By Jenée Tibshraeny
There are renewed calls for trust fund babies, rich kids, silver-spooners and inheritors of old money, to give some of what they’ve been given back to society.
Journalist, researcher and author, Max Rashbrooke, says New Zealand needs to start taxing wealth, in addition to income, to curb inequality.
In his book released this week, ‘Wealth and New Zealand’, he proposes introducing a new tax regime that could include a wealth, inheritance, gift or more robust capital gains tax.
“It’s one thing if people have worked for their income, but when they’re inheriting it, that’s self-evidently unfair because lots of people don’t inherit anything,” he told interest.co.nz in a Double Shot interview.
“That sense of compounding inequality going forward, which really restricts the opportunities for the next generation; I think that’s what has people worried.”
“It’s not entirely new – there’s always been inherited wealth… but the point is it’s almost certainly getting worse.”
Rashbrooke explains, “New Zealand is about as unequal as most other developed countries. Our wealthiest 1%, that’s about 34,000 adults, have about a fifth of all the wealth in the country.
“You expand that out to the wealthiest 10%, they’ve got over half of the wealth in the country. That’s pretty much what you’d find in countries like Germany or Canada.
“That’s a huge concentration at the upper end. What I think it tells you is that although we like to say we’re an egalitarian country, we actually aren’t.”
Wealth inequality both worse and more ‘in your face’
Rashbrooke, who’s also authored, ‘The Inequality Debate: An Introduction’, says we talk a lot about income, but policymakers need to direct their attention to wealth.
He describes income as a river and wealth as the reservoir this income flows into.
“Income is what gets you through the week, but having wealth to draw on is what gives you stability, it gives you security, it gives you the chance to ride out the tough times and plan for the future,” he says.
“The fact that a small number of people have got a very large amount of the wealth, and a huge number of New Zealanders – you know half the population – have got virtually no wealth at all, makes an enormous difference to what kind of lives people can lead.”
Rashbrooke believes wealth inequality has become both worse and more pronounced due to social media over the last 30 or 40 years.
While there isn’t hard data on how wealth inequality has changed over this time, he says there’s data showing income inequality has shot up.
“Not everyone has a problem with that, and you can make an argument that that’s because of merit and hard work and stuff, but what we are now seeing is that generation of older people, who became much richer over last 30 years, they are now handing that over to the next generation, and I think that’s what really gets people concerned,” he says.
Housing the locus
Rashbrooke admits, “Housing is where you see all those factors of the last 30 years, of those growing gaps… coming together.
“It was about 20 to 30 years ago that you started to have this big shift in shares of income going towards the rich. And that came at about the same point that house building rates started to taper off, in part because of a very big reduction in the amount of social housing that got built.
“You’ve got all these things, which are compounding, and they come together, and the locus of them is the housing market. Disproportionate income shares, inheritance and lack of housing means there is a very limited number of houses going, and yes, they will inevitably go to people who’ve got parents who can help them.”
Tax at one end, handouts at the other
Rashbrooke says, “New Zealand is pretty extraordinary in that fact that we don’t tax wealth in any meaningful way.”
He notes that without an inheritance, wealth, gift, land, or real capital gains tax, the wealthy keep getting wealthier.
“If anyone’s done well in New Zealand – if they’ve generated wealth – normally there’s a lot of hard work and effort in it. But they’ve also driven on roads everyone’s paid for, and are employing a workforce educated at the public’s expense. So there’s an argument for putting a bit back to the common pool of resources, and that’s the tax.
“Whatever you did, logically you would then try to find a way of channelling that to the people at the lower end of the scale, who don’t have any assets.”
For example, Rashbrooke suggests giving cash grants to everyone when they enter adulthood, or initiating a savings scheme where the government matches any savings parents put in a fund for their children.
He denies cutting down the ‘tall poppies’ in his work.
“Any wealth that’s been created; no one’s done it all by themselves as an island. They’ve done it by drawing on the common pool of resources that society provides; the infrastructure, the health system, the education, whatever else. If that common pool of resources is going to be there for the next generation, you have to feed back into it, otherwise it just gets depleted.”
