The unholy trinity of National, right-wing blogs and the mainstream media are scaremongering about Labour et al’s proposed capital gains tax again. Because it’s new and because it’s a tax, it seems scary and there’s easy political points available in opposing it. But in fact most countries have capital gains taxes. New Zealand’s tax system is one of the most generous to the rich, and part of that is our anomalous lack of CGT.
The current scaremongery relates to inherited family homes of deceased family members. The impression John Key et al are putting across is that a grieving, struggling family will have to scramble to sell their deceased parents’ family home to avoid being stung with a hefty capital gains tax they can’t afford. IF that were the case, a one-month “grace period” certainly doesn’t sound like long enough to grieve, get organised & sell the house to avoid financial ruin.
But it’s NOT the case. Even without a grace period, only profit since inheritance – I repeat, profit since inheritance – would be taxable (and at a modest 15%). If a family inherited a house worth $400,000, and sold it a year later for $430,000, they’d incur tax of $4,500, but they’d get to keep the other $25,500. They’d still be $25,500 better off than if they’d sold the house straight away, and $425,500 better off than if they hadn’t inherited the house.
This is no different from inheriting any other profitable asset. Currently, if you inherit a company, and it makes $30,000 profit over the next year, you’ll be liable for 28% ($8,400) company tax on that profit. There’s no “grace period” there. And more importantly, there’s no “grace period” on the profits – 72% of which you’ll keep and no doubt enjoy.
So it’s extremely dishonest of Key to portray families inheriting profitable assets as somehow hard-done-by, simply because they’ll incur tax on those profits. Truly hard-done-by families are the families of (increasingly numerous) people who’ve never managed to buy a house (largely because of tax-free property investment). Those families will receive no inheritance (let alone profitable inheritance), and many struggle to pay for (increasingly exorbitant) funeral and burial costs.
Years from now, if my siblings and I inherit my parents’ house and it makes capital gains by the time we get around to selling it, we’re not hard-done-by if we incur tax on those gains. We’re lucky my parents own their home in the first place, and have something to leave us (in fact, something that continues gaining value until we sell it).
That said, I do tend to agree there should probably be a grace period of maybe six months, because the tax is supposed to target people who buy extra houses for profit, not people who gain an extra house by accident because a relative died. Besides, it may take some months to decide whether they’ll sell it, keep it as a rental, or have other family move in (in which case it remains a family home, thus exempt from CGT). But a grace period would be an act of compassion to people who don’t really need it; certainly not a demand of justice or need.
Of course, Cunliffe didn’t help his own cause by remembering the policy wrong and declaring unequivocally that the grace period will be one month. In truth, the length of the grace period is a detail that they’ll leave to an expert advisory group to work out. It was incompetent of Cunliffe not to know this.
Anyway, despite those two caveats: don’t believe the hype. Look into it, listen to David Parker’s explanation, think about it, etc. After doing so, no right-thinking person would think there’s anything to worry about.
The two faces of National’s hitherto successful PR strategy
UPDATE (19 Aug, evening): Literally in the last few hours, National have unveiled some policy on their website. This renders the first two graphs and table out-of-date. But the second half is still relevant, and I reckon it’s worth leaving the first half online as a time capsule of what National’s campaign looked like until WhaleGate. Coincidence? What do you think?
Original blog (19 Aug, afternoon):
“the left have given up on the policy argument. They don’t think they can beat the National Government on the issues … so what they’ve decided is they’ll play the man, not the ball … but we’re going to keep talking about the ball.”
This is similar to his quip when Laila Harré announced she was running against Key in his local seat:
“we won’t be having much of a debate about policy – the only policy the Internet Party has is to make sure Dotcom isn’t extradited.”
