Newsroom Pro's 8 things at 8 am: National says Labour planning inheritance tax; Labour may have to renegotiate Korea FTA


Bill English waits to present Horowhenua College's student of the week award to a student who recently lost her brother to suicide. Photo by Lynn Grieveson.

In today's email, we look at National's accusation that Labour is planning an inheritance tax and Labour admitting it may need to renegotiate the Korean FTA to get its foreign buyers ban.

1. And now it's the inheritance tax

Jacinda Ardern's decision not to repeat Andrew Little's pledge to put any capital or wealth tax to voters at the 2020 election looks to have been her biggest strategic mistake of the campaign.

Repeatedly, National has inserted tax policy into the vacuum created by the lack of detail inherent in that decision to kick the issue down the road to a Tax Working Group.

Even though it is exactly the same tactic as used by National in 2008 before it set up a Tax Working Group and increased GST (without notifying voters before the election), the difference is Labour went into that decision with the baggage of having proposed a Capital Gains Tax (excluding the family home) at the 2011 and 2014 election.

To voters, it looks like Ardern is trying to have her cake and eat too by not promising a politically painful tax, while also leaving the option open of imposing one before going to the polls again.

The benefits of the strategy are not obvious. Why take the risk? The benefits would be less than 18 months worth of capital gains tax revenues and the changed incentives for the housing market. A Tax Working Group is unlikely to recommend a Capital Gains Tax within a year of any election, and then there's at least another six months of legislative process. By the time the law was enacted, any Labour Government would almost be at 2020 anyway.

It is a strange decision, especially when National essentially innoculated the issue by creating the two-year bright line test for taxing the capital gains on rental properties traded by landlords. Labour's move to extend the test to five years essentially created a type of 'safe' capital gains tax on rental properties that National could not attack.

Given rental properties are the main target of a capital gains tax that excludes the family home, what was the point of taking the risk?

That decision to take that risk is now coming home to roost in a messy way. Ardern has already had to rule out taxing land under the family home and say she had no plans to create a new personal income tax rate.

Now Bill English is wriggling into the rest of the vacuum around what happens when the owner of the family home dies. He has already asked questions about whether family homes owned by family trusts would be excluded.

Yesterday Newsroom's Lynn Grieveson and I followed Bill English around on the campaign trail in the Manawatu and the Horowhenua.

Twice he chose to raise the issue of a potential inheritance tax -- once during a chat to workers over a cup of tea at BidVest's Palmerston North distribution centre and then again at length during a stand-up news conference at Woodhaven Gardens' vegetable packing plant near Levin.

He was asked about Winston Peters challenging Labour yesterday to be more transparent with him about its tax policies.

"It's an indication there's a real problem with Labour not being up front with New Zealanders about their tax plans," English said.

"We agree. Labour shouldn't just tell Winston Peters. It should tell the New Zealand public which of its seven taxes it's proposing are going to apply and what the rates are going to be," he said.

"I presume, for instance, for the inheritance tax -- which has widespread impact because it's for every family where the parents die and leave the house -- every family who's older parents own a home when they pass away -- it now looks like Labour are entertaining the idea of an inheritance tax on that house.

"If they bought it 20 years ago for a couple of hundred thousand and now they can sell it for a million then how's it going to work?

"So we share Mr Peters' concern that Labour should be upfront with the public. What they're asking the public to do is to vote for a committee in this election to decide one of the most critical issues for our economic success, and that is how the tax system works.

"They're asking New Zealanders to hand them their ATM card and they'll give it back in a year when they've decided how to spend it."

Jacinda Ardern was challenged about the issue by Guyon Espiner in an interview on RNZ this morning and appeared to rule it out.

"An inheritance tax is obviously not where we're trying to go," she said.

2. But O'Connor drowns it out

The problem for Bill English yesterday in trying to get that message out was that it was drowned out by the reaction to an ugly Facebook post by a back-bench MP.

English was repeatedly asked about Simon O'Connor's suggestion in that post that Jacinda Ardern was advocating suicide by the elderly with her support for the end of life private member's bill.

