Friday, 6 December 2013

It Takes A Village

Just Passing Through: But would the social and economic problems confronting contemporary New Zealand have reached their current levels of urgency if the country had retained its former intimate character? If we really were what Statistics New Zealand, in presenting the 2013 Census results, asks us to imagine: a village of 100 people?

MANY NEW ZEALANDERS JOKE about the size of their population. “Forget about six degrees of separation,” they chortle, “in this country you’re lucky to make it as far as two!” The general consensus seems to be that if the rest of the world is a collection of big cities, then New Zealand is a village – and a pretty small one at that!
 
But if New Zealand’s a village – what sort of village is it?
 
A curious question? Not if you’re Statistics New Zealand and you’re looking for a simple way to present the results of the 2013 Census. Visit their website and you’ll be asked to think of “New Zealand as a village of 100 people”.
 
The first thing you’ll notice about the village is how much it has grown. Thirty-two years ago there were just 74 inhabitants – most of them of European and Maori origin. It was also a much younger village. In 1981 half the population was under the age of 28. In 2013 the median age of the village has climbed to 38 years.
 
The other thing you’ll notice is how many people living in the village are now of Asian ancestry. Since 2001 the number of Asian inhabitants has doubled. Where once there were 5 there are now 11 villagers of Asian origin.
 
If the growth in the village’s Asian population is not slowed appreciably, then the 14 villagers identifying themselves as Maori will soon be displaced as the second-largest ethnic group. Already, in 2013, as many villagers speak Hindi as Samoan.
 
What really stands out about the village in 2013, however, is its seriously lopsided socio-economic structure. Only ten villagers of working age earn in excess of $70,000 per annum. There are 25 working-age villagers earning between $30,000 and $70,000, and 38 whose incomes are less than $30,000. Over half of the village’s workers earn less than $28,500 per annum.
 
The disparity between the earnings of male and female villagers is ever starker. Over half the working-men in the village earn more than $36,500, while half of its working-women earn less than $23,100.
 
The village’s poverty is also on display in the fact that only 2 out of every 3 inhabitants own their own home. In 2013, more than a third of the village’s residents live in rented accommodation. Thirty years ago nearly 3 out of 4 villagers owned their own home.
 
Of course, for the 10 percent of working New Zealanders earning a comfortable income it is extremely fortunate that they are not living cheek-by-jowl with the 50 percent earning less than $28,500 – and that the people renting their second, third or fourth property live 30 miles across town and not just across the village street. Social-economic disparities are a great deal easier to manage, and to bear, when the community’s social-geography encompasses more than the few square kilometres required to support 100 souls.
 
The 10 percent of the workforce categorised as “professionals” are only able to enjoy their well-remunerated and relatively untroubled lives because they do not have to eyeball on a daily basis the young women struggling in quiet desperation to raise families on less than $25,000 per annum. Would they really be able to pass them by on the other side of a village street? Would they really find it so easy to brand them the “undeserving” poor?
 
And would those struggling to survive on $25,000 really find it as easy to sink into apathy and anomie if those living in the big houses and earning the big bucks were to be found not in leafy suburbs they will never visit, but just a stone’s throw away at the top of the hill.
 
If, as Hannibal Lecter so chillingly explained, we covet what we see every day, then it would not be wise to be too wealthy in a village.
 
Maybe that’s why, for a long time in New Zealand, the distance between the rich and the poor remained so narrow.
 
This essay was originally published in The Dominion Post, The Waikato Times, The Taranaki Daily News, The Timaru Herald, The Otago Daily Times and The Greymouth Star of Friday, 6 December 2013.

19 comments:

Brendan said...

Chris

As you well know, it is the 'wealthy' 10% who are funding "the young women struggling in quiet desperation to raise families on less than $25,000 per annum."

Without them, those young women would have virtually nothing at all.

