Just after 2pm today, the capital gains tax proposal was pronounced dead by Prime Minister Jacinda Ardern. It’s just the latest in a run of bad news for the government’s much-vaunted policy projects, writes Danyl Mclauchlan.
At the start of the year Jacinda Ardern declared that 2019 was her government’s ‘year of delivery’. Last year they were still figuring out how their phones worked. Next year is another election. This is the one that counts; the year they make good on those campaign promises of transformational change to our economy and society. They’re doing this through four huge, hugely ambitious policy projects. Or, at least, they were.
The first transformational project is KiwiBuild: the solution to the housing crisis. It doesn’t appear to be going well, with Judith Collins exposing a new flaw, or scandal or oversight in the scheme roughly every seventy-two hours. The second is the Zero Carbon Act: a framework to price greenhouse emissions and transition us to a green economy. This was supposed to come before select committee in February, but New Zealand First has fought such a prolonged and ruthless campaign against it the prime minister was forced to intervene in the negotiations to ensure its very survival. We don’t know what the act will look like, but Climate Minister James Shaw now predicts our emissions will continue to rise until the mid-2020s, which doesn’t sound hugely reassuring.
Next month we get the Wellbeing Budget, built around a ‘living standards’ framework. This is designed to shift the public service away from its neoliberal focus on economic and financial measures and towards ‘human, social and natural capital’, and will let the PM go on TV and talk about how much she cares about Kiwi kids and mums ‘as a mum herself’ If nothing else we can probably put this down as a foregone PR triumph.
The fourth was the capital gains tax, which Labour has campaigned on for the last three elections – because it is an issue which goes to the heart of inequality in New Zealand – and which they just ditched after one of the most bafflingly disastrous public policy debates imaginable, making John Key’s flag-change campaign look like the Normandy landings. There will be no capital gains tax, the prime minister announced today, and Labour will not campaign for one under her leadership. What happened?
The most obvious culprit is the government’s senior coalition partner, New Zealand First. They’re opposed to a CGT. Given Winston Peters enormous power in this government – he seems to function as a virtual co-prime minister; he can veto anything Labour tries to do, and Ardern cannot retaliate or discipline any of New Zealand First’s ministers – it wasn’t possible to introduce a CGT during this term. That didn’t prevent Labour from campaigning on one next year though, but Ardern just ruled it out in perpetuity.
For that we can blame Labour’s communications strategy. They didn’t want a public policy dispute between Ardern, Robertson and Peters, because that would have been ‘a bad look’ so after the Tax Working Group’s report was made public the government entered a two month consultation period. They spent this time refusing to comment on the report’s findings while a vast, sophisticated, devastatingly effective public relations campaign tore the Working Group’s proposals to shreds.
The proposal had a lone champion: former Labour finance minister and Working Group chairman Sir Michael Cullen. Having him front the debate probably sounded like a good idea when it was dreamed up in the Beehive by a room full of people dazzled by Cullen’s brilliance, but it was never obvious that the wider public (a) remembered who Cullen was or (b) if they did, whether they liked or trusted him, Cullen having been a rather caustic and smug political figure, or (c) if they did remember and trust him, whether they were aware of Cullen’s very vocal contempt for a capital gains tax the entire time he held the finance portfolio, and also (d) all that aside, how much credibility he had once it was revealed the government was paying him $1000 a day to do their job for them.
The only person who could have won the debate was Jacinda, and Jacinda was regally silent. She had to be because she was ‘consulting with her coalition partners’ but even when she was forced to speak to tax issues in the House – the one place Ardern and Robertson couldn’t pay Cullen to speak for them – her lines were barely coherent. It’s the only time Simon Bridges, National’s inept, doomed leader looked more prime ministerial than Ardern.
Popular governments can do unpopular things. The Key government raised GST and announced the part-privatisation of the power companies in their first term. But Key fronted the policy and convinced the public. Ardern is even more of a master of populism and soft media than Key, but her genius is in generating iconic visual images and simple apolitical slogans (‘Let’s do this!’). It all makes a very compelling case for Ardern as a prime minister but doesn’t explain why her government wants to do any of the things they want to do. And it is less and less clear that they’re actually doing them.
It’s the right thing to do strategically. Ardern and her finance minister Grant Robertson probably just bought themselves a second term in government today. But 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.