If the Labour Party wants its economic policies to be taken seriously it needs to stop making up stuff.
The trouble is, its front bench MPs are starting to believe their own bullshi*t.
This week Labour finance spokesman David Parker tried to table in Parliament a document which does not exist.
Coming as it did within 10 days of his leader, David Shearer, making a big fuss over a tape of Prime Minister John Key which turned out to have similarly ectoplasmic characteristics, this seems to be a trend in Labour political tactics.
The effort came amid a testy exchange over economic policy.
The usually mild-mannered Mr Parker sought leave to table a series of documents which he says support New Zealand adopting what he called “Labour’s pro-growth capital gains tax”.
These included reports “from the OECD, the IMF, Treasury, and the Reserve Bank”, he claimed.
Not the first time
Mr Parker is not the first Labour MP to claim the Reserve Bank supports a capital gains tax: Mr Shearer and former finance spokesman David Cunliffe regularly make similar claims.
It’s not true. What is more they know it is not true, which is why they are usually careful to trot out this claim in front of audiences who do not know any better.
Mr Parker realised his mistake and backtracked. When asked by Speaker Lockwood Smith to name the reports, he said he could not put a date on the Reserve Bank document “so I will not pursue it”.
Labour’s proposed capital gains tax would be imposed on the country’s businesses and, while it excludes owner-occupied housing, it includes any part of the family home which is used as a home office or similar premises used for business.
It would also not be paid until a property is sold. And it would also catch the family home if it is not sold before the owners die. A family home which is inherited by offspring and then sold by them would be hit by the tax.
The only time the Reserve Bank has specifically addressed such a tax it has rejected it. This was in a submission to the Productivity Commission late last year on housing affordability.
Has never taken a stance
In a particularly pointed comment aimed squarely at Labour’s tendency to just make up stuff, the Reserve Bank said it has "never taken a stance on the general merits or otherwise of capital gains taxes".
But the mix advocated by Labour – which the Reserve Bank carefully did not specifically mention by name – would create more rather than fewer distortions and would not do the job Labour politicians claim it will.
"In practice, capital gains taxes are only levied on realised gains (rather than accruals), which creates additional distortions ... capital gains taxes usually largely exclude owner-occupied houses, even though unleveraged owner-occupied housing is the most lightly taxed component of the housing stock."
Any new capital gains tax "should only tax real capital gains and needs to treat gains and losses relatively symmetrically”.
"Tax regimes can be shown to influence both the level and volatility of house prices ... especially when supply responses are sluggish. But countries with a variety of tax regimes experienced similar housing booms in the mid to late 2000s.
"Moreover, it is not clear that, in aggregate, housing is more tax favoured in New Zealand than in other countries. For example, householders in the US can deduct owner-occupier interest payments for tax purposes and in most cases face no capital gains tax.
"In addition, relatively high local government rates in New Zealand, compared to other countries, act as a tax on property ownership."
High degree of duplicity
Mr Parker’s claim about Treasury does not have quite the same level of shameless make-believe, but there is still a high degree of duplicity.
Treasury has been advocating a capital gains tax for at least 20 years. However, it does not advocate the same one Labour is proposing – to avoid the kind of distortions the Reserve Bank talks about.
A capital gains tax should go on all assets, including the family home, Treasury says, and it should be on an accrual basis – that is, paid with other tax each year according to the change in value of an asset.
This includes a tax rebate if the value of an asset falls, which is something Labour’s proposals lack.
Treasury also notes any new tax on capital gains should be offset by lower personal income taxes, whereas Labour is advocating higher personal taxes.
Calling Labour’s line on this “double-talk” is putting it politely.
But it shows how far Mr Parker and his colleages have started believing their own duplicity when they start citing documents which do not exist outside their own spin.
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