By Susan Guthrie and Gareth Morgan
Once it was each man for himself and the 'deserving poor' relied on private charity.
That was long after Plato had espoused the morality of taxation, saying, "When there is an income tax, the just man will pay more and the unjust less on the same amount of income."
Nowadays we are a long way even from championing the principle of vertical equity - whereby those with greater wealth pay proportionately more tax than others - let alone echoing Plato's 'morality of tax' creed.
Yet the values that held tax as a moral objective and vertical equity a given for any just society underpinned the thinking of the fathers (as fathers they mainly were) of our mixed economy where the state moderates the excesses of market capitalism.
It was during the industrial revolution that grotesque disparities in wealth and intensified impoverishment of the workhouse poor led the economist philosophers of the 'enlightenment period' to conclude the purpose of taxation was, as John Stuart Mill put it, to "favour the diffusion rather than the concentration of wealth".
Adam Smith, the acknowledged father of capitalism and the philosopher who changed his mind when the reality of the workhouse treadmills was all around him, acknowledged that tax progressivity was desirable.
"It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion."
Smith boldly eschewed his earlier theories of 'trickle down' and acknowledged the limits to the power of the 'invisible hand', wherein pursuit of individual interest benefits everyone, in order to rationalise the reality the industrial revolution was revealing.
Ever since moral philosophy and economics parted ways and mathematical advances reduced the subject of economics to answering 'what if' questions, we've suffered from a vacuum of understanding of why we tax and why we distribute the proceeds via state transfer payments.
Indeed we are so preoccupied with determining how big a budget deficit or size of government we can get away with, how we can cut the cost of welfare, how next year's outlook compares with last year's, that the rationale for why we redistribute has, to all intents and purposes, been forgotten.
One could be forgiven, in the light of the jargon of government-appointed tax working groups and welfare working groups, for believing that the main tax policy objective is to stop tax dodging and the main redistribution issue is to end welfare bludging. That's how dumbed-down and myopic the New Zealand discussion on tax and distribution has become.
The United Nations in 1948 last gave strong voice to the philosophical values of the classical economists cited above, when its Declaration of Human Rights (which we signed) stated: "Everyone has the right to a standard of living adequate for the health and wellbeing of himself and his family including food, clothing, housing and medical care and necessary social services, and the right to security in the event of unemployment, sickness, disability, widowhood, old age or other lack of livelihood in circumstances beyond his control."
This is an inalienable right, not one conditional upon meeting the work-ready tests or whatever the latest set of eligibility hurdles or inquisition practices the Welfare Working Group recommends. It is a human right.
Being in or ready for paid work is not a prerequisite. This right extends to everyone, including the legions of people in our society who perform unpaid work, whether it's care for children or the elderly, or voluntary work for their communities.
How ironic that GDP, the modern economists' yardstick of worth, doesn't even recognise the contribution of these people. How insulting, how absolutely bereft of any values economics has now become.
Britain is paying the price for several decades of economic policies bereft of a moral or ethical foundation.
There comes a point when people become so alienated from those who control the institutions of a society that public disorder is the only weapon they can respond with. It is their equivalent of the U2 (or Fay Richwhite) syndrome among the elite wherein the 'right' thing to do has become to avoid tax (legally).
And those people in the streets of Tottenham don't have to be materially poor, either. Social or financial alienation is sufficient to inspire such reactionism. An economic model that increasingly serves the interests of the few to the exclusion of the many is not sustainable. Polarisation promotes its own impoverishment.
It is not far-fetched for New Zealand's tax and transfer regime to be overhauled so once again it can recognise the value of unpaid as well as paid work, it can ensure everyone has an inalienable right to live a dignified life and it can encourage self-reliance and maximum productivity (in the broadest sense).
Worshipping unfalteringly at the altar of paid work exhibits a tunnel view of how value is created in society. Who is going to claim that raising a child is worth less than packing shelves at a supermarket? The market certainly does.
To acknowledge the value of unpaid work and admit that by far the majority of people are in either paid or voluntary work, each making a contribution to society - that very few indeed can be accused of being a dead weight on others - means overcoming a prejudice that the unwilling should be forced into paid work.
