Backlash to Labour's housing policy has exposed signs of internal party disarray

As the first majority government in New Zealand’s MMP history, with an extraordinarily popular prime minister, many have urged Labour to spend its “political capital.” This is the buffer that enables popular governments to take bold actions that might lose them some voters, while retaining most of their solid support in a metaphorical bank.

Last week Labour spent some of its political capital. en un surprise announcement it said it would extend the brightline test (taxing any financial gain made on the sale of an investment property) from five to ten years and remove mortgage interest as a rental property tax deduction, as part of a suite of housing policy and funding changes.

The backlash was instant and loud, from business, “ma and pa” investors and renters. That this was not read as a positive but a negative act, is not something that the prime minister, Jacinda Arden, will be enjoying. Her leadership brand and popularity rests on being kind, and a good communicator.

As her senior ministers have somewhat hamfistedly tried to spin their way out of the mess, what has been revealed is not a government with a strong master plan, but rather signs of a government in some internal disarray.

These are signs that, should they be exposed more frequently, are likely to lead to a rapid erosion of the trust that underpins its political capital, meaning Labour may be voted out of office sooner rather than later. The first sign was the lack of consultation on the policies; they had not been signalled before as something the government had been considering.

While one interpretation is that this is a sign of unprecedented government resolve, another is that it’s a sign of a government in panic mode, spooked by headlines about soaring house prices. The question that remains unanswered is why the government felt it had to make these announcements before anyone affected by them could be consulted?

This included their own officials. It appears the policy announcements were made without official Treasury and Inland Revenue advice and support. A government preferring to take advice from political advisers within the party – within their own echo chamber – over expert and objective official advice, is a warning sign that it’s not all beer and skittles in the current corridors of power. It appears that this is a policy informed by internal Labour politics, not sound economics.

Labour supporters used to complain about former coalition partner New Zealand First putting the handbrake on Labour policy intentions in cabinet. At times like this, sin emabargo, the benefit of a coalition partner that can force more careful deliberation is clear. I doubt Labour would have been able to make these policy announcements if Winston Peters was still sitting around the cabinet table.

Peters was never one to willingly hand the opposition broken promises on a golden platter, as this government has just done. Not six months ago, en el 2020 election campaign, Labour promised there would be no income tax changes for 98% of Kiwis and no new taxes. It is now highly likely these two policies will see income taxes rise for more than 2% of New Zealanders. National and ACT will be dining out on these broken promises until the next election.

Labour seems to think it can invent new euphemisms for breaking promises, and cross its fingers these will be swallowed whole by the public. Asked why he said in September that there would be no extension to the brightline test, Robertson claims he had been “too definitive” back then. How is anyone to believe anything he says from now on if he admits that sometimes he doesn’t tell the whole truth? This is dangerous territory for a finance minister, in whom the markets and credit agencies must have trust in if the entire economy is to be trusted.

Then there’s the indication that Labour is becoming removed from its voter base. While its long term goals are to make property investment less attractive, and to enable more young New Zealanders to buy their own homes (a direct appeal to National’s white middle class voter base), the immediate impact of any rent rise that may occur as compensation for the additional tax will hit Labour’s traditional voter base – Māori, Pacific, sole parent and young voters – who make up the majority of renters and the most impoverished low-income households.

By removing mortgage interest deductions for landlords, Labour is about to chuck out one of the key support mechanisms they had for keeping rents lower. While landlords could claim interest as a deductible, rents were effectively being subsidised by the state. Now landlords are threatening to pass these costs onto the tenants.

When asked whether the government had considered the impact of the package on rent prices, the housing minister, Megan Woods, said the government had monitored rent rises after it had required landlords to provide healthy homes and rents had only increased about three per cent in the past year. The point she conveniently glossed over – of course landlords didn’t need to pass the healthy home costs on to tenants. They were all tax deductible.

When asked what renters should do if their landlord raised their rent to pay for the unexpected increased tax costs Grant Robertson suggested they “go looking elsewhere”. Admittedly it has been a few years since Robertson was a student, but his ears and eyes aren’t painted onto his head. There simply are no alternative places for them to go.

Of all the characteristics that political leaders need to possess and sustain today, trustworthiness is top of the list. Ardern took a big risk in spending some of her political capital last week. Will it have dented the trust that voters have in her? Not a week after a major policy announcement, there were signs she is discomfited by the public backlash. While Robertson was digging in, threatening landlords that the government “will take action if necessary” should they hike rents to offset the effect of the tax rule changes, Ardern was telling the news media that there were no plans at this stage around the area of rent. Time will tell whether this political schism at the top can be papered over or if it’s a sign of bigger cracks in Labour’s previously impenetrable veneer.

Claire Robinson is a Professor of Communication Design at Massey University and author of the book Promises Promises: 80 Years of Wooing New Zealand Voters

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