87 Comments
Exactly as the state intended - a redistribution of wealth based upon a narrow and dubious redefinition of inflation.
New Zealand central bank Governor Graeme Wheeler needs to get inflation back to target and some observers think he has “plenty of room” to cut interest rates, Finance Minister Bill English said.
“He’s been out of the zone for years now, below the midpoint for quite a long time,” English said in an interview late Thursday, referring to Wheeler’s 2 percent inflation goal. “He’s meant to be following the Policy Targets Agreement, that’s the bit I look at, and one day somebody will start asking the minister of finance questions about whether he’s actually following the agreement or not.”
“People think he’s got plenty of room” to lower rates, said English. Read more
Inheritance is wealth welfare if you think about it. Income for the idle. I'd tax inheritance 100% and put it all into high class education for all, then let the best win. More prize money in the pot too, more incentive to work. I noticed plenty of dumb people bank rolled thru uni, def the best weren't there
I firmly disagree with this position. A better outcome would be to ensure that business's and Corporates are made to pay their full share of taxes, and not use loopholes to avoid them. Additionally labour laws that require fair and equitable pay rates, and employment conditions including guaranteed hours for primary employment (40 hours) would do much more in re-distributing wealth as well as ensuring engagement in society. The current excessive drifft to the far right and Capitalism is what is creating the inequity and a swing to centre is what is required, not to the far left.
But those 'corporates' are large political donors who have connections and will just go elsewhere (and ruin someone else's economy) if you tax them anymore.
The government is continuing to grow and somehow the money has to be found, so those in the middle are, 'it'. Financialisation will continue, taxes have to go up, so they have something to give back to you when you are old and need it.
http://www.zerohedge.com/news/2015-11-11/methods-fighting-back-against-…
don't you mean tax them at all? Government's job is to represent the people (yes i know -rose tinted glasses) and buying into the Corporates lobbyists is essentially a betrayal of the people as their interests get lost. The end result of this is increased costs and problems for the Government such as crime, unemployment, social welfare, oh and getting re-elected by an increasingly disenchanted majority!
You do make a good case for shipping the criminals of to penal colonies, have you got the actual cost of keeping them in NZ? Would be good to be able to do a cost / benefit analysis (ie. Do reformed criminals pay more in tax then they cost over their lifetimes? What percentage reform?)
did'nt realise I was making that case. But was about cost to victims, health systems etc? Cost significantly less to create opportunities and get them good jobs when they leave school. Give them a decent standard of living with the possibility of aspiring to more for those who do want to put more effort in does a lot to improving equity across society. Keep it central, allow people to accumaulate wealth without cutting out those at the bottom. Capitalist greed is just as destructive as communism. Landlording is not a social service unless you are providing a home at an affordable cost and not depending on an accomodation supplement to provide you with the required yield on your investment!
"Rashbrooke suggests giving cash grants to everyone" ... bwahahaha!
No problem. Take everything I have created over the last 35 years, and give it to the masses. I guarantee I or my family will have it all back off them within 25 years. Actually we might be tempted to extract a little more this time, just because...
The real wealth is knowledge and experience, last time I checked you can't steal that off me, and the so-called hard done by masses aren't interested in acquiring it. Believe me I've tried.
Interested to know what net worth currently puts you in the top 1%??
The 2004 Stats NZ SoFIE put the average of the top 1% at $2.6m. Surely the average would have to be well over double that now. But what is the top 1 percentile now?? Is that $2m, $3m?? Since Comrade Max is writing about it some estimate of the figure must be available??
Credit Suisse put us as having 300,000 odd US dollar millionaires, but the results of that survey have been put into question. Comrade Max may give us an answer...
Hi Chris, the figures in my book show the average (mean) for the wealthiest 1% is $4.4m. To get into the wealthiest 1%, well, we haven't done the boundaries calculations yet, but yes you'd be looking at upwards of $2m would be my guess. (Note these are all net wealth not gross wealth.) I wouldn't trust the Credit Suisse report at that level of detail, having debunked it recently myself. Yours, 'Comrade' Max
Most wealth created has been in housing, not much to it, buy and sit on it. If you are really smart you buy it rent it and then use it to leverage into another, the banks have specialist teams to help you. However if the bubble blows, wealth will be destroyed, like I said, it depends when you pin the tail on the ass.