In the villiage, the top 10% of earners are paying 70% of the tax that funds the schools, the hospitals and the welfare benefits. The bottom 50% pay no net tax at all.

Of course we can continue to foster hatred towards that top 10% such that they eventually decide to migrate to another village; one that is more welcoming, or we might begin to show some appreciation for the value they bring to the entire village.

Wouldn't that make a plesant change.



Guerilla Surgeon said...

Actually many public servants DO deal with the poor on a daily basis. They're closer to them than you think. They don't get paid the big bucks I guess, but even so they have a huge impact on the daily lives of the poor.

Davo Stevens said...

@ Brendan; Oh My how wrong you are!

As some-one in that 'Top 10%' over the last 10yrs or so, I can inform you that I was paying little to no tax at all. As are most of the others in that group.

Most of them could migrate as you put it and NZ would hardly miss them!

The one's who support that hypothetical "Young woman struggling in quiet desperation" are those who are on $30,000 to $60,000 PA, i.e. Middle incomers.

Victor said...

Brendan

To my mind, there are so many things wrong about your view of taxation, that it's hard to know where to start.

But might I suggest just a few areas where I think you might be somewhat in error.

Firstly, whilst a certain financially defined quartile might be paying 70% of tax, no single individual pays anything like that amount, simply as a result of progressive taxation.

Therefore, no individual is suffering punitive financial deprivation as a result of progressive taxation alone.

IRD stuff-ups and policy mangles are , of course, another matter. But these can take place irrespective of the degree of progression in the taxation system.

Secondly, it shows a degree of "chutzpah" for a believer in rugged individualism such as your good self to bleat on about the sufferings of an imagined collectivity known as "the wealthy", when the whole point of your philosophy is surely that we're individuals first and foremost and not members of collectivities. Are you really some sort of Marxist in disguise?

Thirdly, taxation is the price we pay for membership of human society. And it is from human society that all wealth is ultimately derived. No-one is rich on a desert island.

As the wealthy clearly draw greater material benefit than do others from membership of human society, it's not unreasonable for them to pay more for this privilege.

We can argue about how much more they should be paying. And we can also argue about whether the total level of revenue required by the state is too much or too little. But those are separate questions.

Fourthly, there may be those who hate the rich. But most of us just think they should pay their taxes.

Brendan said...

@ Davo

There are legitimate ways to reduce tax on income that are available to everyone. Claiming legitimate expenses, including interest payments on loans taken for commercial activities.

Capital gain, which is not taxed, is a means of obtaining income in New Zealand, but it does require the diminishing of assets to realise income from them.

In short, the claim that the 'rich' avoid paying tax is largely specious, unless of course you care to outline your scheme. :-)

@Victor

"Therefore, no individual is suffering punitive financial deprivation as a result of progressive taxation alone."

Most of us in the top tax quartile are paying upwards of 50% tax when including GST and other indirect taxes on fuel etc. That may not seem punitive to you as no doubt we can both recall higher top end tax rates, but a Government that confiscates approximately half your wealth falls into my definition of punitive.

"As the wealthy clearly draw greater material benefit than do others from membership of human society, it's not unreasonable for them to pay more for this privilege."

I agree, and you don't require a progressive tax system in order to achieve that end. A flat tax would also deliver that outcome. Furthermore it would be a more just tax system, as everyone would be taxed at the same rate.

Keep in mind that these folks also tend to be the ones who invest ahead of returns, engage in greater risk in hope of future reward, create employment for others, and are the innovators and entrepreneurs without whom there would be no wealth for anyone to enjoy.

In short we need more of these people, and I find it a little irksome to see them vilified and portrayed as the selfish few whose wealth was obtained on the backs of the workers, and they have to live in gated communities to remain safe from the angry poor whom they have created, or some other disingenuous narrative that is so common on the left.

"Fourthly, there may be those who hate the rich. But most of us just think they should pay their taxes."

