CGT, Policy, and Labour

After an election possibly more devoid of policy debate than any other, it is a bit strange that one of the major fault lines to emerge (or at least be reported on widely) in the Labour leadership contest, is a significant taxation policy. It feels like a mis-diagnosis to me, but the volume and kind of policy that Labour develops should certainly be something that Labour reviews once a new Leader is in place.

The debate on Capital Gains Tax has been opened up by Andrew Little whose critique of the policy is summarised like so in this Herald article:

“There are at least two policies I know for a fact have caused people not only to not vote for us but to turn us off completely.”
He said the party and caucus had championed those policies. “But the conclusion I’ve come to now is that those two policies alone are enough to stop people even considering what we have to say any more.”
The tax was aimed at property speculators, but Mr Little said it also impacted on those who had scrimped and saved to buy a second property which they considered their retirement savings.

Both Grant Robertson, who I actively support in the leadership contest, and David Parker, who developed the policy and for whom I have very high regard, have expressed ongoing support for CGT.

As a candidate standing over the past couple of elections with CGT as a cornerstone policy I can certainly attest to having conversations with voters who didn’t like the policy. But let’s face it, the introduction of a new tax is never going to be met with paroxysms of joy in the streets. That can’t be the test if we ever want to touch tax policy. The suggestion that the policy was in and of itself a turn off for whole swathes of voters is more serious though, and needs to be properly considered.

There are I think two sets of metrics to look at here. The first is polling done on the policy itself. The results have tended to be fairly consistent over both the 2011 and 2014 election cycles, with somewhere north of 40% of people favouring a CGT and somewhere south of that in opposition (see here, here, and here).

Those are not bad numbers. We certainly have policies on the books that would fare less well. And you might even think that they are bloody outstanding numbers in the context of a party that won only twenty five percent – and that’s the other number we need to look to here. Andrew’s argument is that people’s negative reaction to CGT was a causal factor in Labour’s awful result. My feeling is that it’s actually more the other way around. Labour in my view scored twenty five percent not because of one or two policies, but because of a widespread lack of confidence in Labour’s competence, coherence, and ability to govern. This perception gave rise, quite fairly, to doubts in peoples mind’s as to whether Labour could credibly implement the laundry basket load of complex policy we were proposing, which of course included CGT.

This was most evident after the Press Debate. I have no reason to believe that the plurality of New Zealanders who in-principle supported a CGT up until that point, suddenly changed their view – but our lack of ability to provide clarity about purpose and certainty about implementation meant that many people simply didn’t trust us to deliver the policy competently or fairly. I remember well two CGT interactions with voters late in the campaign. Both were with women who Labour would hope to win over in an election winning year, one an older solo-Mum battler with some investments, and the other a small business owner. Both supported the principle of CGT – particularly as it would apply to property speculation but they had concerns about the detail, and in each case the overwhelming sense at the end of my conversation with them was that no presentation of fact would sway them – they simply didn’t think that Labour was on their side or up to the job. CGT was a lightning rod in the wake of coverage of the Press debate, but their doubts about us ran far deeper.

Labour’s valence this year was horrible, and it was this rather than any one tricky policy that led to the result. The counter-measure which helps to confirm this is the impact of policies that we know to be popular. Two thousand more teachers, an end to school fees, free doctor’s visits and prescriptions for kids, more paid parental leave – all of this stuff should have lifted Labour’s numbers if it was our policy mix that was tilting support one way or another. But as we know the needle just didn’t move. Labour’s defeat wasn’t about individual policies.

At this point I should declare my interest. I am co-Secretary of Labour’s Policy Council. The Council is an amalgam of caucus and party reps who oversee the policy process, including the development of Labour’s manifesto. The experience of being involved in that process, while simultaneously campaigning on our policies was an interesting one, and while I don’t accept that any one policy was the problem, policy was a problem.

