TUMEKE EXCLUSIVE: David Cunliffe Interview

David Cunliffe on the Capital Gains Tax, US Marines in NZ, Child Poverty, the Washington Consensus vs Beijing Consensus and why a Labour led Government would not sign the current Free Trade Deal

Here's a list of people supporting the Capital Gains Tax since you announced it

The Dominion Post
Herald on Sunday
Gisborne Herald
Waikato Times
Scoop.co.nz
The Greens
The IMF
The OECD
and columnists
Selwyn Manning
Paul Little
Gordon Campbell
Anthony Hubbard
Patrick Smellie
Vernon Small
Corin Dann
Andrea Vance
John Hartvell
Matthew Hooten
John Roughan
John Armstrong
Gareth Morgan
plus
Academic tax experts, economists and Treasury

And here's the list of people who agree with John Key...

John Key, ACT, and IRD. That's a pretty lonely 3 some isn't it? John Key has misjudged the NZ egalitarian character hasn't he?
I think he has, I liked your line about John Key pretending that the Tax would lead to aliens breaking into homes to eat people's pets, while Bill English is saying that he agreed in principle with a comprehensive capital gains tax, but this one didn't go far enough. The Government have had both feet in their mouth over it.

One of the criticisms is that it doesn't raise enough and when it does it's a decade away. How do you respond to that?
The CGT is part of a package of tax measures which includes raising the tax rate above $150 000, it includes some anti-avoidance measures, it includes ringfencing property tax losses, and out of that funding the tax switch, the first $5000 is tax free, plus R&D tax credits and GST off fruit and Veg. The cool thing is that as a package it balances out beautifully. It runs very close to the same track as Governments budget, but actually in the second half dozen years the revenue from CGT comes in so strongly that we pay off all of NZ's Crown Debt down to zero faster than the Nats do and we still have stuff left over of course for those across the board tax cuts and to fund the growth initiatives we want.

Another criticism is that by denying privatization you are not creating investment opportunities for NZers. How do you respond to that?
I'd say that the only investment opportunities being created by privatization are for investment from overseas Internationals and those who click the ticket. The experience with both Contact Energy and the BNZ indicates that the shareholdings do not stay in NZ for very long, Mum and Dad NZers buy them and then they flick them on because someone makes them an offer they can't refuse and there's no way the Government can prevent that from happening, in fact the advice they've received from the Treasury is that has to happen if they want to make any serious money on the deal.

So I think the consequences of that are pretty obvious. If we roll forward 5, 10, 15, 20 years you get this continual bleed of dividends out of the country making our net international debt worse and that's more of the same problems we've already got, not solving the problem. The way we solve the problem is keep our SOE's, build up NZ and own our future, not someone elses.

By framing it as Capital Gains Tax vs. Asset Privatization you've won the economic argument, but how do you sell this politically? I interviewed Phil Goff last month and he said "I think successive parties in Government and opposition have lacked the confidence to do that (sell a CGT), it's very easy for the Government to create scare stories around it but there is an argument to broadening the tax base". You've made the argument, how do you make it connect to a jaded and hurting electorate?
If you give people a choice between asset sales and CGT, they pick the CGT in overwhelming numbers, Kiwis are very well aware of the disadvantages of flogging off the family silver. I also think that we are at the point where we have to trust the NZ people with the truth and with the facts and let them make up their own mind. We are in a serious hole in NZ and we are going to make it worse if we simply sell down our assets and cost cut the Government to oblivion. The alternative is a balanced tax package that gets revenue back to a healthy level without crashing the economy and that pays off the debt and funds some real growth. I think that as they reflect upon it between now and November that a good number of NZers are going to the sense in that and they are going to vote for it.

The similarities between the Great Recession and the Great Depression are that both were created by a feral unregulated free market environment, why are we adopting more free market policy when it has failed so spectacularly with the 2007/2008 crash?
Because they are wedded to an ideology that is well past it's due date which is pretty sad because NZ needs real engagement around the problems not just restating the certitudes of the 1980s that are now gone. We are in a serious situation worldwide, as we speak financial markets in Europe look like they are in for a major fall with Italy's debt problems adding to Spain, Portugal and Ireland. At the same time the US looks like it is heading for a real feudal budget crises and may default on its overdraft, that would be unprecedented and send the the financial markets into a tailspin. Those are all reasons why we need to get NZ's books into better health. There are two parts to that, the first is getting the Crown's debt position down through the tax package we've suggested and the second part is the larger problem of private debt, we are going to be coming forward with a package of polices that will get the private debt down. We've partly done this by avoiding incentives to speculate on real estate, but we've actually got to get our savings rates up and until we are serious about savings we are going to be dependent on the savings of foreigners and that is going to make us vulnerable. If we want to own our future we can start by putting a few pennies in the bank and Labor is going to make that easier for NZers to do that.
(compulsary super anyone?)

Are we all Keynesian's now?
To a certain extent I think Keynes has been proved right. You can't have one way Keynesianism, that is you can't just spend and spend more, you have to pay it back at some point, but certainly when the economy is in a rut, the Government has a role to kick start it by making sure there is enough demand in the economy. Spending a bit when others aren't, infrastructure, schools, hospitals, tertiary education, re-skiling, sometimes just straight stimulus like the Australians did. But you have to pay it back when times are good which is why Labour has set out a 15-20 year plan that will pay the debt down and get us out of the hole that we are in.

