Partial Asset Sales

Jacinda rattled and panics on income tax increases

It looks like Jacinda Ardern is rattled and has panicked following National's attacks over Labour's ever-increasing list of new taxes, with Jacinda today ruling out introducing a new, higher income tax bracket, increasing the top tax rate, or even referring the issue to Labour's proposed Tax Working Group post-election.

What's more, Jacinda appears to have only recently made this decision, possibly even just today, indicating that it may well be a captain's call, leaving her two MPs who have publicly endorsed income tax increases - Grant Robertson and Phil Twyford out on a limb and at odds with their party leader.

It really suggests two things, one is that Labour is getting messages that there's a potential backlash to all of these taxes that Labour has proposed in the past two weeks. There's been the regional fuel tax in Auckland, a capital gains tax, higher income taxes, the water tax, a tourist tax, a land value tax, and an unspecified asset tax, as well as reversing National's $2 billion families package from Budget 2017.

What's worth keeping in mind is that in 1999 Helen Clark and Labour did take an increase to the top tax rate to the polls in 1999, and comfortably won that election. From memory, I think Labour confirmed what the increase would be some two or three weeks out from the election, a window that Jacinda and the current Labour Party was currently still in to clarify what their proposed rates would be.

What I think is the issue here is that not only has Labour backtracked on its earlier pledge under the Budget Responsibility Rules it signed with the Greens to not introduce new taxes in its first term, but seek a mandate for them during a second term (an approach that worked well for National on partial asset sales in the 2008 and 2011 elections), but also the sheer number of potential new or increased taxes that they're proposed.

Essentially Labour has shot itself in its foot in two ways here. The earlier pledge not to introduce new taxes in a first term under the Budget Responsibility Rules was always going to cause tensions with how Labour would fund their election pledges. The second is that, with all these various taxes they've announced that they want, the Tax Working Group is starting to look more and more like it would just be something that would rubber stamp whatever Labour wanted.

Labour has effectively asked voters to agree to pay a tax bill that they don't have any idea what it might be, and that's a difficult pill for voters to swallow. If you're going to propose tax increases, voters want to know how much those increases might be for them, and what they're going to be funding with that extra money they're taking.

Labour has certainly got the second part of that equation wrapped up with some fairly significant spending promises in the pipeline, but that's making people nervous about how big these mysterious tax increases will be.

The question is now whether Jacinda's backtrack on tax will damage her brand in the same way that Theresa May's Dementia Tax backtrack hurt her.