Water tax

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.

Will Labour's water tax cost them the election?

Despite Labour and Jacinda Ardern's spectacular rise in the polls over the past week, National and Bill English don't need to panic. Other than National continuing to focus on New Zealand's economic success, Jacinda's announcement of a water tax on commercial water users might just, in combination with the threat the Green Party poses to regional infrastructure projects, cost Labour their chance of forming the next government.

On the surface Jacinda Ardern's announcement that Labour will introduce a commercial water tax seems like a sensible one. People generally didn't seem thrilled about overseas bottling companies paying next to nothing to bottle up water and ship it offshore. Had the tax been targeted at them, it mightn't have ticked all the boxes for environmental groups, but it would have effectively scratched an itch that was bothering New Zealand.

The problem was Labour not only want to extend the tax to all commercial water users, including farmers who they've hit with a double whammy of plans to introduce new restrictions on farming methods without lifting the prohibitions on technology (like genetically modified organisms) that could help achieve this.

What Labour also assumed was a sensible policy move of saying that they won't commit to a tax figure on water until after the election when they meet with stakeholders, has turned out to be a terrible political move. It's already being seen by our primary sector as a disingenuous ploy to avoid a hard conversation about it on the campaign trail. It stinks of being both a policy that has been poorly thought out and of leaving the door open for this to become a massive tax on agricultural activity.

Labour has left the door open for National severely punish them not only in provincial New Zealand, but also in the mortgage beltway. To illustrate this, just look at how in just a few hours after the announcement, Labour had already lost control of the framing of the announcement:

Notice a theme? Water tax, water tax, water tax. Labour's "royalty" is already framed as a not only a tax, but a tax that will decimate our farmers and provincial economies, as well as hitting mortgage belt Middle New Zealand in the pocket with higher prices for dairy and produce.

In my mind, National there are three things National needs to do from this:

  1. Make a commitment to provincial New Zealand that National won't tax the agricultural sector for water use and promote the hell out of it before Winston Peters and New Zealand First can get in.
  2. Run a campaign targeting those provincial electorates pointing out the threat to their livelihoods if Labour won and did introduce the water tax combined with the threat the Greens could also pose if they forced a Labour government to cancel crucial irrigation and regional infrastructure projects.
  3. Target the Middle New Zealand mortgage belt with a campaign pointing out the potential and significant price rises to everyday (and healthy!) foodstuffs that the combination of Labour's water tax and other policies could have.

If you doubt this approach will work, take a look at the Mediscare campaign that the Australian Labor Party ran in their 2016 election. Despite some pretty dubious claims made and methods used by the ALP, it's widely credited with helping bring Bill Shorten within a whisker of an unprecedented victory. The advantage National has in this regard is that, unlike the ALP, Jacinda and Labour have made the commitment that water will be taxed, and left the door wide open for speculation about the potential impact of that.

This is where social media can play an important role in turning around this type of policy attack content very quickly so that you're capitalising on the issue being fresh in people's minds. Already National's Nathan Guy has enjoyed amazing success by posting a video of his fantastic speech to the House from Wednesday's General Debate to Facebook. In less than 24 hours the video has already been watched by 43,000 people, shared 412 times, and has resonated hugely well with those involved in the primary sector.

Given that National doesn't want to make the mistake that Labour and Helen Clark did in 2008 of going after the personality and popularity of the opposition leader, this type of wedge issue not only ties in perfectly with their overall narrative. National want's to tell people that they're the party that's delivering economic success for New Zealand, so something like this will really hits home for many peopl;e about the danger that a Labour/Green government would pose to that success. It's a policy based attack, Labour's made a key mistake in launching an incomplete policy and losing control of its farming, and National has a really good chance to turn this into an issue that could cost Labour badly.