Спасибо товарищ Max
If the NBR reports those on the Rich List are worth $55b then that is over one third of the wealth of the top 1% ($4.4m x 34,000 = $149b), and given there are a lot of people worth $5m, $10m or $20m, then the top one percentile could easily be down around $2m, which of course means that a single person simply owning one decent mortgage free house in central Auckland would be a top 1%er!
I was feeling a bit poor thinking that nearly 10% of NZ adults were US dollar millionaires according to that Credit Suisse report...
...but now I feel much better knowing that I am well and truly in the top 1% (if not the top 0.5%, or 0.25%...).
But we need to look at Note 2:
For the purpose of our analysis, we separate HNWIs into three distinct wealth bands: Those with US$1 million to US$5 million in investable wealth (millionaires next door); those with US$5 million to US$30 million (mid-tier millionaires); and those with US$30 million or more (ultra-HNWIs)
What's really needed is for the graph to break it down by those distinct bands - as the "millionaires next door" are unlikely to retain that level of wealth throughout their lifetime - as the ultra-HNWIs are after those accumulated assets.
Some info on the ultra-HNWIs in New Zealand;
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=115…
Inland Revenue this month said its High-Wealth Individuals (HWI) unit had identified 212 people who each control more than $50 million of assets... Of the 212 super-rich people who fall under the HWI unit's gaze, 79 declared income of less than $70,000 in the 2013 year.
Damn, I may have to sell the Rolls.
http://www.bloomberg.com/news/articles/2015-11-12/rolls-royce-says-2016…
Actually no I think you are being simplistic here ie your presumption is wealth is needed and is good. I would suggest much wealth being generated today is parasitic in nature ie it does more damage than good. Also define progress? the Internet you enjoy today started as a DARPA project so essentially Govn funded to universities and took off. In fact I'd suggest you are very wrong to me concentrated wealth can and frequently is used to a) create more wealth and stop progress, the Koch brotehrs/Exxon v climate change is a case in point. Also the too big to fail US banks.
tesla, I suggest you look at how it was/is funded.
Hi Roger, in my book there are some graphs showing that wealth concentrations have varied wildly over the last 150 years or so while income per capita has increased steadily, so no, there's no connection between the two and no need to have concentrated wealth for progress. Cheers, Max
World Economic History in one chart.
"The world income distribution has changed dramatically over the following 3 decades. The poorer countries, especially in South-East Asia, have caught up. The two-humped camel shaped has changed into a one-humped dromedar shape – the world is not divided in two anymore. And not only is the world more equal again, the distribution has also shifted to the right – the world is much richer.
http://www.maxroser.com/economic-world-history-in-one-chart/
I think the main thing the wealthy give their children as a financial gift is a proper financial education ( not the sort of thing taught at school or university ) They grow up living in an environment, where to be creative financially and to take risks is a good thing. And a realization that it is OK to fail ( a point that holds back so many others ). You really want to help the poorer half of our society. Focus on education and mind set. Because it is these two things that allowed the wealthy to get wealthy in the first place.
Thank you Ergo .......... the very reason Kiwis cannot afford to buy things like Lochinvar farm is that the State has confiscated our Capital base over the past 50 years in excessive taxes under communist leaning Labour Governments .
Its quite simple , wealth should be allowed to be accumulated ....... the savings of today are the capital of tomorrow .
In truth, Lochinvar probably doesn't make much money, i bet there's years when it made nothing. Light volcanic soils combined with high cost structures and poor returns from sheep, it could take any amount of fertiliser.
Local farmers cannot buy it because they cannot borrow much against it, because of it's low profitability. Earnings are not reflected in the price.
Landcorp would be a good example, they never make any money unless they can sell some land and in a good year return % .6
The old money wealthy are not the shining lights of the academic world or the great innovators. They have a large enough buffer that their personal upkeep is minute relative to the capital they can put at risk. They tend to do only moderately well out of tried and true ventures on a larger scale and protect it all with family ties and very exclusive cliques.
