When Phil Goff announces his economic package today, he has to solve some problems you didn’t think Labour would be able to solve; and he has to pose some questions National can’t easily answer.
The big question is the deficit. We’re spending far more than we earn.
National is offering asset sales as the unpleasant medicine to pay off debt - but you can’t keep doing that for ever. Til now, Labour’s just been mumbling about its alternative.
The poll this week showing more of us prefer a capital gains tax to asset sales makes the government’s solution an even harder sell. Labour has to pay down the debt, at least over the long haul.
The package has to make a credible difference to the economy. This is a two-edge sword.
If Labour tries to minimise the impact of the new tax, it won’t provoke as many squeals but it won’t make any difference to the economy either.
If it is bold enough to make a difference, it will have to outrage a few self-interested sectors. Someone is not paying the tax now; they will if it is introduced. They’ll whine loudly.
I sense there’s a mood to go the whole way. People will accept a broad-based capital gains tax that applies to everything - except the family home and any other assets that most of us own.
Bill English is already claiming the tax is about ‘big government’. He’s fired his bolt too soon. A capital gains tax is equally consistent with small government; it’s just a matter of which income qualifies as taxable.
The finance minister is already admitting a comprehensive capital gains tax is, at least theoretically, “the right thing to do.” (Listen to him here.)
Labour won’t be able to answer every question today.
A big new tax is cruelly hard to explain. Questions will quickly emerge about what the new tax applies to - my engagement ring? My aunty’s rare stuffed axolotl? No one knows the answer to these, and most of the hard cases will eventually be resolved by a judge after exquisitely-suited lawyers sink their avaricious incisors into the wallet of an affected litigant. That’s just the way the tax system works.
Other countries make capital gains taxes work, so we can leave some detailed design work to experts.
Above all, Phil Goff has to show us what the tax will pay for. If it’s just a new tax, only the boffins will like it. I don’t believe the new tax will be about paying for new spending.
If it convincingly pays off the deficit, and shows us some wider benefits, then it might be better received
A lot of commenters have said a new tax won’t grow the economy. But it will if it’s a tax reform that pushes investment in the economy into better areas.
None of us like medicine, but taking it is usually better than the alternative.