The desperation election

There is a good reason New Zealand governments have resisted meddling with GST. But any port does in a storm.

Kenyon, Brand & Riggs, McKenzies. K E Niven and Co :Commercial negatives. Ref: 1/2-221854-F. Alexander Turnbull Library, Wellington, New Zealand. /records/22410478

Removing GST off fresh and frozen produce is not the most effective way to help poor people.

This is clear to both experts and to anyone who thinks about it for a while. Almost everyone buys groceries, and richer people buy more of them, meaning they will get more of the overall savings. This is also the case with freezing or cutting fuel taxes.

A more effective route to helping poor people is a simple cash payment through the benefits system. This is something Labour clearly understands, since it has implemented repeated cash payments through the benefit or tax system throughout its term in power – including as part of this weekend’s announcement. There is also ample academic evidence to back this view.

But those cash payments rarely win Labour much political clout or column inches, especially if they are targeted through Working For Families, as this weekend’s boost was. That’s because they are usually incredibly complex and only apply to some people. The cash payments which do get attention are generally the universalized or semi-universalised ones: The Wage Subsidy, superannuation, Best Start.

Another problem is that a lot of people like the idea of controlling what poor people spend “taxpayer money” on. The idea that most benefit payments are immediately spent on cigarettes and pokies is very widespread, even if in reality benefits are largely spent on housing and food, the same things everyone else spends their money on.

The GST policy cuts through this easily. It is easy to understand and applies to everyone. You can see this in Labour’s first bits of social media advertising on this, which look a lot like an ad for a supermarket loyalty card. You don’t have to be plugged into the difference between Family Tax Credit and the In-Work Tax Credit to understand that everything you buy incurs GST, and Labour wants to take that GST off one of the things that has got very expensive lately.

It also has a nice whiff of paternalism. The Government will help you make the right/healthy choice (buying fresh or frozen veges) not the wrong one (buying takeout). It’s not a sugar tax but it does suddenly make all unhealthy food incur a tax that fresh food does not.

This is probably why the policy appears to poll so well. It is quite good politics.

Labour probably hoped for a slightly warmer reaction to the policy however. Someoone – probably at IRD, who are bound to hate the idea – leaked the policy to National’s Nicola Willis, meaning National had its attack lines ready and the media had already processed the “this is happening” stories weeks ago and could move straight to the “should this really happen?” stories.

But Labour is fairly desperate right now, and will be happy that the country is talking about its policies again, instead of some ministerial scandal or a member’s bill about paid parental leave.

It is desperation that created this policy. There are very good reasons that governments over the years have kept our tax system “clean” and avoided GST exemptions. Once you pop it is hard to stop. I am living in the UK right now and the list of things that VAT (similar to GST) is exempt from is dazzling. For example, building services for the disabled incur 0% VAT, as does “Magnetic tape adapted for recording speech for blind people together with apparatus for making and playing the adapted tape and certain low vision aids”. Meanwhile mobility aids for older people incur a VAT rate of 5%. When I am out buying food I almost always get it ”takeaway” for no reason other than to pay a lower VAT rate.

Once you open the tax system up like this the tax changes on various products will basically never stop. As an immediately obvious example – why not remove the GST on electricity? Or on clean electricity specifically? Much like supermarket food it is essential to modern human life and something we can all agree that poor people should be able to afford. Indeed, here in the UK there is a long-running campaign to equalize the VAT paid for electric car charging in public and for electric car charging at home.

But for Chris Hipkins, some desperation makes sense. The election is still tight enough that two or three points of support could see him returned to the ninth floor – able to bed in long-run Labour policies like Fair Pay Agreements, which would be far harder for National to repeal in 2026 than 2023. It’s also the kind of policy that is likely to appeal to NZ First voters – and a small slice of NZ First voters turning to Labour could result in 4% ‘wasted’ vote on the right, which would make the election a lot easier for the left.

Hipkins is of course far from alone in releasing desperation policies.

Earlier this year, when National were struggling to respond to the new-look Labour, Christopher Luxon decided to ditch the pact National had made with Labour on housing density. This u-turn humiliated two of his senior MPs and makes National’s arguments on housing ludicrous – this party of the right is now running on a policy of taking away the right of people to develop their private property in inner cities. But in an election this tight with well-heeled homeowners appalled at the idea of having more than one neighbour on each side, it was probably worth a point of two in the polls. And that might be what decides this election – 50,000 or so voters who don’t really like either parties but can be activated with a very specific policy pledge.

New Zealand history is sprinkled with these policies that just get a party over the electoral line. Expect some more desperation before early voting starts.

Recommended reading:

·      Jamelle Bouie on Richard Hanania, a writer with the ear of tech billionaries (including, possible, the co-founder of this platform?) who is pretty clearly racist.

·      Thomas Coughlan on GST.

·      This meme: