The political blame game over the scrapping of the changes to GST on Kiwisaver has started.
A weekend opinion piece by Labour’s Campaign Director points the finger at Revenue Minister David Parker.
But in another opinion piece, former National Government Finance Minister, Stephen Joyce, sets out the process that should apply when Cabinet makes a decision.
If Labour was following that process, then Parker would have been only one of several players who agreed to the changes.
The critical question here is what did the Prime Minister know, and when did she know it.
It will take some weeks for Official Information Act requests to reveal what bits of the paper trail the Beehive may agree to release, so it is not possible to be precise about what happened when.
But it is clear there was a solid case to make the changes Parker proposed and that Inland Revenue and he had been working on them since 2020.
That length of time makes it difficult to believe the proposals came as a surprise to any senior Ministers including the Prime Minister.
It also seems highly likely that Finance Minister Grant Robertson would have been aware of the proposals for some time.
Official Information releases of Treasury’s “upcoming Issues” papers to Robertson, show that he was regularly briefed on the tax policy work programme.
That then provoked the question; why did the Prime Minister wait until the Bill had been intrdocued before cancelling it?
Former Finance Minister Steven Joyce outlined in the NZ Herald on Saturday the process employed by the last Government to consider major pieces of legislation.
“Both Treasury and the Prime Minister’s Office prepare short cheat sheets for their ministers highlighting the key elements of every Cabinet paper,” he wrote.
“An hour before Cabinet on Monday morning, senior Treasury officials sit down with the Finance Minister and his associates (including in this case David Parker) and discuss the key papers of interest at that day’s Cabinet.
”At a similar time, two floors higher, the Prime Minister’s Office is taking their boss through a similar preview of the papers.”
Simply, the proposed changes would have levelled the playing field regarding GST charges to Kiwsaver investors between the big Kiwisaver funds, owned mainly by the Australian banks, and the smaller, largely New Zealand-owned so-called boutique funds.
The overseas-owned funds were effectively paying 1.5 per cent GST, while the New Zealand-owned funds were paying 15 per cent.
Treasury, in its Regulatory Impact statement, on the proposal, said that situation did not comply with the law.
The proposal to make the change originated in an Officials’ paper, “GST policy issues”, published by the Inland Revenue Department in February 2020.
That paper solicited submissions to which IRD and, ultimately, Treasury responded with the final proposal included in an annual tax wash-up bill.
Perhaps surprisingly, even the free-market NZ Initiative was inclined to agree with the proposals.
Its chief economist, Eric Crampton, tweeted: “There was a plausible but not slam-dunk case for the move. Not about whose interests vs whose, but in just basic principles of how GST should run. They failed to make that case, or to consider offsetting moves to mitigate any sting of it, or to line up potential supporters.”
In another Herald opinion piece, Labour’s 2020 campaign manager and likely manager of its 2023 campaign, Haydon Munro, pointed the finger at “Ministers” — though it would seem obvious he was talking about one, in particular, Parker.
“What appears to have happened in this case is that ministers were too focused on the policy minutiae and not thinking widely enough about the politics,” he wrote.
“That’s something that needs to stop.”
“Recognising in advance where a proposal is likely to break faith with the public is a core job of politicians.
“It’s why we have elected people running our Government rather than professional public servants.
“The risk of getting sucked into the group-think of their officials is something Ministers need to work hard to avoid.
“It’s a bit too easy to spend all day signing off decision papers from your department, chatting to officials in your weekly meetings, making rulings on policy debates between different experts, and forget how much the job of being a Minister is about politics.”
But it is not only Joyce’s column that suggests that the political approval of any policy ultimately rests with the Cabinet, in particular, the Prime Minister.
During Question Time in Parliament on Thursday, Parker appeared confident enough of the process that had been applied to the proposal to suggest that the Cabinet was well aware of what he was proposing.
Opposition Finance spokesperson Nicola Willis asked him whether he had askedhis Cabinet colleagues whether, following the KiwiSaver tax debacle, they had reflected on James K Baxter’s words in his poem, “The Bay”,
She quoted: “How many roads we take that lead to Nowhere, The alley overgrown, no meaning now but loss?”
Parker: “I would say the better saying would be, You’ve got to know when to hold ’em, Know when to fold ’em.”
The Prime Minister, according to sources close to the Cabinet, was furious when she realised what the political backlash to Parker’s proposal was.
What must have worried her was that she would be reminded of her pledge to introduce no new taxes this term.
POLITIK understands her insistence on sticking to this delayed the proposal for a Social Insurance scheme because she believed the levy on workers could be interpreted as a tax.
Robertson accommodated her fears by providing that the scheme would not begin until 2024 — therefore, not in the term of this Government.
She has continually emphasised her “no new taxes” pledge.
In May, she had emphatically assured journalists at her post-Cabinet press conference that the Government was not doing any work on any additional tax policy.
“We have no current tax policy being developed at this point in time—right now,’ she said as she faced repeated questions about whether the Government could go into the election proposing a wealth tax.
But somehow, the “Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Bill proposing to increase GST on some Kiwisaver funds fees slipped through the system.
Or perhaps it didn’t; maybe it went through getting ticked off and approved all the way along the line.
That is what the eventual Official Information Act document releases will tell us.