In about a week the government delivers its annual budget — its seventh straight deficit budget. Just for the folk who voted National because they promised to get the books back in black. At some stage. The cut in ACC levies are the final nail in the coffin of Bill English’s predicted anaemic surplus, and they prove a basic point (that Labour still fails to grasp). You can promise a strong economy and come up short, you can even promise not to raise taxes and then hike up GST. But you can’t go to the voters promising to tax more. Even to get out of the bog of serial deficits.
Labour went in to the last election pledging to raise the top rate of income tax, and introduce a capital gains tax. Aside from the good they would do — lift revenue to produce surpluses, shrink the wealth gap by allowing for tax cuts to the middle class, and de-pressurise the Auckland property market by taxing developers — and it was rewarded with its worst election result in eighty years.
The public simply doesn’t care about budget deficits. They have no direct affect on anyone’s pockets, and are therefore a theoretical negative to an experience based electorate. Michael Cullen ran surpluses every year Labour was in power (but would have run his first deficit had Labour won the 2008 election), and sure enough his economic genius was well regarded, but it couldn’t trump the push for change John Key was playing.
Taxes matter because everyone earning money and spending money pays them. Taxes on the rich matter to the poor matter because the poor aspire to be rich. This is irrefutable, an I would say self-evident. A deficit of $348 million (as is forecast) is manageable and comes at no cost to public opinion. Taxes on the wealthy do have a cost, and this is the epicentre of the electoral quake that keeps Labour shaken and stirred. The highest tax rate is 33% for income over $70k (unless you’re a numpty who fails to declare your income to IRD). Under Helen Clark it was 39%. I doubt hitching it up to that level will be a vote winner, and going over 40% would be a suicidal lurch towards political oblivion.
The pertinent question is how can we afford the great things Labour and the Greens want to do with a revenue base that may or may not return the books to a minuscule surplus next year? Once they figure that out the Beehive will be theirs.