Friday 15 July 2011

The Price We Pay For Civilisation

A Winning Team?: Phil Goff and David Cunliffe (with a great deal of help from David Parker) have seized the high moral ground on fiscal policy. The 2011 General Election has finally become a genuine contest.

LABOUR’S TAX POLICY is as much a moral declaration as it is an economic statement. It speaks to our notions of fairness and equal treatment every bit as directly as it addresses the investor’s love affair with real estate.

This re-focusing of the electorate’s attention on the revenue-gathering aspects of fiscal policy is as timely as it is necessary. For far too long politicians of conservative mien have pretended that the only good tax is a dead one. That governments can go on blithely emptying-out the revenue side of the public ledger, (or, as they prefer to characterise it: “putting money back in the tax-payer’s pocket”) with impunity.

Not that they believed a word of their own propaganda. Even the densest conservative politician must have been aware that drastic cuts in revenue would, eventually, have to be balanced by equally drastic cuts in expenditure.

Nor were the more conservative sorts of politicians ever truly averse to a fiscal policy of slash and burn. Indeed, there are many on the Right who regard slashing and burning as the whole point of the exercise.

MY GOAL”, boasted the far-Right American lobbyist, Grover Norquist, “is to cut government in half in twenty-five years, to get it down to the size where we can drown it in the bathtub.”

Nor was this idle rhetoric on Norquist’s part.

As anyone who follows American politics knows only too well, Norquist and his corporate sponsors have been as good as their eliminationist word. All over the United States, federal and state expenditures are being slashed, and tens-of-thousands of public servants laid-off.

And, in America, these firings have moved way beyond “the back office”. The United States’ once proud system of public education is being systematically starved of funds while massive sums are being voted to the corporate providers of private education in so-called “charter schools”.

To undercut the inevitable resistance from aggrieved public-sector workers, Republican Party governors have stripped the public-sector unions of the right to organise, strike, or engage in any effective form of collective bargaining.

So crazed has the American Right become since the onset of the global financial crisis, that the Republican majority in the House of Representatives is threatening to pull the plug on the US Government’s ability to pay its bills. Unmoved by the warnings of Wall Street that such a move would cause the United States to default on its debt – plunging the world into a new and exponentially more serious global crisis – the far-right “Tea Party” faction of the Republican Party refuses to be swayed.

Unless President Obama agrees to reduce federal expenditures by more than a trillion dollars, congressional permission for his administration to exceed the “debt ceiling” – i.e. honour America’s debts – will be refused.

That expenditure cuts on this scale would effectively dismantle what remains of the United States’ anaemic social-welfare system, far from restraining the Tea Partiers, explains why they have so far rejected every one of the President’s attempts at reaching a compromise. As one American pundit put it: “The Republicans are refusing to take ‘Yes’ for an answer!” 

THIS, THEN, is the logical end-point of the tax-cutting, expenditure-slashing, “austerity” mania currently gripping the Right – not just in the US but also here in New Zealand.

That’s why Labour’s embrace of a Capital Gains Tax is so important. It signals that a line in the sand has been drawn by the Labour caucus.

On one side stand all the democratic achievements of the New Zealand people: the public provision of health, education and welfare services; the State’s active engagement in the provision and maintenance of New Zealand’s basic infrastructure; it’s guardianship of our natural environment; its stewardship of our culture.

On the other side stand all those commercial interests slavering to turn these collective achievements into opportunities for private gain. The ideologues who would drown our state – along with all that it stands for and protects – in Mr Norquist’s bathtub.

The Norquists of this world see the welfare state as an unnecessary evil. But, in its place they would raise something even more malign: plutocracy. A state in which a citizen's worth is measured exclusively by their wealth, and where the only truly punishable crime is poverty.

It was the US Supreme Court Justice, Oliver Wendell Holmes, who said: “Taxes are the price we pay for civilisation.”

Labour agrees.

This essay was originally published in The Timaru Herald, The Taranaki Daily News, The Otago Daily Times and The Greymouth Star of Friday, 15 July 2011.


Anonymous said...

17% of Kiwis pay 97% of the tax.

Labour wants us to squeeze us for even more, to finance the lifestyle choices of the indolent that comprise the Labour electorate.

