Tax review will test Government

TALKING POLITICS - BY GORDON CAMPBELL - THE WELLINGTONIAN

OPINION: The perks scandals that have been falling like confetti over the past fortnight will do little more than take the gloss off a popular government. Heads are unlikely to roll.

Moreover, none of the revelations of taxpayer-funded holidays and dubious expense claims have involved the Government's main charm weapon, Prime Minister John Key, who remains immensely popular with the public.

The trouble could come later, if the shenanigans of Rodney Hide and Hone Harawira do finally stir the public to ask for more than likeability from its leaders.

Hide touched on those wider issues in his notorious comments at the recent Act Party fundraising function.

The Prime Minister, Hide maintained, had done nothing all year except announce a cycle track.

Hide's sense of resentment sprung from his belief that Act had made major contributions to Government policy all year, and had received nothing but public hostility for doing so - while Key had been swamped with public affection for doing very little, beyond looking likeable.

Hide's hurt feelings aside, a case can be made along those lines, and it should be concerning the Government, long-term.

According to last week's Household Labour Force Survey, more than a quarter of 15 to 19-year-olds actively looking for work cannot find a job and 10 per cent of those aged 20 to 24 face the same bleak outlook.

Overall, the number unemployed reached its highest level in 15 years, while the unemployment rate hit a nine-year high. Worse is expected in coming months, regardless of the shaky recovery.

Some of this is because of the global recession. Yet it also shows how ineffectual the Government's response to unemployment has been.

While the direst estimate of 11 per cent of people out of work has not eventuated, the employment outcomes have been left entirely to the market.

Policy-wise, it has been a "slash jobs and services and hope" style of response.

In line with Hide's assessment, nothing substantive has been added to the policy mix to create jobs and foster investment.

The acid test will come next month, when the Buckle tax review findings are tabled.

Three main conclusions are likely.

We can expect a fresh tax on all property investments beyond the family home, a cut in the top rate of personal tax, and a hike in GST to 15 per cent.

Currently, New Zealand is one of the few developed countries that doesn't tax capital gains on property, even though the property sector currently has $200 billion tied up in it, pays no tax on that, yet takes $150 million in refunds.

On the other hand, a hike in GST will hit the vulnerable in society, and at a time when the Government is talking of tightening up on sickness and invalids' benefits.

As it ponders its response to the Buckle review findings over Christmas, the Key Government will be aware of one rather chilling precedent.

In December 1987, the Roger Douglas proposals for radical tax reform set off an internal wrangle and destroyed a popular government.

This time round, it may take all of John Key's political charm to convince the public, and his Act Party colleagues, that he will be making the right calls.