Labour and National do the tax and dependency dance
Colin James's NZ Herald column for 25 May 2004
This is a taxing government. It is not rapacious but it has a bias towards more tax, not less. Thursday's adjustment of tax on working families with children does not change that.
The long list of Michael Cullen's rises in tax and government charges is now regularly recited by National and ACT MPs, with United Future chiming in in a minor key. At National's southern regional conference in Queenstown on Saturday David Carter did just that, credibly also implying that more is to come. It went down a treat.
High on any list is the 39c top tax rate on incomes over $60,000. Introduced in 2000, it is now scooping up far more than the 5 per cent Labour promised as its upper limit in 1999. Moreover, average individual earnings are now significantly above the $38,000 point at which the 33c rate cuts in, so tax extracts a growing share of the average earner's income as it rises.
Not that most people do that calculation. The corrosion is masked by the fact that there is some more money on the pay slip. Only over time -- probably not in time for the next election -- will it dawn on most victims.
Yet Cullen is resolutely against lifting the threshold to push the 33c rate back above the average earner's income -- let alone actually reducing the rate. The same goes for the 39c threshold and rate.
He wants the loot to redress "deficits": in infrastructure (mostly below-the-line -- capital -- spending but it does have above-the-line -- current spending -- implications), in future funding of pensions, in education and in social services.
And he wants to lift the living standard of low-income people and working families. That is the thrust of Thursday's Budget: to redistribute from the better-off to the least- and less-well-off. That is what Labour governments do.
It also snookers National. Because it must remain committed to macroeconomic stability, National cannot do a George Bush, slash tax and plunge into Budget deficits. It must also not risk votes in middle New Zealand, a fair slice of which will likely benefit from Cullen's Budget largesse, so it can't easily unroll what Cullen does on Thursday -- at least such of it as is in place by the next election.
Nevertheless, there is a point of difference. Welfare spokesperson Katherine Rich highlighted it at the Queenstown conference. The Cullen tax moves would be at worst a "cruel hoax" on the working families, she said, and at best "churning" -- that is, giving people back what has been taxed from them.
Electorally, however, it is a nifty slinter, since for those who get the churned tax back it will be an offset to the 33c.
But there is a cost and it is the cost Rich focused on: it dumps the recipients into dependency on the state. Cutting the rate and/or raising the thresholds avoid this.
Dependency is a point of difference between Labour and National. Dependents mostly don't like being dependent. Those who are independent wonder why so many are dependent and some resent it.
In her short conference speech Rich highlighted a near doubling of the sickness and invalid benefit rolls during the Clark government's four and a-half years, due at least in part to some unemployed switching rolls (which, incidentally, takes some gloss off the low unemployment rate). We seem to be a rather ill nation.
The next usual step down that line for someone on the right is to moralise. But Rich instead talked of "a better balance between compassion and fairness", to get "assistance that does not become dependence". She did not exploit the punitive option when a questioner invited her to.
But there is a conundrum in that for National: it needs sharp messages to convince voters it is different; but sharp messages might pitch only to the already converted. So it will be interesting to see which route Don Brash's strategisers point him down when he does his big speech on welfare.
Likewise in education. In his speech at the weekend -- presented with forceful clarity and simplicity -- Brash made his No 1 pledge for the government he wants to lead "to do its damnedest to ensure every child will get a decent education", which in the past he has equated with exams and parental choice.
It is Bill English's job to turn that bumper sticker into sensible policy. Which, largely below the radar, he is doing. In an excellent speech to the regional conference he laid down four simple principles with which most middle New Zealanders could probably connect, combining considerable understanding of recent educational analysis with an innate sense of parents' hopes and concerns.
This is the National party -- a mix of liberal and conservative -- that can hold middle New Zealand long-term, the one that dominated the 1950s, 1960s and 1970s. The National party on show so far this year is one fixated on race -- a conservative party.
That gives Labour some tactical scope, which Cullen aims to exploit on Thursday. The challenge for National is to outflank him. Rich and English offer some pointers.