Wednesday, 1 August 2012

Labour Could "Just As Easily" Be National

Behind The Mask: When businessmen can no longer distinguish between National's and Labour's spokespeople, it's time for left-wing voters to start asking searching questions about the true beneficiaries of Labour's policies.

“IF YOU CLOSED YOUR EYES and just listened to Parker speaking – it could just as easily have been someone from National.” The business leader who said this of Labour’s finance spokesperson, David Parker, was being complimentary. And why not? The prospect of the two main political parties offering similar economic policies possesses charms to soothe the most savage capitalist breast. With nothing untoward to beset it, electorally, the business community can plan its future with confidence.

Labour supporters, however, have every reason to feel suspicious when businessmen heap praise upon the Opposition. The last time Labour pulled New Zealand capitalism’s irons out of the fire, the “Rogernomics” period of 1984-1993, still lies within the living memory of at least two-thirds of New Zealanders. Considerably less than half of them have cause to recall the economic disruption of those years with any fondness.

Much of the reason why Mr Parker’s speech to the “Mood of the Boardroom” breakfast in Auckland fell so mellifluously upon his wealthy listeners’ ears is attributable to Labour’s unwavering commitment to raising the age of eligibility for New Zealand Superannuation from 65 to 67. The opportunities which this policy opens up for the financial services industry (especially when combined with Labour’s pledge to make Kiwisaver compulsory) are considerable. Among the broader business community, however, Labour’s Superannuation stance represents an unstated promise not to pay for the pension by raising business and personal income taxes.

The one substantial tax measure Labour is promising, a Capital Gains Tax (CGT) enjoys strong support among certain sectors of the business community. The manufactured exports sector, for example, will welcome its ability to re-direct much needed investment away from the property speculation which has become New Zealand’s royal road to riches. Many other business leaders will welcome the CGT as a means of filling up the fiscal hole left by the 2010 tax-cuts.

For all those tax-payers born after 1966, however, Labour’s policies on NZ Superannuation, Kiwisaver and a CGT may well result in a reduction of living-standards.

As it stands, Labour’s plans to lift the age of eligibility for NZ Super will more-or-less exempt the so-called “Baby Boomers” from contributing to its “rescue”. Though described as a way of preserving “intergenerational equity”, and in spite of the Opposition’s increasing recourse to rhetorical Boomer-bashing, Labour’s carefully phased increase will still allow the Boomers to kick-back at 65. It is Generations X and Y who will have to work an extra two years for a purely inflation-adjusted and quite possibly means-tested pension.

A compulsory Kiwisaver Scheme, administered by the private sector, has the potential to not only reduce the actual take-home pay of already hard-pressed low-paid workers and their families, but to further strengthen the finance sector’s already unhealthy grip on the New Zealand economy. Were these savings to accumulate in a state-owned and run investment fund, then workers’ deductions could be classed as contributions to the social wage. Sadly, Labour will not countenance the creation of such a fund. (Too much like socialism, perhaps?) It may, however, allow employers to offset their increased contributions to the workforce’s Kiwisaver accounts against future wage rises.

Labour’s decision to exclude the family home from its proposed CGT, may yet lead to an even more rapid escalation in house prices. Rather than purchasing multiple properties in expectation of pocketing substantial tax-free capital gains, wealthy home-owners may instead decide to redirect their investment into the house (or houses) their family lives in. Labour could have avoided such behaviour by setting a family home valuation above which the CGT would apply. Instead, by opting to exempt them, it’s exposed both itself, and young people trying to buy their first home, to the perverse law of unintended consequences.

Why, then, does Labour persist with these business-friendly, Rich List-cossetting policies? Why not adopt fiscal measures more in keeping with its social-democratic principles? Throughout the 1950s, 60s and 70s, when the top bracket of personal income tax was frequently well in excess of 65 percent, New Zealand enjoyed the longest period of sustained economic growth in its history. The provision of social needs like old-age pensions, entry-level housing, ready access to health and education services and cheap utility prices were all predicated on citizens paying their fair share of tax.

Not any more. Rather than making the case for full employment and a just distribution of the nation’s wealth through a genuinely progressive system of taxation, Labour seems determined to base its economic programme on the fiscal status quo. Such a position cannot help but make it difficult to distinguish Labour’s finance spokesperson from National’s finance minister.

Poverty cannot be eliminated by cossetting wealth. Living standards cannot be lifted by reducing workers’ take-home pay. Homes cannot be made more affordable by offering tax-free rewards for making them more expensive.

Labour cannot serve labour by turning itself into National.

