Fran O'Sullivan: Joyce arrives as Key's pivotal player

John Key (left) and Steven Joyce, a former businessman, are cut from the same cloth. Photo / Sarah Ivey

Prime Minister John Key is more rattled by Labour's capital gains tax proposals than he lets on.

That's obvious by the way he has quickly drafted Steven Joyce - who is not even yet on his front bench - into the front-line to run interference for the Government on Labour's potential election game-changer.

Joyce isn't Finance Minister (yet). Or even the Treasurer.

Officially he is still an Associate Finance Minister.

But he's also Key's mate who took a major strategic role at the last two elections - and the party machine man who Key credits with delivering him such a convincing election victory in 2008.

Joyce is also cut from the same "transactional" cloth as Key. A former businessman, he has not been shy to take a very strong role in behind-the-scenes discussions over major issues such as how the major ultrafast broadband contract was awarded.

He will be on song with the approach that Key was taking in Los Angeles overnight by talking directly with the Warner Bros studio bosses over just how New Zealand can form a strategic partnership to replicate deals that the United States movie moguls have done elsewhere.

The sudden elevation of Joyce's profile - along with stories that he plans to relinquish the communications portfolio after the next election - indicates he is in the running for a big promotion in the next Key Government.

Joyce is the Cabinet minister who is producing the Treasury figures to counter Labour's tax-switch package.

Labour proposes taxing capital gains at 15 per cent on most asset sales - but with far too many exemptions to be coherent; ring-fencing tax losses on rental properties so they cannot be used to offset personal income; tax-free status for the first $5000 earned; and the reinstitution of a top 39c income tax rate on incomes above $150,000.

But Joyce's thrust is not just confined to tax issues. He is also making the strong case for partial privatisation of state-owned enterprises and taking a much higher profile on central issues within Parliament.

At any normal time you would expect Finance Minister Bill English and/or Revenue Minister Peter Dunne to be the political frontmen on such a big Government demolition job.

They are, after all, the politicians who have direct policy responsibility for New Zealand's taxation framework.

They were the duo at the forefront of the 2010 Budget "tax switch". They ushered in GST at 15 per cent (with all the attendant acceleration under consumer prices which New Zealanders are feeling today), plus more personal tax cuts and a suite of policy changes to clamp down on property speculation.

A tax cuts package that has been underwritten by more Government borrowing than was originally projected. As will Labour's proposed tax package, which is not cash positive in the medium term.

But Labour has formed a "flying wedge" around its leader, Phil Goff, buttressed by the appearance of the "two Davids" - finance spokesman David Cunliffe and his associate, David Parker - two politicians who just months ago were said to be sparring over which one would topple their low-polling leader. With their help, Goff presented a bold approach to tackling capital gains.

National's response is to form its own flying wedge. But it's not Key or English who are at the apex - it's Joyce.

The problem is that English is not an adept performer at the dark political art of dissembling.

He even admitted that introducing capital gains taxes was a good idea "in theory". Though for his book what Labour had put up was not sufficiently comprehensive.

It's a fair bet that in his heart of hearts (toughened up by a few years in the Treasury), English fundamentally agrees that capital gains taxes are necessary.

But - this side of the election at least - he is locked into a position which says it would be political suicide to openly agree with Labour.

The problem with the Labour package is that it exempts major capital assets such as Maori land.

It also introduces a de facto estate duty by applying a capital gains tax to inherited property once it is sold on and applies an absurd $250,000 tax-free threshold to business sales which have not been held for at least 15 years - an unfair taxation advantage to other players. So it goes on.

The detail still needs to be sorted out. There are far too many anomalies.

But at the conceptual level, Labour is doing the right thing.

That was obvious from TVNZ's Colmar Brunton poll which shows 43 per cent of those asked support a capital gains tax, versus 49 per cent who are opposed.

These sorts of figures would have been replicated by National's own focus-group polling.

Key's fatuous claim that a capital gains tax would be a "dagger through the heart" of Western capitalism was not only bizarre but clearly not supported by 43 per cent of those polled.

(Does he assume that New Zealanders don't know that most other comparable countries also have capital gains taxes?).

Key and his kitchen Cabinet - Joyce, English and Simon Power - are well aware that their political radar has deserted them this time round.

The polls indicate that voters are not stupid.

With Europe on the verge of yet another major debt crisis and President Barrack Obama not out of the woods when it comes to a potential debt time-bomb in the United States, it is more than clear that all the partiesto this election may be fighting on a very different landscape come November.

Expect to see much more of Joyce.

This story has been corrected from an earlier version which incorrectly said Joyce had been National Party President.