In short there was just too much of the stuff. In his leadership hustings speeches Grant Robertson has quipped that Labour’s manifesto plots out the week by week progress of the next Labour government for about two terms. During the campaign we drowned in policy. The frequency of policy releases became farcical and confusing. And with volume comes a lack of clarity. If any single policy package was going to gain traction during the campaign it was surely the education policy which came out around the time of Labour’s Congress. We should have lined it up and campaigned on it solidly for the next month, repeating the lines until our gums bled. Instead we gave it all of three days before chasing a media hit with the animal welfare policy. Other announcements followed over the following weeks, mostly good solid policy, but it’s no wonder that people couldn’t get a grip on what we were saying. We didn’t give them a chance to draw breath.

As with so many things, less is more. Labour’s offering next time must be simpler. We can still be bold, we can still do ‘big’ policy, but let’s make sure that we spend our time talking about the handful of key issues that people really care about and that the policy we invest time and energy into, is focussed in those areas.

Sitting in behind that, there is real policy work for us to do. While I maintain that CGT should remain a cornerstone policy, that doesn’t mean it should be held in stasis. I think there is a case to be made for looking at who gets captured by the tax. Labour must align ourselves with the ordinary person, the archetypal ‘little guy’. Very often that person is no longer working in a factory for a wage, instead they might be a small-time contractor running their own business. If the intent of CGT is to capture the gains of speculation and to encourage people to invest in the productive economy, does it make sense for it to apply to the small business owner who sells up for a small profit? The current policy has an exemption for people post-55, but I wonder if a careful review process could look at the purpose and application a bit more closely. My point is that Labour can keep what is a very sound policy that re-balances the economy and cools the housing market, but also do some work on the detail to show ordinary New Zealanders that they can feel secure about its implementation.

More broadly there are some other big areas for us to look at. Briefly:

• Universalism versus targeting. In several key social policy areas Labour has attempted to shift the policy needle back towards universal subsidisation. The Best Start payments (which were very close to universal) are the most prominent example. Universalism is meant to be about building political consensus and durability into policies. While that’s my own instinct, I’m not sure that univeral policies are actually achieving those goals anymore and if not, we can potentially apply resources more deeply where they are most needed and lose some of the political baggage about subsidising millionaires.

• Social Security. Labour is caught mid-step here. The Fifth Labour government used every tool and lever it could to incentivise and nudge beneficiaries into the workforce, and the stats show it worked. This government has employed the stick more than carrot, and arguably had poorer results. Yet somehow Labour is positioned as ‘soft’ on welfare by the public, while simultaneously being viewed with suspicion by many who deal with the real problems and injustices in the lives of beneficiaries. We’ve pleased few and need to think carefully about how a social democratic party responds to an environment so culturally hostile to working age beneficiaries.

• Devolution — a possible response to the above problem and various others. In opposition Labour has talked surprisingly little about the benefits of devolving power and resources to communities. For a party that fundamentally believes in people coming together in communities to change things for the better, and for a party that has an image problem around being too centralising and bureaucratic, I can’t help but think that this is fertile ground.

And finally, the policy process counts. I’m backing Grant Robertson in the leadership contest for a range of reasons, but one of them is that I know that he will be a Leader who respects the party’s democratic structures and will work collegially to develop policy. A leader can and should lead debate and guide the party’s direction, but the strengths and knowledge of the group should be drawn on in the process. Grant’s policy instincts are solidly social democratic, his instincts are genuinely pluralistic, and he understands how policy fits into the broader narrative that Labour must construct to develop an election winning coalition of support.

Michael Cullen famously resisted CGT while Minister of Finance, but the world has since convulsed. CGT has support across Labour because collectively we know that a post-GFC social democratic party must have an analysis of, and a response to, the inequitable accumulation of wealth by a few if we are to be of any use at all. It is a question of purpose. Labour has some big changes to make, but CGT did not lose us the election, and there is no case to dispense wholly with the policy that in 2014 most definably makes us Labour.