This essay was originally published in The Press of Tuesday, 31 July 2012.

19 comments:

Kat said...

Chris, unfortunately the high tax rates of the 50's,60's and 70's led to an unsustainable bloated bureaucracy. We did not really get better long term health, education or employment opportunities. In short the country was mismanaged, for lack of good managers.

What happened in the Rogernomic years of the 80's was a case of the baby being thrown out with the bath water. An old cliche, but perhaps that 'throwing out' is representative of your previous 'practical' Kiwi analogy. Perhaps there has been some 'thinking' since then and perhaps the 'status quo' is actually a component in a more considered progression.

Anonymous said...

It’s absolutely reprehensible that NZ does not have a capital gains tax.

Personally I'd go further though, and make interest on debt for housing non deductible, and all gains above RPI + GDP Growth taxable at 100%.

In NZ there is no incentive to take risks producing goods and services when you can engage in exploitation of the financially vulnerable. Hell, it’s even incentivised by allowing negative gearing tax offsets via interest deductions and 0% capital gains.

What do landlords of NZ provide for the NZ economy? NOTHING. They just transfer wealth from generally the youth to themselves and NZ wonders why all the Youth emigrate. Yeah, 'come home' so we can be further financially exploited for baby boomer retirement funds.

But in all this there is another side of the coin, actually making things the world wants. But then again anyone in NZ investing in anything seems to get ripped off due to poor financial governance in NZ. Look at all the finance companies that have ripped off NZ'rs. Don’t have a bl**dy clue.

Anyway, unfortunately political left wingers in NZ can't think outside the box because they don't even understand what’s inside the box. Do any of them passionately believe in equity, fairness and justice?

Chris Trotter said...

To: Kat

What a curious position to maintain.

That NZ's record of full employment, social inclusion, family protection and its focus on the the welfare of the young was an illusion.

As someone who grew up during those years, I can assure you there was nothing at all illusory about the high living standards we enjoyed. (Even if we did have to wait too long to get a telephone connected!)

Your comment reflects what I call the "Bumblebee Objection" - so commonly advanced by those apologists for Neoliberalism-Lite that still hang around the NZLP.

Someone once argued that the Bumblebee was an aerodynamic impossibility which, strictly speaking, shouldn't be able to get off the ground. In the same vein apologists for Neoliberalism argue that Keynesianism is an economic impossibility, which, strictly speaking, should not be able to promote even a little bit of genuine prosperity.

And yet, Keynes's policies gave us 30 years of unprecedented prosperity, and the Bumblebee flies just fine.

Anonymous said...

Meh

I won't be voting for Labour or National or any of the others. What's the point? They are all old people's parties representing old people's interests.

The boomers are too big a voting bloc, and no matter what happens will vote to impose the costs on the younger generations. It's been that way in every election I have been old enough to vote in.

Politics is - like bowls - a game for old people, Chris. The rest of us just have to manage the fallout.

Loz said...

It's impossible to argue "We did not really get better long term health, education or employment opportunities".

In terms of "employment opportunities" there was virtually no unemployment during the 50's and 60's while the "crisis" of the early 70's was an unemployment rate of less than 1%! If you were sick, you were treated almost immediately and always without charge. Nor were the economic hurdles in education anything like now.

"High tax rates of the 50's,60's and 70's led to an unsustainable bloated bureaucracy" is another fallacy. Douglas didn't "reduce" tax, he shifted tax-take away from graduated or progressive income tax toward a tax on everything in the form of GST.

Wealth redistribution through taxation deliberately prevented monopolies and extremes of inequality. Progressive tax was a critical component of the depression era reforms that ensured that all New Zealanders would have access to food, shelter, medicine and employment.

Instead of "Bureaucracy", progressively high taxes provided hospitals, schools, forests, electricity and a myriad of social services from 1935 onward.

The idea of a "bloated bureaucracy" just isn’t true either. The wealth spent on management and administration is much higher now than it ever was prior to Rogernomics. The Hospital Boards are a classic example as in the 60's they consisted of a dozen health professionals with a secretary for administration. After the free market reforms the same functions were performed by a dozen administrators / managers with a single health professional.

If you get a chance, read some of the cries of business leaders as Labour introduced Social Security in 1938. Back then it was argued that government was "top heavy" and business and the economy would collapse as a result of taxes. Instead, they had the longest period of financial stability in New Zealand's history.

Jigsaw said...

