Fob off the blame to side-step cheap talk conundrum

Dr Eric Crampton
24 April, 2019

Essayist and author Nassim Taleb is more than a little tedious on Twitter. But he gets one big thing very right. Skin in the game matters.

Think about two blokes at the pub arguing about whether the Crusaders or the Blues will win the next match. It’s pretty easy for both to make pretty ridiculous claims. But if one offers a bet on the outcome: Crusaders by 6, even odds, $100 – everything changes. Suddenly, there’s skin in the game. And cheap talk becomes expensive.

Until recently, Labour had spent a decade in opposition. When you are in opposition for that long, you don’t any have skin in the game. You can float all kinds of policy proposals without worrying much about whether they would work. That is especially true if you are sure you’re not likely to win the next election.

When you are far from power, the point of policy proposals isn’t to set the foundations of a policy agenda in government. It rather is to keep your supporters interested and active – demonstrating commitment to core supporters’ values. Whether the policy would actually work is besides the point.

Worse, it becomes easy to believe your own rhetoric because you are never confronted with reality. In opposition, the stakes are low. If you can convince yourself that the only possible objections to your touted policy come from moneyed interests that would be hurt by it, ideological interests with their own agendas, or ideologues backed by moneyed interests – well, that will just make you all the more convincing in selling your policy to your supporters.

“Don’t listen to those objections to our proposed capital gains tax. Well, actually we’re not proposing a capital gains tax. We’re proposing a Tax Working Group that will totally show how great a capital gains tax would be so that we can campaign on it for the next election. All those objections you are hearing about technical problems in implementing one – those are driven by ideologues who hate the poor backed by Big Money who want to protect their unearned rents. And our Tax Working Group will show it.”

We have heard a lot of such talk over the past couple of years. In opposition, you can claim it’s simple – just point to all the other countries that have a capital gains tax. You can ignore how New Zealand’s tax system spent three decades evolving around the absence of a capital gains tax and that bolting one on now would be just a titch harder.

But things change once you have skin in the game. It becomes a bit more dangerous to get high on your own supply, as they say. Or to believe your own sales pitch.

When you are in government, you get briefings from officials about the real and substantial problems in implementing a capital gains tax. You hear reports from officials that a capital gains tax could easily increase rents – hurting the people you are trying to help. That implementing it would bring years of headaches and bad press as unintended consequences pop up, and problems in tax drafting became obvious. That it is technically difficult to work a capital gains tax into the system we have, that it will be messy, that it will not raise much money, and that the housing problem is better handled by fixing the messes around housing supply.

When those warnings come from inside the bureaus, from people who know more about it than you do and who you can’t summarily dismiss on ideological or interest grounds – that changes the game. Some of the briefings from officials will sound impossibly complicated, and not understanding some of the warnings will be troubling. In opposition, everything is easy. In government, the prospect of years and years of taking free hits as the problems in implementing a capital gains tax make headlines and a bevy of people line up to say, “We told you so and you didn’t listen!” – well, skin in the game matters.

And it isn’t just the capital gains tax. In opposition, it is easy to promise to build a hundred thousand houses or plant a billion trees. In government, things get harder. If you, contrary to official advice, ban an entire industry in Taranaki, you wind up having to bolt on a just transition compensation scheme to clean up some of the mess afterwards.

So if your coalition arrangement gives you a plausible excuse for putting the whole thing in the bin, you have a win-win-win situation.

It’s a win for the Government in avoiding the political consequences of a terrible mess to come while fobbing off the blame. It’s a win for your coalition partner, who gets to claim a victory that might help it cross the 5 percent threshold.

And it’s a win for the country more broadly because the tax would have imposed a lot of burden for little gain: there is no capital gains tax for New Zealand that is both economically desirable and politically feasible.

Maybe 2019 isn’t really the year of delivery. Maybe it’s instead the year that the Government starts realising it has skin in the game, and that getting policy right matters.

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