The Kaka Project for Election 2023: An interview with PM Chris Hipkins

TL;DR: Earlier this week I interviewed Labour leader and PM Chris Hipkins for When The Facts Change. The Labour leader ploughed ahead with same formula of high and undebated population growth without enough infrastructure investment and the retention of untaxed capital gains. He painted a hopeful picture without much detail that was different or able to be nailed to the wall. His main argument was that Labour’s version of tweaking the status quo in Aotearoa’s political economy is better than National’s. 

Here it is in podcast form for listeners, rather than watchers.

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Six years ago seems a long way away

Hipkins at last weekend’s Labour campaign launch. Photo: Lynn Grieveson / The Kākā

Chipper as always, ‘Chippy’ wants another chance to move the economy forward, albeit in a much less ambitious way than when his predecessor Jacinda Ardern when sweeping to power in 2017.

Six years on from that heady campaign, Hipkins says he still has that ‘Let’s do this’ ambition of 2017, but without repeating the promises and with a range of caveats and…well…reasons. 

“Our vision hasn't changed at all. And I think the goals that the Labour Party has and our hopes and aspirations for New Zealand's future are exactly the same as they were back in 2017. I think what has changed though is we've had a global pandemic in the meantime, and we've had to respond to a series of unprecedented events,” Hipkins says.

“What I'm putting before the electorate this year is a series of policy commitments that are deliverable, that are achievable, that are affordable,” he says. 

The unspoken shadow behind his caveats is the unfulfilled promise of 2017, especially around 100,000 Kiwibuild houses, the dream of housing affordability, the lines-on-many-maps that used to be the Auckland to Airport light rail and an ‘emergency nuclear-free moment’ for climate change action.

Instead, Aotearoa has the most stressed renters in the world, demand for food banks has doubled, housing is less affordable for home buyers relative to incomes, the IMF is warning the Crown faces billions in emissions credits liabilities and thousands of young renters who grew up here are leaving for Australia every month. These failures beg the question: how is any of this worsening of housing affordability and real poverty a better option than allowing higher debt and higher interest rates?

Affordable is a framing for Labour’s repeated choices over six years in favour of older land-owning median voters focused on leveraged tax-free gains in land values at the expense of young renters. 

Hopeful, but without specific hopes

Hipkins, though, still thinks one more term might make a difference for renters and first home buyers, and the climate, but without any particular commitment that can be judged at a later date.

“We do that by making sure that we're increasing the supply of houses on both fronts, increasing the supply of houses for first home buyers, and also increasing the supply of affordable rental houses. If we look at New Zealand's history, I think rental accommodation has been at its most affordable when the state has been a very active player in that market,” Hipkins says.

The trouble for Hipkins is even the fastest house building surge in 50 years is barely enough to keep up with population growth of 1.5-2% in the last 20 years, let alone the next 50 years of another 1.5-2.0% growth on a path to 20 million by 2100.

The Government’s decision to limit future state house building to just one year’s pipeline of new housing in Budget 2023 (3,000 in 2024/25) seemed to clash with his ambitions. Hipkins hints that could change before the election.

“We’ve got our manifesto still to come, which will set out the vision, the plan for the next three years. And I think we do, we are going to need to continue to invest in building more public houses over quite a period of time to catch up. We've got a challenge around market capacity to deliver. And so we're certainly working on making sure that we're building as many of them as can as fast as we can. It took a while to scale that up,” he says. 

No targets for affordability

Hipkins is reluctant to set any sort of affordability target. The whiff of the burning of Kiwibuild remains strong in the ninth floor.

Asked for a specific measure of affordability to focus on such as housing costs being less than 30% of disposable income or house prices being three times incomes, he says:

“When more people can afford to make the choice to buy their own home rather than to rent I think that's certainly something that we have been aiming for. Since we introduced the foreign buyer ban, for example we've seen more first-home buyers in the market routinely. I still think there's a lot of work to do to make sure that first-home buyers genuinely are getting the sort of opportunities that they deserve.”

That work won’t include a wealth or capital gains tax, while Hipkins is Labour’s leader.

“Capital gains tax in the New Zealand context would only make sense if you could get enough of a degree of political agreement for it to be enduring. Because a capital gains tax applied prospectively rather than retrospectively would take probably the better part of a decade to ramp up before it started to generate the sort of revenue that would give you choices around what you do with that revenue and before it really started to make a difference,” he says.

“When you've got half the Parliament more than saying, well, we would undo it if a capital gains tax was introduced, then actually it's not going to achieve the goals that we as a country might have for it. The issue of a wealth tax was one that we canvassed as a government and I was very comfortable with that work happening. I endorsed the fact that we looked at a wealth tax. I thought it was worthy of consideration.

“When I looked at the evidence base around it, when I looked at what the risks associated with the implementation of a wealth tax were, I took the view that actually now wasn't the time to do that. And in fact, at any time, there would be real pitfalls in the wealth tax concept.”

Hipkins says “wealth is mobile.” 

“And so if we were one of the only countries in the world introducing a wealth tax, there is a risk that much of that wealth would actually leave the country.”

Hipkins is effectively saying he’s more worried about falling prices than making housing cheaper. An exodus of capital would reduce values. 

