Thursday 10 December 2009

In Praise of Radicalism

Beyond Pragmatism: "A Man's reach should exceed his grasp, or what's a heaven for?" New Zealand needs radical economic thinking if it is to preserve social peace.

GARETH MORGAN – radical. A few years ago that description would’ve been laughed off as oxymoronic. After his performance on Campbell Live, however, "radical" is exactly the right word.

His advocacy of a tax-free Universal Basic Income of $10,000 for all citizens, with a flat tax of 25 percent on every dollar earned in excess of that sum, certainly qualifies as "far-reaching, thorough, going to the root". And, when combined with his proposed 1.5 percent tax on capital, Morgan presents a truly radical challenge to the prevailing fiscal orthodoxy.

Morgan’s response to Campbell’s objection that his ideas would fail Finance Minister, Bill English’s "political practicality" test was similarly unorthodox. Unlike the 2025 Taskforce, whose ideologically-driven membership loftily eschewed such plebeian notions as popular consent, Morgan advanced the radically democratic notion that once you’d won the voters’ hearts and minds – the politicians would be sure to follow.

Morgan’s heterodox and iconoclastic turn of mind is exactly what New Zealand needs right now. With the obvious exceptions of Nick Smith and Gerry Brownlee, caution reigns supreme in the National Cabinet. And in spite of some welcome signs that the Leader of the Opposition, Phil Goff, is willing to dip his little toe in the bracing waters of unorthodoxy, the overall political scene is distressingly bereft of new – let alone radical – ideas.

That’s what was so very, very depressing about the first report of the 2025 Taskforce. It was the economic equivalent of gathering together half-a-dozen ageing generals and asking them to come up with a daring strategic plan for winning the economic war. We got one, of course, but it was a daring plan for fighting the last economic war – not the one we’re losing today.

And Dr Brash and his colleagues weren’t even all that daring. To get some idea of what genuinely radical right-wing thinking looks like, they should pay a visit to "Cactus Kate" – the outrageously right-wing blogsite of the equally outrageous, Hong Kong-based tax-lawyer, Cathy Odgers.

In a posting entitled "2025 – Be Cashed Up By Then", Odgers vouchsafes us a rare glimpse into an uninhibited neoliberal imagination utterly unencumbered by anything so economically unproductive as ethical qualms.

A sample:

"Emerging Nations have no minimum wage. Don Brash’s report at page 128 and 129 failed to mention what New Zealand should be lowering the minimum wage for - so 400,000 Filipino male and female workers could be imported to do jobs that New Zealanders will not do, such as domestic servants, farm labourers and cleaners. There is no reason for a New Zealand woman in the year 2025 to be doing housework when a Filipina can do it better and for next to nothing."

Whooah! They really should call the next big cyclone howling out of the South China Sea – "Hurricane Kate".

It makes one wonder where the equally outrageous, and equally radical, thinking of the Left has got to.

Ideally, radical ideas should make us raise our eyebrows, and gasp. Morgan’s plan for a Universal Basic Income, funded by a comprehensive Capital Tax, does all of that. And so does Odgers’ fantasy of Filipina maids slaving the kitchen, while the destitute sleep under flattened cardboard boxes in the street.

By giving us their visions of an economically and politically transformed New Zealand, Morgan and Odgers challenge our definition of what is possible. For minds locked into orthodox thinking this can produce the same effect as the interior designers of the BBC’s Changing Rooms: Yes, it’s the same roof. Yes, the space is enclosed by the same four walls. But, thanks to their radical imaginations – everything else is different.

That’s why Bill English’s dour counsels of caution are so profoundly disappointing. New Zealand needs to recover that intrepid willingness to experiment which, from the first Liberal Government of the 1890s, to Rogernomics in the 1980s, made this country the toast of the world.

Which is not to suggest that commentators like Fran O’Sullivan are right, and that John Key should simply consume his political capital in a firestorm of top-down reform – and the Devil take the hindmost. That’s not how Roger Douglas transformed New Zealand.

Rogernomics was sold to a New Zealand electorate already yearning for a fresh start, and a new direction, by infusing the Treasury’s neoliberal programme with just a small fraction of the faith Douglas himself possessed in its efficacy. In 1984, an intensification of Muldoon’s massive state intervention in the New Zealand economy was a political and economic non-starter. There had to be a better way.

In 2010, a return to the policies of 1984-1993 is similarly un-doable. Once again, the country is seeking a new direction.

It’s unlikely that very many New Zealanders would opt for Odgers’ vision of a New Zealand made-over in the image of Singapore, Hong Kong and the Peoples Republic of China. But Morgan’s ideas have already sparked considerable interest and enthusiasm across the political spectrum.

There’s an emerging public consensus that New Zealand’s existing fiscal machinery is indeed, as the Tax Working Group repeatedly insists, broken beyond repair. The political opportunity to respond to that consensus with a radical programme of fiscal reform is, therefore, just lying there waiting for whichever party leader possesses (if I may borrow O’Sullivan’s favourite expression) the cajones to seize it.

But in seizing this opportunity, the political parties must be careful to offer the voters a picture of New Zealand’s future in which they can see themselves forging ahead.

