Inequality solutions there, if we’re willing

The OECD has confirmed what we already suspected with its ground-breaking report on inequalityDivided We Fall. The gap between rich and poor has grown exponentially since the 1980s in most developed countries – but none more so than in New Zealand.

A particular perfect storm of deregulation, state asset sales, recession, cuts to welfare and entitlements, and lack of wage growth in the 1980s and 1990s has left our economy, and our society, sick at heart. More and more evidence shows how bad inequality is for our whole society – we’re all worse off in an unequal society, not just those at the “bottom”. The impact on New Zealand is well-presented by Richard Wilkinson and Kate Pickett, authors of the groundbreaking book on inequality The Spirit Level, in this video presentation.

So what can we do about it? Well the OECD – that bastion of progressive economic and social policy – recommends policies in three key areas: making tax fairer, upskilling the workforce, and investing in human capital and education.

Funnily enough, these are key features of Green policy. Russel spoke yesterday about how a Capital Gains Tax is exactly the kind of tax change the OECD recommends to combat growing inequality – it closes the ultimate tax loophole.

In 2010, the Green Party undertook a major project on reducing inequality, and released to to coincide with the 2010 Budget. We called it Mind the Gap, and it included 10 practical, achievable policy solutions to combat growing inequality, including a comprehensive capital gains tax, raising the minimum wage, a tax-free bracket of $10,000, progressive electricity pricing, extending Working for Families Support, reinstating the Training Incentive Allowance, building new state houses, and minimum standards for rental accommodation.

Those who bat off evidence of the growing gap between rich and poor and say there’s nothing we can do are wrong. There’s plenty we can do. But we need to accept that inequality is a problem that it’s in all of our interests to solve. Then we need the will, the guts, and the political leadership to get on with it.

78 Comments Posted

  1. And therein lies the problem. If you want to make New Zealand houses warm, you are going to have to retrofit wall insulation which you have just admitted will cost more than you will ever save.

    The problem is that the full costs in both directions are not taken into account.

    New Zealanders have finally independently discovered what the rest of the world has known for what seems like forever: housing quality has deleterious effects on health, requirting costly treatment. And as a consequence of degraded health, the is an impact on the ability of people to work and younger people to be educated.

    These bad effects all have costs.

    But the costs fall in different parts of the economy, so the big picture isn’t seen, and thus the benefits can never be realised.

    Housing quality improvement therefore isn’t an issue of the individual house, accruing to the homeowner (or renter), but to the value to the country.

    Thus sensibly the country should fund this work of upgrading inadequately insulated housing, using offset cost metrics to work out where to start. This is an example of government funded activity that has a real monetary return, and is something useful we can do with a few of the unemployed.

    I also use the same argument to say that solar hot water systems should be centrally funded, with cost recovery on the electricity bill, the same way that a new power station would be funded, as enough solar hot water heating can offset the need for another power station(s). The major benefit is not to the homeowner (or renter), but to the economy as a whole.

  2. Its doesn’t matter how rich (or tax immune) the uber-rich are. Their impact on the important workings of society are almost insignificant.

    Not really true, as the perception of fairness in any society is critical to the acceptance of one’s own position and responsibilities in it. This has deep impacts through the entire social fabric, including respect for and compliance with the “just” laws of the state.

    A quibble in the context of your main point, but don’t omit it.

    BJ

  3. I’m talking about ceiling insulation. That’s the best bang for buck. Retrofitting wall insulation can cost more than you will ever save.

    And therein lies the problem. If you want to make New Zealand houses warm, you are going to have to retrofit wall insulation which you have just admitted will cost more than you will ever save.

    Please show me where I could get much more than a 5-6% return from rents on a rental.

    Not rents, but capital gains. With inflation running at 3% at the moment, all you need is a minor real increase in house prices. While at the moment, house price increases are more subdued (2.4% increase in nationwide median house price between October last year and October this year), it is likely that as things get back to normal, we would have these sort of house price increases.

