Grant Robertson and Gordon Brown have quite a lot in common.
Robertson, New Zealand’s finance minister and deputy PM, had dreams of leading his Labour party while it wallowed in opposition, just as Brown did with his. Like Brown, Robertson ended up putting these dreams on hold and settling for the finance portfolio as a more charismatic ally took the party to victory.
Both men are also political wrestlers. In the words of Australian prime minister Anthony Albanese, they “like fighting Tories”. And to do this, they both laid basically the same trap: A new income tax bracket that only applied to very rich people. Brown put his in back in 2010, Robertson in 2021.
Brown’s trap just went off on new UK prime minister Liz Truss, who attempted to abolish that tax rate only to embarrassingly U-turn after public outcry. National, New Zealand’s right-wing equivalent, are still completely committed to abolishing ours.
The details are a bit different – New Zealand’s top tax rate is 39%, not 45% – but the overall political calculus is similar.
Both top tax brackets raise little actual revenue in the wider scheme of things, as they have been set so high as to capture only a small slice of the population who can comfortably be described as “rich” without anyone raising their heckles. This means that when right-wing parties talk about cutting or abolishing these taxes, it’s very easy for the left to say they are cutting taxes for the one per cent – largely because it’s true.
In the UK, about 200,000 people were in the top tax bracket when it was introduced in 2010 – about 0.3% of the population. In the years since as incomes have risen that group has remained tiny – it’s now about 0.9%. In New Zealand, about 59,000 are in Robertson’s top tax bracket: Or 1.1%.
Another way these taxes are great political tools, even as they fail to raise meaningful revenue, is in the personal stories one can tell with them. Whenever National party leader Christopher Luxon says about abolishing the top tax rate Labour just plugs his potential salary as prime minister into a calculator and talk about the $18,000 tax cut he would be giving himself. It’s very effective politics.
The odd thing about both situations is that the right-wing parties also have far more popular tax cut policies that their left-wing oppositions have essentially given up fighting over, as they benefit a far wider group of people. UK Labour has said it supports the cut to “basic rate” from 20% to 19%, while in New Zealand, National’s policy to index various other tax rates to inflation is tactically rarely mentioned by the government. Both Labour parties know these tax cuts, which will put a meaningful amount of money into the pocket of an average earner, are far, far harder to credibly oppose.
National naturally dislike the UK comparison. And it’s fair to point out that the countries have vastly different finances: New Zealand has far lower government debt and a far more sustainable energy mix, meaning it isn’t having to splurge on an energy subsidy anywhere near the size of the UK’s. That means funding tax cuts in New Zealand would not require the same degree of borrowing, so is unlikely to wreak the havoc we’ve seen in the UK markets of late.
But there is an overall challenge that National share with Truss: Satisfying a public who want US tax rates but European social services. As in the UK, most of New Zealand’s national budget is not easily trimmable without serious political, and often social, pain. There is always a few million dollars going to various wasteful-sounding things you can cancel, but a serious look at the budget shows that the things people spend a lot of time talking about, like arts funding (0.4% of budget 2022) pale in comparison with things like health (17% of budget 2022) or education (12% of budget 2022), all of which generally need to grow each year just to keep pace with population growth and public expectations.
This is not an impossible bind for National, as the party is not yet proposing particularly large tax cuts. There is some large capital spending on things like light rail in Auckland that National say they will cancel, which gives them room to manoeuvre early on – if not for that long, as capital spending is one-off, while tax cuts last forever. The party could always use the old trick of slowing the rate by which you increase funding to areas like health and education, letting inflation and population increases do the actual cuts while you technically increase funding every year.
This talk is somewhat premature: to be in the position to make choices like that National still have to win the election next year. The polls are looking reasonably good for National, who are ahead in most of them, but not by anything like an unassailable margin. Things could get a lot tighter in election year, when the scrutiny on National’s costings will increase and the government will get a chance to set the scene with a budget.
It will be then that Robertson’s tax trap is at its strongest – but Labour will need more than that to actually win. Gordon Brown may feel vindicated right now, but he still lost in 2010.
