Is Ardern going social-democratic?

One of the most urgent social and economic issues facing the Ardern government is housing affordability. The poor suffer from a lack of emergency housing (many are accommodated in motels), the younger ‘aspirationals’ can’t afford an entry-level property. Low interest rates due to the pandemic-related recession mean cheap credit, and property investors (landlords) have taken advantage of that to buy, contributing to a rapid rise in prices and rents, and pushing home ownership further out of reach for young people, including couples. The residential property boom in New Zealand has been legendary. And it is a significant source of inequality. While (mainly older) investors get rich from rents, aided by tax-deductions and a lack of any effective capital-gains tax, their younger tenants help them to pay off mortgages and get richer. Young renters’ own prospects for financial and family security were undermined in the process.

Prime minister Ardern, in her first term, and in coalition with the New Zealand First party, had not helped by ruling out a proposed comprehensive capital-gains tax. NZ First had blocked the proposal in cabinet. Ardern, for her part, wanted the issue ‘off the table’ for the 2020 election and basically said ‘no CGT on my watch’.

Now that her Labour government has a solid parliamentary majority (and NZ First has gone altogether), Ardern and finance minister Grant Robertson have announced a CGT within the first 10 years of ownership of an investment property (if it’s not a new build), and an end to the tax-deductibility of interest payments on loans. Investor pressure-groups are outraged. The opposition National Party is calling Ardern a liar.

Indeed, the new policy may well be classed as a breach of a pre-election pledge on Ardern’s part. But there was huge public pressure to do something to take the heat out of the property market and to give the younger generation ‘a fair go’ as first-home buyers.

In addition, the government is introducing supply-side measures, for example to assist local government in opening up new suburban developments in order to accelerate construction of new homes.

Aside from the NZ government’s pandemic response (widely praised for its effectiveness), this new housing policy could be the beginning of a majority ‘Labour-unleashed’ government. Housing for working families, either rent-controlled or owner-occupied, has always been a key social objective for Labour governments in New Zealand. The history is that Labour builds public houses, and then National sells them off.

Ardern’s government has been building them again, but has also been under intense pressure from left and centre to rebalance the residential property market in favour of first-home buyers.

Ardern’s willingness to back-track could be seen as a broken promise, or as a bold and pragmatic political step, depending on your status in the property market: investor or tenant. To extend the ‘bright-line’ test for capital-gains tax could be a sign that Ardern is now confident enough to break away from the fiscal and political conservatism of her first term. It will take a good deal more confidence to address other outstanding social and environmental problems such as benefit inadequacy and renewable energy.

The pandemic has already forced an abandonment of neoliberal fiscal orthodoxy. Whether Ardern’s pathway forward leads to anything resembling social democracy remains to be seen.