Tax reform Key’s big challenge for 2010

by Jake Quinn

Could 2010 be a year of opportunity for the major parties of New Zealand politics or simply more of the same?  In a series of posts asking the big questions of the major parties, Life and Politics takes a look at the challenges ahead, beginning with the governing party.

National has the chance to cement its place as one of the most popular governments in recent history.  Alternatively, it could make some crucial missteps – most likely around its ‘broadening of the tax base’ agenda – while extinguishing much of the political capital it’s been stockpiling since coming to office in 2008.

Key has been compared, for some good reason, to Keith Holyoake.  Holyoake was PM for a few moments in 1957 and then from 1960 to 1972, before later becoming Governor General.  Like Key, Holyoke was renowned for his ‘consensus building’ approach.  In plain English this means he was less ideological in his actions than might otherwise have been expected and that he had ‘a great deal of time’ for public opinion.  He, so says Historian Barry Gustafson, had a knack for picking the public mood and taking his caucus with it.

Mr Key, too, could to be accused of having such a knack. But he hasn’t always won the battles.  The story goes that the Māori seats on the Auckland Super Council were never really about the Act Party and their clever little stunt to resign Rodney’s Local Government portfolio if the seats became a reality.  But the Battle was always one fought inside the National Party.  Key, they say, really did consider the seats an option.  He hinted to the news media that they were on the table.

He noted the public mood, which while split on the issue, was the closest ever to a majority supporting guaranteed Māori representation – so he thought, why the hell not?  But this internal battle he did not win.  Why? Well the only issue in recent history that has so united the National Party is that those Māori seats in Parliament should go, so it is unsurprising that his caucus, and more importantly cabinet, weren’t going to have a bar of it – especially not for Auckland, which is seen by most as NZ’s key political battleground.

So what are the issues that in 2010 Mr Key will have to battle his colleagues over?  Tax reform must be top of the list.  Some commentators have suggested that Key, the great currency trader and market man, will want sweeping, revolutionary change.  No way.  There will be some in his cabinet that will want to reduce overall taxes, they always have.  But Key understands that the public appetite for major cuts to public spending that would result from such cuts just isn’t there, so he will resist.

Many of his colleagues will oppose the very taxes that would sufficiently broaden the base (freeing up space for cuts to income and corporate rates) such as capital gains taxes, land and plant taxes, inheritance and death taxes and any other tax that targets the wealthy elite, even if the theory backs it creating growth.  So Key will have a battle on his hands, but it won’t be with the public.

If he’s smart (and wants to hang onto his centrist voter support) he will back some of the above measures for broadening the tax base, but without making the tax burden any heavier on the average or low wage earner.  Such changes would see capital flow from unproductive assets like housing to the share market, where it is able to provide the incentives and resources to create new industry and jobs.

To do this he must really shake the money tree, and that involves hitting the old money where it hurts.  Land, capital gains and pollution taxes must lesson the burden on income and corporate rates, as we must tax that which cannot move.  This, bringing his colleagues and the public together on effective tax reform, will be our PM’s biggest challenge for 2010 and his legacy rests on its success.