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Political Roundup: Progressives despair over the CGT decision

by Dr Bryce Edwards

It really was a shock for the political left. The capital gains tax, in some form or another, was accepted as a major part of the battle to create a more equal New Zealand. It had come to symbolise the struggle against much of what has gone wrong in our society in recent decades. So there was a lot invested in people’s minds about the necessity of some form of capital gains tax that would hit the wealthy, and level a playing field that had become so distorted.

Of course, it was widely recognised prior to yesterday’s announcement that any new capital gains tax was likely to be watered-down. In fact, many on the left were already critical that the Government had set up the Tax Working Group with a heavily watered-down remit in which major exemptions were expected, including the expectation that a CGT would be fiscally neutral.

But few expected that the Government would reject any form of CGT – let alone Jacinda Ardern’s outright rejection of even revisiting the issue in the future.

Anger and disappointment on the left

For many on the left, the decision is an indictment of the whole idea that this Government will be transformational. Danyl Mclauchlan argues that the CGT programme was one of four key policies agendas for this Government – the others being KiwiBuild, the Carbon Zero Act, and the Wellbeing Budget – and there are clear problems now in delivering them – see his column, Four months in, Labour’s ‘year of delivery’ is a disaster.

He despairs that Labour axed the tax after first initiating “one of the most bafflingly disastrous public policy debates imaginable, making John Key’s flag-change campaign look like the Normandy landings”.

He says any strategic wins from ditching the tax, will come “at a cost of one of Labour’s most important, long-term policies, and it was their failure to control their coalition partner or even attempt to make the argument for taxation reform that forced them to pay such a bitterly high price.”

Mclauchlan argues that Ardern could have won the debate and got a mandate for the changes, but simply didn’t bother. In contrast, even John Key, managed to use his political capital to campaign on and win unpopular policies.

Other leftwing bloggers are very unhappy. No Right Turn is now calling for a leftwing boycott of the Labour Party: “If you want change, don’t vote Labour, don’t donate to Labour, don’t volunteer for Labour. Give your vote, your money, your time and effort to another party, any other party that promises change, than the one who betrayed you. Because if you don’t, Labour will continue to treat you like a fool, and continue to promise change while delivering none” – see: Don’t get fooled again.

They also argue the decision means the Government won’t have the money to afford many of their future policy goals: “Effective policy costs money, and this government has just robbed itself of that vital tool. Remember this next time they plead “poverty” as an excuse for not doing something: they chose to be poor. They chose to have a government which could not afford things. They chose to not be able to do the things they promised” – see: The cost of cowardice.

This idea is expounded in detail by inequality researcher Max Rashbrooke, who argues that many other Government priorities will now be hamstrung by the lack of future revenue: “building more state homes, eliminating introduced predators, and repairing mental health services, among others – also require significant funds, again well above what will be generated under existing tax settings” – see: Capital gains tax shutdown threatens govt’s other plans.

In particular, “Consider the Prime Minister’s pledge to halve child poverty within a decade, possibly the political priority closest to her heart. It is very difficult to see how that can be achieved without the $3.4 billion a year that the capital gains tax was, according to the most recent estimate, going to raise.”

Of course, some are suggesting that the left shouldn’t be too hard on Ardern and Labour, because they had to deal with the reality of MMP and it was New Zealand First who wouldn’t budge on the CGT.

David Farrar debunks this idea: “The reality is Labour choose not to proceed. How do we know this? Simple. Ardern’s announcement that Labour won’t implement a CGT ever ever ever while she is leader. If this was simply about NZ First, then Ardern would have said we don’t have the numbers in this Parliament for it, but we believe this is important and we’ll try again when we do get the numbers. This is what National said when they didn’t get the numbers for RMA reform” – see: Analysing the CGT back down.

What’s more, Farrar argues that if Labour had really wanted to, they could have got their coalition partner onside: “A deal could have been done with Winston. If Labour really wanted to get the numbers to pass it this Parliament, then of course a deal could be struck for some form of a CGT. This is what politics is about. Look at the oil and gas ban decision. That went against NZ First’s interests just as much as a CGT would. NZ First backed it because they did a deal in exchange for their waka jumping law. Labour could have offered NZ First some other wins if they had wanted to.”

