Capital gains is a good policy that builds the credibility of Labour’s economic and fiscal plan. Labour’s brilliantly run pre-launch has sparked interest and discussion. The destruction of John Key’s economic credibility has been a welcome side benefit. And it is a blow, Vernon Small points out, that Key has inflicted on himself.
the prime minister’s attacks on Labour’s looming capital gains tax proposal have looked increasingly unfocused and contradictory.
At first, the idea of a broad capital gains tax excluding the family home would take New Zealand “screaming backwards”. Then it would raise little cash at all, and leave Labour with a big hole in its funding plans.
Mr Key was still delivering his lines with his usual confidence, bordering on cockiness, yesterday. But the line of fire had changed and the contradictions kept mounting.
First Labour’s proposal was a new tax that would plunge a dagger through the heart of the economy; not to mention a sea anchor on growth.
Then it was a tax we already had, buttressed by changes that National had put in place last year (which raised $768 million a year but presumably were neither new nor harmful). Nor was it a tax switch, like National’s GST-for-personal-tax-cut last year, because Labour’s (unknown) policy would not be revenue-neutral. (Conveniently forgetting that National’s was not revenue-neutral in the short term either.)
Perhaps all this flailing about is because, in attacking the theory of a capital gains tax, Mr Key senses he has few friends beyond some tax accountants and the real estate industry; hence his call for reporters to contact retiring IRD policy guru Robin Oliver – one of the few key state sector advisers opposed to the idea.
On the other side are arrayed a battery of opponents from the driest of the dry at the Treasury, the Reserve Bank, the IMF and OECD, through the middle ground who see it as a fairer distribution of the tax burden, to soak-the-rich Left-wingers.
The real reason Key is so upset is not that capital gains is a bad policy. It’s not, it’s a great one that will pay to keep our assets ours, fix the misallocation of capital towards property speculation, and take tax off work. He’s upset because he didn’t have the courage to do it himself. He bought the myth that it was political suicide.
Now, he’s fallen into the trap of crying wolf too often, too loudly, and too early. As long as Labour’s policy is not everything Key has claimed – and it’s hard to see how it can be a tax grab that raises no revenue which will send economy crashing while not doing anything National didn’t do last year and not fixing a problem that National already fixed – then Labour will beat expectations, which is what political marketing is all about.