Election 2020 Tax Commentary 1: New Conservative Party

"If pigs could vote, the man with the slop bucket would be elected swineherd every time, no matter how much slaughtering he did on the side." —Orson Scott Card

With New Zealand still reeling from Lockdown 2.0 and the shock faced by Aucklanders of losing our freedoms for the second time this year, it is easy to forget that we have a general election in just eight weeks’ time.  It is also even easier to forget that there is anything other to discuss than COVID-19 and the related issues of border protection and the long-term approach that New Zealand is going to take to dealing with the virus.

To date there has been no shortage of discussion and debate about the Government’s wage subsidy and other measures taken to support businesses through the lockdown periods.  To be clear I am a whole-hearted supporter of these measures.  Ensuring that people remain employed, not only to earn an income, but to support their mental health and sense of purpose, is key in a time of crisis like this.  It has not come without cost though.  The initial $12 billion of economic support announced in March was followed up in May with the establishment of a $50 billion COVID-19 Response and Recovery Fund, of which only $14 billion remained unspent at the end of July.  That means $48 billion of additional Government spending and counting.

So it is critical in this upcoming election to start to have a debate as a country as to how we are going to set ourselves up in the long term to pay all of this additional borrowing back.  In a utopian world we might get cross-party agreement on a national long-term economic, tax and spending program that would provide a balanced approach to encouraging economic growth, while raising sufficient taxes in the short to medium term so as to start paying down debt and not unfairly burden future generations.  Of course though we are not in Wonderland, nor are we through the Looking Glass, so this is never going to happen.  It is the season of heated political debate and each party will be putting forward their own view on how to steer the good ship New Zealand over the coming three years.

Over the coming weeks I will be considering the taxation policies of each of the political parties that either will clearly be in Parliament after 17 October, or at least have some hope of making it.  In saying this I am hopeful that more parties will actually release detailed taxation policies that I can write about.  Again, to date there have been countless announcements about how taxpayers’ money is to be spent (the slop bucket has been very full!) but very little discussion or debate about how we are going to pay for it all.  Disturbingly neither major party has said anything meaningful yet.   Labour apparently has a tax policy, the launch of which has been delayed, and all National is saying is effectively “read our lips, no new taxes”.  A pretty poor effort by both at this stage of the electoral cycle.

This week I kick off with the New Conservative Party.  A phoenix that has risen from the ashes of the old Conservative Party, it is only polling on average at around 1% of the vote.  So its chances of making it into Parliament are remote.  However I observed while driving over the weekend (only locally of course) that their latest election hoardings now announce one of their key tax policies and by virtue of the fact that they are the only party to be loudly announcing a tax policy, that alone justifies a write-up.

The New Conservative Party’s key economic policies (per their website at the time of writing are as follows)

• Support economic growth via $10 billion in tax cuts, which includes an income tax-free threshold of $20,000, removing tax-on-tax, and reducing petrol taxes.
• Boost business productivity by cutting red tape and developing primary industries such as drilling and mining.
• Provide relief for farmers and others affected by the Emission Trading Scheme and Zero Carbon Bill by repealing both and abandoning the Paris Accords.
• Implement Net Zero Immigration while we increase our housing stock.
• Focus on swift recovery from the COVID-19 crisis.

In addition the party states that is committed to the following principles of economic governance:

• Economic growth must come from a broad base of sectors, which is ultimately the source for pulling people out of poverty.
• Government must run a balanced budget, pay down debt, and save for the future.
• Families must be allowed to retain more of their incomes to provide for themselves and each generation should pay its own way.
• Welfare support must never entrap people in benefit dependency.

What stands out from a tax perspective is the pledge to cut $10 billion of taxes, which will include the introduction of a policy to allow the first $20,000 earned (presumably by individuals) to be tax-free.  The idea of introducing a tax-free threshold has long been debated in New Zealand.  Indeed it was considered during 2018 and 2019 by the Tax Working Group (“TWG”).  As the TWG’s analysis showed the establishment of just a $5,000 tax free threshold would cost $1.8 billion a year.  If this was to be extrapolated out to $20,000 (and in doing so also eliminate tax on incomes between $14,000 and $20,000 which are currently taxed at a 17.5% rate) I would expect the figure to easily exceed $10 billion.  The cost of such a policy is so high because all households benefit from a reduction in taxes, not just low-income households which the New Conservative Party may be looking to support with this policy.  As the TWG concluded, if supporting low income households is the goal, targeted tax credits and benefits are a much less costly way to achieve this.

In my view the New Conservative Party’s tax policy makes for a nice headline on a billboard, but would be reckless to introduce in the current environment.  To provide nearly every income earner in the country with a $1,470 tax cut, when the country’s finances are so deeply in the red, does not seem like sound policy and seems at odds with their commitment to balance the budget and pay down debt.  It also seems a policy out of step with a New Conservative Party and something that the former New Labour Party might champion.  I guess it’s easy to throw around policies like this when there is little hope of getting into Parliament, and even if by some miracle they did, zero chance that either major party would support it.  It’s a policy that is probably intended to garner votes because of its feel-good factor, safe in the knowledge that the New Conservatives will never be called on to actually implement them.

Next week, I’ll take a look at The Opportunities Party who have released quite detailed and thought-provoking tax policies.  If nothing else, they are certainly a departure from the mainstream

Bruce Bernacchi

24 August 2020