    In terms of rents, it is only in the major cities that rents don’t cover expenses. Once you look at places such as Hamilton, the yields are higher and thus rents can cover expenses.

    so you have a high risk investment

    In theory, but given that tight regulation has meant that demand will almost certainly always outpace supply, you have a one way bet – and that is where bubbles come from.

    So the big question becomes WHY will rental house prices go up when rents are already a low 5%?

    When there’s nothing fundamental driving prices up, it’s a good indication that you have a bubble.

    Ah, you assume that there is nothing fundamental driving prices up. Look at Building Consents and you will see that there is a lack of supply in the market at the moment; you have roughly 1000 to 1500 a month, which equates to between 12,000 and 18,000 per annum – that is not even enough to account for replacement (roughly 1% per annum), let alone additional demand from extra household creation. If supply is lacking, then what does basic economics tell us Photo?

    It began we internationalised the economy

    It began before then SPC. It began when the government hired tens of thousands of people to make cups of tea all day and generally twiddle their thumbs – that pushed wages up, and when all those tens of thousands of people suddenly found themselves unemployed, there was a massive pool of unemployed labour. That naturally resulted in a lack of wage growth for a long time as it took over a decade for that massive pool to be absorbed.

    Our Australian cousins never really went to the extent that we did when it came to hiring people to make cups of tea, and even then, the proportion was much lower, so when their reforms came, it wasn’t as big a pool of labour that was created.

  4. I am not sure if you are right about how we got where we are, for we did have more equity – our decline in terms of inequality over the past 30 years has been the greatest in the OECD. We can follow a trail to see why.

    It began we internationalised the economy (ending well-paid jobs for unskilled and or one company/industry workers and yet introducing international pay rates for management) and introduced a tax reform involving GST but no CGT with the lowering of the higher income tax rates. It was exacerbated by the ECA and the decision to hold down the minimum wage throughout the 90’s, also the failure for years to adjust the family child tax credits with inflation – the so called WFF was just a belated catch up to a system design to protect families from the impact of GST).

    Simply increasing the minimum wage to $15 – the 1990 minimum wage level – is enough to make some difference, as it will place upward impact on other wages because of relativities – employers like to pay a premium above minimum wage to attract better staff.

  5. SPC – thats what happens when people think that they are over-taxed or more accurately, their proportion of income they dont have is excessive.

    Its a broken record, I know, but adjusting the proportion of the pie is a losers game. And how we end up being where we are.

    The only solution is to make the pie bigger.

  6. ..you lack basic comprehension skills..
    (and you can chalk that up as a self-’belittlement’..eh..?..
    phil(whoar.co.nz)

    Indeed, I do fail to comprehend the argumentative merit in mocking people on low wages.

  7. dbuckley

    But improving the lot of the average does nothing to address the lot of those below them, in fact it is the desire of the average to better their lot that results in the mentality that they have to cut off their connection (cost burden of those on welfare or those on minimum wage jobs with families to support) to those below them to get ahead.

  8. dbuckley says “Working hard is not the key to being rich. If it were there would be a lot more rich people.”

    It’s the main key. How many poor people get rich without it?

    Of course you’ve got do a couple of other things as well, like making good decisions, and spending LESS than you earn.

    If you do those three things you can be quite comfotably off – even on low wages. I’ve spent many years earning less than the minimum hourly wage, and at best, probably never earned over a median hourly wage.

  9. Theres a lot of twaddle talked about inequality.

    Its doesn’t matter how rich (or tax immune) the uber-rich are. Their impact on the important workings of society are almost insignificant.

    What matters most is that we as a society ensure that the most disadvantaged of society are not cast to the wolves, and that there is some connection between the “average” people and the lowest.

    This is because the average people are directly connected to average wages and average prices and almost all of the tax income. Thus society’s most disadvantage live in a country crafted by the average people.

    It is only by raising the lot of the average (in other words, improving the average) that the lot of all can be improved.

