By Bernard Hickey
An earthquake shook New Zealand's political and economic landscape last week.
Finally, there is now a clear set of battle lines between the two major political parties ahead of this year's election.
It will be fought over the issues of foreign debt and income inequality, both of which are the major issues facing most developed countries in the post-Global Financial Crisis era.
In his state of the nation address Labour leader Phil Goff detailed plans for a tax-free zone for the first NZ$5,000 of everyone's incomes, paid for by an unspecified crackdown on tax avoidance and a new and also unspecified high tax rate on taxpayers earning well in excess of NZ$100,000.
Goff has correctly understood the growing mood of revolt in New Zealand and elsewhere about the widening gulf between the uber-rich owning most the assets and the working (or unemployed) masses. Last year's tax cuts for the richest New Zealanders paid for by a consumption tax hike on everyone has given this mood new momentum here.
Prime Minister John Key hit back quickly with his own mood-catching device. New Zealanders are in an austere and nationalistic mood. We are striving to balance our own household books and know in our bones that New Zealand as a nation has been borrowing too much from overseas for too long. We have spent the proceeds of this foreign borrowing or invested it poorly.
Key argued the moment of truth was near where we had to decide what to sacrifice to start repaying this foreign debt and to avoid being forced into a humiliating Irish or Greek style slash and burn exercise. Key argued the first pieces of ballast to ditch were stakes of up to 50% in Meridian Energy, Mighty River Power, Genesis Energy and Solid Energy.
Now the battle of 2011 is on. Labour wants taxes on the rich and no asset sales. National wants to preserve tax cuts for the rich and to sell assets to repay debt.
It has surprised many how quickly the fault lines emerged, but they have been building for years, and not just in New Zealand.
Worsening inequality
Debate in policy-making circles in the stressed developed economies of the Northern Hemisphere is all about dealing with economic inequality, which many believe helped cause the financial crisis and is now worsening dramatically because of it.
In America, the top 1% own more wealth than the bottom 90%. The middle and underclasses borrowed heavily over the last decade to compensate for long term stagnation in real wages. Meanwhile the financiers of all this borrowing made out like bandits. Now after being bailed out by governments worldwide, the same CEOs, bankers and fund managers that lent like drunken sailors are paying themselves bonuses as if nothing has changed.
The unfettered American version of global capitalism has been exposed as an unsustainable fraud that drives ever bigger shares of wealth into the hands of a powerful elite. This was the main topic of debate this week at, of all places, the World Economic Forum at the luxury Swiss ski resort at Davos.
Unsustainable foreign debt
Meanwhile, fear is growing about the sustainability of the foreign borrowing that many developed economy governments such as America, Britain, Japan and New Zealand have embarked on to run big budget deficits. How long before global financial markets punish the borrowers again with higher interest rates?
New Zealand's political leaders bottled these twin fears about foreign debt and economic inequality in their respective platforms. But neither have yet to take the hard decisions to deal with both issues.
If Goff was serious about fixing inequality he would be proposing land taxes and higher taxes on family trusts to ensure loopholes aren't created. If Key was serious about reducing foreign debt he would be cutting social welfare, health and education spending, and imposing new taxes on wealth.
Both leaders missed opportunities last week to really deal with these two issues of our age.
32 Comments
"If Key was serious about reducing foreign debt he would be cutting social welfare, health and education spending, and imposing new taxes on wealth." Cut health and education spending? Are you serious?
As for a tax on wealth, it may be a valid idea. There is one such tax in France but reading this article http://en.wikipedia.org/wiki/Solidarity_tax_on_wealth, it looks like it's cost the country money instead of bringing in more.
Key should have have done what Goff proposes.
He should have made the first $5000 tax free.
BUT .. he wasted that opportunity with his tax cuts.... ( first $5000 tax free will do more for aggregate demand than Keys' tax cuts ever will)
In marketing terms ... Goffs idea is a winner
Selling SOEs' does not address any of NZs' problems ... ( someone posted that it is akin to swapping good assets for less good assets.)
in marketing terms...Keys idea is a loser.
I think most ordinary people realize this ..... and if Labour were not so lacking in sound ideas, National would probably lose the next election.
Until we start embracing ideas like Morgans "big Kahuna".... we will keep going down the same road.......Ahhhhhhhhh
Couldn't agree more!
Please. please Dr Morgan - we need a Big Kahuna party and unfortunately (for you) - no one else will do to lead it!
I'm so serious I'd even join it (having never held a political party membership in my life) AND I'd even hand out brochures in the street for it.
