GST debacle was no accident

Was last week’s attempt to impose GST on KiwiSaver management fees, and hide it from the public an accident? Steven Joyce explains how it couldn’t be:

The suggestion seems to be that the decision to charge GST on KiwiSaver fees slipped into the regular tax bill without the top echelons of government being fully aware of the ramifications of it. And that the failure to mention it in the press release announcing the bill was an unfortunate oversight. Neither explanation stacks up.

I can tell you from personal experience there are many checks and balances in government to ensure everyone is aware of what Cabinet is deciding on each week, and the financial and political implications of those changes.

In the normal course of events, every paper that goes up must be lodged by the middle of the previous week. That gives Treasury, the Prime Minister’s Office, and every other affected government department time to offer their views on it and prime their minister with their concerns.

Each significant paper must be accompanied by a Regulatory Impact Statement, which lays out in detail the impact of a decision on the relevant stakeholders. This was an innovation of the Key government, and its power is that it is written by officials rather than ministers, so it is where you look if you want to find a fish hook glossed over in the main Cabinet paper.

The Regulatory Impact Statement on this proposal was clear in its impact and the risks.

Both Treasury and the Prime Minister’s Office prepare short cheat sheets for their ministers highlighting the key elements of every Cabinet paper. An hour before Cabinet on Monday morning, senior Treasury officials sit down with the Finance Minister and his associates (including in this case David Parker) and discussed the key papers of interest at that day’s Cabinet. At a similar time two floors higher, the Prime Minister’s Office is taking their boss through a similar preview of the papers.

Unless all the officials involved were incompetent, which is highly unlikely, and the Prime Minister and Finance Minister can’t read, also unlikely, there is no way they didn’t understand that the Inland Revenue were lodging a bill to increase the tax take by $200 million and reduce people’s KiwiSaver balances accordingly.

As an added protection Cabinet also has senior ministers who act as sweepers. They are normally alert for things that might carry ramifications others haven’t thought of that either worry their constituency or affect the Government’s broader standing. They serve an important alarm-raising function for the wider Cabinet.

Once the Cabinet decision is made, there are more protections around how the decision is announced. Ministers don’t just dash off press releases themselves for significant economic matters. Any draft announcement involving government finances is shared with the Finance Minister’s Office, and anything political with the ninth floor. It beggars belief that none of the public relations experts in those offices raised concerns with their ministers that the draft contained nothing about the GST hike for KiwiSaver.

So unless there is a total breakdown of the normal decision-making processes within government, which is highly unlikely, this decision and the underhand way it was announced was premeditated. . . 

How could they be so deliberately stupid?

One popular explanation for this state of affairs is the Government has given up and have stopped caring what people think. This theory goes that they know they are on their way out and have stopped trying to politically manage things, content to shovel decisions through and get as much as possible done before they are turfed out. Weak governments can get to that point, but I don’t think we are quite there yet, and no government would damn the torpedoes for the sake of $200 million and the tidy minds at the IRD.

A second one could be political arrogance. There is every sign the Government believes its own BS to an unwarranted degree, so maybe it thought it could spin its way through this issue in the same way as it has so many others. The Prime Minister is certainly adept at arguing black is white and that failure to deliver is the result of aspiration, so there’s plenty of evidence for this theory.

An even more likely possibility is that ministers are getting completely out of touch with the public they serve. There is a very long series of announcements suggesting that is the case. The TVNZ-RNZ merger, the bike bridge, Three Waters, Trevor Mallard’s appointment to Ireland and his pending knighthood, the bank credit changes, immigration policy, and industry pay bargaining are some that leap to mind. They are either completely inexplicable (think GST on KiwiSaver), or clearly designed to serve a part of Labour’s power base to the bemusement or downright hostility of the general public. If you make enough unpopular decisions you can kid yourself that any negative feedback is par for the course.

Whatever the final cause of the Government’s awry political antennae, it appears very likely the die has been cast and the public have made up their minds about this lot, and ministers increasingly know it. . . 

That is why Grant Robertson is making so many personal attacks on Christopher Luxon.

Expect to see much more attacking of the opposition over the next 12 months. Labour’s strategists may not have been able to work out that adding GST to KiwiSaver this way was political poison, but they are aware that the only way to level the playing field for the next election is to drag the alternative government down and create as much doubt about them as there is about Labour. It’s the 2005 and 2008 playbook all over again. And it won’t be pretty.

Cue Margaret Thatcher:

I always cheer up immensely if an attack is particularly wounding because I think, well, if they attack one personally, it means they have not a single political argument left.

Labour has had aspirations and announcements, pronouncements and plans but time and time again they have fallen well short on delivery.

There is one glaring exception to the lack of delivery, but as Matthew Hooton points out, it’s not one any government would want to claim:

…This Government has managed to “deliver” the biggest cut for at least 30 years in the real wages of the middle and working class — those a “Labour” Party supposedly represents. It is paying for it in the polls (see graph).

Since inflation was tamed after Labour’s Reserve Bank Act 1989 and National’s Fiscal Responsibility Act 1994, wages have risen faster than prices in almost every quarter, under National and Labour, with unemployment remaining relatively low.

It took this Government’s special idiocy to decide that which wasn’t broken should be fixed, by moving the Reserve Bank away from its laser-like focus on inflation, approving the appointment of Adrian Orr as Governor and signing the so-called dual mandate in March 2018.

Meanwhile, it accelerated increases to the minimum wage and began putting greater shackles around the labour market, including abolishing automatic 90-day trial periods, and restricting access to foreign labour and preparing the ground for 1970s-style national payment awards for workers.

After all this — and most likely because of it — real wages rose by just 1.5 per cent in Ardern’s first three years, before any effect from Covid.

That anaemic real wage growth was well down from the 2.2 per cent and 2.3 per cent over the second and the third terms of the Key-English Government. . . 

Labour governments can do many things and survive. Enriching property owners while slashing workers’ real wages isn’t one.

Can we trust the government that got us into this mess to get us out of it?

Given its failure to deliver on so little positive and do so much damage in the process, not least to the real value of wages, no.

Bereft of ideas that will work, all that’s left is personal attacks on National and its leader, both of which are looking much more like a government in waiting while Labour is looking more and more like a government losing.

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