On The Midterms, Adrian Orr And Taxing The Banks

It used to be a joke, but it seems that a lot of Republicans really might have moved to Florida to escape from the gulag of Dr Fauci. While in these midterms the “red wave” didn’t happen anywhere outside of Florida, the GOP control of the Senate will now come down to how Nevada, Arizona and Georgia pan out. Georgia looks to be heading for a run-off election on December 6.

Currently, Republican former football star Herschel Walker has a 1% lead over Democrat incumbent Raphael Warnock, but is sitting only on 47.8% of the vote, still well shy of the 50% threshold. If Warnock does eventually manage to eke out a victory, the Republicans would then have to win both Arizona - where it is currently 1.5 points behind - and Nevada, where it is currently 1.4 points ahead.

Given that the old pattern where provisional/absentee votes used to favour Democrats no longer applies evenly across the country, the Senate remains a tossup, although leaning slightly toward an eventual Republican victory.

Looking further ahead….

With luck, the looming rivalry between Donald Trump and Florida governor Ron DeSantis for the party’s 2024 presidential nomination will see the Republican Party tear itself apart. Before yesterday, Trump and DeSantis were both being urged to woo Kari Lake, the extreme right’s latest darling, as their VP choice in 2024. Lake, a former TV anchor, does have spectacular media management skills. (Lake has publicly said of Ron DeSantis that he has “B.D. E.” Look it up on Google if you don’t know what that is.)

Yesterday though, Lake somewhat underperformed in her bid to become Arizona’s governor. Currently she is two points behind her Democratic opponent, but only 69% of the vote has been counted. If Lake does eventually become governor, she is shaping up as the potential future of MAGA politics, given that she seems able to impersonate Trump’s abrasive style and policies more competently than Trump can himself.

What Trump has done is to make charisma and a talent for provocation a necessary part of the political toolkit. That development can be the only excuse for this totally bonkers campaign ad run by Ron DeSantis. If this guy is supposed to be the rational alternative to Trump, the world could be in trouble, come 2024. Because it seems that God votes Republican and Ron is the Chosen One.

Orr, Not

When Covid hit in early 2020, we had the combined efforts of Reserve Bank governor Adrian Orr and Grant Robertson and Adrian Orr to thank for the fact that New Zealand avoided disaster. That, plus the lockdown measures taken to protect public health.

So… The wisdom of 20/20 hindsight now being displayed by the centre-right parties over the re-appointment of Adrian Orr seems pretty despicable. Yes, we are now feeling pain – in 2022 – from the measures taken (a) to protect the economy, (b) rescue firms and (c) save jobs in the face of the challenges that Covid was posing two and a half years ago.

At the time, there was no manual that spelled out the exact Goldilocks amount of stimulus required to keep the economy running at just the right level of warmth. Nor was it clear to any central banker – anywhere in the world – when the exactly right moment to begin raising interest rates might be.

Personally, I’m glad that Orr and Robertson erred on the side of excessive stimulus rather than undershooting, which might have seen firms and jobs go to the wall. Lest we forget: During 2020 and well into the second half of 2021, tourism and other sectors were screaming out for more infusions of government funds, more support packages and for an extension of the wage subsidies.

Among other things, Luxon’s current castigation of the government for re-appointing Orr is quite hypocritical. Only a year ago, Luxon publicly slammed Simon Bridges for saying that Orr should not be re-appointed:

National leader Christopher Luxon on Tuesday morning said Bridges’ comment didn’t reflect the party’s position…“We don't want it [the re-appointment process] - to get politicised because we don't want to undermine the independence and the trust that it has both with the government and the public.”

Yet this week, Luxon has been doing exactly what he criticised Bridges for doing last year. As others have pointed out, Luxon’s politicisation of the appointment process is the same trend we’ve seen in the US with the appointment of Supreme Court judges. Luxon seems willing to take New Zealand down that sorry road, regardless.

The politics of scapegoating

In reality, this year’s surge in inflation is not merely a byproduct of the demand side stimulus decisions made at the Reserve Bank. The recent spikes in inflation have also been partly due to the supply side effects of the Ukraine war and its impact on oil and grain prices, and by the supply chain disruption being perpetuated by China’s Zero Covid policy. Treating Adrian Orr as the scapegoat for all of this – as National and Act are trying to do – looks extremely shabby.

After all, if failing to keep inflation within the target band is reason for Orr losing his job (as mooted on RNZ yesterday morning) then the central bank governors of Britain, the United States, Australia, Canada, France, Germany, Italy, Spain, Portugal, Mexico and Japan should also be fired, simultaneously. All of them - with 20/20 hindsight - could have raised interest rates a wee bit earlier. At the time though, the concern was not to kill the economy by hiking up interest rates just as firms were being weaned off government Covid support. The hope was that the supply side problems would ease, and thus enable a softer landing.