Someone has to save the nation.
This really is a great little country... change just has to happen, or we're going to end up like the US.
Kate says: "This really is a great little country... change just has to happen, or we're going to end up like the US."
I think NZ was a great little country but it has lost its way in the last 20 years trying to be like every other country, simply increasing its population to provide economic growth. Now we know that this trick doesn't work, unfortunately neither Labour or National understand this problem. However I don't think we are going to end up like the US, more probably we will become an economic satellite owned by China.
To turn our economy around starts with us - the NZpublic and also the way we interact with the media. We have to make ministers/ parliamentarians accountable for their actions respectively inactions.
It seems to me on many fronts, our ministers aren’t performing to a high standard. Our property industry is just one example – bloated/ roaming wild - resulting in massive costs to the tax/ ratepayers.
Minister Joyce allocating infrastructure orders in sectors like telecommunication, transport and energy to foreign companies in stead to NZcompanies the NZworkforce and minister Brownlee’s dealing with “Pike River” are questionable at least. They would not have a place in my cabinet any longer.
Next to a number of members (e.g. P. Benett NA) from other parties - I think Russell Norman makes good sense for a better and balanced NZeconomy.
http://www.nzherald.co.nz/politics/news/article.cfm?c_id=280&objectid=10703105
A regressive capital tax – with no tax to pay after 10 years.
Our economy needs to be structured away from the Real Estate industry into real sustainable productivity.
Considering the fast changing worldwide environment and it’s challenge to make progress in many regards we must select rather capable parliamentarians not parties and more carefully.
Thanks, nice RN speech.....I might vote Green again.
regards
The un-sustainable debt is not......its minor....Private ddebt is huge, if the public purse ends up bailing out the banks aka Ireland then sur e it will be. otherwise putting taxes back to where they were and having another higher tax band will go a long way.....
regards
Another higher tax band? Aren't people on higher salaries not paying enough tax? I've tried out the IRD tax calculator https://www.ird.govt.nz/calculators/tool-name/tools-t/calculator-tax-rate.html. There's no option for this financial year but I've used the 2009-2010 year which tells me:
Someone on 40K/yr pays $7210 in income tax.
Someone on 120K/yr pays $35150.
Logically, I'd have thought that since there is a x3 factor difference in income, it'd be fair to expect a x3 difference in tax paid too. But the person on 120K pays in fact nearly 5 times more tax.
Add to that the fact that if these people have kids, the person on 40K would additionally receive a WFF subsidy of $130/week with 1 kid, $190/wk with 2 kids and $250/wk with 3 kids http://www.ird.govt.nz/calculators/tool-name/tools-w/ir271-worksheet-wfftc-tables-2011.html. The person on 120K gets nothing. Assuming 2 kids, that's an $9880 tax credit per year for the person on 40K...more than what they paid in tax. In other words, the person on 40K pays no tax at all, and in fact gets a credit, while the person on 120K pays over 35K in tax. And you'd want to make that more because people on higher incomes don't contribute enough? No wonder that with this kind of mentality, there is a "brain drain".
Don't get me wrong, I don't have a problem with paying tax but being overtaxed to then see the money wasted and misused, thank you very much. I'd rather have the choice to do as I see fit with any extra money and continue supporting various charities.
and elly let's not forget that 120k ain't that much. to start it from 200k seems more palatable to me.
Well, someone on 200K paid $65550 in tax in the year 2009-2010. That's a pretty nice contribution to their country already, especially compared with $0 contribution for some people on lower incomes who also receive more tax credits than they contribute as per example above.
Elly, if you don't mind me asking, what are some of the charities you contribute to?
NZ Red Cross, Salvation Army, Unicef, World Vision and a couple of smaller NZ ones (not all together, usually 3-4 at any one time and not just one-offs when someone comes knocking on the door but monthly direct debit). When we arrived in NZ, we loved it and I said that if we were lucky enough to get jobs and settle here we had to give something back. So we did.
Elley, thanks for your comments, how right you are!
The over-simplistic demand for "equality" smacks of left leaning outcry of envy, equality of wealth by government decreed "wealth transfer" is the straight path to discouragement of every person who is either naturally more intelligent, better educated, has a proper attitude to work and achievement etc. etc. etc.
Equal opportunity does not lead to equal wealth. It takes much more, USING the opportunities and ADD ones sweat and tears and elbow grease, determination and braincells, ability to constantly educate oneselves etc.
We are equal as being human, but we are never equal in our characteristics and heaps of other differences.
