The CGT will haunt Labour

So long as Ardern is leader, there can be no capital gains tax. Yet there is a problem with her position. The government is composed of more than Labour. Greens co-leader James Shaw has been explicit in his view that the Coalition was elected on a platform of reducing wealth inequality. The CGT was to be a key part of this.  His colleague, Marama Davidson, elucidated the Greens’ position in a speech last month. According to Davidson, the CGT was “just the beginning” of transformational change. She envisioned a society in which houses would no longer be used as a commodity to be traded for untaxed profits. That vision has been shattered by Ardern.

While large numbers might oppose the CGT, however, we should not overlook the ambivalence of public opinion. The recent Business NZ/Reid Research poll reported by Newshub found that 32 percent were in support of the CGT (with 14% undecided). This represents a significant voting bloc. How many of these voters, swept up by ‘Jacindamania’, switched their vote from Green to Labour in 2017? Anecdotally at least, there is growing disillusionment on the left. The Coalition has failed to make any meaningful progress on child poverty and housing affordability.

So far, Ardern is absolved of responsibility for these failures. And her personal support has reached new heights in the wake of the Christchurch mosque shootings. The CGT announcement will ensure that centre-left voters blame NZ First for any betrayal on tax.  But where do they go? Ardern has made it clear that Labour is unwilling to challenge the status quo further. Those wanting fundamental tax reform must look elsewhere. Shaw and Davidson offer a clear alternative. They hold the promise of a transformational centre-left government in 2020.

The Greens now have a major point of difference with Labour. If they choose to, Shaw and Davidson could rally support around the CGT in 2020. This would provide the Greens with the traction they need to displace NZ First as the third party and form a truly progressive coalition with Labour. Such an outcome would prove, once and for all, that Labour cannot take its status for granted. With centre-left voters going back to the Greens, Ardern would likely find herself leading a party not much larger than it was in 2017.

And even if the Greens do not take this approach, National will make sure that voters know precisely where Shaw and Davidson stand on the issue. The CGT may be dead and buried. But its ghost will haunt Labour.

What did it mean? The 2017 general election in retrospect

In my final post before the election I boldly predicted a fourth term for National. This was based on the belief that National would hold the most seats and govern with ACT and the Maori Party or secure the support of New Zealand First. I was right about the first part and wrong about everything else.

National remained the largest party by a wide margin but it was unable to form a government. This makes 2017 most unusual. The closest historical analogy would have to be the 1928 general election when United formed a minority government with confidence and supply from Labour.

Now the excitement is over, it’s time for some sober analysis. I claimed at the outset of this blog that the only realistic outcome was one in which National would remain the single largest party by a wide margin and that this would represent an epochal moment in our politics. I argued that the election would result in a major change to the party system.

I maintain that 2017 is a turning point in New Zealand politics. The resurgence of Labour notwithstanding, this election has confirmed the significance of minor parties. Despite its hold on government, Labour is in a weak electoral position. It did not win the election. It did not come close to winning.

The historic swing to Labour belies a very low base. With 37% of the vote and 46 MPs, Labour is only three seats better off than it was in 2008. Indeed, the Labour-NZ First Coalition lacks a majority and must rely on the Greens to govern. Such an arrangement gives disproportionate power to the smaller parties.

The early indications are that this government will go the distance. But it will not necessarily be to the long-term advantage of Labour. Historically, minor parties have been tainted by government, the burdens of office proving too great for them. Yet this time could be different.

NZ First and the Greens have a wealth of political experience behind them. These are parties that pre-date MMP. Each has solidified a loyal core of supporters who provide an electoral bedrock. To write either off in 2020 would be naïve, given the enduring strength of their appeal.

It is possible that the Greens will experience a resurgence under its new co-leadership, and it is equally plausible that Winston Peters or a successor can return NZ First to Parliament in 2020. Should either happen this would most likely come at the expense of Labour’s aspirations to be the largest party once more.

If Labour fails to beat National in the party vote for a fifth time, it could give way to further growth in support for alternative parties, and perhaps lead to a permanent realignment of the party system. That Labour should remain the dominant party of the centre-left is no more guaranteed than the largest party’s claim to government.

Shopping with values

The first televised debate between National Party leader Bill English and Labour Party leader Jacinda Ardern has set the tone for the rest of the campaign. The defining moment came early on when moderator Mike Hosking challenged English and Ardern on their fiscal priorities. Juxtaposed on the stage were two distinct political philosophies.

