Labour strategists say they are very happy with the response to the GST announcement on Sunday.
The move comes after leaked polls showing they have recovered some of their vote.
And one Labour soruce told POLITK that National was clearly worried about the policy because of the amount of work they had put into opposing it.
That wasn’t quite the way it looked out on the campaign trail.
National’s leader Christopher Luxon barely mentioned the GST, and then only when journalists questioned him about it.
The fact is the GST policy lacks economic logic.
National’s tax cuts will leave almost everybody better off than cutting GST on fresh fruit and vegetables.
As a consequence, Luxon is happy to quote former Labour Finance Minister Michael Cullen back to Labour.
“Michael Cullen on the Tax Working Group said there was a 30% chance of the money actually getting through to the consumer,” he told journalists in Feilding on Monday.
“Ultimately, and importantly, it actually doesn’t do what it should do.
“We want to cut the middle man out and get money in people’s bank accounts by giving them direct tax relief. “
He repeated the argument in a nearly hour-long speech to over 300 people in the town, but it was buried inside his usual rhetoric about income tax cuts, getting the bureaucracy out of the way, clamping down on law and order, reforming education and so on.
By the time Luxon got to Question Time yesterday, the GST had fallen right down his agenda.
In his usual set-to with Prime Minister Chris Hipkins, he was focussed on its complexity and the vexed question of packaged coleslaw.
He also quoted the late Sir Michael Cullen’s Tax Working Group report and asked whether Sir Michael was right or wrong when he said that evidence from 17 countries over 14 years found that only 30 per cent of the benefits of GST exemptions were actually passed on to consumers.
Hipkins could offer only a somewhat limp reply.
“I will allow everybody to make their own judgments on the Tax Working Group’s report. Of course, I note that there are some other recommendations in there that the member isn’t quite so enthusiastic about.?”
But what Luxon did not say was that the interim report of the Tax Working Group found that tax reductions were a much more effective way of delivering income relief to low-income households than making changes to GST.
“A GST rate reduction would have a high fiscal cost and is poorly targeted towards low and middle-income households,” the report said.
“If the Government wishes to improve incomes for very low-income households, the best means of doing so will be through welfare transfers.
“If the Government wishes to improve incomes for certain groups of low to middle-income earners, such as full-time workers on the minimum wage, then changes to make personal income taxes more progressive may be a better option.”
That argument was centred on a possible reduction in GST.
But the Working Group also looked at taking GST off food and drink.
That is not quite what the Government is proposing; it is limiting its removal to fresh fruit and vegetables.
But again, Cullen seemed to think income tax reductions would be a better idea.
“Higher income households will derive a greater dollar benefit from the removal of GST on food and drink. (Higher income households spend more money on food and drink overall, even though this expenditure represents a smaller proportion of their total income.)” the report said.
“The Group estimates that the removal of GST on food and drink will benefit a household in the highest income decile by $53.03 per week, whereas a household in the second lowest income decile will benefit by $14.35 per week.
”The key judgement, then, is whether GST exceptions represent the most efficient means to achieve society’s distributional goals, relative to other measures such as income tax progressivity or direct welfare transfers.”
But the point of Labour’s policy is to impact people living on very net low incomes.
StatsNZ says that in the year ended June 2022, the proportion of all households that said their income was “not enough” was 8.1 per cent.
Households that made rent payments were more likely to perceive their income as “not enough” compared with those that owned their dwelling.
It is now clear that Labour will pitch their concern for the poor in contrast to Luxon’s tax cuts which will disproportionately enhance take-home pay for people like him on high or very high incomes.
Luxon professes not to be concerned, using questions about it as an opportunity to wheel out National’s standard sound bites.
“The Labour strategy is to come after me personally each and every week,” he told POLITIK.
“And we’ve known that for a long time.
“We know that that’s part of their campaign strategy, and they’re doing that because, let’s be clear, they don’t have a record to run on, and frankly, they don’t have the ideas to take the country forward.
“It doesn’t impact me personally because I’m focused on what we’ve got to do, which is get this country turned around, sorted and back on track.”
But that was what the GST removal is all about, putting the squeeze on Luxon and National.