Eqality before the law. Equality at the ballot box. Equality in front of the taxman: it's time for the Labour electorate to pay their fair share.

Brendan McNeill said...

American politicians, be they Republican or Democrat are right to focus their attention upon their Government's debt. They presently have a $14 Trillion dollar debt, and Obama is running $1.0 Trillion annual deficits.

The USA's debt is so large that realistically it can never be repaid. Rather than default, they will attempt to debase the currency through inflation. That's why they have been through two rounds of 'fiscal easing' otherwise known as printing money.

This level of currency debasement is theft from savers and from the USA's creditors. Apparently politicians can perform this kind of criminal activity without prosecution.

However, the risk is no one will purchase their government bonds because they know they won't be repaid in full. That's why the FED is now the only one purchasing the USA's Government bonds.

It looks a bit like tickling yourself and is likely to be just as effective.

Charter schools are popular with parents and some State administrators in the USA because they have been shown to produce education outcomes far in advance of public schools with similar demographics.

It's that simple.

Given the choice, parents chose them. Poor parents chose them. They love their kids and want what's best for them.

Finally, if countries don't live within their means they put all of their citizens at risk, be they rich or poor. This isn't a 'right wing' or a tea party notion, it's just a fact.

And facts are stubborn things.

We are entering into a time of 'post prosperity' for the Western world. It's going to be difficult for everyone, and it's time we all started to readjust our expectations.

Most especially we need to adjust our expectations about how much tax revenue can be extracted from the NZ economy and redistributed for the 'common good'.

Politicians from both major NZ parties are promising to continue deficit spending for a long time to come, based solely upon the hope of 'better days' ahead.

It's irresponsible and will likely end in tears unless we attempt to restrain them at the ballot box.

Adolf Fiinkensein said...

Well Mr trotter, that's all fine and dandy in theory but how is Mr Cunliffe actually going to PAY for Labour's election promises?

All twelve billion plus dollars worth?

Anonymous said...

Poverty in NZ is racial, with the Maori historical. Hone is not a visionary, charismatic classic revolutionary but their is one out there striding toward realization. Then we will need more police, prisons and security firms.

Provision for the poor and ignorant, not welfare, is good economic policy as well as a moral argument.

Barry said...

Chris - In your first para you fall for the "Big Lie". Kiwis dont have a love affair with real estate. They simply dont trust the share market or the finance industry. Its simply that there is no trustworthy alternate - and hasnt been since at least 1987, if not much earlier.
In a discussion I once had with the reserve bank (when they were banging on about house prices) I went back as far as I could find figures and looked at the history of the Top Ten on the NZX.
15 years prior one share in each of them would cost a total of $39. 15 years later those shares were worth $35. Now this is the TOP TEN on the NZX. Even with the house price collapse, property has been a much better investment. In Hamilton over the last 20 years, the house price growth has been 425% - yes thats right - 425%.
And we all know about the finance companies reliability.
A CGT isnt going to change things one iota - the share market will still be full of companies run by morons and the finance sector is a non issue for the forseable future.
For those who want to plan for their future - have you got any better suggestion than property?
Dont spend too much time on thinking about it because the answer is 'no'. CGT wont change anything in this area - as we have seen from Ausy and USA, and etc, etc.

Anonymous said...

Smug old Labour, just look at those faces.
It won't gain them the election win though, not even close.
Smug Key, too.
Vote for Brash.

Sanctuary said...

A well thought out post. The sterility and violence of the response from the right - visceral loathing, emotion and mindless slogans - showsjust what a success Labour's CGT announcement has been.

jh said...

Asset inflation (house prices) is not wealth creation, it simply creates a charge elsewhere in the economy. That being so, the first home buyer has to pay for the unearned income of the investor, before he buys the heatpump, new roof, repairs the dry rot etc.

jh said...

One measure of well being in NZ would be the view from the window over the years. The aggregate view would have seen the paling fence come closer and closer. The housing layout has stayed the same while the business case suggests adding another house on the back or front garden. Private ownership can't manage a new urbanist respnose to tightened urban limits and increasing population. Combine the depressing dross in the realestate pages with too much liquidity and an property being exposed to the imbalances of the international market and it's no wonder young people head for Australia.
the previous labour Government shares as much blame as National. The Greens also deserve an F (being still at the "settler state" on urban, population and immigration issues.