I grew up in the 1940's and 1950's and it must have been in a different country that you Chris as the New Zealand I knew was a country with a living standard so far below what it is today as to be unrecognisable. Shoes as an example were made in New Zealand and cost a huge amount relative to wages-as did clothes. Food consumed a large part of my working class parents income
-and we never had a telephone at all or a fridge until was in my teens. Life was in many ways every bit as bleak as in East Germany.Maybe you have some rosy glasses around but when I talk to people who also grew up in that age their memories are much the same. Peoples values were shaped by the depression but our parents knew the value of education and were determined that their children would do better-and they did.Government departments moped up any unemployed and became bloated and hopelessly inefficent-I know because I worked for the NZ Forest Service in 1959 and we were
instructed to employ more people even though we didn't need them.

KjT said...

The finance industry have been creaming their pants, for a return to the halcyon days, before the tax rebates were removed from superannuation savings. When they got to play with our money for free, and the negative returns and high charges were ignored, because of tax payer subsidies.

Egged on by the neo-liberals who prefer the elderly, the unemployed and the sick to starve in the streets, as an incentive to scare working people into accepting starvation wages, while they continue to get 17% increases in wealth, the finance industry is dreaming of getting more of their sticky hands on our wealth, with private super funds.

Since the 70's they have been constant in the meme that we cannot afford super. A meme that has been driven entirely by the self interest of those, who are too wealthy to need super and too mean to pay taxes, and a greedy finance industry.

Unfortunately, it is true, that if you repeat bullshit often enough, even those who should know better come to believe it.

We cannot afford super is code for, "we should leave our elderly to beg on the streets". So that wealthy people can pay less tax and the finance industry can again lose our savings for us.

Anonymous said...

You make very good points about Kiwisaver, the Superannuation fund and pensions.

I think we can look forward to the private sector managers of Kiwisaver funds either losing or stealing the lot at some stage - the temptation will be just to much for the crooked bastards.

Likewise I wouldn't trust the private sector 'guardians' of the super fund as far as I could throw them.

Just as concerning is the nefarious uses these funds are being put to before the fund managers get around to stealing them outright.

Basically workers are being conned into funding their own oppression and that of many others around the world.

And of course at the moment there are huge mountains of cash competing for safe investments -much of it from various pension schemes.

Those who understand how things work are not silly enough to invest their own money in shares at present but governments throwing workers savings at dodgy schemes seems to be just fine.

It would be far better if governments forgot about super funds and diverted that money into providing the sort of health, housing, education and employment programmes that would guarantee enough returns to continue paying out pensions to all those over 65.

Kat said...

Ok! We may have experienced a long period of financial stability during the 50's. 60's, the early 70's, and NZ's record of full employment, social inclusion, family protection and its focus on the the welfare of the young was certainly not an illusion. But to say it was in large due to the high tax rate is a nonsense. There was a lot more to it and anybody who lived through it, knows that.

I am not an apologist for neoliberalism, but I am a realist. The high tax rates of the era fed a bureaucracy that became bloated through mismanagement. Muldoon took that mismanagement to dizzying heights before it became a train wreck in the 80's and 90's.

However if anyone seriously thinks we can magically return to those prosperous years by now just invoking Labours social democratic principles, along with the fiscal policies of that era, has certainly got some serious 'bumble-bee buzzing' going on between the ears.

I do believe we can make some progress though by coming up with a mix of social principles and economic policies that are somewhat more sophisticated and greener than the 50's, 60's 70's industrial age style dig it, drill it, sell it, modus operandi.

Chris Trotter said...

To: Jigsaw

It is simply not fair to compare the NZ of 50 years ago with the NZ of today as some sort of justification for the present economic paradigm. Just as it would be ridiculously unfair to cite the standard-of-living of people living in Medieval England, compared to that of modern UK citizens, as proof that feudalism was a bad system.

For the purposes of arguments such as these the only valid comparisons are those that pit NZers' standard-of-living against those of other peoples living in similar countries at the same moment in time. Throughout the 50s, 60s and 70s such comparisons were strongly in NZ's favour.

A number of historical indicies are worth examining, however. These include the distribution of wealth; the difference between the highest earners in the workforce and the lowest; the percentage of the workforce looking for a job; and the number of people without adequate housing.

Once again, 1950-1970 NZ compares very favourably - both with its contemporaries, and with the current situation.

You need to put the whole picture together "Jigsaw" before you start telling us what it looks like.

To: Kat

No, I'm sorry, Kat, but you're just plain wrong. Economically and administratively, the NZ of 1950-1970 was not at all as you describe.

What you are reflecting, unconsciously I suspect, is the standard 1984-1993 Labour Party line - as it was pulled together by Treasury, Douglas's spin-doctors and a sycophantic news media.