It requires abandoning stereotypes that populist politics incites. It is not true that those on benefits or not in paid work are inferior, and need to be whipped out of their complacency, that they would be 'better' people if they were in paid work.
Yet the Welfare Working Group's recommendations which National is now implementing assume just that.
That our consumer society has become so mesmerised by materialism that the common belief is that everyone should be in paid work is testimony to the corrosion of what we value and our obsession with material gain, no matter how trivial. We have, sadly, lost the plot.
As Adam Smith said of the materially poor: "The difference between the most dissimilar characters, between a philosopher and a common street porter, for example, seems to arise not so much from nature as from habit, custom and education."
There is nothing lackadaisical about the poor.
Our tax and welfare policy is in urgent need of reconstruction so it ensures equal opportunity for all to participate and fully realise their potential in society in its widest sense - whether it be the paid or the unpaid workforce.
The chauvinism in policies that disparage unpaid work - whether it be care of the elderly, juveniles or of the community - has run way too far and will alienate more and more.
See more here from Gareth Morgan talking about his 'Big Kahuna' idea at the Productive Economy seminar earlier this month in Wellington. Here is a Powerpoint presentation of The Big Kahuna.
A video of his presentation is here, courtesy of Scoop.
Vote in a poll here on the idea.
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- Gareth Morgan and Susan Guthrie are authors of The Big Kahuna - Turning Tax and Welfare in New Zealand on its Head - published last week.
This item was first published in the NZ Herald.
(Updated with image, online poll, links to videos, previous articles and presentations).
31 Comments
There is merit in giving everyone a minimum income rather than doling benefits and giving tax credits but the "Big Kahuna's" suggested $211pw is too high as it would encourage dependence.
Make the amount say $110pw for over 25s, give top ups for over 65s (+$160pw), the sick (+$90pw) and students (+$90pw) and the recently unemployed (+$90pw). Most importantly differentiate between the recently unemployed and the career unemployed (+$0pw), and between the genuinely sick and the not so sick (+$0pw).
So everyone gets the same as now except those that wangled their way on to sickness or unemployment benefits. This allows much stricter rules for these benefits as the $110pw backstop exists.
Say a couple currently getting $335pw on unemployment benefits would get $220pw no questions asked, which means that they only need to earn about $4,000PA each (300hrs at minimum wage with a 25% tax rate) to be in the same position. I'm sure that without the bureaucratic interrogation by WINZ they would be happy with the income reduction and it may even get them working!
With the saving in administration costs because of diffinitive rules on any add-ons this would be a good solution without actually encouraging non-participation in paid work and dependence.
$211 isnt that high considering what it costs to live While Im sure Im sure there will always be some ppl who will never work given the choice those are a minority. It is after all your opinion, do you have any evidence to back up your ascertion it would be as bad as you say?
Beyond that your idea simply doesnt make sense because the idea is to have a simple, one off payment so there is very little WINZ type overheads....you take the huge costs out of providing clerical ppl to work this.....you want to bring that back by having differing payments, its self defeating....
You cant win all of the time in every detail when you set a macro-policy, you accept that there is some losses that are outweighed by the gains and move on IMHO. You simply want to undo what the essence of this plan involves....
regards
Bernard, coveting simplicity is too simplistic!
There are always going to need to be add-ons such as those for children etc.
It's not hard to determine who is 65! It's not hard to determine those who lost their job in the last 12 months. It's not hard to determine who is in tertiary study. It's not hard to determine who is too sick to engage in full time work.
It's very simple really.
The problem at the moment is that plenty of people wangle themselves onto unemployment or sickness benefits and WINZ wear it because the option is for the person to have nothing or have the benefit so they often end up getting it even if they don't really deserve to get that benefit. A lower backstop that everyone is entitled to with extra for other situations seems fairer.
Considering current retirees were told that by paying their taxes they were providing for their own retirement, it would be unconscionable to suggest that that entitlement be revoked, there would be absolutely no justice or fairness in paying retirees the same as the perpetually unemployed.
$211pw per person means that a couple (don't want to work-ers) would get $422pw - $97pw more than they would if they currently met the requirement for the unemployment benefit!
That's not exactly an incentive to get people working.
