'THE NATION'
DAVID PARKER
Interviewed by DUNCAN GARNER

Duncan More now on Labour's new tax policy. I'm joined in the studio by Labour Associate Finance Spokesman, David Parker. When Australia brought in the Capital Gains Tax they grandfathered it, so it was only on new assets bought after the law changed. What New Zealanders haven’t seen this week is the fact that it'll be on all these assets from the day you introduce the new law, so not on new assets. Why didn’t you grandfather it like the Aussies did?

David Parker – Labour Associate Finance Spokesman
Because they made a wrong choice there. New Zealand's got the benefit of just about every other developed country in the world having already introduced the CGT, Capital Gains Tax, and the Australian decision to grandfather assets has caused distortions in the economy that we can avoid here. But you make the fair point though, it only applies to gains after the date when it's introduced, not to gains to that day.

Duncan You say it's not going to be on the family home, but what if you're a small business owner, running an office from home and for tax purposes of course you're going through the IRD, you will if you sell that family home, because you’ve been running it as a business in part, as a percentage, you will have to pay some sort of Capital Gains Tax on a part of your sale of your family home won’t you?

David The detail of that will have to be worked out by the expert panel.

Duncan What's your intention?

David Our intention is if part of it is a business premises and part of it's a home, the home doesn’t attract Capital Gains Tax, but let's take an example for example of a motel where one of the units is effectively the home, well that won’t be taxed but the rest of the motel complex will be.

Duncan What though – I mean Colin James who we just spoke to before, he runs a little business from home, I mean maybe 15 to 20% of his house might be a small business, that would therefore be up for a tax grab in this?

David Well no he'll have a choice, if he wants to say this is my business premises and treat it as tax deductible, deduct his interest and his rates, well he can't have it both ways and then say it's not my business, that part of the house is my private home. But look he'll have a choice before then, if he thinks that would be disadvantageous for him he might just say look the whole thing's my home.

Duncan So the answer is yes, I mean there’ll be some part of homes that are run as a business, it could be up for a tax.

David If you claim tax deductions for that part of your home, you won’t be able to say it's your home for other reasons.

Duncan You’ve been attacked this week around some of your fiscal numbers around this, it doesn’t pay its way till 2018, 2019. Doesn’t look so good for you does it, you’ve got a two to three billion dollar hole there in those first five or six years?

David Not concerned about those accusations at all. I mean the opponents to this have had a bob each way, they’ve said this is a great big tax grab, Labour Party are going to tax and spend, when our numbers show that that’s quite clearly not the case.

Duncan Well that’s exactly right, it doesn’t pay its way, I mean you can't afford that $10 a week taxcut that you're giving every New Zealander because you have a two billion dollar hole in the short term.

David Oh no, no, I disagree.

Duncan Yes you do, I've looked at your own numbers in front of you/

David No look the revenue builds to 2.8 billion dollars per annum. In the short term we are reliant on some of the tax that’s raised from increasing the personal tax rate to 39 cents for people over $150,000 but with those two measures combined we've got enough measure to reduce debt as quickly as the National Party.

Duncan Over the long term, but in the short term you accept that you have to borrow more money over the first five years because it doesn’t raise revenue at the pace that you require it to recover your spending.

David Well obviously if you don’t sell the billions of dollars of state owned assets that the government was going to sell in the next couple of years you don’t have that money. But over time this raises more revenue and leaves us in a stronger position and we keep ownership of our SOEs.

Duncan And it does raise more revenue, 26 billion dollars after 15 years, what are you going to do with that money?

David Repay debt.

Duncan So it's all on debt?

David Half of it funds a tax switch. Everyone gets their first $5000 of income tax free – everyone.

Duncan So the 26 billion goes on debt.

David Half of it goes to tax reductions, 40% of it goes to debt reductions and the other 10% goes on things like economic development programmes.

Duncan Let's look at economic development because that spending. Will you have a freeze on spending, like effectively the government has now? You’ve just seen we've come out of a zero budget, will Labour have zero budget given these tough economic times or given the GDP figures you’ve just seen, is it now time to take the freeze off under Labour's thinking?

David Look we know the country's in a tight spot. The government's racked up a deficit of 16.7 billion dollars this year. We are not going to go to the electorate saying that look we're going to tax more and spend more.

Duncan You haven’t mentioned any spending yet though have you?

David No we haven’t…

Duncan So will you have a freeze on spending or not?

David We've said we'll take on the government's budget lines as we have done in these budget projections. We will be fiscally prudent as we were last time we were in government.

Duncan So you will carry on what they're doing now, which is an effective freeze?

David No I haven’t said that. What I've said is that we have in our budget projections taken on the budget lines that the government is giving to us. We have said that 50% of the CGT money will go to tax switches, 40% to debt repayment and 10% to economic development …

Duncan Will you reintroduce a ceiling around the budgets, I mean you remember that Michael Cullen had one, the Nats had one at 1.1 billion, came to 800 million, suddenly disappeared to zero. Will you put back a ceiling of new spending on or not?

David We will be fiscally responsible …

Duncan What does that mean?