Globally, there is every sign that we are now nearing the end of the interest rate increases. If and when the interest rate hikes meant to curb inflation finally do bring about the long expected recession in mid 2023… Many of us will probably start to look back at this year with some feelings of nostalgia. After all, losing your job altogether is worse than struggling with rising prices at the supermarket.

Why Canada is taxing bank profits

Now that the Covid safety nets have been removed, the obscene level of profits the major banks are racking up in New Zealand has been spurring outrage, and calls for action. For pointers, here’s what Canada did earlier this year:

Finance Minister Chrystia Freeland is imposing a one-time windfall levy on Canada’s major banks and permanently increasing their income tax rate, fulfilling an election promise that has raised the ire of the industry’s top executives.

The measures will force banks and insurance companies to pay an additional C$6.1 billion ($4.8 billion) in tax over five years, according to Freeland’s budget plan released Thursday.

And why did Canada do such a thing to its major banks and – interestingly - also to its insurance companies?

The [Canadian] government said that massive, government-funded Covid-19 support programs have helped the financial sector recover faster than other parts of the economy, and now it’s time to pay some back.

Exactly. That sounds only fair and reasonable. And here’s the detail of how it works in case anyone in Grant Robertson’s office wants to take notes:

The windfall tax of 15% applies to taxable income earned last year by banks and insurers in Canada over C$1 billion. That will force them to pay about C$4.1 billion, sliced into payments from 2022 to 2027, according to budget documents.

Not that the Trudeau government is being grabby:

…The [Canadian] government did not go quite as far in increasing the banks’ income tax rate as Trudeau had threatened to during last year’s election campaign. The prime minister had pledged to increase the maximum federal income rate for financial institutions to 18% from 15%. Instead, Freeland is lifting it to 16.5%, but lowering the threshold at which the new rate will apply.

Or, to put the exact same thing another way:

The [major banks and insurance companies]would pay the tax on an average of their Canadian-based taxable income above $1 billion for the 2020 and 2021 tax years. The amount payable will be paid in equal instalments over the next five years.

Finance Minister Chrystia Freeland is also proposing to hike the corporate tax rate on bank and insurance profits over $100 million. The PBO report said increasing that rate from 15 per cent to 16 .5 per cent would generate $2.3 billion over the next five years.

But wait, there’s more. Trudeau is also imposing a tax on companies that use their excess profits to carry out share buybacks. Even so, he has ruled out imposing a windfall tax on Canada’s oil and gas companies even though they’re all racking up huge profits from the Ukraine war. And even though UN Secretary General Antonio Guterres has just told the COP27 summit that developed countries should impose a “special” tax on fossil fuel companies and give it to the Third World countries now suffering from the climate change impact of the profiteering practices carried out by First World countries over the course of oh, the past century or more.

Instead, New Zealand has been among the few UN member countries who have agreed to pay $20 million into a climate change compensation fund. Beyond that small gesture though, the Ardern administration is shutting its mind to domestic windfall taxes on major banks or on energy companies – just as it did when it was being urged to impose a meaningful capital gains tax, and a wealth tax.

Crikey, even the Tories in Britain are talking about a windfall tax on energy companies. They’re also planning to raise large amounts of revenue by fiddling with the inheritance tax. ( In the space of two weeks, the Tories have gone from recklessly cutting taxes to sneakily raising them.)

In an exact reverse of the bracket change response to inflation that Luxon is advocating here, British Chancellor Jeremy Hunt will freeze the inheritance tax threshold and thereby let inflation deliver him far more tax revenue. As Bloomberg News says, what Hunt is doing is a tax hike in disguise. As opposed to the tax cut in disguise that Luxon is proposing here.

Meanwhile our supposedly centre-left government seems to be paralysed by the very thought. In New Zealand, tax increases tend to be treated as a form of hate speech.

Footnote One: Finally… Riddle me this: what significant elements of the stimulus 2020/2021 package would Christopher Luxon have scrapped, and when would he have done it? Would he have ended the wage subsidies sooner, reduced support for small business earlier, turned a deaf ear entirely to the entreaties coming from the tourism sector etc etc? Just curious.

We know – because they keep on telling us – that business leaders crave “certainty” above all else. Yet if Luxon had been PM during the pandemic it seems that business would have been cold turkeyed earlier. In 2020/2021, business would have had the “certainty” of being put on survival rations while a National government played Russian roulette with border openings well before Covid vaccines were widely available. Yet we’re supposed to take it on faith that National are more competent at running the economy.

Be Careful

Still, and in the hope of a better world… Here’s a remake (and partial rewrite) of the Patty Griffin song “Be Careful” by a stellar trio of queer artists: Madi Diaz, S.G. Goodman and Joy Oladokun, All proceeds will go to the pro-rights Abortion Within Reach organisation. Diaz, who also wrote and released a terrific track last year called “ Resentment” contributed the final verse to this song that drives the message home.

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