"we've suffered from a vacuum of understanding".....or might it be that we have suffered from political exploitation of the system whereby the original intention of taxation has been altered over time to become the pork slicing vote buying tool of the socialists and the Capitalists...
So let's change that "we've" to "they have"...it would be more accurate.
The real problem Gareth...what is the real problem?
Job creation and wealth creation... as you know stem from investment by capitalists of their capital or other people's capital. This is the very capital taken by govt as tax and used these days to prop govt up on a table with benefit pork and handouts...National and labour do this.
The SCF bailout was National pork....The WFF was Labour pork.
Take too much of that capital in tax and they kill off the investment of savings...investment then swings to use the cheap credit on offer from the banking drug cartels...and the future is certain...the banks will own the country and farm it of profits by using the govt and the RBNZ to make dam sure the demand for credit remains strong and the accumulation of savings remains pisspoor.
This is where we are at. So enough of the tripe about taxation of the rich being the solution..enough of the big kahuna fluff....start looking at the real problem. The domination of the entire economy by a handful of aussie bank bosses with the help of Bollard and English.
Excellent stuff Wolly, you are on top form today.
Gareth is part right though, he deals with some real issues. We do need people to do useful stuff that does not qualify as employment. Including the tricky business of allocating capital wisely in a rigged system. Or trying to understand why NZ is so messed up.
My present beef is the destructive effect of the Reserve Bank of New Zealand. For a few years after they won nominal independence from their spendthrift political masters they did a good job, if a little ham fistedly. Nowadays they favour the international banking system over our exporters.
The RBNZ is like the French with the Maginot Line - a brilliant system for fighting the previous war. They have tamed inflation from 15% down to 5%, but failed to understand why that was needed.
They have a target of 1-3% inflation and therefore consistently achieve 2-6% inflation. This would be all well and good if our trade competitors were playing the same game. The fact that they are not doesn't seem to occur to them. Our competitors are consistently running at 10-12% inflation (funnily enough so are my council rates), but they are blind to this. In this situation we push our exchange rate up to the point where it cripples our manufacturers. When they are sufficiently devastated the exchange rate falls. A stupid way to run things.
Each time we run through this cycle our national debt (private + government + business) goes up and when the debt comes due we sell some more of NZ to "overseas interests". "Overseas interests" is a nice way of saying "the international banking cartel" whose only interest is the mass enslavement of as many people on the planet as they can get away with.
The Reserve Bank are a clever lot but, like the French with the Maginot Line, they have been outwitted.
The present government think they are pro business but they don't understand banking and so are easily led.
The solution is easy in theory, we must match our inflation target to that of our competitors NOT the CPI.
Unfortunately, under the present system that would be a disaster.
We desperately need savings and the only way to encourage savings is to put interest rates up. Which puts the exchange rate up.
So we need a crafty dodge. This is why I favour injecting inflation by printing money. Now printing money has a bad rap because we associate it with dim wits or criminals.
However, every transaction has two sides, and if the newly printed money is well spent then all is well. Well spent could be by buying physical gold to put in the vault (quite appropriate for a central bank) or it could mean building useful stuff. It should be stuff that has a good chance of having a high future value and requires real human effort to create. That does not include foreign currency that can be created by a ledger entry (buying which as a store of value is dim witted in the extreme, at least at the moment).
When will the RBNZ awake from their long sleep?
"We desperately need savings and the only way to encourage savings is to put interest rates up. Which puts the exchange rate up"
How about society changes its mindset and spends less leaving more to save? Why don't we save for the sake of saving instead of needing an interest rate to encourage the mindset? Why don't we save so that we can buy stuff with cash instead of needing credit? Why don't we take personal responsibility for our actions and have some accountablility for our financial decisions instead of relying on the govt to support us?
Your last sentence Wally... can't think past it... Whatever else goes on overseas. Australasia seems screwed by this problem -still can't work out why it feels more developed in Australia/NZ. Need more historical background - has it always been so?
To cheer you up, some happy smiley banks. Joking aside, they do seem to be trying hard to spin it another way - Branson may prove very interesting.
Reforms - for a better future.
It seems the harder life becomes for families in this country, the harder politicians/ authorities try to divorce them selves from the society. What we need is transparency, honesty and in that sense, a more active media world.