“Some of the people would leave the country, but some of the wealth associated with them would also flow from the country as well. And that was certainly the advice that we got from those who were putting together the advice on the prospect of a wealth tax. It would also throw up all sorts of issues around scope and potential issues around unfairness, such as ‘mum and dad’ family farmers with farms worth $10 million. 

“It's an asset that might have been built up over several generations of that family. And so I think there would potentially be some unintended consequences as well.”

PM not keen on residential land tax

Asked about a residential land value tax, Hipkins was also reluctant to go there. He even appeared to talk down Labour’s previous suggestions of land value uplift capture rates, which National is also looking at.

“They're proposing a form of land tax to fund their transport policies. When you talk about value capture, that's exactly what you're effectively talking about. You're talking about taxing people for the added value they get on their land from the fact that you're building more roads in that vicinity,” he says.

And the problem is? 

“It's not without difficulty. We haven't been quite so gung-ho about it as the National Party are. And when you look at, what value capture means is that you're levying or taxing people for the increase in value of their land as a result of government activity,” he says.

And the problem is?

Hipkins is just not keen to go there.

“It's not something that I'm proposing at the moment. And again, I also want to really reiterate here, it's important that big changes to the tax system have a public mandate associated with them. So it's not something that we're campaigning on.”

So if a mandate is required before a major bipartisan call is made, why has there never been a mandate openly sought and given for 1.5-2.0% population growth over the last 20 years, especially one that created a $100 billion infrastructure deficit?

PM reluctant to suggest population growth view

Hipkins doesn’t want to go anywhere near that topic either, and certainly not in any specific way.

“What are the goals and what are the things we're trying to achieve there? I think we're trying to achieve a more prosperous economic environment, so we want businesses to have access to the labour and to the skilled workers that they need,” he says. 

“I think one of the things that I would like us as a country to try and avoid is the idea that we create the illusion of economic growth simply through population growth, and we've had periods of that in the past where actually we haven't grown our economy on a per capita basis, we just grow in it by increasing the size of the population. And I think we don't necessarily leave ourselves with a higher standard of living, which ultimately is what we may aspire to from economic growth as a result of that.”

Unwittingly, Hipkins just spelled out the policy that both National and Labour are pursuing. 

“I’ve never been of the view that you should have a population growth target, but I think we just need to make sure that what we're doing in terms of our economic policy and in terms of our population policies, you know, immigration and so on, are focused on making sure that we're raising the standard of living for New Zealanders. And so that does mean weighing up things like what sort of level of population growth can we sustain with the infrastructure that we have?”

Yes, and…what is the level you want? And will be building for that?

“One of the challenges that we are facing as a government is actually just building the infrastructure to cope with the population that we have right now. So if you think about housing and roading and public transport and water infrastructure and all of those things, and the changing nature of infrastructure needs amongst our existing population, and this is particularly the case in energy consumption, we've got quite a big challenge to build out the infrastructure that we need to sustain the population that we've got at the moment.”

So why is the Government enabling another 2% rise in the population?

“I’d like to see us getting ahead of the curve, you know, so that we're building ahead of time rather than catching up all of the time,” he says. 

The trouble for Labour is it is already $100 billion behind the curve with another $100 billion on the way. Its current plans don’t even touch the side, unless it brings in some politically difficult congestion charges and higher taxes for public infrastructure. The current fiscal rules of running surpluses routinely to keep net debt below 30% of GDP makes that impossible.

“I have always been clear in the distinction between borrowing for consumption versus borrowing for investment in the future. So when you're investing in inter-generational assets, and that includes human capability as well, then there is justification for using borrowing for that. 

“When you're investing for consumption, whether that's in healthcare or other things, I think you shouldn't be borrowing for that because ultimately you're leaving the future generations to pay for the consumption of today. So education is an example where borrowing to invest in upgrading our schools and expanding our capabilities in the education system is justifiable on the basis that it's an investment in the future.”

The cognitive dissonance is deafening. He is saying ‘yes we need to borrow, but we’re choosing not to.’

In my view, he’s actually saying: ‘we’re choosing to stick with the status quo because it works well for median voters.’ 

Through the lens of The Kaka Project

In The Kaka Project for Election 2023 we try to put the latest policy or political development into the context of:

• the key problems, facts and history around the issue being addressed by the election policy or political issue;

• The alternatives proposed by other political parties standing for election, regardless of whether they’re already in Parliament or polling suggests they are on track to be elected;

• the pros and cons, trade-offs, unintended consequences and flow-on implications to other areas of the political economy from those policies;

• unanswered questions; and,

• the options from overseas or policies not proposed by political parties, including The Kaka Project’s current preferred policy.

The Kākā Project’s current shape:

• a broad-based and low-rate tax system on income, spending, land, climate emissions, water pollution, treated water and congestion to fund publicly funded education, health, transport and housing;

• that includes a 0.5% per annum tax on all residential zoned land (with multiples for unoccupied homes and land) to fund infrastructure that enables enough zero emissions housing and transport infrastructure to halve emissions by 2030 and remove them completely by 2050; and,

• that achieves gross zero climate emissions from housing and transport and housing and transport affordability for all by 2050, as measured by renting or ownership costs being less than a combined 40% of disposable income for those in the poorest quintile of earners.

We welcome your thoughts

Ka kite ano

Bernard