Read Jane Kelsey's "The NZ Experiment" or Brian Easton's "The Making of Rogernomics" - and then rejoin the conversation.

Giovanni Tiso said...

I agree with much of what you say here, but surely the issue isn’t one of winding the clock back on social and economic policies per se? Because it’s actually true that it cannot be done. New Zealand had a protectionist economy and manufactured a lot of goods for internal consumption, did it not. How would you go about setting up and running a shoe factory in the country now? How could it possibly compete with imports made by workers who make a fraction of our minimum wage? And if in order to make it viable domestically we introduced tariffs on imported shoes, wouldn’t our trading partners hit us back with tariffs on our exports? Running a closed economy is simply no longer possible to the extent that it was. Even something as elementary as increasing tax rates to their former levels is tricky, in part because wealthy people are seldom wage earners subject to PAYE, in part because they can simply take their capital somewhere else. And how would a country like New Zealand go about reintroducing capital flow controls? Part of the resilience of neoliberalism lies in the fact that its reforms are very hard to undo, but mostly that it is not something that happened only to us. Tax havens exist. The financialization of the global economy has taken place, and dictates how you raise capital to do anything at all. You and I may not like this, but Helen Clark’s metaphor of New Zealand as a cork bobbing in the ocean (echoed by John Key’s standing on the beach and pushing back the tide) wasn’t inaccurate. To a very large extent, globalisation has robbed sovereign states of the ability to regulate their economies.

And another thing: Keynesianism did actually run into trouble. So did social democracy on the political side. Robert Reich’s very popular youtube video about where the American economy went wrong in the last thirty years, while factual, is fundamentally dishonest and politically very problematic. The implicit argument – that we should go back to tending to the needs of the middle class – is another version of trickle down, just starting a bit lower. And this is largely what the political centre does in New Zealand. It’s what Goff’s Labour, save for the extension of WFF to beneficiaries, was all about. Shearer’s isn’t all that different. Its response to the difficulties in implementing or even thinking about equitable social and economic policies after the neoliberal turn is still to pretend that class no longer exists, by embracing the proposition that serving the interest of its middle-class supporters is equivalent to serving the interests of all citizens. Bourgeois liberals love this, they can’t get enough of being told that what’s good for them is good for the country, whereas the working class has just stopped listening because guess what – it’s true that by saying those things Labour sounds pretty much exactly like National.

The question for the broader Left remains, as it has always been: can we do things differently? What does a politics at the service of working people and the disenfranchised actually looks like in 2012, as opposed to 1978 or 1935?

Victor said...

Chris

Whilst I strongly agree with the main thrust of your argument and remain an unregenerate Keynesian, I think that any analysis of New Zealand's immediate post-war prosperity should take account of the role of Commonwealth Preference and to the consequent ease with which New Zealand could load non value-added and often poor quality produce onto the UK market.

And don't tell me it wasn't ever low quality! As a 1950s Cockney brat, I had to eat the stuff!

No-one, these days, is queuing up to offer New Zealand a comparable deal. Nor should we wish for one.
But our economic options are, inevitably, less inherently golden for the absence thereof.

Does this mean that we have to settle for a return to Rogernomics or Ruthenasia? No way!

We need intelligent stimulus, intelligent approaches to infrastructure and training and intelligent growth. And we need politicians capable of understanding this and communicating that understanding to the public.

I don't know where those intelligent politicians are to be found. Not, apparently, in the inner sanctums of the Labour Party.

Chris Trotter said...

To Victor and Giovanni:

These are, indeed, legitimate challenges - which I will attempt to answer in subsequent postings.

In brief, let me say that the first thing Labour must do is declare itself for working-class New Zealanders. Then it must be brutally honest with them - explaining the difficulties facing any government attempting to govern for anyone other than the very wealthy, just as Giovanni does above. Once it has done that, however, it will be in a position to seek their help. I am confident that if you appeal to working people as intelligent and caring human-beings, then there is virtually no limit to the creativity and ingenuity your appeal will unleash.

To paraphrase Winston Smith in Orwell's "1984":

"If there is hope, it must lie in the ordinary working people, because only there, in the downtrodden and disregarded masses, eighty-five percent of the population of Aotearoa, can the force to destroy the the Plutocracy ever be generated."

Victor said...

I look forward to your further thoughts.

Brendan said...

There has been considerable economic and social change over the last 50 to 60 years as many have alluded to in response to this post.

The world we once operated in no longer exists, and going forward by going backwards, is not a viable option.

