OPINION: Forget about the capital gains tax backdown.
It was a big mistake Prime Minister Jacinda Ardern made early in her unexpected Labour Party leadership to promise there would be legislation this term to vote on. She’s been ruing it ever since and she showed leadership by cutting the thing adrift now.
The fact the decision was unexpected made it all the more impactful.
A fantasist might imagine Ardern looking coldly at her global celebrity and domestic popularity, then thinking about defending this dog of a policy and thinking: “not doing it”.
She has immediately changed the subject with concrete progress on global social media regulation, by announcing her invitation to a G-7 technology summit meeting with French President Emmanuel Macron on May 15.
The left will forgive the capital gains tax (CGT). The right and the wealthy breathe sighs of relief. National has nothing to talk about except how badly its leader Simon Bridges is doing.
Many of the rest have already switched to Labour for Ardern. The Labour constituency now is not the Labour constituency of less than two years ago. In late May 2017, Colmar-Brunton had Labour at 30 per cent. This month, that was closing on 50 per cent. The political calculus has changed accordingly.
Without a doubt, mentor and predecessor Helen Clark has been counselling to ditch the capital gains tax as madness, given how much political capital it would use up, to the detriment of bigger goals.
Nevertheless, a solid phalanx of critics among the Government’s supporters is really pissed off.
They’re not focusing on the July 2018 Families Package – a huge boost to low income households that the Beehive seemed to make little effort to promote at the time – or the restrictions on foreign ownership of homes and farming assets, or the dramatic shift in public debate that even puts the concept of ‘kindness’ in government on the agenda at all.
No. Capital gains tax was part of the promised ‘transformational Government’.
To overcome this delivery failure, an equal and opposite show of force is required to prove that amorphous goal still exists.
For my money, such a counterweight would be to relax the Budget Responsibility Rules.
Don’t do it in this Budget. Its messaging is all about well-being anyway. That needs cementing. Expect big figure, pre-Budget announcements in coming weeks that articulate this and help assuage the disappointment of the CGT backdown.
Also, financial markets and credit rating agencies will be watching hard for signs the Government couldn’t resist the tsunami of spending expectations associated with this Budget.
From teachers demanding more pay through to the massive demands for new infrastructure to cope with climate change and continuing rampant population growth, the trade-offs for this Budget have tested the Cabinet.
However, if the Government forecasts credible, balanced or small-surplus budgets, it will get a pass mark from the hawks of international finance, for whom the Budget Responsibility Rules were written.
That sets the stage for a 2020 rewrite of the rules, a fiscal straitjacket that prevents the Government turning on the money pump and which primary purpose was to prove to the financial markets that a Labour-led Government could still count and be thrifty.
If that’s proven this year, that ought to be enough. Tapping the Government’s capital reserves and good name as a borrower should take precedence in future under a transformational Government.
There is nothing magical about having net Crown debt at 20 per cent of GDP, which the rules require. That’s incredibly low by most peer country standards.
It could be 30 per cent of GDP and New Zealand would still deserve a AAA credit rating. Peaceful, wealthy democracies showing growth above 2 per cent and running balanced budgets are rare these days.
That does leave the question of how governments would spend that money and whether it would do so well.
For example: the country’s construction industry can barely cope with the massive volume of work it has now without going broke. Imagine the shambles if there was suddenly another $10 billion to spend on infrastructure.
But in 18 to 24 months’ time, that picture could look different. What looks like poor execution and under-delivery in housing policy may yet start to cohere if a pre-fabricated housing and apartment-building sector emerges, industry training improves, new local government funding mechanisms evolve, fast-track urban development legislation is in place, and a less destructive system of infrastructure procurement is operating.
That’s a lot of things to get right, but it is what the Government says it’s doing.
Meanwhile, paying and employing more public sector workers may be necessary to get the private sector to pay better and kick a bit of inflation back into life.
The Greens want to review the rules too.
What could possibly go wrong?