In fact, I’ve been following and compiling the various parties’ policies, and the Internet Party have far more policy on their website than National do – even though the IP have only had a few months to formulate theirs. In fact, National have less policy on their (single) policy page than any other party – significantly less than most of them. On word count, they only provide literally 2.4% as much as Labour or 1.1% as much as NZ First:
It is true that some parties (notably Labour, the Greens and the Internet Party) provide fuller versions of their policies or additional documents, linked from their main policy pages. This is the main difference between National’s and the IP’s policy websites.
If we’re generous, we can include a couple of documents from January about their 2014 priorities in this category… the speech is largely not policy, but they do link to these documents at the bottom of their policy page. This time National manage to claw their way up to 2nd-to-last, because ACT only expand upon two of their policies – but they’re still left in the dust by the left-of-NZ-First parties he accuses of giving up on policy:
It’s also worth noting that Labour and the IP both state that even more policy is forthcoming, and the Greens are frequently updating theirs. I wonder if National’s are on the way, too? [update: I guess so! National also now say there’s more on the way]
Here’s the full data, if you’re interested:
While I spent an embarrassingly long time on this [update: now-obsolete! grrr…] number-crunching, we actually didn’t need these numbers to know that National try to run policy-free campaigns and policy-free politics wherever possible. They don’t engage with public questions like this, this or this. They don’t engage (openly) with blogs; certainly not opposition ones, and certainly not on policy questions.They don’t really put policy on their billboards – some people had to do it for them last election. Their flagship policies are generally pretty unpopular. They [update: still] have [basically] no policy about some of the biggest issues facing NZ (climate change, child poverty, inequality and the housing crisis) – in fact, they often deny that they’re issues.
Nicky Hager’s Dirty Politics has provided some alarming insight into what kind of politics they do instead of policy politics. I haven’t read it, but Danyl McLaughlin helpfully summarises the basic thesis thus:
John Key’s National government uses a ‘two tier’ communications strategy; positive communications, which are focused around John Key, who is presented as ‘relaxed’ and decent, and negative/attack communications, which are conducted covertly by senior staffers in Key’s office and fed to the media mostly – but not exclusively – through Cameron Slater’s WhaleOil blog.
Obviously, the emphasis of the book is on the negative ‘tier’; the positive ‘tier’ was already quite obvious… but in fact both strategies involve “playing the man, not the ball” … positively, they focus on “the man” of John Key, his smiling face [update: which emblazons 12/18 of these and 4/4 of these plus a bonus] and perhaps some content-free feel-good generalities coming out of it. Negatively – well, you can read the book or the excerpts or the leaks or the blogs yourself.
Playing the man in these two ways has been a winning strategy so far, and has kept National riding high since Key took over (they’re currently polling well over double their 2002 election result). Will Dirty Politics and Whaledump change that? I hope so, but I can’t say with confidence.
What I can say with confidence, though, is that Key’s latest accusation is the most brazen hypocrisy I’ve witnessed since I’ve been following NZ politics.
Post-script (21 August):
Here’s the updated first graph now that National finally have some policy (5965 words of it, to be precise):
They’ve also deleted the two documents they previously linked to, but they’ve added a whole lot of links on each of their policy pages (mostly past news stories about what they’ve done while in government, which is kind of cheating… but also some fuller policy statements). I can’t be bothered counting that up at this stage. My guess is it’s still much less than Labour and probably less than the Greens and Internet Party too (definitely if we only include policy announcements proper).
When I wrote my last blog on child poverty, I was planning to follow it up with a critique of ousted ACT leader Rodney Hide’s Herald column where he made the bold claim that there is no child poverty in New Zealand.
I was going to make all sorts of jolly yet incisive points about how I’m actually quite fond of Rodney (something I can’t say about more recent ACT leaders), but that he’s revealed an embarrassingly out-of-touch and simplistic understanding of poverty as a mere lack of money (“All kids are poor. Children typically don’t own much beyond a few toys”, “Poverty can’t be the cause … Liver … costs 70c a serve”).