It is time to bring together all layers and colours of our social structure, in order to publicly debate where we want to go as a nations in a difficult time.
In stead of broadcasting stupid, often violent programs on our national channels, 1- 2 hours weekly programs with people of our society, debating issues of national interests, could result in some stunning and valuable outcomes.
Learn and educating ourselves, who we are and what we want to be as a nation - in a new, turbulent and certainly challenging epoch of time to come - but united.
Is this an excess of capitalism?
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10747142
Power companies are warning of looming price rises, despite figures showing electricity costs have nearly doubled in the last 11 years.
Ministry of Economic Development (MED) statistics show average power prices rose from 13.9 cents per kilowatt-hour on average in May 2001 to 26 cents in May 2011.
Meanwhile, Contact Energy has called current power prices "unsustainable" and indicated price increases are on the way across the electricity sector.
Considering three out of the four biggest power companies are state-owned and that the state places enormous restrictions on power generation through the Resource Management Act, I'd have to answer no to that one. Try again.
In fact, nearly everything I've seen cited as an "excess of capitalism" is actually a result of government intervention distorting the market. For example, the housing bubble and global financial crisis.
For state-worshippers it is much easier to blame "greed" or "capitalism" than to honestly examine why government intervention to achieve various outcomes almost inevitably fails and usually results in the opposite of what was intended.
You are dreaming. NZ does not have an electricity market. Based on current technology we simply can't have a market. We have most of our electricity being produced by hydro schemes that were paid off years ago. The marginal cost of a unit of electricity from such plants approaches zero. We will not be able to build anymore because of the extreme difficulty of getting everyone to agree, unless we get desparate it will not happen. Unlike the UK we are over 1400km away from anywahere that could supply us with any electricity we cannot produce. We are alone when it comes to electricity, if we do not make it we don't have it. New Zealand needs plenty of affordable electricity, The market wants high returns from its investment why would the owner of a power plant want any competition?
Gareth
I don't know if you read these comments but just in case you do...
I enjoy your unusually enlighted economic view but you have missed one salient point Marx made, every(man) loves to labour, which in fact means every person loves the purpose that comes from having a job, this is not entirely from the wealth it creates. Hence I see no danger from 'work for benefit' schemes.
Is a child better served by a fulfilled parent or a bored parent?
Neven
I don't think that view makes a lot of sense Neven...
If a parent gets a job and in so doing becomes more fulfilled then they need to pay someone else to look after their children while they are away. That person is a person in a paid job!
Does the paid childcarer have more purpose than the unpaid parent who cares for their own child? I think that this is part of the point that Gareth is trying to make, to acknowledge that a parent looking after their child -is- labour, even if it is not currently valued monetarily because it exists outside the market economy. That view in itself would be empowering to parents, and send them the message that the work that they do bringing up children is valued.
But it used to be this way. My parents raised 3 children on one income (I was born 74, brothers 77 and 79). My mother did not return to work until we were all at school and her hours matched our school day. Most other families were the same, and they were valued. There was no need for childcare. My parents made responsible financial decisions that fit within their circumstances.
What has changed since then?
http://www.unitedfuture.org.nz/address-to-the-unitedfuture-2011-conference/
The answer is too often, no. If you talk to the average Kiwi that is what you will hear.
Tell me who among you here today has not thought or said:
- It is so hard to get ahead
- You do everything right, but you are no better off
- We would love to have another child, but we just cannot afford it
Recognise any of that? What about these?
- We don’t seem to be any better off than those who earn much less
- We work our backsides off – but for what?
- Just getting good schooling and healthcare for our kids breaks the bank
- We would be much better off if we didn’t have kids
What's the govt answer to this - WFF and more welfare. The problem with these and a universal income (it's still welfare) is it removes the personal responsibilty and accountability. Why isn't our govt. asking the real questions? Why aren't the people asking the real questions? What has changed over the past 30 years? What has caused this fundamental shift? Are Gareth's ideas even defining the real proplem let alone fixing them or just putting a bandaid over a sliced artery? I have no doubt that monetary/fiscal/economic theory and govt. policies are to blame so why do we expect them to fix it. We as individuals and as a community are also to blame and need to ask the hard questions as well.
