Infertile Debates with David Parker
Fixation on Piketty’s idea
On 8 April, former minister and Attorney General David Parker announced his retirement from politics. Although we know very few details about the circumstances of his departure, it is easy to notice that he got burned out. In this regard, it is time for him to retire from parliamentary politics. Nevertheless, he has been everything good and difficult in the Labour Party. On the positive note, everyone who got to know him agrees that he represented an optimistic and always happy figure within Labour. On a more difficult note, he also represented everything difficult inside the Labour Party: stubborn, ideologically driven thinking that is impossible to convince otherwise.
The ideal of a goodhearted politician
David Parker will have his valedictory speech in May. Then we may hear more about the reasons why he is leaving parliamentary politics. However, it is quite difficult to see that it was not the tax debate why he decided to leave. Especially after we learn from a Radio New Zealand article that he had already notified Labour Leader Chris Hipkins in the middle of 2023 about his contemplating standing down from politics. This was before the election, right after Hipkins ruled out the introduction of a capital gains tax and a wealth tax. Although Parker is still promising that he will continue to participate in the tax debate, it is hard to believe. The recent interactions with him in these internal Labour Party debates suggest otherwise.
Personally, I am grateful that I could meet him and have the opportunity to discuss tax ideas and foreign policy issues with him. These discussions taught me a lot about direct policy formation. To be honest, these discussions also led me to decide to keep a distance from direct participation in political debates.
Parker himself did not cause any disappointment. He is everything worth supporting the Labour Party, and he represents an ideal when it comes to describing a politician with good intentions. In our short discussion about foreign policy (my PhD thesis and book were about New Zealand’s foreign policy, so I felt obliged to raise my arguments about the recent developments with him) showed that he was genuinely appalled by China’s recent moves in the Indo-Pacific. Parker intended to find a solution to keep New Zealand out of the AUKUS Pillar II, however, he also understood the international tensions.
Another positive note to his character as the ideal of goodhearted politicians was our last debate at the Labour’s Annual Conference in Christchurch, in November last year. Parker and Michael Wood intended to redefine Labour’s Party Constitution by introducing a detailed principle for which the Labour Party stands. The proposal intended to describe how Labour should form economic policies to support people who live on working incomes. My colleagues at the Labour branch, whom I attend, immediately raised their concerns that this wording excluded people living on benefits or retirees. Also, the core principles of Labour (progress, social solidarity and cohesion) should not be this detailed because the effective policies would change over time, and the way Labour pursues these principles might also change forms. It was I who expressed our concerns immediately after Parker’s statement. (Serendipitously, it was the second time we spoke immediately one after the other at the conference.)
So, here we had a debate again, nevertheless, Parker’s intentions were clear: it was economics mostly through which people’s livelihoods can be improved; this was his key motivation to promote the amendment to Labour’s constitution.
The wealth tax fixation
After the announcement about Parker’s departure, commentators were quick to note that the wealth tax idea is dead in New Zealand. Although the wealth-tax proposal is indeed strongly tied to Parker’s works, it is not dead. Inside the Labour Party, there are various professional discussions about the pros and cons of the introduction of a wealth tax. These discussions involve engagement with the party’s members to inform them about the advantages and the risks of the wealth tax.
Regarding Parker’s retirement, these discussions do not mean much because it seems he is no longer involved. After the Labour Party’s annual conference in November, there were articles about the decision that Labour would examine both the introduction of capital gains tax and wealth tax. Even though it was not a clear decision (I can confirm it was not), commentators emphasised that this was indeed the end of the wealth tax. It was easy to notice that these commentators had informal conversations with Parker because it was only Parker who could have been motivated enough to talk to journalists about the decision with such a negative outlook for the wealth tax.
In this piece, Parker’s preference for a wealth tax is called a fixation. It is because there were many conversations when journalists, laypeople and experts argued against the wealth tax and even against Piketty’s arguments from which Parker developed his idea about the wealth tax. In these discussions, there were enough arguments to convince Parker not to continue his efforts to promote the wealth tax. Still, he kept arguing for the wealth tax, and he used the same justifications that were already criticised with meaningful arguments.
In his recent interview on the Platform, he still discussed Piketty and the findings of the High-Wealth Individuals Research Project (2023). Piketty’s arguments were discussed here on this blog already, for example, in this post. In our conversations, I told Parker about these problems.
Concerning the High-Wealth Individuals Research Project (2023), I am sorry to write, but the work appears to be rather ideologically driven than professional. In May 2024, I composed a 2,600-word-long document about why the study should not be referenced in any policy discussions. Some of these arguments:
The use of the concept of economic income is incorrect in the study
The study understands economic income as all the incomes individuals may have: wages, salaries, realised and unrealised capital gains. However, it is not correct. In the economic literature, economic income is defined as the income that differs from the typical income of an industry or asset class. For example, the interests on bank deposits are usually compared to inflation. When a bank deposit yields 5% interest, and the inflation rate is 3%, that means the deposit yields 2% economic income. Similarly, if an investment into land brings a 7% yearly average capital gains, a land that brings 8% capital gains in a year yields 1% economic income.
The scope of fairness is very narrow
The study puts the main emphasis on the vertical aspect of taxation fairness. However, the horizontal aspect of fairness of taxation (people with similar income and circumstances pay a similar amount of taxes) does not receive sufficient attention in the study. Even though the study mentions that people in low-income deciles, when the government transfers that they receive are considered, they pay very low or negative Effective Tax Rates (ETRs). The crucial elements why this can happen, by the application of the Working for Families Tax Credits (WFF), are not described. Nor are those unfair situations that the WFF might create.
The inclusion of various taxes in the study is not comprehensive
The study attempts to estimate the total tax paid by individuals compared to their income (both actual and assumed). In this endeavour, it is right to include the GST, not just the individual income tax payments. However, it would be rational to include estimates about the corporate income tax as well, because it is eventually the individuals, the final consumers, who pay the price of goods and services that also include the profit margin of companies. Furthermore, there is another tax, the property rates, that has a significant role in funding public services at the local governmental level. The inclusion of the property rates would be instructive too.
The methodology of defining the effective tax rates is incorrect
The study compares actual tax payments to the assumed sum of actual cash income and both realised and unrealised capital gains. By definition, unrealised capital gains are not realised, so it is not actually income: “ … the results in this report are estimates,” (p. 3.). The study even reveals that it is based on various scenarios, not on facts: “… the magnitude of the reduction in ETRs estimated when capital gains are included shows that capital gains are a significant source of untaxed income for high-wealth families. This result is true even if there is a significant error in the measurements. Scenario testing of different assumptions, including assuming capital gains were 20% lower, did not significantly change this conclusion.” (p. 3.)
The use of estimates contradicts what the Ministerial foreword says: “… this Inland Revenue report breaks new ground because it goes further, because it is based on actual data.” (p. ii).
Unfortunately, the list goes further on.
As it is described here, Parker was adamant and unable to change his views. Politics should be about comparing and exchanging views and synthesising the views into complex policies. We cannot know why Parker was so inflexible regarding his wealth tax ideas. Maybe the tax debate represented a tough wall, and he understood that it was too high for him to jump. Nevertheless, it is clear that if someone has a fixed idea and has to debate it all over again for years, that can easily lead to burnout. It is likely the case with Parker.
His valedictory comes in May … to be continued!