Labour forgets workers as it leans to the Right

CHRIS TROTTER
Last updated 09:39 31/07/2012

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Chris Trotter

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OPINION: "If you closed your eyes and just listened to Parker speaking, it could just as easily have been someone from National."

The business leader who said this of Labour's finance spokesperson, David Parker, was being complimentary. And why not? The prospect of the two main political parties offering similar economic policies possesses charms to soothe the most savage capitalist breast. With nothing untoward to beset it, electorally, the business community can plan its future with confidence.

Labour supporters, however, have every reason to feel suspicious when businessmen heap praise upon the Opposition. The last time Labour pulled New Zealand capitalism's irons out of the fire, the Rogernomics period of 1984-1993, still lies within the living memory of at least two-thirds of New Zealanders, fewer than half of whom have cause to recall the economic disruption of those years with fondness.

Much of the reason Parker's speech to the Mood of the Boardroom breakfast in Auckland fell so mellifluously upon his wealthy listeners' ears is attributable to Labour's unwavering commitment to raising the age of eligibility for superannuation from 65 to 67.

The opportunities which this policy opens up for the financial services industry, especially when combined with Labour's pledge to make KiwiSaver compulsory, are considerable.

Among the broader business community, however, Labour's superannuation stance represents an unstated promise not to pay for the pension by raising business and personal income taxes.

The one substantial tax measure Labour is promising, a capital gains tax (CGT) enjoys strong support among certain sectors of the business community.

The manufactured exports sector, for example, will welcome its ability to redirect much needed investment away from the property speculation which has become New Zealand's royal road to riches. Many other business leaders will welcome the CGT as a means of filling up the fiscal hole left by the 2010 tax cuts.

For all those taxpayers born after 1966, however, Labour's policies on superannuation, KiwiSaver and a CGT may result in a reduction of living standards.

As it stands, Labour's plans to lift the age of eligibility for superannuation will more or less exempt the baby boomers from contributing to its rescue.

Although described as a way of preserving "intergenerational equity", and in spite of the Opposition's increasing recourse to rhetorical baby- boomer bashing, Labour's carefully phased increase will still allow the baby boomers to retire at 65. It is Generations X and Y who will have to work an extra two years for a purely inflation- adjusted and quite possibly means-tested pension.

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A compulsory KiwiSaver scheme, administered by the private sector, has the potential not only to reduce the take-home pay of already hard-pressed low-paid workers and their families, but to strengthen the finance sector's unhealthy grip on the New Zealand economy.

Were these savings to accumulate in a state investment fund, workers' deductions might be considered part of the social wage. Sadly, Labour will not countenance the creation of such a fund. (Too much like socialism, perhaps?) It may, however, allow employers to offset their increased contributions to worker's KiwiSaver accounts against future wage rises.

Labour's decision to exclude the family home from its proposed CGT may lead to an even more rapid escalation in house prices.

Rather than buying multiple properties in the hope of pocketing substantial tax-free capital gains, wealthy homeowners may instead decide to invest their money in the house or houses their family lives in. Labour could have avoided such behaviour by setting a family home valuation above which the CGT would apply. Instead, by opting to exempt them, it has exposed itself and young people trying to buy their first home to the perverse law of unintended consequences.

Why, then, does Labour persist with these business- friendly policies? Why not adopt fiscal measures more in keeping with its social- democratic principles?

Throughout the 1950s, 60s and 70s, when the top bracket of personal income tax was more than 65 per cent, New Zealand enjoyed the longest period of sustained economic growth in its history.

The provision of social needs like old-age pensions, entry-level housing, ready access to health and education services, and cheap utility prices were all predicated on citizens paying their fair share of tax.

Not any more. Rather than making the case for full employment and a just distribution of the nation's wealth through a genuinely progressive system of taxation, Labour seems determined to base its economic programme on the fiscal status quo.

Such a position cannot help but make it difficult to distinguish Labour's finance spokesperson from National's finance minister.

Poverty cannot be eliminated by cosseting wealth. Living standards cannot be lifted by reducing workers' take-home pay. Homes cannot be made more affordable by offering tax-free rewards for making them more expensive.

Labour cannot serve labour by turning itself into National.

- The Press

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