I agree with you, and the handful of wealthy people I know do pay their taxes, at least as far as I can tell.

As I have said many times, dishonesty is a human failing that is not unique to any demographic. Does your raising it in respect to the wealthy betray an unspoken belief on your part that wealth is usually obtained dishonestly or by cheating on the payment of taxes?


markus said...

Interesting thesis, Chris.

But I can't help noticing (in my neck of the woods, at least) that despite the good burghers of affluent, upwardly-mobile Whitby and Papakowhai living almost cheek-by-jowl with poverty-stricken Waitangirua and Cannons Creek, they just keep on overwhelmingly casting their party-vote for National. Deep Red and deep Blue side-by-side.

Anonymous said...

Geez Brendan, you obviously have no idea what it's like to be poor. I'm no tax expert but even I know that the tax system is so full of loopholes that the middle-class can take advantage of, but the poor can't for various reasons. And of course has been set up that way by your friends. So don't tell me once you've got everything in the family trust etc, and you're doing write-offs on your investment houses that you're paying anything like 50% tax. Particularly when you have an overseas holiday and thereby avoid all the GST on your holiday purchases, like that nice Swiss watch. And that's not to mention the way companies avoid paying tax on their so-called legitimate expenses. Local coffee shop owner has a very nice expensive American four-wheel-drive car with the coffee shops name on it quite discreetly of course, but you can't tell me that he delivers coffee to anywhere that is not on a suburban street. So a 10-year-old Suzuki Alto will do – not. :-)

Davo Stevens said...

@Brendan; I know the loopholes available to the top earners most of whom make their income from NZ.

I was a top salary earner and, yes, I had to pay the tax (PAYE) but I got it almost all back at the end of the financial year. I have a good accountant and they are worth their fees in gold mate.

I bought two grain (Barley) farms because I was in a position do be able to do so unlike some-one on the average wage. And because those farms never technically showed a profit they became a tax dump. There are other ways that I won't share with you so go find them for yourself.

As Anon @ 8.16 so eloquently put it you are really out of touch with what life is like for the majority of Kiwis.

Victor said...

A few points, Brendan

Yes, if you include indirect taxation, you could make a case that the wealthier sections of society pay considerably more than appears on their IRD files. Whether or not this comes to 50% or more of their incomes is harder to say.

But the less affluent also pay indirect taxes. Moreover, a greater percentage of their income is per force spent on immediate consumption. Therefore, they can be assumed to be contributing a greater percentage of their income in indirect taxation.

Moreover, as others have pointed out, the less affluent can’t afford the services of accountants. Nor, of course, would accountants be of any use in reducing the burden of indirect taxation.

I salute the generosity (no irony intended) with which you acknowledge that the wealthy draw greater material benefit than do others from membership of human society and I agree with you that there’s no reason why, in principle, the government should not derive essential revenue from a flat tax as opposed to progressive taxation.

As far as I’m concerned, this is an issue of utility rather than of principle. To my mind, it all comes down to which approach is likely to produce the most revenue over the long term. On the whole, the evidence seems to favour progressive taxation.

Your elevation of this issue to a matter of principal, no doubt reflects the broader disagreement we've frequently aired over the status of property and the role of the individual in society. You stand with Locke and Jefferson. I stand with Burke and J.S. Mill(strange bedfellows though they might be).

And, yes, I agree that the tax system should encourage entrepreneurs and wealth creators. But in almost all western societies (and, perhaps, particularly in New Zealand), a large percentage of our best remunerated people are involved in the management, retention and manipulation of wealth rather than in its creation.

You can’t, of course, have wealth creation without these other phenomena. Even so, it’s hard to justify tax cuts for a regiment of wealth manipulators by virtue of the benefits this would offer a mere platoon of wealth creators. There have to be (and are) better ways to achieve the desired goals.

