The capital gains tax is scrapped – but revenue raisers are looking for other ways to skin us

Cabinet,  we  are  told,  has  signed off  on  the  budget,  to be  presented   next  month. This  year  the focus  is to be   on  “well-being”.

It’s a phrase  that  captures  the  style  of  the  Prime  Minister   Jacinda  Ardern.  If  the  budget  delivers,  it  will  reinforce  public perceptions  of  Labour’s  leadership whose  ratings  have  shot up  in  the  wake of the Christchurch  mosque  massacre.

But  will the  budget  be  “transformative”?

NZ’s  economy  under Labour over the past  six months  has shown  increasing   signs of   slowing.

Recent indicators  of a weakening economy include rising job-seeker numbers, stalled job growth, a rising cost of living, lower economic growth forecasts by all major banks, weakening business confidence,  and the Reserve Bank  signalling a cut in interest rates  to stimulate economic activity.

But buoyed  by the latest  Ipsos  survey,  which  shows a significant increase in Labour being perceived as the most capable of managing all issues across the board,  Finance  Minister   Grant  Robertson    could  go  hard  on    implementing  the  policies  which would   transform  not  just the  economy   but social  sectors  as  well.

Not that the signs  are  all  propitious.   There are  serious doubts  whether the state’s own machinery  is   tuned  up  for the job, what  with – as one commentator  noted – the Reserve Bank governor thinking the bank is a Kauri tree, the Treasury trying to measure your sun and moon feelings, and the  chief statistician   eager to  measure our spiritual  well-being.

Robertson   is  probably  a  bit  more cautious on the  well-being  guff  than  his leader.  In any case,  the headache for him  is  that virtually  every  sector  where the state  operates  says  it is  massively   underfunded.

Health and  education  demands between them   could blow the budget  surplus to smithereens   and still be short in  key areas.  Then  there’s  the   huge infrastructure  deficit  which  has to be  tackled – but where’s  the skilled  labour  force  needed  for  that?

Some of the pressure groups which back  the  Labour government believe  it’s  time to  loosen   the purse  strings  and  apply a  fiscal  stimulus  to get the  economy  back  on to  foundations  for   higher productivity  and   strong growth.

Robertson,  after  his  recent  visit to  Washington  for the IMF and World Bank meetings,  will  be   conscious  of  the risks  facing  the  global  economy,  and  see  the dangers  in  applying  a  fiscal   stimulus   on  top  of  the very loose  monetary  policy currently being run.

In a small  economy like NZ, booting up spending  when monetary policy  has  lowered  interest rates close to  zero is a recipe for inflation quickly running  out of hand, as demand exceeds supply across the economy.

Then (or rather, until this afternoon) there’s been the  issue of   the  capital gains   tax.

Labour’s  support groups  were calling for it  to be as comprehensive  as  Sir Michael  Cullen proposed.  And  with   Labour riding  so   high in the polls,  it would have been tempting to give   NZ  First  the old one-finger   signal without too much concern.

But Robertson,  who  remains  in closer  touch with the   grassroots of  his party than some of his colleagues,  is unlikely to have seen much upside  in giving   his political  opponents a stick  to  beat Labour with  all the  way to the next  general election.

We  weren’t surprised, therefore, to hear the PM declare the Coalition Government will not proceed with the Tax Working Group’s key recommendation.  

“The Tax Working Group gave the Government, and the country, an opportunity to look at the fairness of our tax system and debate options for change,” Jacinda Ardern said.

“All parties in the Government entered into this debate with different perspectives and, after significant discussion, we have ultimately been unable to find a consensus. As a result, we will not be introducing a capital gains tax.”

The numbers game (counting prospective votes at the next general election) presumably has been decisive.

“I genuinely believe there are inequities in our tax system that a capital gains tax in some form could have helped to resolve. That’s an argument Labour has made as a party since 2011.”

“However after almost a decade campaigning on it, and after forming a government that represented the majority of New Zealanders, we have been unable to build a mandate for a capital gains tax. While I have believed in a CGT, it’s clear many New Zealanders do not. That is why I am also ruling out a capital gains tax under my leadership in the future.”

But this doesn’t mean there will be no new taxes:

“The Tax Working Group was a valuable exercise that has delivered some useful suggestions well beyond just the debate on CGT, and I want to thank the Group for its work.   In fact the majority of recommendations will either be investigated further or have formed part of our work programme.

“There are other things that can be done to improve the fairness of our tax system. As such the Coalition Government has agreed to tighten rules around land speculation and work on ways to counter land banking.

“Work will also continue to cut red tape for business and crack down on multi-nationals avoiding paying their fair share of tax in New Zealand. We have already made changes to address base erosion and profit shifting, and we will shortly release a discussion document on options for introducing a digital services tax.”

For now, says the PM, her job is to focus on the things the government can and is doing (brace for it, dear reader) “to improve the wellbeing of all New Zealanders”.

“The Coalition Government is addressing the long-term challenges New Zealanders face such as mental health, climate change and child poverty and responding to the March 15 terrorist attack and keeping New Zealanders safe.”

Those challenges will be her priorities for the remainder of this term.

The  poll figures suggest she will be back for a second term, of course.

Let’s wait to see what the priorities then will be.