Both moves were designed to deprive businesses of cheap labour, forcing them to invest in plant and equipment instead.
During Robertson’s reign, I remember visiting a major New Zealand food processer, manufacturer and exporter as a consultant. The managing director showed me a new multimillion-dollar machine the company felt forced to buy, replacing a few dozen manual jobs, and complained about the hypocrisy of a Labour Government destroying low-paid jobs.
Yet the company’s overall staff numbers, revenue and profits were all up. Probably doing myself out of the job, I said there wasn’t much point in complaining to Robertson about rising labour costs since the company had responded exactly the way the Labour-NZ First Government intended.
But other employers did complain and the Labour-only Government soon crumbled, opening the border to record numbers of new immigrants in its last two years.
Befitting a National Finance Minister, Nicola Willis’s strategy to improve capital-per-worker is her Budget’s Investment Boost, incentivising businesses to bring forward what might otherwise be marginal capital investment through accelerated depreciation.
Compared with a general company-tax cut, Willis’ move improves the short-term cashflows of businesses that are improving their capital-per-worker right now, rather than those that made the most profit last year.
Labour generally supports Willis’ move, although some further-left commentators worry it could cost more than the $6.6 billion that Treasury budgets for deferred tax revenue between now and 2029 if, say, foreign companies launch $100 billion of greenfield investments in New Zealand.
Frankly, were we so lucky, no one need worry how much the temporary deferral of tax revenue would be.
More concerning would be Willis’ initiative not coming close enough to the $6.6 billion in deferrals she hopes.
Looking ahead, Willis’ next move on capital-per-worker should be examining the effects on employer behaviour of Working for Families and other subsidies to their employees, such as accommodation assistance and income-related rents.
When the Clark Government announced Working for Families in 2004, National’s then finance spokesman, John Key, called it “communism by stealth”.
Despite doing nothing as Prime Minister to get rid of it, Key’s right-wing critique was correct since Working for Families – ironically designed by Robertson, then a Clark staffer – trapped pretty much the whole population in welfare.
Yet the left-wing critique was just as legitimate, that Working for Families, accommodation assistance and income-related rents also operate as corporate welfare, reducing the wages employers would otherwise have to pay.
Working against both Robertson’s and Willis’ capital-per-worker objectives, the policies incentivise businesses to hire more cheap labour rather than invest in new plant and equipment. They need reform.
At the same time, Willis must find another multibillion-dollar rabbit to pull out of her hat for Budget 2026, similar in scale to the pay-equity savings delivered by Act’s Brooke van Velden this month.
Exploding superannuation costs are the obvious target. In nominal terms, they’re doubling every decade and already exceed every other area of government spending except health.
Ignoring political reality for the moment, if Willis cut superannuation costs by 20% from 2027, she’d save herself more than $22b over the following four years.
If she didn’t spend it, that would deliver a healthy $2.5b surplus by 2028 under her new obegalx measure, and $2.8b by 2029 under the more rigorous obegal measure used by her predecessors. Debt-servicing costs would fall immediately.
In contrast, under current policies, Willis won’t ever deliver a surplus under the old measure, and debt-servicing costs will grow forever.
To cut 20% from superannuation, Willis’ options include cutting the weekly payment, means-testing it, raising the age of eligibility, or a combination.
Reducing the weekly payment would be political suicide, and efforts by the Lange-Palmer-Moore and Bolger Governments to means-test it were political debacles.
Yet, under Jim Bolger’s leadership, the Government successfully raised the age of eligibility from 60 to 65 over just 10 years from 1991, without too much political fuss on that particular point.
While a start, that was always known to be insufficient. Yet no subsequent prime minister – including Key and Jacinda Ardern – has backed themselves to have the same sales skills as the King Country farmer who won three elections and turns 90 tomorrow.
More recently, Chris Hipkins ruled out last election any change, ever. Almost as pathetically, Christopher Luxon suggested that, maybe, we could slowly raise the age of eligibility to 67 from 2044, safely after the last Baby Boomer has retired. That Key, Ardern, Luxon and Hipkins have all had their head in the sand underlines the lack of genuine political leadership in recent decades.
Winston Peters’ stance on superannuation is no excuse. National and Labour together have – and always have had – the numbers to avoid the worst consequences of exploding superannuation costs.
Still, if superannuation is off-limits, Willis’ second-best fiscal option at least has the virtue of also tackling schemes that trap almost the whole population in welfare while also operating as corporate welfare, deterring investment in plant and equipment.
Massive cuts would be needed to Working for Families and housing subsidies, which have doubled over the past decade, to generate the same medium-term savings as the more modest 20% cut to superannuation. In practice, they’d need to be abolished entirely. But that would also open an opportunity to comprehensively reform the personal income tax system at the same time, since it, Working for Families and housing subsidies are so intertwined.
Under the great prime ministers and finance ministers of the 1930s and 1940s, and then the 1980s and 1990s, that is something that would have been easily accomplished in a year, or even between an election and pre-Christmas mini-Budget.
Contemporary practice is to set up a tax working group, procrastinate after receiving its report, and then throw out all the recommendations anyway.
We’ll know in the next year whether there is any residual hope Luxon and Willis are leaders of the first type.
If not, the mood and obvious need for radical change means they risk being thrown out in 2026 anyway, as voters express an almost certainly forlorn hope that maybe the other lot will be prepared to take the magnitude of the country’s multiple crises seriously.
Matthew Hooton has over 30 years’ experience in political and corporate communications and strategy for clients in Australasia, Asia, Europe and North America, including the National and Act parties and the Mayor of Auckland.
