Monday, May 23, 2011

Labour's alternative II

On Saturday, Phil Goff gave us a glimpse of Labour's economic policy with his keynote speech at the Labour Party Congress. The core, as you've no doubt already heard, is a promise to lift the minimum wage to $15/hour, and to restore R&D tax credits to provide an incentive for innovation. Because they're in a fiscal straitjacket, they've also been clear about how they're going to pay for the latter: by bringing agriculture into the ETS in 2013, and forcing farmers to pay for their pollution. These are good ideas, but there's more there as well: a commitment to trades training (underfunded by this government, despite regular skills shortages), a crackdown on tax cheats, and a suggestion of restoring a top tax rate for top earners. These are sensible ideas, and I'm looking forward to seeing more. There's also a solid commitment to boost KiwiSaver as they can afford to do so.

Labour's big problem is that delivering progressive policy costs money, which the government doesn't really have (and may not have for a long time, if the recession drags on). If it wants to retain its image for fiscal probity - something that Michael Cullen more than earned - it needs to ensure that it can pay for every policy. But as Vernon Small points out, you can only get so far by switching stuff around; new spending requires new money. So he's picking Labour to not only go for a new top tax rate, but also to be seriously considering looking at a land tax or capital gains tax. These are good ideas too, but there are other ways of doing it as well. To point out the obvious, not every progressive policy is funded by the government; some are delivered by the government shifting the balance of the law to favour the weak over the strong. The minimum wage is an example of this - the government requires employers to pay their workers more. It costs the government nothing, while delivering a progressive outcome. The same could be done with KiwiSaver, by increasing contribution requirements for employers (but not employees). The result: higher net savings, without busting the government's books. If Labour is feeling fiscally tight, then we may see a move in this direction as well.