Michael said...

Why are rich people, who borrow flat out in the process of becoming rich, appalled that their government also borrows? Why do people who hate government borrowing also hate tax? Isn't tax the way we pay for what we need so we don't have to borrow? (I struggled not to write 'borrow so much', so indoctrinated am I about its necessity.) How do 17% of Kiwis pay 97% of tax when we hear from some of our richest citizens that they can avoid paying any tax at all? If they do indeed pay only out of integrity and charity then I commend and thank them. And finally, if the CGT is a good and important idea, are the two individuals in the picture with your post, Chris, the best champions we have for it? I hope they don't take it down with them.

Anonymous said...

@ Michael - National's spin doctor David Farrar has been pushing this myth that '17% of Kiwis pay 97% of tax'. It is a blatant lie. There has been a good debunking of this myth at DimPost blog.

1) PAYE (personal income tax) accounts for roughly 1/4 of govt revenue; the rest is GST, company tax, and govt investments (dividends from SOE, etc). So 97% of income tax is not 97% of govt income!
2) Farrar conflates household income with individual income - these are completely different things!
3) National/Farrar create the mythical 'net taxpayer' by subtracting any WINZ benefits you get from the PAYE you pay. But they don't include the biggest benefit - the pension, all $10bn of it - which skews the figures. Nor do they count benefits we get from hospital care, school and uni courses, ACC, etc.

By now you should start to get the picture that this National party claim is complete nonsense! It is notable that ACT candidate Cathy Odgers was pushing the idea that only 'net taxpayers' should be allowed to vote - so NZ would become a society run by the rich for the rich, with the rest of us as servants.

Which brings us to Chris' post. Yes Chris, it may be Labour's caucus have grasped that the public service must be defended with funds, not just in rhetoric (hence the CGT). Or the 15% CGT - which cannot alter the housing booms - is just another Labour way of smoothing the rough edges off their free market capitalism, so we peasants will not revolt against them.

Labour's tax package keeps the govt from going bankrupt like the US, but also keeps the relative wealth gap intact and unchanged. That's exactly what the capitalist oligarchs expect of their paid lapdogs Labour, and National, and ACT.

We need a revolution.

Mad Marxist.

Tiger Mountain said...

Anon’s figures are blatant bs, incorrect, check out Stats NZ and Treasury.

Ownership, control and appropriation of wealth by a small group of capitalists and finance capital should not be mistaken for acutal creation of wealth from natural resources combined with human physical and intellectual labour. That little job in fact is significantly done by the the 75% of kiwis on under $50k per annum that do pay tax. Sure there are managerial layers of people that act like bosses, researchers and small businesses galore too that are really just workers and or beholden to the banks.

So yes tax is the price we pay for some level of civilisation.

Nick said...

Chris, your title, "the price we pay for civilisation" is entirely appropriate. I notice a number of bloggers wih the usual "who is going to pay?" question....they might read history a little more and understand that the question is actually as you stated. Plutocracy has to be enforced with terror, its mirror image is a red equivalent which counters terror with terror. Hobsbawm recounts a fellow leftist on his deathbed answering the question of how another "red terror" could be avoided replying that it was inevitable with the "triumph" of capital. The Right appears to have learnt nothing from the last century.

Anonymous said...

Where i live investors are in a death grip with older residents. You can tell who the owner occupiers are by the gardens. The investors aren't worried by noisy parties as it reduces the prices they will have to pay when the owners die or move. I notice the houses with 5 tenants are paying less in rateable value (rates) than my good self. The process of encouraging/forcing owners out is called gridironing and when a block of investors persuade the city council to rezone they can send your property south by taking your sunlight (free) if they are to the north.

Looking at the QV site the houses sold nearby: (eg) 1985 $65,000 1990 97,000 1994 119,000 2001 B/C &D syndicate bought for $132,000 and in 2005 sold for $312,000.

Anonymous said...

