Election 2014: Labour sells new tax as Nats hint at cuts

Senior Political Correspondent·NZ Herald·

31 Aug, 2014 05:00 PM7 mins to read

The GFC and earthquakes may have become tired references that have almost lost their impact but they have defined Bill English's second tenure as Finance Minister. Photo / Mark Mitchell

Govt happy to campaign on its record while challenger is pushing new ideas.

The first leaders' debate on Thursday had barely begun before Prime Minister John Key mentioned the way National had managed the economy through the Global Financial Crisis and the Christchurch earthquakes.

The more he emphasises the bad times, the more heroic a surplus sounds - from an $18 billion deficit to a $297 million surplus four years later.

Finance Minister Bill English puts that down to keeping tight control of spending with a focus on getting results from the public service, such as more efficiency in elective surgery and improving the quality of teaching, not just throwing money at problems.

"Restraint is permanent," was his early catchcry.

He also had a head start on many finance ministers because Labour had got net debt down to zero by the time it left office.

The GFC and earthquakes may have become tired references that have almost lost their impact but they have defined English's second tenure as Finance Minister.

His first stint was at the age of 37. For a brief six months in 1999, he was nominally in charge of the Government's finances - nominally, because Bill Birch had produced the Budget that year.

English then had nine years to dream about what he was going to do with all those surpluses if he got the chance again.

By the time it happened, it was more a nightmare than a dream.

Runaway housing prices in Auckland and large increases in government spending contributed to the Reserve Bank decision to slam on the brakes to slow the economy.

New Zealand tumbled into a domestic recession seven months before English got control of the Government finances.

And the global recession followed and then the Christchurch earthquakes struck in 2010 and 2011.

Political partisanship was blunted through the worst of those times as Opposition parties knew it was not time to fight the Government.

One exception was personal tax cuts.

Tax policy says everything about a party's priorities and Labour and the Greens bitterly opposed National's, which most rewarded high-income earners, those who had missed out on Labour's largesse for nine years on Working for Families.

Watch: Labour's alternative budget

While in Opposition, National promised cuts in three tranches. Despite the books being in a sea of red, it passed the first tranche as soon as it came to office in 2008.

English cancelled the second and third - although he insisted they were delaying them, not cancelling them.

Today will see the first hint of personal tax cuts from National since those "delayed" tax cuts.

But they will be a blurred outline of what might be possible in a third-term National government, and aimed at low- and middle-income earners.

Labour, too, in its alternative budget, has raised the prospect of tax cuts but they would be in a second term, with rising revenue from its capital gains tax.

National's motive is not so much to entice voters with a prospect of tax cuts but to contrast it with Labour's promised new taxes: a new top personal tax rate of 36 per cent on income over $150,000 (the current top rate is 33c on income over $70,000), increasing the trustee income tax rate to 36c, and the capital gains tax.

The capital gains tax has not been terribly controversial this election for finance spokesman David Parker because it has been Labour policy for three years now and acceptance of it is growing: a DigiPoll survey in June this year showed 41 per cent in favour and 35 per cent opposed. National believes that is because most people don't realise it goes well beyond property investors and farmers.

While the family home would be exempt, a tax of 15 per cent would be applied to the capital gain from any other property, shares and businesses at the point of sale - though not yachts, art or jewellery.

There would be an exemption for small businesses deemed to have been built up for retirement and the first $250,000 of small business would be exempt. But exactly what it defines as a small business would be left to a technical group to come up with more detailed rules. It could lower house prices by cutting incentives for property speculators who effectively set house prices.

Watch: Dirty politics: PM's office receives subpoena

Labour's alternative budget estimates the tax would bring in $425 million in the first term, and another $2.4 billion in a second term.

The extra tax Labour gets from its new taxes on top of the $32.6 billion new-spending allowance that National has budgeted over the next six years amounts to $37 billion for Labour to spend on its policies over six years such as building 10,000 new homes a year, the Best Start payment of $60 a week for children in their first year, free doctors' visits for the over-65s and hiring 2000 new teachers to cut class sizes.

One of its big commitments that sets it apart from National is a decision to give $1 billion extra a year for education and health to keep pace with inflation.

National has increased spending in both sectors to record levels but increases have not necessarily kept pace with inflation or demographic changes. It says its concentration is on the quality of the service given to the public, not the amount of money.

Another difference between Labour and National is their general approach to markets. National puts more trust in them: Labour is more ready to see failure. It is reflected in their respective responses to getting new houses built. National is promising to double incentives for newly built homes; Labour is effectively promising to build them.

In power pricing, National would leave it to market forces; Labour would set up a state body to control wholesale prices. Labour would also give preferential tax arrangements for the forest and wood products industry.

Labour's policy is not exactly reformist but it would require the Reserve Bank to consider the external balance and give it a new tool to control inflation - allowing it to adjust KiwiSaver savings rates as an alternative to raising interest rates. KiwiSaver would become compulsory under Labour as well.

Labour leader David Cunliffe has said it would be a bottom line in any government he led that Labour holds the finance portfolio.

Business owner keen for a steady hand in Govt

Improving economic conditions mean Robyn de Bruin-Judge feels as though her furniture business is "on the threshold of something good".

Robyn de Bruin-Judge.

As a result, this election she is looking for policies that will maintain and not threaten that outlook.

Designer and manufacturer de Bruin-Judge Furniture has been going for more than 20 years.

Ms de Bruin-Judge owns the North Shore company with her husband, Wim de Bruin, and employs 32 staff. Their production is aimed at the top end of a mostly domestic market.

"Businesses now are tired of talking about the GFC [Global Financial Crisis]. We all want to move on, and grab hold of the future," she said.

"Business owners have made sacrifices to get their people and their companies through the recession and we're only just starting to get our mojo back."

Ms de Bruin-Judge said she felt the current economic and tax settings were about right. She was worried some of the larger spending promises could eventually lead to more tax pressure on small and medium-sized businesses.

"Big businesses seem to find a way around some of these tax issues, whereas small and medium businesses don't. What businesses really want is some breathing space to actually rebuild their staff and stock levels and invest in the opportunities that are just starting to ... emerge."

Ms de Bruin-Judge said she wanted the Government to keep an eye on rising local government and insurance costs, which were of major concern to businesses and their staff.

For our coverage of the 2014 election click here.

On a personal level, she was opposed to Labour's plan to apply a capital gains tax on realised assets, which would include businesses but exempt the family home.

Such a measure would dissuade many from putting more time and resources into their companies, Ms de Bruin-Judge said, which would flow on to jobs and growth. "You put in a lot. And it's easy to underestimate. And it's a long-term thing, not speculative."

- additional reporting Nicholas Jones