TL;DR: Prime Minister Chris Hipkins firmed up his re-election strategy this week by reiterating his ‘no frills’ and low-risk approach to governing, downplaying any talk of a re-run of the difficult debates about a Capital Gains or Wealth tax.
Instead, he is focusing the Government on doing whatever it can to:
lower inflation and interest rates by reducing the Government’s deficit and debt forecasts through limiting spending growth and delaying capital investment;
stimulate nominal GDP growth and lower wage inflation via a migration surge he is happy to see go to 100,000 a year; and,
increase subsidies for first home buyers, just as the Reserve Bank loosens lending restrictions — all of which are designed to reignite the wealth effect of a rising housing market.
The Labour Party leader and former proponent of a capital gains tax virtually ignored the results of a bombshell IRD study released on Wednesday showing the richest families pay less than half the tax rate of middle-income New Zealanders. Instead, he preached the benefits of the Government treating its finances just as a struggling household would, tightening its belt in tough times. Here’s the language he’s using (bolding mine):
I think it incumbent on leaders to not only walk in the shoes of others, but to reflect those experiences in the choices we make.
That means it’s not right for households to be tightening their belts if the Government doesn’t too.
I’d call it a no-frills approach, and that characterises the decisions we’ve made since I became Prime Minister as well as decisions we have made in the upcoming Budget. Chris Hipkins in his pre-Budget speech.
Appeals to ‘we’re all in this together’ just fall flat now
In my view, the trouble for Hipkins is this week’s wealth, income and tax reports show that the richest are not tightening their belts or sharing the burden with ‘hard-working Kiwi families’. This report changes the framing of the tax debate. Those in the highest tier are not even paying the same effective tax rate as middle-income earners, especially those who are younger, renting and without children.
Hipkins can claim solidarity with the ‘stressed middle’ against the God-given ‘weather’ of inflation and a recession and the untouchable rich if there was nothing he could do about those things. But he can touch the rich. He’s just not choosing to. Yet.
I asked him yesterday why NZ’s 311 richest families worth $276m each shouldn’t also be sharing the burden of his ‘no frills’ approach, or at least paying the 30% effective tax rate that wage-earning renters getting $80,000 per year pay. All of my questions and his responses are in the podcast above, which is in shortened form for free subscribers and includes my analysis and commentary for paying subscibers.
Currently, those 311 families pay an effective tax rate of 9.5% and would have added $3.3 billion to tax revenues in 2020/2021 if they paid the same as that $80,000 per year salary earner. Instead, they will go on under-paying their taxes and the government is planning an austerity budget on the eve of a recession, which will swap spending elsewhere to pay for $4.5 billion of flood repairs. That $3.3 billion would have been handy right about now.
Paying subscribers can usually see and hear more below the paywall fold placed here and in the podcast above, but I’ve decided to open most of this one to all immediately given the public interest involved, and to recognise the support I get from paying subscribers to publicise my journalism on housing unaffordability, climate change inaction and poverty reduction.
The Beehive and RBNZ just put a floor under house prices
Meanwhile, the actions of the Government and the Reserve Bank this week have just reignited that engine of tax-free wealth for asset owners. They did this by:
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