So, which vision is more likely to inspire the entrepreneurial instincts of all those Kiwi’s currently dependent on the State for their existence? Odgers’ vision of unemployed Kiwis competing with 400,000 Filipino immigrants in a labour market unprotected by even a minimum wage? Or, the vision of currently unemployed Kiwi workers banking their tax-free UBI – and then keeping 75 cents of every dollar they manage to scare-up on top?

Will the electorate go on voting for a system that inexorably nudges wage and salary earners into the top tax-bracket? Or, will they cast their votes in favour of a new fiscal deal based on taxing (at a very low rate) the value of their capital assets?

When I was a boy, growing up in North Otago, the countryside of was brown, and it carried sheep. Now it’s green, and full of cows.

The world can be changed - radically.

Ideas matter.

This essay was originally published in The Independent of Thursday, 10 December 2009.


Lyn W said...

Gareth Morgan's views are indeed radically refreshing and do appear to give hope for a fairer more equitable tax take. Who will take up the challenge to seriously look at this proposal? KC's suggestions are alarming but help show just how disconnected some are from a caring society. I agree Chris, the world can indeed be changed but strong leadership is required and we are all still waiting....

EbolaCola said...

After years of hearing the right bitch about lowering the so called 'top tax rate' finally some public debate about those who actually pay the highest effective marginal tax rate, beneficiaries.

Anonymous said...

Are we supposed to care what Odgers thinks about anything? What are her qualifications apart from being a political groupie?

Anonymous said...

I agree that the current government is utterly bereft of ideas and boldness. But I think Gareth Morgan's tax idea was a poorly thought out political stunt, designed to gain attention rather than being a serious option. $10,000 to everyone? Really?

Anonymous said...

To adapt a phrase of Barry Goldwater, radicalism in pursuit of error is no virtue.

I agree with the previous poster that $10,000 for everyone is a tall order

At the same time, many people, including the elderly and the severely disabled , may need rather more than $10,000 each year.

Of course, if someone currently in their twenties or thirties was given $10,000 a year each year until they retired, they would have a tidy little sum to live off.

But what about those already at or near retirement age? Could they be grandparented ? And, at what stage would grandparenting stop?


Cactus Kate said...

7.44am - Qualifications? Yeah I've only got 2 University degrees, worked overseas in the offshore industry for 6 years and 4 years in NZ prior.

More importantly than all that though, I travel for 4 months a year working in the widest sort of communities you will find. Some extremely wealthy (where clients live), some dirt poor (where they set up companies and trusts from). I work with regulators in all those countries and manage audits and governmental requests for information from my clients.

But above all that like most "radical" people I spend a lot of time in deep thought.

You should try it sometime before making silly comments.

Quoth the Raven said...

Gareth Morgan's ideas sound familiar. In fact they sound quite similar to Milton Friedman's ideas, but oh noes neo-liberalz!

peterquixote said...

Gareth Morgan's proposal for a yearly tax on income producing, rather than a capital sales tax is radical, and could salvage NZ economy.
The income generated from his figures increases the total tax take by about a third.

Lets hear the screams from the capital gains free mob and keep going on this one.

Arguing this matter with ACT and NZ Govt people like Rodney Hide has been so far akin to questioning the existence of Jesus to a Catholic priest.

" New Zealand’s existing fiscal machinery is indeed, as the Tax Working Group repeatedly insists, broken beyond repair "

A non taxable income of $10,000 per year is easily paid for by a 1% tax on income producing capital.
In one swoop all that concoction of WINZ and benefits, and supplements and costs and dependence associations are out the door.

It looks like a socialist idea and if it is good.

Capital free gains is a curse of the New Zealand economic recovery, and it will take bigger people than Act and this NZ Govt to fix it.

Gareth Morgan is right, we will vote for it.
We will vote for it.

Who loves Eric Watson. Who loves Roger Douglas.
Who loves Dave Henderson.

Anonymous said...

Chris - You must be on the Xmas turps.
The Brash report is relatively bog standard OECD prescription as Simon Upton commented yesterday in the Dom Post. Govt exp has to be got under control and fast - certainly before the next economic recession which John Key keeps assuring business will come about much more rapidly than past (ie every 12 or so years).

Chris Trotter said...

This would be the same OECD that so presciently anticpated and effectively managed the global economic meltdown of 2007-08 would it Fran?

Forgive me for not being convinced.

Anonymous said...

I certainly think the tax system needs to be overhauled. Morgan's ideas are interesting. I certainly think the first 10 grand of anyone's earnings should be tax free. But only 10 grand p.a. for invalid's beneficiaries who often can't work at all, would make life too difficult. With no accomodation allowance or disability allowance (to buy medicines and special foods)you'd get sickly people dying.

I still favour a land tax (a la Henry George)and a capital gains tax, and pollution taxes (as outlined in Hawken's "The Ecology of Commerce". The land tax would be far harder for the rich to avoid, would have the salutary effect of doing a bit of land redistribution, would stop land banking, and would repopulate the countryside eventually. The capital gains tax is obvious. Pollution taxes would stop a lot of externalisaion of costs onto society by corporations, would greatly encourage greener technology, would greatly reduce industrial inefficiency and waste, and would hopefully save human civilisation from self destructing. Ideally it would be gradually introduced over a 20 year period. With those 3 taxes in place we could get rid of income tax altogether, and maybe even GST! Now that would be radical.