COMMENT:

What do the cannabis and tax policy debates have in common?

Well, some might say you need a puff of the former to make the later bearable.

To be fair, I also know economists who only get excited about cannabis law reform when there's tax is involved.

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Regardless, both issues look set to dominate the political landscape for the next 18 months.

Both, in my view, look like good ideas in theory.

But both get more difficult when you actually sit down to implement a workable and politically viable policy.

For starters, both issues will have to be framed to clear a Winston Peters-shaped hurdle.

Being difficult isn't a reason for Governments not to do things - unless it gets them kicked out of power so they're unable to do anything at all.

So the giant headache both issues create for Prime Minister Jacinda Ardern tops my list of similarities.

The National Party is champing at the bit to campaign on a very unsubtle attack line - a vote for Labour is a vote for more tax and more weed.

That's unfair. The cannabis referendum is a Green Party initiative that Labour doesn't have to take a definitive stance on.

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Then there's the science that suggests reforming drug laws and regulating the use of marijuana actually minimises harm.

But that hasn't stopped the Nats appointing Paula Bennett as their drugs Czar.

Expect to see her using her considerable stash of "middle-New Zealand charisma" to present the friendly face of the anti-reform argument.

The binding nature of the referendum allows her to put the onus for any change on the whole Government – not just the Greens.

This presents a big opportunity for National to go after Labour by default.

On that basis I'd expect to see the PM back away from the debate.

PM Jacinda Ardern (pictured at the World Economic Forum in Davos) faces two very tough choices. Photo / AP
PM Jacinda Ardern (pictured at the World Economic Forum in Davos) faces two very tough choices. Photo / AP

The Greens are geared up for the fight. If decriminalisation comes to pass, it will have to do so without Ardern as a cheerleader.

I'll leave the marijuana debate there too, although the economic angles on it are fascinating.

Tax policy is more pressing because Sir Michael Cullen's Tax Working Group has delivered its verdict.

Due to be made public on February 21, it is expected to recommend a comprehensive capital gains tax.

And National is on the front foot here too.

Leader Simon Bridges this week unleashed a tax policy that addresses the unsexy issue of inflation adjusted bracket creep.

It could put $430 a year back in the pockets of middle-income earners, he says (in much sexier language).

As Finance Minister Grant Robertson was quick to point out, the plan was short on detail about where they'd find the money to cover costs, without cutting spending.

But essentially the rough policy draft gives Bridges a strong campaign line (we're giving money back) to contrast with the a new and controversial capital gains tax (CGT).

In reality the Working Group's proposal is required to be revenue neutral – so it's not a tax grab.

It may even mean lower taxes for many lower- and middle-income workers.

But a CGT would fundamentally alter the balance of the tax burden away from workers and towards those holding investment assets - many of whom are older Labour voters.

A CGT is something many economists and tax experts favour for reasons of fairness and to encouraging investment in more productive asset classes than property.

But the Nats will be counting on the nuances of tax policy being lost on the bulk of voters.

The Labour leadership team has fought and lost elections running with a CGT policy.

I'm sure they believe deeply in the economic and social value of this reform but they now face a stark and difficult choice between pragmatism and idealism.

It would be the biggest reform of New Zealand's tax system in generations and dramatically raise the stakes for the next election.

It's a reform which could ensure this Government's place in the economic history books.

The easier option would be to walk away from it, to make the case for more incremental changes to the existing system - but I don't think that why the likes of Robertson and Ardern got into politics.

Their other option is to take some time, soften the edges and then hope they've still got the political capital to sell a bigger vision next year.

The proposal is expected to have the CGT set at the marginal tax rate with few if any concessions or exemptions.

That would make it one of the toughest regimes in the Western world - which might actually be strategically useful.

Ardern has time to soak up the initial burst of outrage from opponents then spend some time softening the proposal.

The final policy could be presented as much cooler, calmer and more reasonable - relatively speaking.

Counter to this is the risk that watering down a CGT still leaves you with the political downside but with a more complicated system to implement and less revenue for a pay-off.

There are no easy choices.

The last Government proved that a mix of charisma and cautious incremental change can be a very successful formula.

But selling truly transformative policies is much tougher. It requires deep strategic thinking and impeccable execution.

It leaves little room for error.