I was going to point out that not everyone has grown up in the Protestant-work-ethic-Northern-European-stockpiling-rationalising-individualising tradition that he and I have, but that the economic system that’s been imposed here is set up to favour people with these values and shaft everyone (and everything) else.
I was even going to say that, despite all that, I’m considering trying out his suggestion of boiling up bones and getting a stew going for my lunches. Anyway, I didn’t get around to writing this blog, and now Hide’s “let them eat liver” column is old news.
Still, I think it’s worthwhile to address the most important point – the idea that poverty in New Zealand is ‘only’ ‘relative’ poverty and therefore isn’t ‘real’ poverty. Hide points to one common measure of poverty: living on less than 60% of the median wage. In Hide’s mind, all child poverty statistics can be summarily ignored, because this measure doesn’t measure what (supposedly) really matters: how much money the country has overall.
I suppose this poo-pooing of statistics is what enables Hide to state with a straight face that it’s the welfare state’s fault that kids go hungry, despite the fact that the child poverty figures began to skyrocket precisely when his friend Roger Douglas began to roll back the welfare state in the 1980s.
But this idea isn’t just touted by extremists living in a libertarian fantasy world; deputy prime minister Bill English used this very notion as an excuse to dismiss the Child Poverty Expert Advisory Group’s recommendation to set child poverty reduction targets, claiming that “such a relative poverty measure made no sense as it did not show how rich or poor people were in absolute terms”.
But hold on a second. Even if we go along with Hide and English and ignore the Advisory Group’s other poverty measures such as material deprivation or access to GDP growth, there’s something pretty fishy about such an easy dismissal of relative poverty, a.k.a. inequality.
This ignores a whole host of research showing that ‘relative’ inequality absolutely does matter. The book The Spirit Level compiles some of this research to show that unequal societies with high ‘relative poverty’ like New Zealand have significantly worse statistics for life expectancy, literacy and numeracy, infant mortality, homicide, imprisonment, teenage births, obesity, mental illness and social mobility than more equal societies – across the whole society, not just for the ‘relatively’ poor. Even though inequality or relative poverty is relative, it causes real, solid, objective, material, absolute damage.
The truth is that we’re relational beings, so it shouldn’t be surprising that how we’re doing relative to each other affects us – but neo-liberals indoctrinated into the “no such thing as society” philosophy seem to forget this.
Hide and English assume that what really matters is the ‘absolute’ matter of how much money people have. But since when was money ‘absolute’? Money only has meaning insofar as we give it meaning to represent the value of goods and services, and to say that this person can access this much goods and services, while that person can only access that much. In other words, it’s only meaningful as a relative measure; relative to real stuff and real power in the real world, and relative to how much stuff and power others have.
So, when Rodney Hide licks his lips about a “windfall that doubled all incomes” but “wouldn’t budge the child “poverty” figure”, that’s exactly the point. Doubling all incomes wouldn’t change what those incomes are relative to; it wouldn’t create any more resources. Inflation would soon ensure that each dollar was only worth half as much, so nothing would have changed at all. Poverty and affluence would be exactly the same as before.
Of course, if this ‘windfall’ was localised in New Zealand, it would give us relatively more access to resources than other countries; and that’s what National mouthpiece David Farrar, who endorsed Hide’s column, says we should be aiming for: “In these times of huge global economic uncertainty, the focus needs to be on economic growth, not [equality, which Farrar conflates with] increasing tax and welfare.”
But The Spirit Level shows that internal economic equality is far more important than economic growth for improving conditions in developed societies. Perhaps it’s because we care more about how we’re doing relative to people around us than about being even more relatively rich on a global scale than we already are.
So the fatal flaw of this spurious neo-liberal argument is that it absolutises the relative; money, while relativising the absolute; inequality.
Bill English and his government are repeating this error with devastating consequences by calling the real suffering of real children ‘merely relative’ while treating economic growth as the absolute to which all else must be sacrificed (and it isn’t even working).