Being David Parker: Bold ideas that find an audience years later

Sunday, 18 May 2025

Former Labour Party policy giant David Parker is famous for a few things — one of them, his inability to persuade party leader Chris Hipkins to back a wealth tax in what turned out to be the dying months of the last Labour administration.

For the record, in what he said would be his final “exit” interview after leaving Parliament for a future role in the private sector, Parker made clear to the Sunday Star-Times that he backed not just a capital gains tax but an annual wealth tax and an inheritance tax as well, as only all three could cover all the bases.

But for the policy wonks who tend to make up his fan base, his views on the electricity sector may be of as much interest.

Parker has been the only politician to fully flesh out an alternative to the controversial ‘Bradford’ market reforms that gave birth to the modern day “gentailers” - Meridian, Genesis and Mighty River Power — in the late ‘90s.

His idea for a “single buyer market”, which Labour unsuccessfully took to the polls in 2014, would have seen the country switch tack to a halfway house between a nationalised and a market-based power system.

A state-controlled monopoly dubbed Power Co would have paid a “fair price” for power generated from existing power plants, based on the cost of production plus a profit margin. In consultation with retailers, it would have calculated how much new generation was needed, and contracted with generators to supply that power, taking into account the government’s climate change goals.

Power would then have been provided to retailers at the blended price Power Co needed to pay for the likes of hydro, wind and gas-fuelled generation — which remains the key point for Parker.

Labour originally suggested households would save $330 on their energy bills each year from not having to overpay for hydro power.

Parker describes the current market as enabling “profiteering”, but emphasises he is not accusing the power firms of anything improper.

“You’ve got to be careful not to be too personal against the gentailers here, because they are responding to the market rules.”

It’s a telling statistic, he says, that Meridian Energy, the country’s largest power firm, has a market worth of $15 billion on the NZX but employed only 124 people at its actual power stations and development sites around the country, according to its last annual report.

Labour scrapped the proposal for a single-buyer market along with a planned capital gains tax in the bonfire of policies that followed its 2014 loss at the polls and the election of new party leader Andrew Little.

Parker later held his counsel while fellow minister Megan Woods became the longest-serving minister to hold the energy portfolio under the Ardern and Hipkins-led governments.

But with the coalition Government about to review the findings of a report it commissioned into the sector by British consultant Frontier Economics, and NZ First deputy leader Shane Jones on the warpath, some type of “structural change” appears back on the agenda.

John Harbord, chairperson of the Major Electricity Users Group, whose members include the likes of Fonterra, NZ Steel and the Tiwai Point aluminium smelter, says that 11 years after it fell down at the polls, some opponents have warmed to Parker’s original plan.

Harbord said on Wednesday that he was in a Chatham House-rules meeting about a month ago with many Auckland businesses.

“There were people around the table who were openly saying that when David Parker proposed ‘NZ power’, they actively opposed it, and now - if they could wind the clock back — they would be actively supporting it, because the market has fundamentally failed and Parker actually got it right.”

Alternative mixed-market models, such as establishing a “thermal co” to own, operate and invest more in so-called ‘firming’ generation from carbon fuels, were an option, with elements of the same thinking, he said.

But Harbord agreed the single-buyer model was an “inarguably simpler”, conceptually.

Parker himself may have moved on a little though.

The single-buyer model would still deliver the benefits he touted, but a government could achieve the same result by charging the hydro generators for the water they use, he says.

“What you've got to do is to strip out the ‘super profit’ that is taken from the public water resource, and whether we do it through a single-buyer model or a price on water, it's the same thing, dressed up in a different way.”

The proceeds from water-charging could then be used to fund a pumped hydro scheme at Lake Onslow that could be owned and operated by state-owed enterprise Transpower “and then it would be possible to have a market system for renewable generation”, he says.

He said another big idea at the moment - the Government contracting into the market a big wodge of new electricity generation - “doesn’t fix the dry year problem, nor the ‘super profit’ that's taken out of water.

“You need that super profit taken out of water to be put back into the system to reduce prices for consumers, in part through Lake Onslow.”

If the gentailers don’t have the financial flexibility to pay for water while making big investments in new renewable generation because they have taken on too much debt to pay inflated dividends to their shareholders over the years, then that should be their problem, Parker says.

“If they've so wrecked their balance sheets in that way, then it will be new entrants that take their prize, not them.”

How far to push the gentailers is an important question, Parker says. “But the first questions are, what is right for the New Zealand economy and what's fair for consumers?”

If continuing to stand up for a full smorgasbord of new taxes while contemplating his move into the private sector might seem radical, Parker disagrees.

And the speed at which he rattles out the details suggests he is not overly concerned with whether he is taking everyone along for the ride with his arguments — perhaps his Achilles heel in politics.

“A ‘wealth tax’ or a capital income tax, a capital gains tax — credit one against [the] other. Big threshold at the bottom, so that you are really only capturing the top 1% with the capital income tax, AKA the wealth tax,” he explains in one breath.

An inheritance tax is still needed because there is a section of the population who can avoid a “realisation-based capital gains tax”, that taxes capital gains only when assets are sold, he says.

“I use the examples of likes of [Australian billionaire] Gina Reinhart or Elon Musk. They've got such enormous fortunes that they will only ever realise — I don't know — 5% of their assets during their life.”

But the first $1m of inheritance income should be tax-free, he says. “You could even make it it $2m. We are talking big thresholds here.”

The annual wealth tax is still needed despite the inheritance tax because “the net present value of a tax paid 50 years hence is close to zero”, he says.

“Wouldn't it be great if you could earn wages all of your life and then only pay tax on your salary when you died?,” he explains, using irony.

And a capital gains tax is still warranted despite the wealth tax because the latter would only capture a small proportion of the population, and the wealth tax is needed if the capital gains tax only taxed assets on their sale.

“If you had an accruals-based capital gains tax, you wouldn't need both. But if it's a realisation-based capital gains tax, you do.”

Parker laughs at the question of whether all that could be crafted as a “vote-winner”, even with big cuts in income tax.

“Who knows? You don't know unless you try. New Zealand has been there before of course and we were a better country when we had those sorts of settings.

“It needs to be a ‘tax switch’, rather than ‘a tax grab’.”

If being Parker in the era of modern politics sounds, well, probably mainly just incredibly frustrating, he makes clear that’s a feeling for the listener, not him.

“I'm ‘glass half full’. I think I’ve moved the dial. I think we're inexorably moving to fixing some of these things.”

But that doesn’t mean he’s convinced policy debate in New Zealand is as healthy as it could be.

“If you look across the ditch at the Australians, whether it's work-based savings or their tax system, or how most of their markets operate, I think they have made better economic decisions than us now for 20 or 30 years,” he says.

“We made some good ones, but overall, they've made better ones, and it shows in their standard of living.

“There's lots of people here that profess to be in favour of markets, but they have a very simplistic view what a competitive market is, and they're willing to put up with imperfections in a way that harms productivity and consumers.”