Election Double Shot Interview: Labour's David Parker argues for new monetary policy, compulsory KiwiSaver and Capital Gains Tax

By Bernard Hickey

Over the final two weeks of the campaign I interviewed the major party finance spokesmen, including National's Bill English, Labour's David Parker here, New Zealand First's Winston Peters and Green Co-Leader Russel Norman.

Labour Deputy Leader and Finance Spokesman David Parker began by arguing a vote for Labour would be a vote for an economy that moved away from speculative investment in property to investment in higher value exports that delivered better paid jobs and moved New Zealand back towards current account surplus.

He said Labour aimed to save more in New Zealand through a universal KiwiSaver and to invest those savings in productive assets by having a capital gains tax that excluded the family home and offering tax credits for research and development.

Monetary policy reform

"But with all of those things, we think it's not enough to get us over our 40 year current account deficit, and we've got to address the over-valuation of our currency and our structurally higher interest rates compared with the rest of the world, and we don't think we can overcome those problems without some change to monetary policy as well," Parker said.

Labour's policies of introducing a Capital Gains Tax and introducing a Variable Savings Rate (VSR) for compulsory KiwiSaver would help take pressure off interest rates, he said.

A changed Reserve Bank Act would leave the central bank's inflation target unchanged, "but then we'd ask them to do it in a manner which best assists in achieving an external surplus over the economic cycle."

Parker said the Reserve Bank might use its macro-prudential tools differently and take into account the lower spending likely as Labour lifted its compuslory savings rate by 0.25% a year from 6% now to a peak of 9%.

Labour's housing policy of banning overseas buyers would also take pressure off interest rates, as would its moves to build 100,000 houses over 10 years to boost supply, he said.

Open bank resolution?

I then asked Parker about whether Labour supported the current Open Bank Resolution system, which gave the Reserve Bank the option of imposing haircuts on term depositors if a bank needed to be wound up.

Parker said he preferred the Australian system where banks were effectively forced to act as co-guarantors of each others' term deposits.

"We also think that Open Bank Resolution where you have a limited tier of lending which is guaranteed is probably prudent," he said, adding Labour had not set a particular level for guaranteed deposits.

"But we don't support the idea that the Government should guarantee all bank deposits up to all levels," he said.

Universal KiwiSaver

Parker said Labour's plan for a Universal KiwiSaver would apply to everyone in work in the same way Australia's scheme operates. Part time workers on low hours would not have to join, but those working full time on the minimum wage would have to join.

He rejected the argument that a universal KiwiSaver would eventually lead to pressure to means test New Zealand Superannuation.

"Our Superannuation scheme is one of the best in the world, so long as we have the age of eligibility at a sustainable level into the future," he said.

Any system that means-tested income would force people to retire early, which would not help workers or the economy because New Zealand would have lower output and a lower tax take, Parker said.

He argued that the transition was gentle in Labour's plan to extend the age of eligibility from 65 to 67 by two months a year between 2020 and 2026.

"Longevity rises at a higher rate than the proposed increase in age. The underlying drivers of this are so clear. Next year the Government spends more in Superannuation than it spends on Education. Already Superannuation costs more than all benefits combined plus Working For Families and the Accommodation Supplement," he said.

Labour would however pay the equivalent of New Zealand Superannuation to those unable to keep working between the age of 65 to 67 for health reasons. It would be means tested.

Income and Capital Gains Taxes

Labour would bring in a new top tax rate of 36% for incomes above NZ$150,000, and the trust rate would also be lifted to 36%.

"Our more important policy by far is our Capital Gains Tax. It is the most important policy on offer by any political party at this election," he said.

He explained how a property inherited after the death of a parent would fall into the Capital Gains Tax regime, but only after the owner decided to turn it into a rental property and only the capital gains after the death of the parent would be taxed.

Parker rejected the idea that a Capital Gains Tax would discourage investment in farming, saying it would increase incentives for investment in productivity rather than land.

"Many of the cleverrer end of the farming sector support a Capital Gains Tax for that very reason. They think that farms, just as other businesses, should invest on the basis of productivity and profitability, rather than land value," he said, pointing out that homes on farms would be excluded from the tax because it was the family dwelling.

Parker said the IMF, the OECD, the Reserve Bank and the Treasury has all recommended this imbalance in New Zealand's tax system be addressed and almost all OECD countries had such a tax, which encouraged investment in productive rather than speculative assets.

"And secondly, no one can argue against the proposition that wealthy people pay lower overall tax rates on their income than middle income New Zealanders," he said.

"It is not fair that someone working for the minimum wage at a supermarket who is single is paying tax on every dollar they earn, while someone who is wealthy can construct their affairs in a way that they don't pay tax on their economic income," he said.

"For both reasons of fairness and shape of the economy, we need a Capital Gains Tax."

Swimmable rivers and irrigation

Parker said the minimum standard for rivers ought to be swimmability, not wadeability.

He referred to a review of water quality conducted by Environment Court Judge David Shepherd just before Labour left office in 2008 which said clean rivers should stay clean, dirty rivers should be cleaned up over a generation and instensification of Agriculture has to be controlled so as not to increase the load on waterways.

"The basic premise we should be driving towards, both in our cities and in our rural areas, is rivers being clean enough to swim in," he said.

Online GST?

Parker said another area of a tax avoidance that should be clamped down on was that by international online companies such as Google and Facebook, which hollowed out New Zealand's tax base and economic base.

"They take hundreds of millions of dollars of advertising revenue out of New Zealand and they pay no tax on it because they construct their transactions in a way that they are notionally offshore, despite the fact they are effectively a transaction within the New Zealand economy," he said.

"That is unfair competition for other news media, who pay GST and income tax on their revenues and profits. We've said we'd clamp down on that and if necessary impose a transactions tax on them," he said, pointing out this was already happening in some other jurisdictions such as Britain with online gambling.

"It's effectively collected through the banking system on a turnover basis and if people don't file an income tax return it becomes a final tax," he said, adding it was already done as a withholding tax for visiting rock bands to New Zealand.

Here's the first Election Double Shot recorded with Winston Peters, in which he argues for a new monetary policy, foreign buyer controls and migration limits.

Here's the second Election Double shot recorded with Bill English where he argues for the stability of National to keep the economy growing.

See all my previous election diaries here.

See the index for Interest.co.nz's special election policy comparison pages here.