While I agree that our problem lies in New Zealand's overall poor productivity, I don't think that invalidates attempts to make the welfare system better. The purpose of welfare is not to solve the problems we are having, the purpose of welfare is to protect people from the worst consequences of them - and that's still something that is needed. You wouldn't run a risky business without paying for insurance.
You're right that this doesn't address the larger problems New Zealand is facing. I still think it's worthwhile.
What more ideology from the Helen Clark FemSocialist handbook,! I'm sorry that you don't understand, being so restricted in what one comprehends must be depressing (or matbe not, as you won't understand why it should be)
Perhaps you can tell me if a 15 yo girl gets pregnant because she doesn't 'like' gonig to school and all that horrid education stuff, What 'Market' is she aiming for?
Your assertion that simply because paid mothers will employ caregivers to continue their employment somehow expands to the fatuous statement that the 'Market values all caregivers' is well...fatuous
Neven
There are many things to like about this Big Kahuna idea.
It's simple.
It's cheap to run.
It has an attempt at equity at it's heart.
It doesn't blame others for the issues.
In the end morality is a thing of the human heart. It cannot be legislated and the root of it is what you and I choose to do rather than telling others what they should do.
A guy in a google group I'm subscribed to posted this.... Very..very well said I thought..!! :
Hi Jim –
Enjoy reading your comments as always. You asked why it is bad that the rich are getting richer today.
Because a widely stratified economy doesn’t function well.
A small number of rich, holding a greater percentage of the wealth, cannot produce sufficient consumer demand for the companies that they own. Right where we are now.
In this society assets inflate creating a variety of subordinate problems.
Boom and bust cycles
Prohibitive barriers to entry and/or prohibitive or hidden risks for middle class investors
Asset related expenses (such as housing) become burdensome
The asset deflating cycle segment that follows is the single worst and most dangerous condition an economy can confront
The asset deflating cycle segment also allows the super-rich and well-advised to build wealth from the collapse of wealth among those who do not have the resources to compete in down markets
The actual incidence of rags to riches is statistically insignificant (sorry, no source to cite, but I read this in at least two books within the last few years).
Widely stratified society disincentivizes the poor, lower, and middle classes robbing the society of vast productive possibilities. While some may argue that bettering oneself is always motivational, the crucial role of a capital reserve becomes obvious when one is beneath the hand-to-mouth threshold.
I think that the meritocracy is alive, if not perfectly well, and that for the most part it is positive for society. A significant group of people have worked up from the middle class to the up-upper middle class, i.e. the working wealthy. These are almost certainly a deserving group of high performers on average. They are examples of the meritocracy in action. But it’s unclear to me that economic outcomes at virtually any other level of society demonstrate any such intrinsic virtue. There is a very large segment of society that was once in the middle class that is slipping out of it on the bottom. While in some cases – as with preceding generations – there is a tendency to toss out the weak before they can retire, I do not really think that the decline of the middle class has anything substantive to do with performance. It is in large part just another symptom of the widely stratified society that pits the wealthy capital holders, ever in search of cheaper labor, against the consumers and workers who in the last cycle made the rich richer, but who now don’t fit anywhere in the formula.
Just some thoughts. Mark DI like the idea Iain.
This fiscal system addresses a lot of inefficiencies in our system and gives incentive to grow. It also allows either a left or right leaning government of the day to tweak the thresholds to achieve there desired sway within this system without compromising these efficiencies.
I.e.; Your Marxist Comrades need only to increase the GMI and the corresponding tax rate to keep the power with the people and the evil corporations in check.
Or if my Capitalist cronies were elected they need only to tweak the GMI down to allow for a lower taxes and growth agenda.
It doesn’t address the ponzi scheme monetary system we use.
Further information here - in particular it's interesting to read the summaries under the heading 'The Big Kahuna and You'.
http://www.gmi.co.nz/bigkahuna/
What I like about the way Gareth presents the information is that he's honest about the upsides as well as the downsides depending on individual circumstance - and he makes good comments as to how the downsides might be dealt with.
Tried to buy the book yesterday via Whitcoulls - on order but not in stock yet. Available via Gareth's website though.
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