Tax cuts and “fiscal responsibility”, “rock star” economies and high wages: this is arguably the election campaign at its most important, and its most dull. But how a party intends to manage the economy is pretty fundamental to everything they’re proposing – there’s no sense offering more hospitals and lunches in schools if there’s no way to pay for it.
Photo: Hadley Donaldson
In holding the Official Cash Rate this week, Reserve Bank Governor Graeme Wheeler said the economy is expected to grow by 3.7 per cent this year. New Zealand’s Gross Domestic Product – the value of all the goods and services we produce as a country – is increasing.
But, Wheeler said, that growth has slowed because of lower dairy and log prices (two of our fundamental exports), and other factors: “Economic growth is projected to moderate to around 2.75 per cent next year due to the recent decline in commodity prices and the impact of policy tightening.” (Commodities are things we sell – like logs and milk powder and kiwifruit.)
The high New Zealand dollar also plays a part, because it means exporters don’t make as much on the things they sell overseas. (Though it’s great if you’re internet shopping.)
Growth and a stable economy is good for the incumbent government. In fact, the National Party has promised to return the government to surplus this year and is offering tax cuts if it is re-elected. It’ll mostly do that by continuing to constrain government spending and encouraging the creation of higher-paying jobs.
READ our other election primers on housing, inequality and the environment.
But, as Radio New Zealand economic correspondent Patrick O’Meara writes, the opposition parties disagree. “The Labour Party counters that unemployment is higher than in 2008 when National took power, exports have fallen as a percentage of national output, wages have stagnated and inequality has worsened. And the Greens say that, unless the environment is taken into greater consideration, the economy will flounder.”
Unemployment is one of the measures by which economic management can be measured, and last month it fell to its lowest level in more than five years, though it still differs significantly, depending on where you live: in Canterbury the unemployment rate is 2.8 per cent, while in Northland it’s 8.3 per cent. It also depends on how old you are. The youth unemployment rate fell by one per cent in the year to June, but 11.1 per cent of people aged 15 to 24 were not in work or some kind of education compared to 5.6 per cent of the overall population.
But while employment is up slightly, wages have only gone up 1.7 per cent, just beating inflation, and the Labour Party says that’s not good enough. It’s proposing lifting the minimum wage by a couple of dollars and strengthen employment rights to benefit workers, especially those on low wages.
The Green Party also wants to lift the minimum wage – to $18 dollars an hour. It would also require companies to report on the difference between what they pay their executives and what they pay their lowest-paid works, and promote higher-paying jobs through boosts to the ICT sector.
New Zealand First wants to review all industrial relations law, address the skills shortage, raise the minimum wage to $17 an hour, and “give priority for New Zealand jobs to New Zealand workers by a tight immigration policy”.
Mana points out that unemployment is particularly high for Māori, Pacific Peoples, and young people, and wants all workers paid a living wage. The Maori Party would double Maori and Pasifika Trade Training, introduce a living wage of $18.80 an hour, and look at tax credits for people who do volunteering or community work.
On the other side of the political divide, the ACT Party would extend the 90-day trial period to 12 months, and make changes to employment law.
In this week’s TV3 debate, National’s leader John Key said that a two-dollar increase to the minimum wage would result in businesses laying off staff and increasing prices. National is preferring to push tax cuts – though how much and for who is still unclear. The party promised tax cuts beginning in April 2017, which it says will help low and middle income earners. Mr Keys says even if it ends up being a cut of just $10 a week, low income families would benefit.
Labour’s David Cunliffe described that tax cut in the TV3 debate as a “flimsy block of cheese”. His plan involves increasing tax rates for high earners to 36 cents in the dollar, and a capital gains tax on everything but the family home.
The Greens are proposing a new top tax rate of 40 percent, which they say will affect only three per cent of taxpayers and would raise more than a billion dollars. They’ll impose a capital gains tax too. New Zealand First wants to replace the existing tax system with one that’s based on “people’s capacity to pay”, crack down on tax evasion, and take GST off food – a move that has previously been criticised as unduly costly for retailers and the IRD and unlikely to help families on low incomes.
Meanwhile, the Mana Party wants to get rid of GST altogether, “increase the tax take by introducing a tax on financial speculation, called the ‘Hone Heke tax’”, and take tax of the first $27,000 earned to help low-income workers.
United Future is against a capital gains tax, and wants to introduce income sharing – where the income of a couple is combined and then divided equally, and each partner pays tax individually on that half share.
The ACT Party wants to lower the top tax rate to 24 cents, and suggests a warning [pdf] on all government departments and agencies about how much they cost the taxpayer. And the Conservative Party wants to take tax off the first $20,000 of earnings, and have a flat tax rate after that.
But many of the people making these decisions aren’t going to be around to reap the benefits or fallout from them.
But many of the people making these decisions aren’t going to be around to reap the benefits or fallout from them. Things like superannuation, KiwiSaver, and the retirement age aren’t being spoken about much in this election. But as economist Bernard Hickey told Elle Hunt, people under 30 are footing the bill for everyone older than them. “We face a political contest between the people who have to pay the bill, and the people who receive the benefits, and that is building into a clash of the generations.”
Last month a researcher said that successive governments have ignored the future effect of an ageing population, and more research is needed to prepare for it. As Auckland University Retirement Policy and Research Centre co-director Michael Littlewood says, “The cost of New Zealand Superannuation is currently about a net 4.1 per cent of GDP. That's expected to grow to 6.7 per cent, on the latest estimates, by 2060. That's a more than 50 per cent growth, so the question we should be asking ourselves now is whether we think the taxpayers in 40 years’ time are likely to think that is an acceptable number.”
Bernard Hickey suggests they probably won’t. “The sheer mathematics of an aging population mean that the young – just like any minority, especially one that’s poorly organised and not engaged – are on a hiding to nothing. I don’t understand why people in their 20s and 30s aren’t organising and becoming politically engaged to protect their own financial interests.”
If you’d like to see some of the parties’ policies, you can find them here: National Party; Labour Party; New Zealand First; Mana; Maori Party; Green Party; United Future; ACT Party; Conservative Party and the Internet Party. You can ask the politicans directly at Ask Away, and find our full election coverage here.
