Labour and tax increases. Like love and marriage, the two things are said to go together. Prior to 1984, this pairing of social-democracy with redistributive fiscal policy was not regarded as a major problem by left-leaning politicians. That the two concepts were joined at the ideological hip seemed as natural to them as National’s attachment to crony capitalism and tractors.
For the New Zealand opposition leader in 2025, however, the linkage of Labour and tax increases represents the single biggest obstacle to winning the 2026 general election. If Chris Hipkins could campaign without mentioning tax, he would be delighted. Sadly (for Hipkins) no one, least of all his own party, has the slightest intention of delighting him.
Perhaps fearing a repeat of Hipkins’ infamous “Captain’s Call” – the unilateral and internally unsanctioned policy decision which sank his finance minister’s and revenue minister’s radical fiscal plans in 2023 – someone associated with Labour’s Policy Council has pre-emptively leaked its decision to back the introduction of a Capital Gains Tax (CGT).
Hipkins could, once again, nix the proposal by hurling down another of his Jovian thunderbolts, but that would be an extremely risky move. At the very least it would ignite a civil war within the party and, quite conceivably, within Labour’s parliamentary caucus. In the political universe inhabited by Hipkins and his advisers, the public display of internal division is an even bigger voter turn-off than tax increases.
But even if Hipkins smothers an uncomfortably large CGT ‘dead rat’ in tomato sauce and forces it down his reluctant gullet, he and his party cannot avoid being presented with another, even larger, deceased rodent. One that is likely to prove considerably more difficult to swallow.
Labour’s commitment to restore the pay equity regime that existed before Brooke van Velden ‘reformed’ it to death on behalf of the coalition government, is a fiscal sea-anchor of gargantuan proportions. Labour faces an “unquantifiable contingent liability” upon which even an aggressive CGT would struggle to leave an impression.
It was the ACT leader, David Seymour, who boasted that his colleague Brooke van Velden had come to the rescue of Nicola Willis’s 2025 Budget by relieving the Crown of the need to salt away $13 billion to meet the estimated cost of settling the pay equity claims already in the adjudicative pipeline. One can only imagine the scale and severity of the austerity programme that Willis would have been forced to unleash had the fiscal headroom created by van Velden’s effective destruction of pay equity not eventuated.
It speaks volumes about the efficacy of Labour’s finance spokesperson, Barbara Edmonds, that she was unable to prevail upon her caucus colleagues to refrain from making a series of kneejerk responses to van Velden’s moves. That the Crown’s “unquantifiable contingent liability” could be as huge as $13 billion should have set deafening warning bells ringing in Edmonds’ ears.
Any commitment to reinstate the Crown’s pay equity liability would be as damaging to Labour as National’s idiotic refusal to repudiate its obviously unaffordable commitment to tax-cuts and the restoration of rental property’s profitability was to prove to the coalition government. Practically from the day it was sworn into office, those commitments put the new government around $14 billion behind the fiscal eight-ball. Practically all of the bad-news-stories that have kept National in the low-30s, poll wise, since late 2023 are attributable to its refusal to dishonour those two utterly reckless policy commitments.
Surely, Edmonds must have realised that pledging Labour to restore the status quo ante on pay equity would be as destructive of Labour’s room for fiscal manoeuvre as National’s ruinous tax plans? If Labour’s finance spokesperson did, indeed, see the problem, but could not persuade her colleagues to swallow their anger, let the blame fall squarely on the shoulders of the right and preserve the fiscal head-room van Velden had so generously gifted them, then the left has a very big problem.
Sometimes, it is best to say nothing but ‘tut-tut’. When Bill Birch slew the trade union movement back in 1991, did Labour promise to restore the status quo ante? Were commitments given to bring back compulsory union membership, national awards and the working-class power they underpinned? No, there were not. Mike Moore may have growled and glowered theatrically at the bosses, but he studiously refrained from looking Birch’s gift-horse in the mouth.
National had done what all of Labour’s Rogernomes had longed to do, but dared not attempt. A future Labour government might smooth-off a few of the Employment Contracts Act’s more jagged edges, but the new order in the workplace would, in all its essentials, remain intact.
That Labour has opted to scream its outrage at the gutting of pay equity from the rooftops, and to throw its political weight unreservedly behind the demands of the female-dominated ‘associations’ and ‘organisations’, whose public servants, teachers and nurses now contribute so much of Labour’s campaigning clout, indicates just how precarious the party’s electoral position has become. Labour dares not jeopardise its favourable female gender-gap by equivocating even a little bit on the pay equity issue.
The price of this rock-solid commitment, however, is more and higher taxes. It is simply not possible now to avoid the issue. At least, not without committing a Labour-led coalition to a vicious programme of government austerity. But that would leave Labour in New Zealand in the same parlous position as Labour in the UK. (A position not improved by New Zealand’s triennial election cycle and its system of proportional representation!)
But how big would those tax-hikes have to be? Would the introduction of a CGT cover the shortfall?
Not even close. The CGT recommended by the late Sir Michael Cullen’s working-group on tax (which excluded the family home but not KiwiSaver) was estimated to raise around $8 billion over its first five years ($1.6 billion per annum). Another $5 billion per year could be collected with more expedition by raising GST from 15 to 18 per cent. But that still leaves New Zealand well short of the buffer required.
To reiterate: all of this additional revenue would be needed to cover the “unquantifiable contingent liability” arising from the restoration of pay equity. New spending on health, education, housing, infrastructure and climate change would, therefore, require a vastly expanded programme of government borrowing.
The electoral attraction of these policies to already hard-pressed taxpayers is unlikely to be all that strong. Almost certainly not strong enough to get Labour, the Greens, and Te Pāti Māori across the line.
That said, it is difficult to see what Hipkins can do. A Captain’s Call ‘clarifying’ Labour’s position on pay equity: a variation, perhaps, on Lewis Carroll’s “jam to-morrow and jam yesterday – but never jam today” might do the trick. It would need to be offset, however, by promises to spend big on all the fundamental components of New Zealand’s failing welfare state.
A CGT might (just) be made to fit inside that restoration programme, but only if Labour was able to offer a non-pocket-emptying way of raking in the additional billions of tax dollars needed to make it work.
In this regard, Hipkins could do a lot worse than pledging to reverse the ruinous fiscal policies of the coalition government. By reclaiming the tax cuts and landlord relief that have sucked billions out of the state’s coffers – to no one’s but the wealthiest Kiwis’ conspicuous advantage – Hipkins might even begin to rehabilitate the notion that Labour and tax increases is a marriage made in heaven.
Not so much a case of ‘Show me the money!’, as show us the love.
This article was originally published by Interest.co.nz and republished on the author’s Substack.