I am just wondering, if Bernard thinks every third class little journalist is equal to him?
PS: No, I don't belong to the wealthy class, far from it.
Gertraud, you are I think confusing "equality" with "equity" - or "equal" with "equitable".
Equity means something that is fair and just - not necessarily "equal".
Inequitable does not mean "unequal" - it means unfair or unjust (usually in terms of distribution of taxation and/or wealth in this context).
For me I split income for whats needed for essential living, food, accomodation....power...then there is disposable income...so lets say that min amount is $30k...
So someone on $40k is only really earning an essential wage paying tax on what is a small disposable amount $10k.....that means the effective tax rate on their disposable income is 72%...
On $120k a year its $90k disposable income so roughly 30% tax....
So someone on $40k is left with about $3k for "luxuries" / savings / pensions etc, while someone on $120k is left with $55k.....a huge difference.
WFF, yes they pay no tax in effect.....dunno about you but I would want to try and make ends meet on $40k....
The point is ever country has a progressive tax system....society needs to dcide at what level that is to pay the bill.
"dont contribute enough" the first point is the Govn bill has to be paid....
Brain drain....so you are saying Sweden is full of stupid ppl? I think their tax rate is 60%, funny but there are lots of high earners there...so a misnomer I think....
Wasted and mis-used....this would seem to depend on the point of view....sure I can see times when the money seems to not be well spent, but have a look at the US where clearly the health system is twice as expensive and delivers a poorer result.........most of that difference is spent on administrating the private system and dodging paying....
Charity.....you only have to look at history and the Victorian workhouse to realise that charity isnt adequate...
regards
- "So someone on $40k is left with about $3k for "luxuries" / savings / pensions etc, while someone on $120k is left with $55k.....a huge difference." - Indeed, but you do realise that everybody has an equal chance of education? (Public) schools are free, and it is one's choice to learn and work hard or to just waste the opportunity to end up with a good job later in life. I worked hard and studied hard while most of the other people in my classes had fun, went out, tried alcohol and all sorts of other things. Then now, those same people whine about their (crappy) situation and tell me "Oh, you're so lucky". Oh really? So if you're asking do I think it's fair that I have a lot more disposable income than they do...well yes. Sure, there may be some luck involved and not everybody has the same potential, but a lot of it is down to hard work, motivation and knowing what you want.
In the same vein, I resigned from my first job at 23 to go to the UK before having a new job or anything sorted out and someone in their late 40s told me "Oh, what a mistake, you know what you got but you don't know what you're gonna get". Well, sure but I thought that kind of attitude wouldn't get me far. I wasn't too worried, maybe because I'd had 5 jobs offers for my first job, and it turns out I was right (got 6 offers in a week and increased salary by 20%). We did a couple more crazy things that also went just fine despite people telling us we were, well, crazy. More recently, we took the chance to resign from our jobs to set up our own software devt company so that we could have the flexibility we were after (namely, work from home and be with our kids). It was a big risk since we couldn't afford things not to work out, but hey, they did from the word go and it has been one of our best moves so far. As an unintended consequence, our income has gone up 30%. All this to say, maybe if people had a little bit more aspiration, will-power and motivation they could also certainly get a higher salary if that's what they want. At the end of the day, you create 90% of your "luck". That's what I think anyway.
- No, I am not saying anything about Sweden. It's NZ I'm talking about, and although I'm not an expert on the subject I hear a lot of talk of a brain drain with people leaving NZ to go to Australia.
- Yep, there are areas where I'm sure the tax money is spent well. Not so well when I see bail-out for investors in failed finance companies and the likes though. As for the health system, the US is pathetic but NZ is hardly cheap. In France you never pay a cent for any kind of medical treatment and yet the top tax-rate is 40%.
- Charity. Well, each to their own. There is no reasonment behind my involvement other that it makes me happy to feel that I might make a small difference to a few people's lives. It just feels more personal than tax and that's not something I'll stop doing anytime soon.
Your story reminds me of a quote:
"Be nice to nerds, you'll end up working for one"
-Bill Gates
lol Actually it's just hubby & I for now but employing may be on the cards in the not-so-distant future...and I've never been called a nerd before :)
Thanks Steven, that's an interesting way of thinking about it. Pity that most people increase their lifestyle at the same rate as their income.
Well Goff wants to target those rental property investors who 'socialise their losses and capitalise their gains', but still rules out a capital gains tax and won't say how he'll do it yet
I like Phil Goff, I really do, and I hope he sticks around for a long time. After all, he's the one stopping Labour getting into power.