If all players start with 10 marbles, but most slowly lose them, there comes a point where most have walked away from the game leaving a few with lots of pointless marbles. Maybe this time is approaching in our monetary system. Imagine the panic if most people took to using something other than current money on offer and told the rich, sorry we don't use that any more.
Wealth is relative ........... so who are the wealthy , and what is the threshold ?
By African standards or say Filipino standards we are all rich buggers
In the context of NZ , I don't see myself as "rich" but we have no debt , a mortgage free home , savings (modest) , two old cars, a boat , a share portfolio , and an interest in commercial property.
I don't think I am wealthy at all but relative to someone on the benefit living in a State house , I am viewed super - rich .
Besides , have worked every day since the age of 18 , and saved hard , and I want my children to benefit from that so they have it easier than we did .
Why the need to confiscate my money just because I was careful ?
Please explain ?
Who is the target then? Those with more than $5m or $10m, say, will be able to structure their affairs to avoid inheritance taxes. Those with under $1m would probably be exempt. So the target is those who worked hard enough to have a sizeable bank balance .... perhaps those exactly like Boatman ....
What you are effectively saying is that new taxes and taxes in general fall heaviest on the middle classes - and I agree - and the evidence is pretty sound in that regard as well;
https://www.youtube.com/watch?v=akVL7QY0S8A
So, yes, we need to re-jig the regulatory environment such that tax avoidance (the structuring of affairs) becomes the same crime as tax evasion. There might well then be enough funding such that new taxes do not need to be levied. I would however prefer to see inheritance (of liquid assets) treated as income and taxed as such. Perhaps then, income taxes for lower and middle income earners could be substantially lowered.
A good example from NZ;
http://www.radionz.co.nz/radionz/programmes/first-person/audio/20177658…
Very interesting, when you consider that bloody revolution and resultant totalitarian oppressive regimes of whatever variety have historically been the result of letting inequality and exploitation spiral out of control to the point that the 99% have nothing to lose and get out the pitchforks. Tweaking things back into balance occasionally is probably the best preventative of this North Korean boogeyman regime everyone's so afraid of.
If Comrade Max is right (possibly unlikely since he is so far left...), then a lot of us would be in the top 1%, as it's only something around a $2m threshold to join the club (per adult) or maybe even less...
A quick calculation is:
300 odd on the rich list worth $55b
Then guestimating to fit an average of $4.4m for the balance of the 34,000:
Say 200 between $20m and $50m = $7b
Say 500 between $10m and $20m = $7.5b
Say 1000 between $5m and $10m = $7.5b
Say 5,000 between $3m and $5m = $20b
Then 27,000 at an average of $1.95m (to fit the $4.4m mean), suggesting those persons are in the range $1.5m to $3m.
That is just hypothetical based on the mean given by comrade Max and the NBR figure, but in my mind the numbers above $5m are far too low, because I very much doubt I am in the top 0.1%...
I think the Occupy movement went a bit wrong with the 99% slogan - as it framed the inequality issue around individuals .. whereas it is more the institutions of capitalism and the mechanics of globalisation that generate inequality to my mind. Noam Chomsky explains it here well;
https://www.youtube.com/watch?v=RdYwAXZh0ME
The problem, as I see it, is that we all need to think of ourselves as the peasants Noam Chomsky refers to. And then we have to think of how to best 'reverse' this effect globally.
Meantime however, different governments need to find ways to combat growing inequality - as I don't think any of us want to see growing homeless, more lawlessness and greater proportions of children with little hope for their future.
Max's book is not a 'silver bullet' - to me it is simply bringing a particular narrative about circumstances to a wider set of issues that it is good to see openly discussed in forums like this, but it would (in my opinion) best be done without regard to our own circumstances.
That likely sounds a bit fluffy, huggly, kumbaya-ish .. but there it is.
Good response Kate. I think that is where I am coming from. Too far left is as bad as too far right. In the middle where regulation allows everyone to have a shot but limits the level of greed and manipulation that so many of us have proven we are only too ready to try in self interest.