So will Labour Party activists now lose some of their faith in Ardern and their government? One news article provides mixed reports on this – see Jason Walls’ Long-time Labour activists don’t think the party will be too hurt from CGT rejection. For example, former Labour Party President Mike Williams suggests that although there are “elements of, particularly the unions and the extreme left of the Labour Party, which would be annoyed”, he “did not think the wider Labour Party base would be too worried about the CGT rejection”.

But Newshub’s Anna Bracewell-Worrall reports that “Labour is facing a massive backlash from its base for ditching any hope of a capital gains tax (CGT) – even Young Labour and the ever-loyal unions are fuming” – see: Young Labour furious at capital gains tax backdown, leak reveals.

According to this report, “Newshub’s been leaked a discussion from a secret Young Labour Facebook group revealing they’re frustrated with the decision. The Labour Party faithful say they’re ‘mighty disappointed’ and ‘exponentially angry at New Zealand First’s role’, and complaining of ‘unfulfilled promises’.”

Questions about political leadership and courage

It’s not just the political left expressing surprise at Labour’s capitulation on the CGT. Some media have also challenged Ardern on why she has given up on what was supposedly a central and principled part of her philosophical agenda.

At the Prime Minister’s announcement, Newsroom journalist Thomas Coughlan asked the very pointed question of Ardern: “Are you worried you now lead the party of capital, rather than labour?” And now he’s followed this up with an article suggesting that rather than Ardern and her Government implementing transformation, it’s actually them who are transforming – into a cautious and weak government not willing to make the hard and necessary decisions – see: Capital gains tax: Let’s not do this.

Newspaper editorials have also challenged the convictions of the Government. Yesterday, the Dominion Post asked if the decision came out of “cowardice or pragmatism”, but suggested the two are indistinguishable anyway. The editorial suggested more debate and leadership had been required for the CGT proposals to get off the ground: “Labour voters were evenly split on the pros and cons of a capital gains tax. It is a situation where brave political leadership and persuasion were required but for whatever reasons, a deep and thorough debate about fair and unfair tax failed to eventuate” – see: Capital gains tax: Political capital but for what gain?

The newspaper says that Ardern had a “a failure of nerve”, and laments that an opportunity has been missed: “If there was ever a moment when significant change to the tax system could have happened, as the fairness and transformation her Government promised, that moment was now.” And there’s the question of “if the Tax Working Group was merely an expensive waste of time with a predetermined outcome.”

Likewise, according to the New Zealand Herald, “The decision has the hallmarks of pragmatism rather than strong leadership”, leaving “little evidence so far that Ardern will make tough but unpopular decisions to deliver on her convictions” – see: Capital Gains Tax surprise raises doubts on coalition.

The newspaper, which mentions its own support for more capital gains taxes, complains that the decision-making process on this vital issue leaves a lot to be desired: “If laws were introduced only when there was a mandate, we might as well be governed by a series of weekly referenda.”

Many political commentators are quite amazed at just how easily Ardern has capitulated on the issue. For example, Tim Watkin, says the decision “is truly remarkable. She didn’t deliver what Labour wanted. She didn’t get even a compromise version. She got nothing. Zip. Nada. Nil. What good is power if you are unable – or too cautious or too timid or not savvy enough – to wield it? If Ardern can’t stare down or cajole Peters now, with the world at her feet, voters are left to assume she will never be able to. And if she is not able or prepared to go to the wall for a policy like this – a Labour passion and bugbear, something she made a ‘captain’s call’ on, a policy with inter-generational ramifications – then what will it take?” – see: Jacinda Ardern thuds back to earth thanks to NZF’s ‘carefully generated torpedo’ (CGT).

And one commentator says that this episode proves Gareth Morgan was right to argue in 2017 that Ardern wasn’t up to producing transformational change, but was just “the lipstick on the pig” of a conservative Labour Party – see Jamie Ensor’s ‘Lipstick’s come off the pig’: Sean Plunket blasts PM Ardern’s capital gain tax backdown. Plunket says: “She was never really committed to it in the first place. She was just lipstick, there was no substance” and now the “lipstick has come off the pig”.

Finally, although many are viewing the CGT capitulation as a failure of leadership and conviction, there’s an argument to be made that it was actually worse than this – and the entire exercise was executed in bad faith. Writing on the RNZ website, I suggest that perhaps there was never any real intention to implement a capital gains tax – see: Signs Labour didn’t intend to implement capital gains tax.