Comment: How Labour lost the CGT debate

Publish Date
Wed, 17 Apr 2019, 2:32PM

Comment: How Labour lost the CGT debate

Publish Date
Wed, 17 Apr 2019, 2:32PM

Today Prime Minister Jacinda Ardern announced a complete back down on CGT.

Labour lost the debate on CGT despite polls saying that both Labour as a party and Jacinda Ardern as Prime Minister had over 45 per cent support.

In fact, after the March 15 Christchurch atrocities, it appeared for a few weeks that Jacinda Ardern could've passed pretty much whatever she wanted without the public blinking an eyelid.

And yet Labour lost the CGT debate and they lost it badly. They've retreated on a CGT despite pushing a narrative of fairness for months.

How did this happen?

In the end, the vast majority of the public looked through the spin and the vague statements about "fairness", and saw CGT for what it is – a tax on those who aspire to get ahead by investing in productive assets. There are at least a dozen reasons why Labour lost this debate but I've summarised the top four reasons below.

  1. Appointing Cullen to chair the Tax Working Group (TWG)

The first major error was appointing Sir Michael Cullen to chair the TWG.

Cullen was always going to be seen as a Labour political appointment to deliver them a CGT. No matter how hard they tried to present the TWG as an objective panel of experts with no preconceived agenda, with Cullen as chair, the public knew the truth.

The other main problem with the Cullen appointment was that he never backed a CGT despite a long career as a Labour senior politician including 9 years as Labour Finance Minister. For Cullen to then chair the TWG and recommend the most extreme CGT anywhere in the world came across as utter hypocrisy.

Perhaps a little unfairly, Cullen became the focus of much of the criticism of CGT mainly because he was the one fronting it for Labour. He was even kept on after the final report was released on the equivalent of $250,000 a year to answer questions (which obviously Finance Minister Grant Robertson didn't want to answer or couldn't answer).

Bowker questions whether Tax Working Group chairman Sir Michael Cullen was the right person for the job. Photo/File.

Attempts to deflect away from a CGT by calling it by a different name backfired on Labour. Calling CGT a "tax on capital income " was a blunder and only led to questions about why the TWG was using "spin" instead of fact and logic to debate CGT.

The debate was already heading for defeat for Labour before the final report was released.

  1. Then silence from PM and Finance Minister

Once the final report was announced in February, the public was at least expecting some major speeches by Finance Minister Grant Robertson and Prime Minister Jacinda Ardern.

Instead what we got was almost complete silence from the two main people who should've been the biggest advocates for a CGT.

To the media, this was like being invited to a party, turning up all dressed up with a bottle of wine, then the hosts of the party quietly disappearing out the back door on arrival. It was a bad look and at times the silence from Labour leadership was deafening.

The void created by Labour's silence meant the media were left to their own devices relying on commentators from both sides. The CGT debate was dominating the media on a daily basis right up until the Christchurch attacks and Labour were absent from the debate.

The public expected Labour to present well-informed arguments forcefully on why a CGT was needed in New Zealand. Instead, all we got was repetition of the word "fairness" with vague assurances that only a select few wealthy elite would be paying it. These arguments were factually wrong and badly presented.

The anti-CGT media dominated the debate and Labour were left looking overwhelmed, ill-prepared and out of their depth.

National was also absent from much of the debate, leaving the door wide open for New Zealand First to take votes from both Labour and National.

  1. New Zealand First

Winston Peters has not once ever supported a CGT.

Did Labour think they could persuade him with perhaps the Prime Minister's personal popularity or some backroom deal?

It's not obvious why Labour ever thought they could get CGT past New Zealand First.

Why embark on the costly and public exercise of a full tax review from the TWG without getting some degree of confidence CGT would have the support of New Zealand First?

Obviously, this was a strategic error by the Labour leadership - not helped by the Greens saying if they couldn't get CGT into law, then none of them deserved their elected positions.

Labour's political leverage over New Zealand First on CGT was precisely zero.

The only chance of obtaining their support was winning over the public and more precisely Winston Peter's support base.

Winston was always going to make it difficult (if not impossible) to get a CGT into law but the errors Labour made along the way made his decision easy.

  1. Underestimating the public

Right up until the end, the Prime Minister was still saying that only a very small percentage of New Zealander's would be paying CGT. These assurances were without substance and not based on facts. They were in direct contrast to a range of real facts put forward by various experts and even data collected by Government agencies. 

There are 600,000 small and medium-size businesses, 200,000 lifestyle block owners, 250,000 Bach owners and 1.2 million kiwi savers in New Zealand. All of these people would've had to pay CGT if Labour introduced it. This is a large chunk of New Zealand society and the public were well aware of that.

For Labour to say that only a small percentage of "rich" people would be affected, was an insult to the intelligence of the public. This was, in essence, an attempt to deceive the public with wrong information but the public was too smart to fall for it.

Many hard-working ordinary New Zealanders who do not consider themselves rich would've had to pay CGT. Labour's continued effort to hide this fact was the final nail in the CGT coffin. The public felt deceived by Labour and Winston Peters knew it. It remains to be seen if Labour will campaign on CGT in 2020 now that they've lost the debate so badly. But the result will almost certainly be the same if they do – a lot of votes moving to National and New Zealand First.

- Troy Bowker is the executive chairman Caniwi Capital, a privately owned investment firm.