Take for instance the current housing "crisis"; with a relatively simple regulation the Government could have saved close to $2 billion, kept houses affordable for the average kiwi, contributed to reducing individual and family poverty (including improving the lot of children), and stopped the voting public from becoming increasingly cynical about its self absorbed self interest and arrogance and thus threaten its political future by simply legislating a cap on rents to a portion of the average wage (say under 30%, average wage $55K - max $200 per week). But because they didn't have the foresight to recognise what was happening, kowtowing to the rich, buying into a flawed mantra about the need for immigration, and being too stupid to realise that foreign money by property in NZ only leads to a bigger stream of money leaving the country as the investors expect a return on that investment, they have created a situation where direct measures such as the one above could seriously put the whole economy at threat directly and indirectly. Even the so called left parties are not showing the courage to take direct action, but appear to allow the RBNZ to tinker on the fringes.
Max's rivers / reservoir, explanation of income / wealth, is poor, which is I think why he seems distracted from the real issues regarding the wealth gap.
Income (rivers) are taxed and it's the after tax money that accumulates to form wealth (reservoir).
Max seems to suggest that wealth (the reservoir), is not currently taxed. This is incorrect - wealth is no good to anyone losing value sitting under the bed, so it is invested at + or - returns depending on risk and those returns are taxed.
The other reason why Max's analogy is poor is because it takes many channels and then streams to create a river and rivers are good for the environment.
If you want to stop wealth inequality from compounding Max stop banks fractional reserve lending practices.
If you study any former dynasty you will notice that fractional monetary policies run ahead of complete collapse.
It doesn't matter about the tax distribution, its a short term feel good temporary solution. That fact that NZ has been a trade debtor (haven't paid our way in the world) for over 40 years, and our combined debt (Both Government, Corporate and Private) debt keeps going up, means that eventually we will have to realise that we are all slaves to the debt trade.
Based on Chris J calculations Basel should be a fully paid up member of the Red Neck and Blue Rinse brigade truly represented here today.
Truly I do not feel that way and am glad to separate from them.
Yet my investment focus with nil direct property assets other than the family home keeps me in the 17.5% tax bracket.
Equality of wealth for all is a noble idea, unfortunately there isn't equality of willingness to work amongst people. Taking from the people who work hard and smart and taxing them to give to those who don't work has failed spectacularly in the past and is most UNEQUAL
Good on you Max! I know a lot of greedy kiwis from the upper classes - many hide their wealth in trusts and then go on to claim state support for whatever they can. I know a very wealth family that emptied their elderly mother's bank accounts so that she could get state support for her care... no shame!
Ignore the whinging on here - rich kiwis have been creaming it at the rest of the general population's expense through no capital gains tax, no inheritance tax, no land tax and very low top income tax rates. Poor people pay much larger percentages of their income in tax in this country.
The whingers are just trying to defend their sense of entitlement. Greedy little kiwis!
Comrade Max, redistributing wealth is pointless without mindset and knowledge.
New Zealand has to be one of the most egalitarian places to grow up in and anyone that cannot make a go of it has only one place to look - themselves. Education and health is virtually free and you do not have to look far to find people willing to help you out (you need to make an effort though).
I currently live and work in a developing country and am so grateful every single day that I had the opportunity to grow up in NZ. I grew up in a home with not a lot of spare cash, solo Mum etc, left home at 16 paid my way through Uni by working part time, and then worked doing things I love - and all the way saving a little bit of the "river" into my "reservoir", but it is an active reservoir! I guess I am well into the 1% now. This was not rocket science, simply reading books and the internet.
If people are lucky enough to have parents/grandparents that have done similar, then what a great start in life, and how wonderful to have this capital to invest in our country's businesses, but if they have not been imparted with the mindset then it will soon be gone (and the economy will also benefit).
Redistribution of wealth is not the answer, it will be gone in no time (it is called Communism and did not work out very well, including the country I work in). If NZ'ers want the security and pleasures of wealth, then all they need to do is stop mouth-breathing in front of the TV, search for the knowledge (Mr Google can assist), get off the couch and do something about it! Same applies for weight loss as well!
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