By Alex Tarrant
James Shaw is in the fight of his life. As the sole co-leader of the Green Party, Shaw heads into this election with the polls showing the party hovering around that 5% threshold.
Problem is, the Greens often come in below that on election day. That overseas vote which typically gives the Greens an extra seat every election might just be crucial this time.
Now, if Bill English is right, then this election is starting to be fought on policy. In fact, Labour wants that too, they say. And when it comes to policy, the Greens can strongly claim to be out in front when it comes down to detail – whether you agree with the policy or not.
It was the large, 14-page economic policy document on the Greens’ website that I was looking through in preparation for this interview. Full disclosure – a closer look shows it’s from August 2014, even though it’s linked to in the Election 2017 economic policy section.
So, for some of the stuff I was putting to Shaw, a slightly quizzical look would appear on his face. Not to worry, this turned it into a good discussion about his party’s Election 2017 economic policy platform (not agriculture – something on that later this week), and how this had evolved since 2014.
We touched on Monetary Policy, KiwiBank, income tax, capital gains tax, savings tax (he’s an early fan of the Coleman idea – says he needs to research it a bit more, though) and an interesting exchange on potential Cabinet positions for the Greens (Climate Change might not be one of them).
We began with income tax. On the Greens’ website under “Income Tax” they talk about introducing a tax-free threshold, simplifying low and middle-income tax rates, and passing on tax cuts to beneficiaries and abatement rates. No mention of the higher top income tax rate I thought they were proposing! Well, going through the document itself, a higher top tax rate is there.
The policy document on the website is more “directional,” Shaw tells me. “What we’ve said at this election is that there would be two changes to income taxes. One is the introduction of a new top tax rate on earnings above $150,000 – so you’d be paying, on every dollar above $150,000, you’d be paying an additional 7 cents tax [40%]. And also, that we would lower the bottom threshold – the first $14,000 – from 10.5% to 9%.”
That would mean 97% of people would end up better off, he says. The tax-free threshold idea was more an ambition – in 2014 the Greens ran on a tax-free band on the first $2,000. “What we decided to do this time was simply to lower that rate on the bottom threshold rather than add an additional tax-free band.”
On the top tax rate, there could be a bit of a road-block for the Greens in that Jacinda Ardern has ruled out raising the top income tax rate. I ask Shaw whether this concerns him at all? “That’s coalition negotiations,” he says. “Every party goes into the election with their own policy platforms, and then we see what the relevant numbers are, and if…we can persuade them, then we would.”
Shaw says he’s supported Grant Robertson’s idea of setting up a Tax Working Group to look at changes to the tax system regarding income, assets and wealth – it’s been nearly 10 years since the last one.
He’s a fan of doing things earlier than Labour might be, though. “We’ve got a real sense of urgency about two things, one of which is the housing crisis, and the other of which is climate change. And so, I think that a proper price on emissions and a capital gains tax, would be two things that I might be able to persuade them to do in our first term.”
Capital Gains Tax and property speculators
I put to Shaw that when we’re talking about housing, Labour is already proposing to extend the bright line test from two to five years for non-owner-occupied housing – which will cover the first term and then some. Both Labour and the Greens are talking about excluding the family home, which means two-thirds of residential property is left out…
“Although it’s 50% of all new sales,” he jumps in. “More than half of all property sales are going to investors rather than owner-occupiers. So, the proportion of owner-occupiers is shrinking dramatically,” he adds. “The modelling that we’re seeing is that the capital gain component is actually increasing.”
Does exclusion of the family home still not encourage investment in making these properties bigger and bigger rather than incentivising people to put savings elsewhere?
“There is certainly that component of it which we need to be cognisant of,” Shaw accepts. “It’s not perfect, right, and I’ve never said that it is.” The incentive could remain “unless you look at other mitigating responses,” he says (more on that later).
Most countries in the world that have got a capital gains tax exclude the family home – very few of them do it on the family home as well, he says. “So, the way that we’re looking at it is to say, well it’s on investments and on investment properties. But ours would be comprehensive, so that it would apply to all asset classes.”
The policy is not a revenue-grab, he adds, quickly. “If we had zero revenue out of it, that would be fine. The whole point is to try and correct the imbalance in the economy and to take the…overemphasis on property investment, particularly at the speculative end, and to redirect capital to the productive part of the economy.”
I jump in: owner-occupied housing isn’t a productive part of the economy.