I also agree with you that the wealthy don’t deserve automatic obloquy. Some have certainly earned their fortunes. Most have accrued them in ways that are essentially ethically neutral, whilst a minority (e.g. shareholders in casinos) have made money from socially harmful activities. I’ll leave it to you to work out exactly where accountants figure in this kaleidoscope.

And this brings me to my key concern. There may be an argument for using the tax system to discourage socially harmful forms of wealth creation. But, essentially, l don’t think that taxation levels should be set on the basis of ethical judgements concerning taxpayers, either as individuals or as members of income quartiles.

There’s a far more important ethical imperative involved, viz: the collection of sufficient revenue to fund a humane, adequately resourced, economically sustainable and responsible society, without (I would agree with you) dampening down the fires of wealth creation.

Brendan said...

@ Anonymous 08:16

In my experience poverty is more likely to result from a persons attitude than it is from their initial economic circumstances.

For example, John Banks watched his criminal parents sent to prison. As a result he ended up in a foster home of 12 children, yet his positive and determined attitude set him up for economic success.

He could easily have complained that 'life was not fair' that all the rich guys with small businesses, coffee trucks, swiss watches and investment homes get all the breaks, whereas life has dealt me this crap hand.

Oh yes, he could have sat on his hands and said all of that, and he woud have been 100% correct.... just like you.

Anonymous said...

Brendan I am well sick of you repeating the same old crap every other post on this blog. You just never seem to listen to anyone. So here, as we are mourning the passing of Nelson Mandela, so let me remind you of one of his quotes:
“Gandhi rejects the Adam Smith notion of human nature as motivated by self-interest and brute needs and returns us to our spiritual dimension with its impulses for nonviolence, justice and equality. He exposes the fallacy of the claim that everyone can be rich and successful provided they work hard. He points to the millions who work themselves to the bone and still remain hungry.”
There are plenty in this land of milk and honey who work themselves to the bone and go hungry you egotistical pr@t.
Oh and John Banks is NOT a good example.

Anonymous said...

For God's sake Brendan I realise you'll never change, but can you make a bit more of an effort and do some research or something? Social mobility just doesn't happen that much anymore, particularly in that bastion of capitalism the USA. In spite of the fact that there are millions of people there who still believe in the American dream and who have the right attitude, they're stuck. And as for John Banks – God, the man sells quack medicines. Which I will confess has nothing much to do with his attitude except obviously he will do anything to make a buck. People's attitudes can overcome poverty, but it happens in so few cases as to be statistically insignificant. Most people inherit – if not their wealth, then their education, their contacts, and their position in society. (Eww -I just had a vision of a world full of John Bankses.)

Davo Stevens said...

Oh My Brendan your "In my experience poverty is more likely to result from a persons attitude than it is from their initial economic circumstances", now it's their fault. That bit of malarky has been spouted by Conservatives since Victorian times. It wasn't true then and it's not true now. It is because the poor simply don't have the contacts that their wealthy counterparts have.

John Banks is a poor example as he is going to trial for fiddling his election funding. I won't accuse him of anything yet I will wait until the outcome of the trial. It makes one wonder what will happen to him should he be found guilty. A slap on the wrist? A small fine? Both? It's a serious charge but I can bet in that case he won't do pokey time.

The tax cuts happened about 6 yrs ago so where is all that wealth going? Why do we still have 150,000+ un-employed?

No, my friend, you can carry on living in your little coccoon and leave it up to us who are trying and succeeding to alleviate the un-employment that plagues NZ.

Do keep posting though, I enjoy reading your posts although I don't always agree with them.

Brendan said...

@Davo

What you have outlined are not 'tax loopholes' but legitimate business expenses available to everyone without exception.

If you believe they are unjust, then campaign accordingly, but don't pretend that somehow they advantage the rich when in fact they are available to everyone who borrows money in order to progress any form of commercial venture.

@Victor

As aways an intelligent assessment of our (minor) differences. I suspect you hold a more hopeful assessment of the human condition than I do, which leads me to favour individual and familial responsibility, especially in the event of hardship, whereas you are more included to call upon the tax payer as first resort.