It's difficult to see how we can bring transformation to our economy, and enhance the financial opportunities of all Kiwis without a root and branch reformation of our education system.

Amongst other things, we need to begin teaching innovation, entrepreneurship and financial literacy in our schools, and institutions of higher learning.

Ok, I accept that teaching basic literacy would be a good place to start given that so many pupils leave school functionally illiterate.

The 'long tail' of educational failure that characterises our nation produces a large percentage of people who are either unemployable, or incapable of anything other than the most menial of occupations. As we know those jobs by and large no longer exist, or are in short supply.

This is why we have hundreds queueing for supermarket checkout jobs in this country.

It seems to me that without radical educational reform, we are simply going to have more of the same, and our present economic trajectory is nothing to be excited about.

As we know, brining change to the education system is all but impossible, regardless of which party is in government, given the intransigence of the sector unions and the inherent inertia contained within the system.

Being minister of education appears to be a death wish, regardless of which party you are with.

The one remaining hope in this area, is that parents generally do care about their children's education. Perhaps parental pressure will initiate the changes needed? It's a long shot, but its the best we have as political leadership in this space is all but absent.

Kat said...

"No, I'm sorry, Kat, but you're just plain wrong. Economically and administratively, the NZ of 1950-1970 was not at all as you describe."

Well, be sorry Chris, because I lived through it and I know exactly how it was in the 1950's and 1970's. But it does appear that what I described has been misinterpreted. We could be both at fault there!

Thanks for the reading recommendations, I may re-visit those books while watching a few re-runs of Gliding On.

uke said...

Giovanni Tiso has provided an excellent summary of the challenges facing the left in a globalised world running on a neoliberal ideology.

But I tend to think structural change will not be so difficult as he thinks.

The world faces so many converging crises in the next few years - climate change, food shortages, energy shortages, resource shortages, militarisation of civil society, various proxy wars, turbulent financial markets, loss of economic sovereignty, massive wealth inequalities within and between nations, etc. - that opportunities for change will inevitably come.

The left could well embrace this opportunity. They better, otherwise we will experience the slow death of society and a descent into open feudalism.

Although I have doubts about the idea that the working class are some eternal repository of justice and fairness (isn't this a bit romantic?), some kind of ethical revolution may well be the key.

Giovanni Tiso said...

"But I tend to think structural change will not be so difficult as he thinks."

I don't think it will be necessarily ‘difficult’ as such, and at some point we’ll simply have no other choice. But to do the things that Chris describes and that used to be part of the mainstream political conversation when Keynesianism still had a pulse now requires a radical attitude, which is anathema to Labour. The centrist approach reflected in Robertson’s environment speech – which our gracious host, extraordinarily, was the only commentator to analyse – is where the party is at. They clearly have no sense of the magnitude of the challenges we face.

Olwyn said...

@ Chris: I look forward to your articles on the challenges outlined by Giovanni and Victor.

As to "...the first thing Labour must do is declare itself for working-class New Zealanders," I suspect that the force behind the so-called ABC club was the fear of Cunliffe doing just that. But I agree that for change to happen, the working class must become engaged, because change can only come from exerting pressure in the opposite direction.

Even as recently as Clark's government, the idea that in helping the middle class you are helping everyone had some credence. However, it loses credence as the wealth gap widens. That is why so many are pissed off with the present configuration of the Labour Party; they want to pretend that things are still the same, when the vice has tightened another notch or two.

Anonymous @ 1.02pm, Aug 1, hits the nail on the head in saying "In NZ there is no incentive to take risks producing goods and services when you can engage in exploitation of the financially vulnerable."

The direct or indirect exploitation of the vulnerable is gradually becoming a primary way of remaining middle class, which is why the focus on the middle class no longer works for all. I was told that Banksie, when he was living in Hackney and paintings its walls, got a letter from a resident saying, and I am paraphrasing, "Dear Banksie, Please go. We don't mind you, but we don't like the aspirational people you are attracting to our neighbourhood." The downward pressure on wealth drives middle class kids, whose education has given them a ticket in job lotto rather than a job, to grab working class jobs and dwellings, and to inadvertently drive working class people further toward the scrap heap. And this is one of the more benign examples; the acquisition of rentals propped up by the accommodation supplements of the poor, and "businesses" that rely on low-paid contract workers, who need the supplements to live in the rental houses, are even more biting. Any real leftward change has to involve reversing or at least stalling that downward squeeze. Perhaps a guaranteed minimum income and in increase in public housing would drive the middle class to seek out other ways of maintaining their ground. But for that or something similar to happen you need people who are crying out for change, and who believe that it is possible.