THE PRESS FRIDAY, JANUARY 29, 1988. Mr Lange hits the brakes

Press, 29 January 1988, Page 16

THE PRESS FRIDAY, JANUARY 29, 1988. Mr Lange hits the brakes

The first Prime Ministerial press conference of the year was not a good one for the Government. Mr Lange had to apply the brakes to the latest batch of economic reforms his Minister of Finance, Mr Douglas, announced last December, and even had to back up a little way. The rest of New Zealand can but speculate on what occurred when members of the Government caucus met yesterday, just before Mr Lange talked to reporters. It is pretty clear, however, that the Cabinet has been forced at last to heed the objections of Parliamentary colleagues, and the Labour Party at large, to the direction and speed of reform under Rogernomics. The listening was probably done well before the caucus yesterday morning. Government backbench M.P.s have become increasingly unhappy about being left in the dark as the Government rushes ahead with its reforms. Details of the December 17 package, the one that now is being reviewed and rescheduled, were kept secret from them until a special caucus meeting just two hours before the package was announced to the country, effectively denying back-benchers any say in its content.

Top party officials were dismayed and outspoken about the lack of consultation with them. There was a similar disgruntled reaction from the back benches and the party hierarchy to the eleventh-hour disclosure to them of other important items of legislation, such as the State Sector Bill, which will completely transform the relationship between the Government and the public service.

Objections from a wider public to facets of the December package have added weight to these complaints and the Cabinet could no longer turn a deaf ear. It was not helped by the fact that the economic blueprint announced by Mr Douglas was flawed; but at least this gave Mr Lange some reasonable excuses for announcing that two features of the package — a guaranteed minimum family income and a single level rate of personal income tax — will not now be introduced by October 1 as promised. It has proved easier for Mr Lange to say that plans were not fully researched, and that unforeseen obstacles preclude their implementation, than to admit to a revolt in his party’s ranks, not just in Parliamentary members but among key supporters who were so unhappy at the time of the party’s last annual conference.

The Government rushed, for what seemed fair reasons, into the economic statement of December 17. The panic of the stockmarket crash and the need to raise economic confidence before Christmas took charge. Lacking any better harbingers of hope or solid indications of an improvement to the economy, the Government did the best it could with a set of intentions, most of which would not come into play for a further 10 months. This extraordinarily long lead time for essentially Budget measures has allowed people more chance to question what they normally are obliged to accept, as well as giving the Government time to review the advice it had been given. One can only wonder about the quality of that advice, especially since what Mr Lange called the "mechanical difficulties” in effecting the proposed changes in the 10 months available is one of the reasons given for the postponement. Mr Lange also said that there were doubts about whether the proposed tax regime would benefit those the Government wanted to help. This is a new admission; trade union and other critics of the proposed single rate tax scale have been energetic in voicing their objections in the last six weeks, but their criticisms consistently have been dismissed by Cabinet Ministers as groundless. Suggestions that the tax system proposed was unfair to some sections of the community, or would penalise low paid people, were rejected out of hand. Mr Lange now provides examples of his own where exactly these inequalities would occur. When, for many people, the flat rate of tax is taken in conjunction with GST on what is left to spend, the new regime must mean a substantial increase in total tax paid, ill-defined relief from tax was not reassuring.

Cited as one example was the failure of the proposed guaranteed minimum family income, as set out on December 17, to fairly cover all. This scheme was intended to replace the existing family support scheme, which would cease. According to Mr Lange, the guaranteed family income applied only to those people who worked for a boss. Because family support at present is also available for the self-employed on low incomes, the change proposed would leave this group worse off since, under the terms announced, the guaranteed minimum family income would not be available to them. This surely can be fixed at the stroke of a pen if the Government wishes; it is not sufficient reason to delay the change; but it is indicative of the whole package not being thought through carefully. It is also a reminder that such relief will cost Government revenue dearly — more than the planners probably bargained for.

Mr Lange says that, as a result of delaying the flat rate tax scheme and the guaranteed minimum family income scheme, other proposed changes to personal income tax will have to be deferred too, because they are all part of an integral package. This is fair enough; but it rather fudges the issue about the legality or otherwise of the Government’s intentions to remove the exemptions on superannuation and life insurance premiums. As "The Press” reported on the front page yesterday, serious objections can be raised to the Government’s stated course of action. To direct questions, Mr Lange yesterday agreed that there is some substance to these objections. They are being investigated and he and the AttorneyGeneral, Mr Palmer, have the matter under investigation. Mr Lange personally doubts that the legislation will go ahead as first envisaged and was prepared to concede that a possible legal impediment was one of the factors in the postponement. Even if the impediment does not prove to be a complete block, his concession makes his position more respectable.

These are more substantial reasons than the one Mr Lange first offered up to explain the Government’s change of heart. This was that the Government preferred to wait for the report of the Royal Commission on Social Policy. The Government gave little or no thought to waiting on December 17. The arguments that Mr Lange now advances in favour of waiting for the report were as valid then as they are now; but the Government chose to ignore them because it suited it to do so at the time. The belated acceptance of the arguments now suggests the same principle of convenience. The trouble is that a point scored in one direction is a point lost in another: confidence-raising urgency in December now ends in confidencedampening confusion.

Some advantage might nevertheless accrue to the Government from the delay in implementing the tax changes. If the Government gets it right in the end, and the bulk of New Zealanders find the changes are to the advantage of their pay packets — however else the Government extracts the money it needs in indirect taxes — there will be a political plus for the Government. The closer to a General Election that the people get an effective cut in income tax, the more likely it is that the Government will reap electoral advantage; the further removed from an election the tax cut, the less wellremembered it is by voters. One of the biggest questions raised by the reversal is what it means for Mr Douglas, who at present is overseas explaining to all who will listen just how wonderfully the economic reforms are going back home. Even if the events of yesterday fall short of an ambush of Rogernomics by the caucus, it is plain that the juggernaut of reform has got speed wobbles. Mr Douglas has had his head for almost four years and the change in that time has been rapid, too rapid for some. If only to avoid the sort of mistakes that Mr Lange listed yesterday, the rate of change in the future is likely to be at a more digestible pace, and Mr Palmer’s thoughts about the appearance of Governmental arrogance are likely to be heeded.