    Unfortunately, New Zealand’s average has been dropping (OECD relative) for over half a century, shows no sign of the decline being stopped, or even slowed, and there is next to no-one even remotely interested in improving matters, as far as I can tell.

    Depressing.

    I’ll leave you to your deck chairs, they really do need placing into neat lines prior to decending to Davy Jones locker.

  10. Photo says (in relation to working hard):

    Yes it is. Without exception, all the well off people I know have worked very hard to get where they are.

    Perhaps they have. But there is no guarantee that someone who works hard will get rich. And of the well off people you know, it wasn’t their hard work that made them rich. It’s what they did. Had they worked just as hard as a burger flipper they would not be well off.

    Theres plenty of people holding down three jobs (minimum wage) working 80 plus hours a week, but no-one whould suggest they are getting rich.

    Working hard is not the key to being rich. If it were there would be a lot more rich people.

    How hard did the guy who did this work? The above mentioned 80 hours per week person would have to work quarter of a century to amass the wealth that this clever bloke amassed in weeks.

  11. ziffel..

    if you can’t see i am arguing against the slave-wages and limited opportunities for advancement..

    ..common in so many minimum-wage jobs..’

    ..and how soul-sapping that is..

    ..you lack basic comprehension skills..

    (and you can chalk that up as a self-‘belittlement’..eh..?..

    ..all yr own work..)

    phil(whoar.co.nz)

  12. gerrit,

    The TWG looked at a CGT as a means to finance tax reform (which to National means a lower top rate of income tax even though ours was already lower than that in Australia (over 40% – they currently have 50p in the UK under Cameron’s Tory government) – it was in their study an alternative to a GST increase to finance this.

    National chose the more regressive form of tax GST, whereas Labour and Greens would have chosen a CGT.

    Now the CGT rate of 15% is in place the more progressive CGT – clearly a progressive tax form (as capital to invest suggests higher income/savings levels) could be simply used to raise revenue. Around 15 years from its earliest introduction c2015 we will need the revenue inflow to afford the cost of more old people in terms of health and care (and probably support the Cullen Fund affording tax paid super since no one has got around to doing what is necessary – compulsory dedicated contributions from employees and employers to build up this Fund rather than a voluntary Kiwi Saver).

  13. The $4.5B pa (accrual) figure is simply based on a real increase in value (.6% to 3.2% across the asset range) and 2% inflation and tax at the earners marginal tax rate.

    Meaning the Green CGT would raise about half this because it indexes values and thus takes out the inflation component – it is at the earners marginal tax rate – as people like the sage of Omaha say they should be.

    Whereas Labours CGT proposal is at only at a flat rate 15%. The Australians moved away from indexing because of complexity, a lower flat rate is one way to do away with indexing – it is based on the presumption that about half the CG is that from inflation and about half is real gain. Our asset value appreciatioon is about 2% real return per annum (lowest for stocks .6% and highest for rural land over 3%), this is at the average the same for the forecast inflation average at around 2%.

    It would raise a similar income to the Greens CGT at about half the $4.5B pa.

    PS The Australians have a CGT and stamp duty.

  14. gerrit,

    the $4.5B pa figure is based on tax on accrued gains each year – it takes about 15 years to reach this rate via taxing realised gains.

    The $120B figure is for investment property the $450B figure is for owner occupied housing – total residential property the $568M figure.

    PS The reason why we will not have an assets tax (the only reason we do not have a CGT introduced in the 1980’s is that Douglas preferred an assets tax – but then never introduced one) is because this is a tax on unrealised accrued gain and this is not a favoured option. Besides we already have a form of this in assessing tax for local councils via rates.

  15. (might make shift-manager..?..woo-hoo..!..)
    phil(whoar.co.nz)

    ‘belittling’ of who..exactly..?
    phil(whoar.co.nz)

    If you have to be disingenuous, you are belittling those people who aspire to becoming a shift-manager.

  16. john-ston says “To fully insulate a house,….”

