The Guardian: Labour failed but New Zealand can’t put a wealth tax ‘back in the bottle’

Read the original article in the Guardian

Licking its wounds from October’s election defeat, the New Zealand Labour party faces an internal struggle over a question that could define its recent past and its future electoral prospects: whether to campaign for a tax on the assets of the country’s wealthiest individuals.

Insiders say party members still feel “anger and disappointment” about the “captain’s call” by leader Chris Hipkins to rule out running on a wealth tax in this year’s election.

At the urging of key Labour ministers, officials had spent nearly a year working on plans for wealth taxes, a policy whose re-emergence on the global scene symbolises a newfound radicalism among leftwing parties.

Until recently, most developed nations have relied on taxing income, including wages, salaries and more irregular forms like capital gains (the profits made on selling assets). But concern about soaring wealth inequalities, and the work of French economist Thomas Piketty, has reignited interest in taxing assets like property and investments.

In the 1980s a dozen European countries had wealth taxes – a small annual levy on the largest fortunes. Today, only Switzerland, Norway and Spain do, alongside a handful of South American nations. France dropped its equivalent several years ago, in favour of a tax on high-value property.

But the idea is attracting renewed interest even in places like the US and Britain. “Wealth taxes have moved from the fringes,” says New Zealand-based tax consultant Terry Baucher. “Piketty has given them a boost … They have come back into vogue.”

The wealth tax contemplated by New Zealand Labour would have required couples to pay an annual levy of 1.5% on any assets they held over a $10m threshold. The estimated $3.8bn in revenue would have funded income-tax cuts for the vast majority of Kiwis. Labour’s potential coalition partners, the Greens and the indigenous-led Te Pāti Māori, ran on similar platforms.

But for Hipkins, known within the party as “Chippy”, the tax lacked popular appeal – “Chippy just didn’t think he could sell it,” one party source says – and he ruled it out in April this year.

This came as a blow to many in the party, including MPs who said on the campaign trail they had “not given up” on a wealth tax.

Nor have party members. Pro-tax reformers are now running for key positions on Labour’s policy council, and seeking to put pressure on the leadership. As one Labour MP puts it: “I think we’ve uncorked something here that can’t be put back in the bottle.”

For them, the policy seems like a slam-dunk. Though hardly anyone would pay the tax, it would generate billions of dollars a year. And in contrast to a capital gains tax (CGT) – something New Zealand also lacks – it would raise revenue instantly, whereas a CGT could take as much as a decade to generate similar sums.

Polls earlier this year showed a majority of Kiwis back a wealth tax. But at the same time, Labour’s pollsters were warning that, in focus group after focus group, support had crumbled because people found the policy hard to grasp and the counter-arguments persuasive.

One person familiar with the findings says: “Leaving aside common mistakes about the way the current tax system works, the moment someone said, ‘What about a farm on the East Coast, what about a tech start-up?’ – or any other scenario they could think of where someone was asset-rich but cash-poor, they started to unload on it [the wealth tax] in a way that was very hard to get them to pedal back from.” By the end of these discussions, very few would support a wealth tax.

An unreleased post-election poll, meanwhile, suggests a wealth tax would have cost the left slightly more votes than it gained. It is, nonetheless, an issue that won’t go away, as Labour – like its global counterparts – seeks to raise revenue for spending pledges without over-burdening standard income taxes.

As one Labour source says: “I can’t see how the party can go to another election without something [on taxing wealth].”