How about we start from the top.
Less ability to generate wealth across the planet as of now, and more competition, so incomes in a relative sense, go down from here.
Why not start by reducing the incomes of Govt employees - on a downward sliding scale?
It'll happen, whether we like it or not - better it is controlled.
The spin-off will quickly have a knock-on effect - everyone will retract on the back of that, and we'll have a nice wee controlled recession, but the books won't look so bad.
We're going to have a permanent recession anyway, unless someone comes up with an energy source as compact andf transportable as oil. As John Fleming pointed out on Nine-to-noon, it may not happen.
Imagine the votes in that????? Meaning it's not Key or Goffs fault, it's ours.
Ireland tried that....controlled it isnt....
However from the little I can figure private industry wages have taken a bit of a knock while Public sector have not....but it does depend on the sector....for instance IT (for me) is booming.....lots of jobs....
Right now if the Govn said and Im incl MPs, we are going to do a 5% cut across the board, I would go with it....
Energy source, alternitive to Oil, there isnt one and there wont be one....ppl seemed to live quite well in the 1950s and 60s on considerably less energy than they use today....in fact I think I just read that our yearly electrical powerconsumption just rose 1.6%....great eh.........
regards
In order to become 'cleaner' are we consuming more electricity? Throw out the woodburners and bring in heat pumps is the cry currently. Well most people I know who have heat pumps installed (esp the elderly) are running their heat pumps on air con to escape the warm summer we are having. In winter they run them all night so the house is warm when they get up. Not surprised out power consumption is going up.
Bernhard, why do you not invite Iain as a competent, but controversial writer and thinker into your team ? It would be such a stimmulation - almost a necessity in the current economic environment.
Walking Eagle®
Hone Harawira , New Zealand Member of Parliament (alias John Hadfield, his true name)
On a recent trip to the U.S.A. , Maori Party M.P. Hone Harawira (alias John Hadfield, his true name, his grandfather was a pakeha) was invited to address a major gathering of the American Indian Nations in Kitimat, B.C. Due to his recent examples of how to inflame the Maori Indigenous situation in New Zealand ...
He spoke for almost an hour, echoing his racist mother's doomed-to-fail radical ideas for increasing any First Nation's standard of living.
At the conclusion of his speech, the tribes presented Hone with a plaque inscribed with his new Indian name -"Walking Eagle".
The proud Hone then departed with his entourage, waving to the crowd as he left. A news reporter later asked the American Indian Chiefs how they came to select the new name given to Hone..
They explained that"Walking Eagle" is the name given to a bird so full of shit it can no longer fly.
Harrrrhahahahah...oh feck what a laugh FCM...best one for the year so far....let's hear it for "walking Eagle" aka John Hadfield...harhaahaaha
gets my vote, Walking Eagle, that's given me a smile for the day.
Iain you old codger, you stay outside the tent mate...only place to be...ps will you be buying shares in the new Heartland bank down south?
Exactly listening and reading - D. C. Korten could be my older brother. Yes, there are a good bunch of bloggers here, who think in principle an economy doesn’t have to grow to succeed.
– Wow - what a shake right now here in Kaikoura - http://www.geonet.org.nz/earthquake/drums/ - and only a 4.0
Smaller countries have to think smaller, but with bigger ideas – my idea with a long term future - branding for a “100%NZpure Economy” !!!!
http://www.stuff.co.nz/environment/4618508/New-Zealand-forest-ecosystem-crisis
Iain, when I first joint this blog about three years ago I thought this is a young, rather rebellious, independent Kiwi, who has the potential as an economist to make some most needed changes in the NZmedia world. He’s economic statements as a consequence will positively influence the wider NZpopulation. I was wrong.
Excellent video clip!
Yep, any government which tries to promote "austerity measures" as being in the "best interests" of its citizens is simply a patsy for the global banking cartel.
Austerity measures at our expense due to corrupt world banking institutions is definitely not in the best interests of the citizens Kate. But .........we do as citizens need to stop spending more than we earn or produce so some kinds of benefits will need to be cut.
We also need to take personal responsibility for our decade of luxury spending based on believing in bubbles (like so many financially illiterate did) and listening to parasites like RE's & PI's saying "you can't lose". I personally blame the RBNZ and the US FED(Greenspan) for most of all the problems we now have
But.....again, surely some form of 'austerity' is a must to teach the morons out there a lesson or two about the consequences of binge credit addictions?
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