The price of milk

Note: this post originally appeared on ‘Douglas to Dancing’, a blog I maintained from 2007-9 on the ACT New Zealand political party. The blog was an extension of the thesis I wrote about the Act Party in 2007, From Douglas to Dancing: explaining the lack of success of ACT New Zealand and evaluating its future prospects (PDF).

ACT has always been a resolute supporter of a single, unified rate of GST, with the explanation that anything different would lead to that (cliched) “bureaucratic nightmare”. Indeed, Sir Roger Douglas was the very archichtect of the single rate of GST which was introduced in New Zealand in 1986 – at first at 10%, but within a few years raised to the 12.5% level we have today. ACT can keep this position – but employ a slight election-year gimmick along the way.What to do? Here’s a 5 step plan:

1. Call a press conference led by Heather Roy (the “caring” face of ACT). Announce that as part of ACT’s “Agenda 2020” plan and to relieve “ordinary Kiwis” of some of the pressure created by rising food prices, GST on food will be dropped to 7% should ACT form part of the next government.

2. Show voters the party is serious by making this the first of ACT’s three “bottom lines” to be announced during the rest of the year.

3. Trump any ensuing derision from Labour or National by saying that the big parties are obviously out of touch with “ordinary Kiwis” struggling to make ends meet (similar angle to National when it countered criticism of John Key’s January 2007 “Underclass” speech).

4. Deflect any criticism that ACT is going back on its principles by emphasising that the 7% rate will eventually apply to ALL goods and services, not just food – but that food is the priority right now due to the rapid rising prices.

5. Heavily promote the policy the following weekend by giving out free cartons of milk emblazoned with ACT livery – along with fridge magnets of course.

Without question, this would be a populist measure. But desperate times call for desperate measures. Despite some serious competition in recent weeks from the Labour Party and the Ruth Dyson singers, ACT probably still has the largest “image problem” of any New Zealand parliamentary party. Bringing back Douglas has only reinforced for many voters what they already thought: ACT is a hard-right party of the 1980s. This might be worth thinking about for the ACT supporters scratching their heads and wondering why despite all the publicity ACT gained in its Conference month of March, the party is still stuck below the 2% support level in the four recent opinion polls conducted by TVNZ, TV3, Roy Morgan and Fairfax.

To paraphrase Jenny Shipley, let’s make it perfectly clear. The General Election of 2008 is just six months away. If ACT doesn’t make a move soon, just when is it going to? It’s all very well to parade “principles” to which the party is not going to trade away. But while a purist message might be popular with the likes of Alan Gibbs (who as announced by ACT today, recently donated $100,000 to the party) is not a vote-winner, as the party is currently finding.

But I don’t think cutting GST just on food even would be contradicting ACT’s principles. The aim of the party has always been to cut tax – and this is exactly what this policy would do. ACT could quite plausibly say that it would rather cut GST on everything now, but that to be a prudent manager of New Zealand’s books, it will be possible to introduce the 7% rate on other items only as economic conditions allow.

A move to cut GST would also be a powerful antidote to use against the perception of ACT being a party of the rich. ACT is probably never going to change this widely-held perception, but it certainly wouldn’t hurt to try once more. GST is a regressive tax – the poor are worse affected than the wealthy because they spend a much greater proportion of their income on comestibles. So cutting GST is immediately going to benefit the less well-off more than the rich, even though it would make a difference to every consumer’s pocket. Moreover, there are more absolute votes in cutting GST than cutting the 39% rate of tax which speakers at ACT’s Annual Conference in March enjoyed denouncing as an “envy tax”.

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