    I’m talking about ceiling insulation. That’s the best bang for buck. Retrofitting wall insulation can cost more than you will ever save.

    john-ston says “I’ll grant that in Auckland, you are likely to make a loss; in other parts of the country, you are not as likely to make a loss and thus you retain any capital gain.”

    Please show me where I could get much more than a 5-6% return from rents on a rental.

    The problem is, to get any chance of good gains you are relying on being highly leveraged (90% loan) – so you have a high risk investment.

    There are currently a lot of highly leveraged people with rentals who are losing money. They’re paying 6% intersst and 3% maintenance, insurance, rates etc (9% total costs) but getting just 5% in rents. House prices are static, so they’re taking 4% loss on the total value of the property.

    So if they have a 10% deposit, they’re taking a 40% loss on their actual investment every year. That’s why so many highly leveraged landlords currently have zero equity in their houses, and are putting money IN just to keep everything going, in the hope that prices will increase.

    So the big question becomes WHY will rental house prices go up when rents are already a low 5%?

    When there’s nothing fundamental driving prices up, it’s a good indication that you have a bubble.

  17. NZ inc. come on down..
    CEO: Shon-Key.. bigger profits for the major stake-holders & the left-overs for the rest of us to fight over !

    Kia-ora

  18. SPC,

    In the table on page 46 and we take individual owned investment property for example.

    They list the asset base at $568B (note36 – 2009 valuations) and a turnover of $120B. Meaning individual owned investment properties sold every year realise at sale a capital gain value for the seller of $120B.

    You really think the value of the individual owned investment property asset base is being raised by $120B?

    Meaning the 2010 value of individual owned property is $688B and if we expand this compounding (at non infaltionary $120B say) the 2011 value will be $808B.

    Who is injecting the $120B annually?

    That bubble is simply not sustainable so therefore the tax take from CGT will collapse with that bubble when it runs out of investors with $120B per annum to add to the individually owned investment property asset.

    No, the more I read from the reports, the more I’m convinced that the CGT is being set up as a precurser to asset value taxation.

    The more I read about CGT the more it looks that it would be far easier to have stamp duty type tax initiative to move investment away from individually owned investment property.

    The other issue to address is what taxation will be relaxed seeing the coffers grow by this theoretical (note that it took Australia 15 years to grow an asset base strong enough to generate CGT tax cashflow) $4.5B.

    Or will this taxation be on top of ALL other forms for re-distribution purposes?

    None of the reports touch on this subject.

  19. I’ll defend the Greens on this one. Insulation for the average house $2000, govt subsidy leaves $1300 for the landlord. If they add $10 a week to rent they can get their money back in just 2 1/2 years (that’s a massive 40% return on their insulation money, and after that it’s money in their pocket).

    Photo, you are being really really really optimistic. To fully insulate a house, you need to gut the walls in order to fit Pink Batts (or your choice of insulation) into them. That alone would cost tens of thousands of dollars, which would have to come from somewhere.

    Not quite realistic. Rental house costs are more like 3% in maintenance, rates, insurance etc, and 6% in interest.

    So what you get in rent (probably around 5%) is 4% short of what you need to break even in costs.

    I’ll grant that in Auckland, you are likely to make a loss; in other parts of the country, you are not as likely to make a loss and thus you retain any capital gain.

    Even if the house goes up 5% a year, that leaves you with just 1% (or -1.5% if you count 2.5% inflation).

    Not quite, it would be 7% after inflation based on your figures, assuming a 10% deposit. Remember, all the bank wants is its interest payment. You keep the rest.

    With house prices not going up at all the last three years, that’s why there’s been record levels of mortgagee sales for rental properties – just about all of the type you describe – highly leveraged.

    That is because the purchaser has not kept up with the mortgage payments. For the vast majority that have, they are going to sit on huge gains again when the market starts increasing, even if only at 5% per annum.

    And greed has a lot to do with why first home buyers find it so hard to buy their own homes.