The former encourages accountability at a personal and familial level, whereas the latter breeds an ugly form of entitlement that now appears to be endemic in our culture.

There are always exceptions of course, but its the rule that should shape public policy.

Anonymous said...

To Brendan (06 Dec., 11:39h): You must be kidding!

Maybe you missed One News tonight (after 08 pm, Sunday, 08.12.2013):

http://tvnz.co.nz/national-news/self-employed-owe-millions-in-tax-video-5765800

http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10887756

http://www.stuff.co.nz/business/industries/9035181/Tax-debtors-get-off-lightly

And re tax avoidance in the UK by huge corporates, check this one too, please:

http://tvnz.co.nz/business-news/google-pays-55-million-tax-uk-sales-5593941

And by the way, we ALL pay GST, which was hiked under the National led government last term, and which makes up a large part of the tax take, covering a lot of spending.

Income tax is being dodged by way by those top 10 per cent you seem to give accolades to!

Get real, or do you live on "cloud nine" or in "cookoo land"?

Guerilla Surgeon said...

Here we go again with this available to everyone bizzo. They're not. Even if we take your example of available to everyone who borrows money to progress themselves, poor people can't borrow – except from loan sharks. It's very difficult to climb on the bandwagon Brendan. Not impossible but as I said statistically insignificant. I'm afraid though that you are obviously a true believer in the Eric Hoffer mould, and unfortunately research (that stuff you'd never do) shows that providing true believers with evidence to the contrary of their opinion only strengthens that opinion. So I'm giving up :-).

Davo Stevens said...

Brendan my friend, this is my last comment here. You have your POV and I mine.

You are in error about a 'Commercial Venture'. I bought the farms purely on the advice of my accountant AS A TAX DUMP!!

Secondly, because of my income I was able to get the mortgage to buy them. How many people on $30,000 yr can take on a $1 million mortgage? Not many I'll wager.

No, Brendan, you are remarkably out of touch with reality.

Victor said...

Alas, Brendan our differences are by no means small and are not, essentially, based on my having a rosier view than you about human nature. Far from it!

It always seems to me that you take a highly rosy view both of the tendency of private interests to secure public goods and of people to "do the right thing" without government being there to organise, fund, regulate and, if necessary, coerce them.

To my mind, this flies totally in the face of the experience of our species. We need government simply because, as individuals, we lack the ability to be consistently wise, far-sighted and virtuous.

Moreover, it would be nice if there was a natural state of harmony towards which society and the economy naturally gravitate. But it just ain't so.

Your highly ideological and somewhat eighteenth century anti-tax rant would essentially deprive government of the means to fulfill its responsibilities.

Nic the NZer said...

@Brendan, While I don't expect you to understand any of this, your numbers are based on a simple slight of hand.

I take it that your analysis is based on this (or similar).

http://www.kiwiblog.co.nz/2011/07/net_taxpayers.html

First (to point out) the net-tax figure is deceiving. The same 10% who pay (apparently) 70% of the net tax only pay 37% of the tax taken.

This slight of hand is achieved by (and because) NZ is running a large budget deficit. This leads to NZ government borrowing money (ultimately from its central bank). So a large portion of the governments budget is borrowed (ultimately, though not directly, from itself) not taken in tax. This influences the transfer payments, and you will note that the net-tax-paid percentages actually add up to 209%. But with some of that percentage being negative. So your 70% is a percent of something which should not be treated in this way really (if we think of it as a iceberg then 109% of the iceberg is below the water line and you are ignoring this, hopefully not from the helm of a large vessel of state).

Simply claiming that 70% of tax is paid conflates the actual tax paid by this segment with the significant portion of the budget which the government borrows from itself (the deficit) in order not to impose too significant a burden on the economy (including the most wealthy NZers).