I thought it was a good launch of their policies. Political forces from within and without, as you would expect, will be at odds with the leadership shown i would imagine and with no apparent immediate gain will be on the charge.
The point of the policies are in reaching beyond politics in order to pull off the win for Labour, which does involve in part as Mr Trotter touched upon, being a statement outside politics. Now it is therefore, quite mis-understood if the thinking is that no work is required in substance beyond that supplied in the understanding of quick poll gratification.
Simply put, statements outside politics are for shaping pols as opposed to being shaped by poles which is a different type of participation. Pol shapes, are of course, a very much integrated business so anything that is wanting to take that shaping away in form or approach is to expect much competition (or contest as Mr Trotter put it) from all such integrated interests.
Such interests are of the political kind really, a solidarity if you will, and in that regard the success of Labour will be depending not on the reinforcing political accord directed & given by the polls, but by the leadership shown outside the polls and this is their way to do that. For if the election campaigns have been based on the polls come election day, then statements outside those political polls can not be expected to be part of the equation.

Mstr Humphery Pinkerwrinkle the 15th

Anonymous said...

@ Tiger Mountain - I assume it is my figures you claim are "blatant bs, incorrect", so if we take your advice (which you clearly did not follow yourself) and check with Treasury, we find:

1) PAYE for year ending Jun 2010 was $24.391bn = 32.6% of total govt revenue of $74.725bn (Table 2, pg8, Financial Statements of Govt NZ 2010). A bit over a quarter, but the point remains - Farrar and National's claim that 97% of tax is paid by 17% of households is false. PAYE isn't even half of the $50.347bn in tax the govt gets (Note 2, pg51, FSGNZ 2010).

3) The pension is $8.29bn for NZ Super (Note 6, pg54, FSGNZ 2010) + $0.341bn GovtSuperFund (Note 7, pg51, FSGNZ 2010) + $0.380bn SSRSS (Note 7, pg55, FSGNZ 2010) = $9.011bn is nearly the $10bn I said, and it dwarfs the rest of the WINZ benefits like dole or DPB, as I said.

So, to sum up - National propaganda claim that 17% of households pay 97% of tax is rubbish. And people in glass houses shouldn't throw stones, eh Tiger?

Mad Marxist.

Victor said...

Let us for argument's sake accept the to my mind fantastical figure of 17% of New Zealanders paying 97% of tax. So what, if it was true?

That 97% would not be a collectivity. It would be an aggregation of individuals, the vast majority of whom would not be paying anything like 97% of a pro rata tax bill.

Neo-liberalism is posited on the individual standing alone in the market.

It's a bit rich (no pun intended) for its advocates to claim, like trade unionists, to be part of a collectivity.

Anonymous said...

Obama and Pelosi have been wasting money hand over fist, the expensive and unworkable, universal health coverage being a superb eg. The extra medical care these people will get if accessible at all will be by low grade 3rd rate doctors and constitute overdosing by low quality restrictive drugs, management by low grade uninterested social workers and the removal of their right to work. Obama continues the rundown of the US military with fewer fighter, bombers, troops and ships.
New Zealander's are largely aspirational, it is the contempt and arrogance of commentators and Labour MP's that they believe the average NZer is hopeless and unable to chart their own course.
More the Labour MPs and Cunliffe and Goff are so ignorant and arrogant to believe they want an over policed, restricted, controlled and paternalistic society. Most of the Labour vote is now actually middle class and a family probably needs a combined income of 140,000 to live comfortably in Auckland or Wellington. Property and obtaining and doing up rentals and reselling is probably the only way for the average couple to get ahead and provide for their offspring. Most can't obtain Aussie mineral or gas shares.RF

Victor said...

The first line of the second paragraph of my previous post should, of course, refer to the figure 17% and NOT 97%.

My apologies for the typo

Anonymous said...

@ Victor - the whole point is we should NOT accept National's dishonest and utterly false claims (see comments above). Otherwise they get media traction and get blindly accepted by gullible voters as they 'must be true or Labour would have countered them'.

First, National claim 17% of households pay 97% of 'net' tax. But PAYE is paid by individuals, not households. The Nats used aggregated household figures for tax, so they could subtract WINZ benefits paid TO that household from the tax paid BY that household to get their mythical 'net' tax paid by that household.

'Net' Tax = PAYE you pay - WINZ benefits you get.

So the 97% they talk about is 97% of total govt tax take - a number, not a collective of people (nor individual people).