“It’s not about throwing big money at every problem,” English declared. The question of tax evoked the most passion from him. As Minister of Finance, English balanced the budget and reduced Crown debt. He goes into this election making the case for personal tax cuts.  National would give more money back to those who had earned it. Labour, he said, was proposing to take $1,000 a year from a meatworker in Horotiu to make university “a bit cheaper” for law students.

The rhetoric is consistent with the political traditions of the National Party. The dual virtues of hard-work and personal responsibility have been its lodestar for 81 years. Formed in a coalition of farmers and businessmen, National fashioned itself as a pragmatic conservative party during the 1930s. Its main opponent, the Labour Party, offered a more altruistic approach to government.

The late Professor Bob Chapman once described humanitarianism as a ‘lingering chord’ in New Zealand politics. It was that chord which Ardern struck in her first leader’s debate. “I refuse to stand by while children are sleeping in cars,” she affirmed to the nation. “I refuse to accept that we have the lowest home ownership rates in 60 years.”

Challenged on the issue of capital gains, Ardern stuck to her position of not ruling a new tax in or out. Labour would do what was necessary to end the housing crisis. Her emphasis was on values, not policy-specifics. Then came the most memorable line of the debate. “People can’t go shopping with your values!” English interjected. Families needed to budget for groceries. They needed to know what a vote for Labour would cost them.

But will uncertainty about household finances dissuade the Horotiu meatworker from voting Labour? Until now, the National-led Government has relied on its strong economic record to maintain the confidence of voters.

Recent scholarship by Jack Vowles, Hilde Coffé and Jennifer Curtin confirms the economy was the most salient issue in 2014.  However, voters’ subjective judgements about the relative competence of leaders and parties mattered more than policy or ideological positioning.  It was the classic ‘valence’ election in which there was no great ideological divide between voters.

The 2017 election could be very different. Rather than judging the parties’ relative competence at managing the economy, voters may look to their values instead. The choice for many voters could lie between tax cuts or the more equitable distribution of wealth. Will the lingering chord of humanitarianism rally them to Labour? Or do they prefer the rugged individualism of National?

Has NZ First lost the balance of power? 

Most polls give NZ First the balance of power. But Winston Peters was also the presumptive kingmaker in 2014.  And yet National won a comfortable victory on election night. What are the chances of Peters missing out again? Probably better than you think.

Statistician Peter Elis has calculated the probability of different election outcomes. Elis gives National a 33% probability of governing without NZ First. In contrast, the probability of NZ First holding the balance of power is 58%. It’s worth remembering that Nate Silver gave Donald Trump a 29% chance of winning the 2016 U.S. Presidential election. So, the odds are decent.

An upcoming book on the 2014 election argues that the single most important issue for voters was the economy. But it wasn’t policy that decided the election. It was the voters’ perception of competence and effective leadership. This is consistent with research from Britain that has found economic performance and leadership image are strong predictors of voting behaviour.

In 2014, there was no contest between National and Labour on the question of economic performance. Such perceptions are based on voters’ own subjective judgments about the state of the economy. I would argue that perceptions are largely the same in 2017. The strongest evidence of this comes from the Roy Morgan Government Confidence Rating and the Reid Research/Newshub PM Performance Rating.

In July, Roy Morgan reported that 63% of New Zealanders felt the country was heading in the right direction. The last Reid Research poll found that 51% thought English performed well as Prime Minister. So, while English might have the “personality of a rock”, most people see him as competent and effective.

There is another factor that could help National. In last week’s UMR poll, support for NZ First halved from 16% to 8%. The Reid Research poll also found a substantial decline in NZ First support. But these voters aren’t just going to Labour. They are going to National as well.

This makes sense given the composition of NZ First support. In the 2014 New Zealand Election Study, 22% of NZ First voters voted for Labour in 2011 and 15% voted for National. Together this represents more than a third of the NZ First vote.

Should NZ First fail to offset the loss of support to Labour and National, it could find itself perilously close to the 5% threshold. Of course, Winston Peters’ hold on Northland would ensure NZ First is returned to Parliament. But it would be a devastating result.

Furthermore, Winston Peters’ status as king/queenmaker could now be in jeopardy. NZ First defectors might ensure that Bill English leads National to an upset victory on election night. If that happens, you read it here first.