“No, it’s not, but the point is, that at the moment, you’ve got this massive speculative boom in property, and we want to be redirecting some of that capital away from that and back into businesses, for example.”
Another idea being touted is to reduce taxation on savings instead of applying a CGT or imputed rents in the effort to level the tax playing field – the Andrew Coleman idea. “I’m quite persuaded by Andrew’s argument that taxing superannuation on the way out rather than on the way in, has an impact on whether people put their money into property or into the share market via superannuation funds, for example,” Shaw says.
But he’s not completely persuaded yet – he hasn’t engaged with it heavily – on whether that would eliminate the need for a capital gains tax. “Having lived in the UK for a long time…I know that it was a massive incentive to save. Instead of taxing on the way in, you tax on the way out. And the only reason why New Zealand switched, is because the government was running out of money in 1989 and decided to switch it around. And I think that’s quite a poor basis for policy making.”
I ask Shaw whether the Greens have a view on compulsory KiwiSaver – something I also put to both Joyce and Robertson, who both strayed away from it.
“Currently not in favour of it,” he says. “But, again, sympathetic to the arguments that we may need to move in that direction eventually. If you look at the Cullen Fund – the Superannuation Fund – that’s frankly our highest priority, is to restart payments into that now that we’ve started to run surpluses.”
The Greens also have a desire for the Super Fund to run a low-fee default KiwiSaver fund. “If you have that public option – it’s obviously got to be profitable – but where that’s not the primary motivator, then it puts downward pressure on the rest of the market in terms of the fees. Because there are quite high fees across the whole KiwiSaver sector,” he says.
While some providers were starting to respond to criticism on fees, “when you’ve got a small market, it makes it pretty easy just for that price to settle higher than to settle lower. So, the idea there really is just to stimulate competition, in the same way that Kiwibank provided competition on bank fees.”
Monetary policy & deposit insurance
When it comes to monetary policy, that Greens ‘long-term’ policy document I’d been reading talks about greater interaction between fiscal and monetary policy. Does this go so far as allowing the Finance Minister some sort of say in rate setting decisions?
“No,” Shaw says. Actually, the Greens aren’t emphasising monetary policy this election. “The things that we’re most concerned about, when it comes to monetary policy are, we have a strong preference to have a board rather than a single decision maker.”
Fits with Labour’s policy, then. Shaw says he recognises the current set up where the Reserve Bank Governor does take advice before making his decision. “But I think that [it’s a good idea], and not like Australia where it tends to get pulled in all sorts of directions.”
Labour wants a number of external people on the board, while National sounds like they’d rather go with the current set up of the Governor, his Assistant, Deputies and Chief Economist. Shaw says it would be good to have some external stake-holders there. “To be able to provide, I guess, a more grounded view of the economy in its real terms. But I’m also aware of the lessons learnt from Australia, where a large externally dominated committee tends to pull it in directions that aren’t always helpful.”
Another part of the broader monetary policy proposal I read is on greater currency intervention with an aim to drive away speculators. A big policy stance this time around? “No, it’s not. And I’m reasonably happy with where things are going in monetary policy at the moment. I actually think the Reserve Bank does a pretty good job,” Shaw says.
There is one other thing the Greens would like to see though – deposit insurance. “I’ve tried to push that with Steven Joyce, and he’s not really interested. And the Reserve Bank have pushed back on that proposal as well,” he says.
“Well, they do talk about moral hazard, but actually, if you look at the evidence from overseas it doesn’t really seem to introduce it. And that’s partly because people don’t – when they’re making choices about which banks – they’re not actually making decisions based on that level of sophisticated understanding of where the bank is at. But we are not the only OECD country that doesn’t have deposit insurance.”
Shaw says he’d take advice on the appropriate level, but it could be in the realm of $50,000 to $100,000 - Australia’s is A$250,000 after all. “The thing is, of course, the vast majority of Kiwis have got less than $3,000 in savings anyway. So, if you set it at $100,000, actually the number of people whom that would cover would actually be quite small, because very few of us have got $100,000 sitting in the bank.”
To finish off on monetary policy: All this talk from years gone by on different instruments or targets for the Reserve Bank – nominal GDP being the famous one – that’s not really going to be a focus for the Greens next term?
“No, not for us, no. I just think, we’ve got our priorities for this election. And…it’s about making New Zealand the world leader in the fight against climate change, it’s about cleaning up our rivers, and it’s about ending child poverty.”
