Thursday, 26 June 2014

Labour’s malodorous Alternative Budget

The good news emerging from Labour’s alternative budget – and hold tight, there is some – is that, for political parties at least, promising to end debt and to cut taxes seems to be the new black.

Labour say they want to extinguish Bill English’s debt faster even than Bill English (down to 3.0% of GDP by the end of 2021). Fact is, they’d like be overspending by even more than Bill, so this is little more than election-speak – but they seem to think they need to say it, which is good. And they’re talking tax cuts too.  Sure, based on purple prose and over-expectation of tax revenues, and only in their second term, should they ever get one. But at least they’re talking about tax cuts. Even the Greens were talking about tax cuts, remember, which doesn’t happen often.

So that’s all promising, isn’t it. Parties may not really mean a word of it, but they’re seeing which way the electoral wind is blowing and let it blow their tongues around. May that particular wind keep blowing, and with increasing pressure.

But while the wind blows strong from one direction, several powerful odours still emanate from another, finding their place in Labour’s would-be election budget.

The first is an envy tax: a rise in the tax rate on trusts and top-income earners to 36%. Sure, less than the 39% rate imposed by Michael Cullen, but still higher than the Nats’s already high rate. Its primary role is not to bring in revenue; its mission is to bring in voters wanting to see “rich pricks” smacked. So this is just mainstream Labour.

The second bad smell is the very centrepiece of their economic policy: what they call an “economic upgrade.”  In a budgetary context, that “upgrade” consists of a higher taxes on employers1, higher taxes on employees2, higher taxes on property owners doing well3, industry subsidies, and government subsidised house-building.

If this sounds like incoherence rather than an “upgrade,” taxing the productive more heavily to subsidise those you wish would be more productive, then you’re probably reading more acutely than the Davids, who only add to this incoherence by still insisting (in the monetary policy part of their “upgrade”) that they’ll have the Reserve Bank lower real wages by devaluing the dollar.

Which means, going into this election, the Labour Party is promising higher taxes, lower wages, and several very nasty smells.

1, in the form of higher employer levies on Kiwisaver.
2. which is how, justifiably, wage earners will see Labour’s plan for compulsory super, something they voted down in large numbers not that long ago.
3. this is their fabled Capital Gains Tax, which smacks property owners, and has nowhere in the world either brought in the revenue the Davids are after, or stopped any housing bubble ever.


  1. "The Economic Upgrade.....
    This will transform the New Zealand economy and support higher incomes and lower inequality."

    Are there people who really believe this? By all means vote labour because they will pass legislation that benefits groups which you happen to be member of but transform the economy.

    Take money from successful business and give to those businesses that struggle will transform the economy? (successful businesses expanding at fast rates soak up vast numbers of employees)

    Drop the company tax rate to zero will transform the economy as google, apple, amazon FB etc flood into NZ. Instead Labour party geniuses have declared war on these companies.

  2. "Are there people who really believe this?"

    Of course there are...

  3. "1, in the form of higher employer levies on Kiwisaver."

    Actual employers never pay these, they just subtract them from the salaries of employees. Only a party full of people who had never had a real job would implement this policy and imagine it would work as planned.


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