English said he had texted O'Connor to say the issues of youth suicide and euthanasia were not to be conflated, but that was the extent of the condemnation.

He would not say O'Connor was wrong, despite the reports to the contrary from the news conference. He was repeatedly asked to condemn or rebuke O'Connor in stronger terms, but would only say the back-bench MP (who trained as a Catholic priest) had strong views.

O'Connor refused to back down on his comments and repeated them with interest in this interview with Lisa Owen on Newshub.

English's failure to get O'Connor to withdraw the comments or to rebuke him strongly allowed the story to drown out his comments about an inheritance tax for yet another news cycle.

3. Can National be the underdog?

The polls of the last two weeks and the sense of momentum in the campaign are clearly trending for Labour, making National an effective underdog in campaign that just six weeks ago they were a clear favourite in.

Can National and Bill English flip its approach?

Newsroom's Tim Murphy writes here at Newsroom about whether National can become the underdog and whether Labour can avoid complacency.

4. CEOs ready for change

The NZ Herald's annual 'Mood of the Boardroom' survey released this morning at a pre-election debate of Steven Joyce and Grant Robertson showed a "strong mood for change."

The survey found 88 percent believed Jacinda Ardern could be the lightning rod that takes Labour to power.

The survey was taken after August 14 and there were 118 respondents from large corporates and organisations.

5. Would Labour renegotiate its FTAs?

National again challenged Labour to explain how it could ban foreign buyers of existing homes, given an already-signed free trade agreement with Korea prevents such a ban. That agreement also commits New Zealand to apply the same conditions to its deal with China.

NZIER's John Ballingall made that point in a research paper released yesterday on the issue.

“It is not possible for any New Zealand government to ban sales to investors from these countries without breaching our FTA commitments," Ballingall said.

"Any such ban would risk blowback in the form of retaliatory trade or investment measures, which would be damaging for Kiwi businesses”, he said.

He suggested Labour instead look at alternatives to outright bans that are more likely to be allowed by our FTAs, such as high stamp duties.

"Labour could of course seek to renegotiate our existing agreements to try to get our FTA partners to agree to New Zealand having the ability to ban house sales," he said.

"But there will be a price to pay if they did agree – there are no free lunches in any trade negotiation. It could mean slower tariff reductions on our key exports or tighter restrictions of New Zealand’s investments, for example.

"It’s unrealistic to think that New Zealand can pick and choose which parts of existing FTAs to abide by, and which it doesn’t"

Ardern told Espiner this morning that New Zealand could seek to renegotiate its deal with Korea.

"Renegotiation of an FTA is not unusual," she said.

6. A few bits and pieces

The major parties continued to roll out policies yesterday, albeit ones with smaller price tags.

National said if elected it would boost the Sustainable Farming Fund from $7m to $20m per year, renaming it the Future of Farming Fund to invest in agricultural science and innovation.

A cross-sector panel would oversee the fund and include representatives from industry, science, and environmental groups.

A target to double the value of the agritech industry to $6b by 2025 was also set.

Labour announced it would spend $10m a year if it formed the next government on an extra 100 Plunket and Tamariki Ora nurses.
It would provide an extra 90,000 nurse visits annually, targeted at 18,000 vulnerable families. Ardern said initial visits will be offered before the baby is born and will be more regular.

7. A passing of note

Malcolm Templeton, the former diplomat who rose to become New Zealand's permanent representative to the UN and deputy secretary of Foreign Affairs, passed away this week.

He was the brother of Ian Templeton, a veteran member of the Press Gallery, and former National Minister Hugh Templeton. Our thoughts are with the Templeton family.

In later life he wrote several books, including Standing Upright Here: New Zealand in the Nuclear Age 1945-1990. It was published in 2006 by Victoria University Press and the New Zealand Institute of International Affairs.

8. One fun thing

Courtesy of Isobel Ewing, here's Annette King on Trevor Mallard's special skills while they visit Plunket in Napier with Jacinda Ardern:

"I call Trevor the baby whisperer"