Steven Joyce: Dead rats end Labour’s tax plan - but not the economic damage

Melbourne, Sydney, Perth and Brisbane are vibrant cities and likely to keep drawing Kiwis in - but New Zealand is becoming like an overgrown Tasmania, Steven Joyce argues. Photo / 123RF

Opinion

OPINION

The political left hate being told they don’t know how to run the New Zealand economy successfully. It’s an old trope, but they sometimes do their darnedest to prove it. The evidence for the prosecution this week has been damning.

Left-wing politicians seem to have no idea how the decisions that create wealth in this country are made.

They don’t understand what prompts people to take risks, to start businesses or to hire another person. They have no idea how important those risk-takers are for a country to succeed, and they have no concept of how the decisions politicians make can either encourage or discourage people to have a go.

They also don’t seem to realise that people have options. New Zealanders don’t live in a hermetically sealed fortress (except for a brief period of socialist Nirvana known as the Covid-19 response). They will make the choices that best provide for themselves and their families. And if that involves moving to Australia for a better life and better rewards, so be it.

This week was groundhog day in migration news. Net migration to Australia is the highest it has been since 2013, soon after the Christchurch earthquakes.

In the last half of the previous Labour-led Government, we lost an average of 30,000 people net per year. It took time to turn that around, but from 2014 to 2019 it was down to a net 3000.

Now it’s 13,000 and climbing again, and after a few years of hiatus, we are back to stories on the airwaves about the better life to be had in Oz.

This week was also about cutting the cake. Not growing it, but how to cut it so “the rich” pay more. The issue du jour was tax, and more specifically how the tax burden is divvied up among all of us. There was no talk of reducing expenditure, just increasing the tax take.

Going on the reams of paper released via the annual Treasury Budget dump, Finance Minister Grant Robertson and Revenue Minister David Parker were planning to go all-out to soak their definition of the rich with some sort of wealth tax. At least until Chris Hipkins made his captain’s call that it wouldn’t happen on his watch.

Prime Minister Chris Hipkins torpedoed a wealth tax proposal. Photo / Pool

Robertson’s demeanour in defending his leader’s decision was borderline subversive. He was all “the Labour leader” this and “the Labour leader” that. His body language and his words left no one in any doubt that he thought it was the wrong decision. He looked like a guy who’d been made to dine out on a whole pile of dead rats.

Make no mistake. He and Parker were all go. They’d done their misleading IRD analysis, they’d tried to get the plan through the Budget, and failing that, they planned to get it into Labour’s manifesto.

They failed because Hipkins understood the political calculus.

While the left-wing pundits think they can pick on people with assets with impunity, the public realise how self-defeating that would be. Even Treasury, in its muted way, pointed out there would be a rush of people for the exits, and that such a tax would upset the risk-reward ratio that keeps this small, relatively isolated, country in business.

Hipkins realised an all-out attack on the productive base of our economy, the farmers and the small businesspeople, would amount to economic self-harm. There has arguably been enough of that already.

Not that this captain’s call will save his Government. The public know all bets would be off again after the election, and there are too many other decisions which have systematically shrunk the cake that Messrs Robertson, Parker, and their fellow-travellers in the Greens and Te Pāti Māori are so obsessed with cutting in a different way.

We have fewer skilled people than we should because of a cavalier approach to migration.

Skilled people are crucial to growing businesses. The Government has also inflated wages and fed a wage-price spiral which makes Kiwi businesses less competitive, and wage-earners worse off. Nationalised wage bargaining will bake that in.

We are about to have less activity on the land than we had before, because of new rules that frustrate sensible farming activity and circle red tape around our cities.

David Parker (there he is again) has stopped housebuilding on most grades of soils around our growing cities, including where we might have housed skilled migrants. He’s also rewriting the Resource Management Act in such a restrictive way that if it goes through, it may be almost impossible to do anything new on this country’s land for a generation.

Between the new law itself and the legal challenges that will come with it, productive development could easily grind to a halt.

We have less international investment than we had before, and before the nativists get excited about that, go and see how the ordinary people are doing in Ireland with a more welcoming attitude to foreign investment. Word back from the New Zealand Initiative tour is “very well, thank you”. I am old enough to remember when Ireland was a basket case.

We also have a higher cost of capital than we should have. That may sound mundane, but it is the cost of capital (interest rates) that is a big determinant of how much investment there is in new businesses and new jobs, and how expensive your mortgage is.

Huge spending increases and ultra-loose monetary policy during the height of the pandemic have led us to the high-interest-rate, zero-growth reality we are now experiencing.

Economic activity is a geographical play. It will occur somewhere. There are 8 billion people in the world and lots of work to be done. The only question is, how much of it will happen here versus in Australia, Singapore, Texas say, or Europe?

We have a choice. We can either make it easier here and become more buzzy like Queensland, New South Wales or Western Australia, or shut up shop and become an overgrown Tasmania – pretty to look at but not much going on, and our kids living elsewhere. After six years of the current Government, we are trending more like Tasmania.

It’s all very deja vu. I wonder how many times we have to repeat the cycle to realise the political left in this country almost always ends up in the same place.

High government spending, big fiscal deficits, inflation, domestic recession, big balance of payments deficits, a squeezed middle class - and more people leaving for a better life elsewhere.

Steven Joyce is a former National Minister of Finance. He is the director of Joyce Advisory and his clients include risk-takers and businesses in the construction sector.