    No, idiotic left wing policies that prohibit the development of Auckland’s outskirts has a lot to do with why first time buyers find it so hard to buy houses. A capital gains tax did not stop housing booms in the United Kingdom, the United States, Ireland, Spain, Australia or Canada, but what did stop a housing boom in places such as Houston and Atlanta was the ability for developers to develop on the urban fringe – and this was in spite of the fact that those two cities were the fastest growing in the United States.

  20. nznative

    hows that for an explanation for your examples of greed,

    childish and immature

    So a Green MP that owns more then one house is not greedy by your definition?

    One owns four homes safely tucked away in family trusts.

    Now I would not call that MP greedy, but you would.

    And just how does adding a CGT lower the cost of housing exactly?

  21. Page 46 here sets out how the $4.5B was reached, there is no such detail for the $1.5B figure that I have seen yet.

    http://www.victoria.ac.nz/sacl/cagtr/twg/Publications/3-taxation-of-capital-gains-ird_treasury.pdf

    It is based on a CGT on nominal CG and at existing tax rates – given nearly half the return is posed as inflation (the rest is based on a continuance of asset revaluation rates similar to those over the past few decades up to 2004) the Green form to a CGT that provides for indexing would seem to raise about $2.5B pa when at full rate.

    PS the notes including gini details are here

    http://www.victoria.ac.nz/sacl/cagtr/twg/Publications/scenarios.pdf

  22. gerrit

    you should look at the notes to the TWG report – scroll through them on the mouse and various scenarios will play out. They include gini outcomes for each tax option.

    While they are looking at tax reform here (and thus at gini outcomes that are similar to what we have now) and not at distribution they make it clear that a CGT of itself is progressive taxation and will of itself have redistributive outcomes if other taxation was not changed when it was introduced.

  23. gerrit,

    the methodology in the report you linked to is the same as in the other (they have common sources).

    In fact on page 6 the amount for a CGT revenue is that same $4.5B (and $9B if owner occupied housing is included) – though adds at current tax rates, not at a 15% rate CGT.

  24. Labor = bad and rotten

    Natianal = plain evil

    hows that for an explanation for your examples of greed gerrit ??

    And greed has a lot to do with why first home buyers find it so hard to buy their own homes.

    My point about a capital gains tax mainly hitting the rich stands, I’m just stateing the bleeding obvious .

    Which is also why the Nats are so against it.

    The Nats are about hitting and exploiting the poor and protecting the advantages of the rich.

    From the prime minister all the way down ……….

    9 houses = no capital gains tax

  25. Toad,

    Yes it is a problem but the Greens are going to work with the Labour party in 2014.

    How big a problem will it be then?

    Bit off topic I know but a could not find a /sarcasm tag to nznative one eye closed comment.

  26. @ Gerrit 9:11 PM

    The Labour leader elect Shearer is less then half the man Key is. Shearer only owns 4 houses. Helen Clark owns 6.

    Gerrit, that is a big part of the problem – that Labour MPs who purport to represent low income people, most of whom cannot ever aspire to home ownership, pretend to identify with the issue.

    But most of those Labour MPs have big property investments themselves.

  27. nznative,

    The Labour leader elect Shearer is less then half the man Key is.

    Shearer only owns 4 houses.

    Helen Clark owns 6.

  28. SPC,

    That report plucks $4.5B out of thin air without reporting what transactional history it is based on.

    In fact if we look at this treasury report

    http://www.victoria.ac.nz/sacl/cagtr/twg/Publications/3-taxation-of-capital-gains-ird_treasury.pdf

    page 3 – the total CGT tax take is calculated at $1.5B

    This is a much better report on the pro and cons of CGT then the TWG one.

    The TWG report is not about raising more taxes (for re-distribution purposes) and to make society more “equal”. It is ALL about changing how we tax gather and HOW to stear the economy into a more productive sector.

