Northern Advocate Column

Do Ardern and Labour have the courage to tax the wealthy?

13 May 2020

It seems like an age, but cast your mind back to Jacinda Ardern’s address to the nation on Sunday, March 21 announcing the Covid-19 response levels and preparing us for lockdown. You might have noticed a framed photograph of a man on the shelf behind the Prime Minister. It wasn’t there by accident, it was a deliberate placement of a symbolic visual cue. Of the kind Jacinda and her team are skilled at using. The photo was of Michael Joseph Savage, the first Labour Party prime minister. He came to power in 1935 in the middle of the Great Depression and on the back of mass civil disobedience and political agitation by worker unions and the unemployed.

What Savage and that first Labour government are most known for, is the Social Security Act of 1938, which secured a free public health system, the unemployment benefit and universal superannuation. The act was fiercely opposed by industry and newspapers of the day. But on the back of popular support, the first Labour government established a social contract with New Zealand citizens. The state would play a role in securing the wellbeing of all. Savage died 18 months later. He was genuinely mourned by Māori and working-class people.

Positioning Savage’s photo behind the Prime Minister’s shoulder suggested continuity between him and Ardern. The message was that this Labour-led government would also look after us in a time of crisis. They could have done more, and may still need to, but they’ve acted so far in broad accordance with the principles laid down by Labour in the 1930s.

What often goes unacknowledged, however, when looking back at the Michael Savage government, is that the social security spending was funded by a new tax surcharge. The rate was one shilling in the pound, or 5 per cent. Increasing taxes doesn’t quite capture the imagination. But if the 21st-century version of the Labour Party wants to claim continuity with the first Labour government, then they too will need to address the issue of tax.

Tomorrow, Finance Minister Grant Robertson will be delivering what he’s dubbed the “Recovery Budget”. The Budget will starkly present the Government’s ballooning expenditure, coupled with deflating revenue from GST, income tax and company tax. The shortfall will be covered by ramping up borrowing to levels never seen in New Zealand’s history. In the not-too-distant future, we’ll have to start repaying this mountain of public debt. Which means more tax.

With incomes for many of us falling – and the tax we pay falling simultaneously – where’s the extra tax revenue going to come from? It has to come from those New Zealanders who are hurting the least and can most afford it. Labour has backslid once on tax reform. Faced with opposition to a capital gains tax they folded. With Winston Peters perhaps playing a decisive hand. That was then, this is now. A fair response to paying off debt, while maintaining social spending, would be to increase tax on the wealthiest 20 per cent of New Zealanders. There will be opposition from the usual quarters. Though even some of our richest citizens must see the moral imperative of contributing more to the collective pot. Selfish opposition to extra taxes on wealth or higher incomes may not look good when so many have paid a high price to win against Covid-19.

The grounds of the debate have clearly shifted since a capital gains tax was knocked back. Heading into the September election, all parties will need a coherent tax policy. Will Labour and Jacinda Ardern have the political courage to present a vision of tax justice that sees the wealthiest among us pay more tax? Will a majority of voters think that’s fair?

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