person’s hands.

By 1979, Muldoon was struggling to make ends meet in the country’s budget. Rather than follow the recommendations of the 1967 Tax Commission Report, which included widening the tax base and shifting from direct to indirect taxes, he increased overseas borrowing and implemented ad hoc taxes.

Treasury drew up a list of industries deemed suitable for increased taxation. However, Muldoon was due to leave for an overseas trip, and this list never went to Cabinet. Instead he and Hugh Templeton, associate Minister of Finance and Minister of Customs, met briefly at Muldoon’s house in Kohimarama, Auckland and made the fateful decision to implement a 20% tax on boats, caravans and pottery.

According to Templeton, they gave no thought to the consequences. He later wrote: “Our hasty untested decisions were to lead to considerable repentance at leisure.”

One night in June 1979 the Government announced that a 20% sales tax would be imposed on boats, caravans and pottery, effective at midnight.

The boating industry and their customers were stunned. Those who had ordered and paid a deposit on a boat had to find 20% on top of the contracted price. For those about to order a boat, their budget was effectively 20% smaller. The tax even applied to amateur-built boats at market value; effectively they would pay a 20% tax on their own labour.

Within days, hundreds of thousands of dollars worth of orders were cancelled, and most boatbuilders went from one or more years of forward orders to none.

A chorus of protest swept the country. Muldoon’s reaction was typically belligerent: “C’est la bloody vie. By tomorrow it’ll be a drop in the bucket.”

It seems likely Muldoon believed any back-down would be perceived as weakness. The threshold on the pottery tax was later raised, but he refused to backdown on boats and caravans.

The fallout to both industries was severe. In the nine months following the implementation of the Boat Tax, nearly 20 Auckland boatbuilding and related businesses closed their doors. Within two years, business casualties numbered more than 60.

Some of these casualties were large, thriving companies. For example, Compass Yachts was one of the largest builders of keelboats with an order book full of H28s, Farr 38s and other designs. The Boat Tax killed all forward orders, leaving them with the overheads of a large, fully-staffed factory and no work. Compass Yachts never recovered and was wound up some years later.

Mason Marine fell even sooner. Prior to the Boat Tax, the company was at full production with its Clipper 20, 24, 36 boats and the newly-developed 42. Clipper sales ceased overnight and founder, Tony Mason, wound up his company.

John Spencer, who had built boats for most of his life, was a high profile casualty, as was Des Townson; he never built another full-sized yacht.

Some well-established companies survived, at a cost. Miller Moyes Seacraft, builders of Haines Hunter powerboats, lost all its forwards orders overnight. Lionel Sands, whose father had founded the company, says they built only one boat in the year after the Boat Tax was introduced.

“I had to lay off staff who’d been with us for years and who were my friends,” he says. “It was absolutely horrible and the hardest thing I’ve ever done.”

“I’d rather be sailing but I voted National.”

Bridget, Murray Barrett, Max Carter, Tony Kendall and Warwick White met Muldoon in Wellington. It was the first of half a dozen meetings between Street and Muldoon, to no avail. Street and Bridget’s carefully researched facts showed a massive drop in the boating industry but that didn’t sway Muldoon. His written response concluded: “…your figures are an exaggeration…. I can only repeat the Government has no intention of removing the sales tax applicable to boats.” “Muldoon was the nastiest human being I’ve ever met,” says Street. Apart from removing the Boat Tax on some dinghy classes in 1980, Muldoon remained unmoved by other protests including marches, editorials in boating magazines and bumper stickers such as: “I’d rather be sailing but I voted National.”

There was some hope of relief following the 1980 East Coast Bays by-election in which National candidate Don Brash was soundly beaten by Social Credit’s Gary Knapp. With the 1981 election looming, Cabinet ministers Jim Mclay, Jim Bolger and Derek Quigley attempted a leadership coup. The coup failed, and Muldoon led National into the 1981 election. Despite receiving fewer votes overall than Labour, National sneaked home with a one-seat majority.

An increasingly dictatorial Muldoon retained power for another three years. Economic conditions were bleak, not helped by his wage and price freeze.

In the winter of 1984, in an appalling lack of judgement, Muldoon called a snap election. Bob Jones’s newly-launched New Zealand Party split the vote, and David Lange led Labour into power. Months later, among a sweeping host of financial reforms, Labour replaced the boat and caravan tax with an across-theboard 10 per cent Goods and Services Tax (GST). After five years, the unfair, unjust boat and caravan tax was over.

It had been a disaster. At a time when New Zealand yachting was on an international roll, poised for significantly increased exports, the tax cut off the industry at its knees.

More than 100 boating businesses had folded, costing hundreds of people their jobs. Any extra income raised by the tax was more than offset by the business failures, lost profits, lost PAYE tax and increased unemployment. Even the businesses that survived lost cash reserves and experienced, long-term staff – impacts they felt for years afterwards.

One of Muldoon’s oft-touted goals of the tax was that it would stimulate exports. What he failed to appreciate was that export growth couldn’t happen without a strong local market. In reality, the only increased export was skilled, qualified boatbuilders emigrating to other countries. When the industry finally began to recover after 1985, there was a major shortage of experienced boatbuilders and related skills.

Effects of the Boat Tax continue to this day. The labour shortage and reduced demand dampened production of New Zealand moored boats throughout the 1980s and 1990s which means there are few, locally-built boats of that vintage on the secondhand market. Buyers mostly have to settle for boats of at least 30 years of age, or turn to imported boats.

The caravan industry suffered even worse, and the tax proved the death knell of what had been a successful local industry employing hundreds of people.

“The boat [and caravan] tax was the stupidest tax ever implemented in New Zealand,” Templeton said recently.

Not only was the Boat Tax a financial disaster, it was a gross breach of fiduciary responsibility to hard working New Zealanders. B