    CGT section of the report alludes to lowering of personal and coorporate tax rates to implement as change in HOW tax is collected and WHAT effect this will have in investment in the economy.

    The report is NOT about HOW to increase in the tax take for re-distribution purposes.

  29. phils says “treasury told harawira it would raise enough money to do away with that regressive tax..g.s.t.. ..twice over..”

    Yeah right.

    GST brings in $13 billion per year, so twice that is $26 billion.

    So a 1% tax on share and curency transactions that brings in $26 billion, would mean a turnover of $2600 billion of shares and currency.

    But our sharemarket turns over less than $30b (the value of every company is only $60b). We only export around $50b per year and even the total annual GDP of the whole country is only just over $100b.

    So NZ transactions are short by $2 trillion or $2000 Billion or $2,000,000 million (two million million) to get what you claim they will get.

    Do you think that Hone was listening to the Nigerian Treasury instead of the NZ one?

  30. A capital gains tax is mainly a tax on the rich which is why the nats dont like it.

    How many houses are owned between the members of the National cabinet ?, John Keys has around 9 houses all on his own. It seems clear why greedy people would not tax themselves…..

    Ruled by the 1% for the 1%.

    Thats the present state of affairs and its why the wealth gap is growing so wide and so fast.

    As with most things the problem gets worse under national …..

  31. gerrit,

    See page 45 here

    http://www.victoria.ac.nz/sacl/cagtr/pdf/tax-report-website.pdf

    The $4.5B pa figure is based on a 2% real return on asset values ($9B if owner occupied housing was included) – the Greens must be using their figure.

    If the 15% rate included the inflation component then the CGT revenue would be more than $4.5B maybe twice as much, as I indicated in my post I prefer this – if the CGT excludes inflation it should be at the company tax rate.

  32. john-ston says “and you have a return of 50% (this assumes that your tenant pays for all your outgoings).”

    Not quite realistic. Rental house costs are more like 3% in maintenance, rates, insurance etc, and 6% in interest.

    So what you get in rent (probably around 5%) is 4% short of what you need to break even in costs.

    Even if the house goes up 5% a year, that leaves you with just 1% (or -1.5% if you count 2.5% inflation).

    With house prices not going up at all the last three years, that’s why there’s been record levels of mortgagee sales for rental properties – just about all of the type you describe – highly leveraged.

  33. re minimum standards for rental accommodation

    John-ston says “And what are you going to do when rents go up as a result?”

    I’ll defend the Greens on this one. Insulation for the average house $2000, govt subsidy leaves $1300 for the landlord. If they add $10 a week to rent they can get their money back in just 2 1/2 years (that’s a massive 40% return on their insulation money, and after that it’s money in their pocket).

    Renters save an average of $5 – $10 a week in power depending on where they live, as well as saving on time off sick (if they work), kids off sick, and doctors bills.

    Taxpayer saves on doctors subsidies, and kids in hospital with 3rd world diseases.

    I think the Greens idea for rental housing standards is a very, very good idea. And giving it 6-8 years to come in is a realistic time frame for landlords to get used to the idea, get them on side, and get their properties up tio standard.

    That way there will be little sympathy from anyone for landlords who lag behind.

  34. john-ston – an option long looked at is ending the taxation of the inflation component in interest income to encourage saving.

    Many investor decisions such as saving for interest income seem either too risky or too low profit compared to leveraging purchase of rentals and writing off the debt cost against rent income. A CGT alone does not solve that (nor is it designed to its more a fair taxation measure), what would work is reducing the amount of mortgage interest that is deductabile as a cost to 50% of the cost of the property. That with a required deposit would reduce foreign debt against local property ownership and make other investment options with the deposit money more attractive – such as venture capital start-ups (in some proposals exempt from CG) and projects such as the dairy plant in Timaru that had to be financed with Chinese investor help because no one would take up the local share issue.