With the Washington Consensus economic hegemonic structure grinding against the Beijing Consensus, how does NZ chart a course between the two?
It's a bit like the ant caught between two mating elephants. Heaven for us is being on good terms with both of those superpowers and hell would be being on good terms with neither of them and that will involve a tricky dance at times, but we are lucky that we have the foundations for that. Relations with the US currently are good with the Obama Administration taking a broad view of regional politics and of course our relationship with the People's Republic of China is excellent given that we are the first Western country with whom they've successfully negotiated a free trade agreement and in the last couple of years the exports to China have doubled and we expect that to continue. There's a reasonable amount of bi-partisan consensus between the two major parties that we have to be reasonably open to international trade, but on the Labour side we don't think that means we have to completely throw open the kimono. Sorry about the mixed geographic metaphors.

An issue coming up will be the Trans Pacific Partnership with the US and 7 other countries. At the moment I'm very worried about it because the US are not putting on the table sufficient upside for us in the area of access for dairy and meat products, and at the same time the US Pharmaceutical industry is playing very hard ball on trying to open up our Pharmac. I dare say that if it was put on the table in its current form it would not get through the Labour Caucus and I doubt it would get through the NZ Parliament so there better be some pretty fast work by the negotiators on the TTP if there is not we could be looking at a bit of a break with US. I hope that's not the case.

Is John Key playing up to the Americans with the kite flying over the Marines coming to NZ? Is this America wanting to mark its turf in the Pacific as China looms? Does that explain the heavy handed Free Trade deal that John Key is promising billions from?
I think that John Key never met a photo op he didn't like and I think he wants to go with something to the White House that will appeal to them and putting the Marines back into NZ is something I think NZers ought to think very carefully about, because it says one of two things, one is that we want to rejoin a military alliance with the US and I don't think that is the majority view in NZ. I think NZers are very comfortable about us being very good friends with the US as we are with others in the region, so an out and out military alliance? I think we need to think again about that.

The second reason for doing it is if there was an immediate and approximate threat that we needed defence from, and unless he's talking about clapped out rust bucket refugee boats from Indonesia that are suddenly going to surf a wave down to NZ, I'm not sure what threat that would be. Can I just remind everyone that it's not the first time a conservative Prime Minister has tried to evoke refugee boats. Mr Howard did in Australia, he tried to fan the flames of fear about migrants as a re-election ploy and I think we are seeing that here.

That aside, I think that people need to have a careful think about the implications of putting a whole lot of US Marines back on NZ soil.

How unacceptable would it be if Simon Powers was involved in any way in facilitating asset sales for asset's he was until recently a Minister for?
I think that would be beyond the pail, even if there was a brief stand down period, I think his credibility would be shot and if I was the PM I would be very dark on the idea, it would bring the whole Government into disrepute. Mind you this isn't the first time they've sailed close to wind on corporate ethics. My personal view is that bailing out Canmwest and Mediaworks in an election year to the tune of $43 million was exceptionally bad form and they should have been called harder on it by the media, perhaps no surprise that they weren't. I think the deal they have cut with Telecom around the broadband role out is reprehensible. They've really sold the regulatory framework down the river in order to sweeten the deal for Telecom. And I guess the third example would be Warners Bros, clearly there were lies told to the NZ public about a boycott when the boycott had already been called off and the Government again changed the law to suit a foreign corporation, well I think that puts the cringe factor up really high and I think we have to be very careful about setting a precedent for that.

A counter argument towards your plan is that it simply doesn't go far enough, that while a CGT is a good step, it simply doesn't generate enough revenue so why not look at a financial transaction tax so that Corporations end up paying their fair share rather than dodge tax, because this Capital Gains Tax won't do anything for the 220 000 NZ children that Child Poverty Action Group say live beneath the poverty line.
In terms of the Children of the poorest, we are very worried about them, and that's why they will qualify to a special top up, so beneficiaries will get the full value of that first $5000 tax free zone, even if they are not earning and Annette King is releasing a policy package specifically around child poverty closer to the election. As for a Transaction Tax, it makes some sense in principle, we'd love to see the Financial Sector bearing more of the load but if we were the only country to do it, and if we were the first that giant sucking sound would be all the capital leaving the country. We couldn't do that on our own, but if Australia wanted to do it, it would make sense to look at it with them, so I would hold that open for some time in the future. As for the CGT not bringing in enough money, we've been pretty conservative with the economic assumptions around that, we outsourced to a consultancy, the modelling we think is incredibly robust but there is a reasonable chance we will be surprised on the upside, taken together with the rest of the tax package including lifting the top tax rate we are confident that we will fund the growth we need, it will be tight but we will get that debt down to zero.

Have you done enough to make the 200 000 Labour Party voters who didn't bother voting in 2008 consider voting for Labour?
I think we've done a lot and I think there is more to do. Clearly we are in a tough race for this election and we will continue to reach to them to from the level of principle and what's obviously in their own self interest. When I go door knocking around my electorate, and I'm meeting people of low incomes on their doorstep, in terms of their lives they get that the first $5000 they earn is tax free, and they get the GST off fruit and veges. Together with what we are doing for Children and making our schools and hospitals strong, people know they can count on Labour to deliver the basics of what their family needs, and to give them opportunities for the future around skills, around training and around education.

I'm really proud to be a Labour MP and I know we haven't lost our heart and that we have our feet on the ground, I also know this is a tough year and we have got a hell of a lot left to do and hell of a lot of arguing yet to give so that the public has a really clear choice in their mind.

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