Nor do the Nats claim that each Kiwi is paying 97% of 'their pro rata share' of total govt tax; quite the opposite. That Nats claim that the rich are paying nearly all (97% of) the tax, and the rest of us are bludgers. Why they think we'll vote for them if they call us bludgers is anyone's guess ;)

But the Nats cleverly fudge around whether they are talking about 97% of total personal income tax (PAYE) which is $24bn in 2010, or 97% of total govt tax (PAYE + GST + company tax) which is $50bn, or 97% of total govt revenue (tax + dividends + other) which is $74bn.

Their second fudge is conflating what an average individual pays in tax with what an average household pays in tax (and gets back in WINZ benefits).

Their third fudge is inventing this nonsense of 'net tax paid', while ignoring all the other non-cash benefits we receive from the govt (hospitals, schools, ACC, etc).

The combined effect of these 3 Farrar Fudges is to create a myth that '17% of Kiwis pay 97% of tax'. We lefties must counter this myth at all costs, or it will linger like a corpse of truth to undermine any left policies (like the 'cities of welfare bludgers' myth).

I hope this helps.
Mad Marxist.

Andy C said...

@MM Your "non-cash benefits" assumes that they have magically appeared from the Money Fairy. Hospitals, Schools, and to a lesser extent ACC are paid for, and funded by, the General Account paid into by everybody.
You imply that I get something special because I pay tax.
Rubbish, I get the opportunity to use the services provided by the Govt. for what I have "given" to the Govt.
Your Mad Marxist philosophy would have me hand over 100% in PAYE and then be gifted a small allowance , perhaps for a few cabbages and a turnip, for xmas !
Go young man, Kim Jong Il has a special place in his heart for you.

jh said...

"restricted, controlled and paternalistic society"

I bet a lot of Kiwiblog commenter's are property people who rode the wave of asset inflation. I bet that the property industry breaths down the neck of government and successfully lobbies to bring in cashed up buyers to compete with locals (Gareth Morgan confirmed that in After The Panic).
The savings working group told us that immigration has put up house prices, has not improved incomes infact we have to pay for infrastructure. Building houses for new arrivals has a multiplier effect (hat tip Owen Mcshane) but outside of that temporary boost where will the long term jobs be? We need to get real about our quality of life and not let the most unsavory elements of the business world decide on the size and form of our towns and cities and we need to correct a situation where unearned capital gains are scooped up by the fleet footed Donald Trump types who will offer housing based on the "best business case" (as in sour crates).

Anonymous said...

@ Andy C - do try to keep up chum. I did NOT "imply that [you] get something special because [you] pay tax." Quite the opposite - I have no idea of what non-cash benefits (stuff other than WINZ cash, like pensions, dole, DPB, etc) you get from our govt, nor do I know what any other Kiwi gets. That's the point!

The very idea of a 'net taxpayer' - some mythical Atlas who holds the weight of our whole nation on his capitalist shoulders - is laughable, precisely because neither David Farrar, the National party, nor you, nor I have any idea of the actual amount of total tax (PAYE, GST, company tax, etc) someone else pays the NZ govt, and we certainly have no idea what they cost the NZ govt in WINZ benefits and other (non-cash) costs, like hospital stays, uni courses, etc.

And most marxists don't want a totalitarian state, just a socialist one, where we share according to the biblical precept of 'from each according to his abilities, to each according to his needs.' Perhaps you like living in a country where some go cold or hungry while others with plenty get tax cuts, but not me.

Mad Marxist.

Greg Davis said...

"Unless President Obama agrees to reduce federal expenditures by more than a trillion dollars, congressional permission for his administration to exceed the “debt ceiling” – i.e. honour America’s debts – will be refused.

That expenditure cuts on this scale would effectively dismantle what remains of the United States’ anaemic social-welfare system"

Federal non-productive spending is money that could have gone into production.

It is great news if America aims back towards balancing its budget.

Government is the problem, not the solution.

Victor said...

Mad Marxist

Your point about not giving sustenance to liars is well made.

But it's still, to my mind, worth pointing out that they're contradicting their own ideology.

Anonymous said...

Forgive me, but isn't Kiwi investor's love affair with the tax-free capital gains that property investment brings, rather than the real estate itself?

Watch how quickly they start to bring divorce proceedings against their real estate if/when CGT is introduced...