David We will be transparent, we will have a ceiling but I'm not going to announce it today.

Duncan So you will start spending more money?

David No I haven’t said that, I've said we'll have a ceiling on expenditure. You know when we were in government we reduced government debt, net government debt to zero. Our projections show that we will reduce government debt again…

Duncan But you will reintroduce a new ceiling?

David We will have a limit on our spending, a ceiling if you like yes, but I'm not announcing that today.

Duncan Just back to your CGT, will this stop the housing bubble and do you think housing prices will come down?

David I don’t think housing prices will come down. The Savings Working Group that recently reported to the government said that the last housing bubble would have been half as big if we had had a Capital Gains Tax. So bubbles aren’t as big, that means that interest rates done have to as high when the Reserve Bank pushes against inflation, and also keeps the exchange rate down.

Duncan How will housing be more affordable for New Zealanders, because that’s one of your – I know you have a few aims of this, but one of the central aims is to make sure that New Zealanders can get into their first homes.

David Because house prices won’t go up at the same rate as they have historically, and over time housing will become more affordable, and you know we've got declining rates of home ownership in New Zealand. Younger generations have been closed out by the older generations who effectively are cross subsidised by the younger generation.

Duncan So it won’t stop a bubble, but it will take – I'll pinch Bill English's words here – the sharp edges off the next bubble potentially?

David Exactly, it will take half of it according to the Savings Working Group.

Duncan Rents will go up though according to Treasury 6%? That’s not good for your voters.

David No I don’t accept that.

Duncan Why not? You accepted the Treasury advice that the CGT's good, do you accept the Treasury advice that 6% rents will go up?

David No the Treasury's advice is that it's uncertain. The experience in overseas jurisdictions has been that there hasn’t been a big increase in rents. I see the Housing Lobby says that over time they think rents will go down, because there’ll be less competition from professional landlords for properties.

Duncan So if you don’t win the next election, will the Capital Gains Tax be Labour's policy going forward into the 2014 election?

David I personally would certainly support that to be the case, but that’s up to a future party. I'd be 99% certain that it would be.

Duncan Why can't it be 100% certain, because if this is such a great long term policy you’ve no wedded yourself to this haven’t you?

David I'm not 100% in control, none of us are. You know I'm 99.9% certain that it will continue. Look this is fair, it's important for our future, it introduces more fairness into our tax system. We've got people who don’t currently pay tax when they should, and it improves the economy.

Duncan What if polls in the next few weeks and so forth show that New Zealanders are really underwhelmed by it and don’t want it? Would you go back to the drawing board?

David Hey look this is not poll driven. If we were poll driven we wouldn’t do this in the first place.

Duncan So you're gonna stick with it?

David We're gonna stick with it. You know since we've announced this I've had oodles of people approach me, business people, people in the street who think other people aren’t paying their fair share. People who own second properties saying this is necessary for New Zealand, we support what you're doing.

Duncan So just quickly do you accept that Labour is now willing to tackle big issues?

David Yeah, absolutely.

Duncan Okay, absolutely. Retirement age of 65 national superannuation. Phil Goff said yesterday, and I want to quote this, he said it's time to tackle quote "the biggest issues in New Zealand because National won’t." The Retirement Commissioner says the age of retirement should go from 65 to 67 by 2033. Why doesn’t Labour now look at this and knock National out of the argument because they won’t debate it.

David Well one of the things that this does do is re-establish contributions to the Cullen Fund. So it does that. As you’ve said it leaves us with big budget surpluses in years to come, which is at the time extra people come on to superannuation, and at the same time that health costs build. So this really is future proofing New Zealand, but now we're not making the announcement that we're gonna raise the superannuation to 67.

Duncan Are you debating it in the caucus?

David No we haven’t had that debate.

Duncan Why not, if you're willing to tackle the big issues?

David No this is the one that we're focussing on at the moment, this is really important for future of New Zealand.

Duncan But Phil Goff said that he's willing to tackle the big issues that National won’t. This is one of the biggest issues.

David And he most plainly is.

Duncan But this is also one of the biggest issues going forward. You’ve seen the comments from the Retirement Commissioner in the past week, they're not isolated, we can't just look at the Capital Gains Tax, you know the retirement age is a big issue going forward, 10 billion dollars as a cost next year alone.

David It's a big issue. One thing at a time.

Duncan I just want to look quickly at your future. A lot of people have speculated that you are a potential Labour leader. Does that sit uncomfortably with you?

David Well you'll have seen earlier in the year I've been resolutely loyal to Phil Goff. This man is a good leader. He's shown today that he's a brave leader, that we're taking a plan to the country which we hope will win us the election.

Duncan And do you rule out one day putting your hand up should Phil Goff lose the election?

David As I've said I'm resolutely loyal to Phil Goff, and I'm not going to speculate on that.

Duncan Speculate at this stage.

David Well I mean it's not a fair question really. I mean I think we've got a great chance at the election because New Zealanders know that what we're presenting is a good option for our future.

Duncan Alright. David Parker, thank you for joining us in the studio this morning.

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