Staying on the subject of the Reserve Bank, the Greens have had an interesting proposal out there – in the longer-form document – which would repurpose Kiwibank as having to pass on OCR cuts to floating interest rates.
Shaw says this election they’re not so focussed on that. More that Kiwibank needs to be supported to be able to keep doing this. “Kiwibank does pass on changes in the OCR because of its domestic nature, whereas the other mainstream banks are largely borrowing offshore, because they don’t have the depositor base inside New Zealand that Kiwibank does. So, when the OCR gets cut, Kiwibank tends to reduce its rate and the other banks tend not to reduce it by quite as much,” he says.
The Greens’ proposal was to recapitalise Kiwibank, but to also keep it fully in government ownership. There’s a problem now that the Super Fund and ACC each have a sizeable stake. “Not [a problem] immediately, but there will be in four-and-a-half years’ time,” Shaw says.
“The Super Fund, they’ll put money into it, they’ll capitalise it. That’ll grow. It’ll improve. And then as a fund manager, whose job it is to make sure that New Zealand has got the maximum amount in the pot for retirement savings, their mandate is to get a return on that investment. So, what do they do? Do they sell it off or would they keep it?”
Could the Greens lock the Fund in somehow? “The problem is, the deal’s been done,” Shaw says. “They’ve got to offer it back to the government [first refusal], but here’s the thing: in five years’ time it’ll be worth two, or three, of four times – you’ve got to remember, they bought it for half price. Even if they were to sell it back one-for-one, it’ll be worth at least four times what they bought it for.”
“Any future Finance Minister is going to look at that, and go ‘cough, cough, that’s quite a lot of cash, for a bank.’ And I think that it’s worth more as a strategic asset. During the GFC, all of the Aussie banks were repatriating cash back to Australia, right? Which they had to do. But, that left New Zealand businesses unable to get credit. Kiwibank kept lending into the market,” Shaw says.
If the government was ultimately to sell Kiwibank and allow it to be just like any other, with large offshore ownership, then it wouldn’t serve “that strategic line of defence” like it did during the financial crisis.
Shaw says the Greens’ policy on Kiwibank is made much more difficult by the ownership changes. “You can’t really do it, because the government no longer owns it directly. But that would have been our preference,” he says.
“The $100 million [capital injection plan] would have been able to scale it up to the point where it was a commercial bank, not just a retail bank. Then it would have been able to do other things, such as take over the government banking contract, which it can’t currently do because it doesn’t have the scale or the operational ability to do that.”
Others muscling in on the Greens’ policies
Generally, the Greens have regrouped after the past few months of instability. They’re talking about climate change and clean rivers a lot more than they seemed to be mid-year. Is Shaw worried that Labour might have managed to come in some of the party’s key areas – including child poverty – and steal the show a bit?
“There’s a saying in Texas: All hat and no cattle,” he says. It’s good that others are starting to use the rhetoric, but scratch the surface and you’ll find other parties are still just poking at the problems.
This interview was conducted before Labour announced it would mandate net zero emissions by 2050 – so he had a go at them over that. “We would pass a law in our first 100 days in government that set that target, and then create the independent Climate Commission to work out pathways to get there and oblige all future governments to set policy in line with that target.”
“And if you go to child poverty, it’s all very good for Bill English to say that he wants to lift 100,000 kids out of poverty – which, by the way, was our target in 2011 and in 2014 – but his own policy doesn’t actually achieve that.”
I ask Shaw whether he’s got his eye on any Cabinet position. Yes, is the answer, although he’s not telling. “But…if you look the priorities that we’ve got, climate change, cleaning up our rivers, eliminating poverty, then you look at the portfolios that are necessary towards doing that,” he says.
“In terms of our climate plan…what are the things that are going to make it happen. Well, there’s the Climate Change job itself. But actually, the Minister for Climate Change can’t actually solve the problem, because if you look at where emissions come from, they come from agriculture, from transport, from energy, from building and construction, from waste,” he says. “There’s a whole swag of different things there where you’ve intervention points.”
Last question: A vote for the Greens would be a vote for…?
“A vote for the Greens is a vote for a government that has climate change, clean rivers and an end to poverty at the top of the political agenda, not just when we get to it,” Shaw says. “We want to make sure that those are at the top of the agenda for the next Labour-led government, of which we intend to be a core part.”