  35. To add to Photo’s point, consider that people invest in rental properties because their return on investment is much higher than in other investment forms. If you consider that you only need a 10% deposit to purchase a rental property, all you need is a 5% per annum increase in house prices, and you have a return of 50% (this assumes that your tenant pays for all your outgoings).

    Now, tell me which of the other less speculative forms of investment offer such high returns with such low risk?

  36. SPC says “but more importantly people will invest less for speculation on asset value and more for productive return. ”

    Nonsense. It’s obvious the Greens plan will do the opposite when they plan to tax capital gains on EVERYTHING except private houses.

    You’d have to be on another planet to beleive people will shift their money from where they are NOT taxed at all, to where they have HIGHER taxes.

    It’s a sad reflection on financial ignorance of the NZ populace that there is anyone in the country let alone a political party who thinks that when you tax something HIGHER – money will shift from ZERO tax investments to HIGHER tax investments.

    It’s blatently obvious the shift would be in the opposite direction. And when prices of tax free houses start going up, that will attract even more investment away nfrom the productive sector.

  37. SPC

    The greens and Mana proposals are quite clear.

    Inflation is allowed for in capital gains.

    I repeat the earlier posting

    The Greens CGT is

    – inflation adjusted
    – realisation-base
    – applies to assets sold in NZ
    – a blanket exemption for the family home
    – treats capital gains as income for tax rate purposes

    http://www.greens.org.nz/tax

    So there will be a future transfer of money from those with asset ownership to those without,

    HOW and by what mechanism? Where is the $15B annual inflation adjusted capital realisation that will gardener the $4.5B for wealth redistribution.

    Further questions to ponder.

    Is the $4.5B a gross figure or nett. Are collection and distribution expenses included?

    If so how much?

  38. minimum standards for rental accommodation

    And what are you going to do when rents go up as a result? I noticed that at the beginning of the year when rents were going through the roof that the Green Party was very very silent.

    Also, whilst I am in favour of a Capital Gains Tax as a form of revenue, I am worried about it discouraging saving – what would people suggest as a solution to that problem?

  39. gerrit

    The TWG came up with the figure of $4.5B per annum.

    Sure this is not realisable in the short term but it will happen because assets are revalued with inflation – and CGT proposed does not take inflation into account, that is the trade off for having a low 15% rate (instead of the company tax rate and having allowance for inflation).

    So there will be a future transfer of money from those with asset ownership to those without, but more importantly people will invest less for speculation on asset value and more for productive return. This will result in more profit and more capacity to reward workers – higher wages.

  40. sniff..!..i prefer ‘one arguing cases rigorously/persistantly’..

    ..plus i back everything with facts/footnotes..(if required..)

    ..whereas the likes of photy/gerrit just orifice-pluck..

    ..but all that to one side..

    ..i guess to prohibitionist/animal-eating/’understanding’-loving regressives..

    that could all seem somewhat ‘demanding’..

    ..not to mention downright ‘petulant’..

    ..but ‘sulky’..?..nah..!

    ..i don’t sulk..i bitch/moan…

    phil(whoar.co.nz)

  41. Holly,

    Thank you for listening to us. Most refreshing to be able to interact.

    Long may your parliamentary career be. Remember to keep listening.

  42. I note that only two countries have reduced inequality: Turkey and Greece

    Im not sure Greece is the best economy to emulate. But here is more about economic policy in Turkey:

    http://www.oib.gov.tr/program/uygulamalar/privatization_in_turkey.htm

    “The striking economic shifts of the 80’s ushered a new era for the world economy, where privatization became one of the most essential and indispensable financial reforms on the economic agendas of many nations. As being one of the fundamental tools of the free market economy, privatization has been on Turkey’s agenda since 1984.”

  43. photon

    No – poor people sometimes win lotto.

    Lotto is hardly a policy plan to ensure poor people can become home owners for instance. How many poor people win lotto each year? It is not even worth mentioning when considering New Zealand’s increasing inequality.

    As they say, the harder I work, the luckier I get.

    New Zealand’s inequality has grown the fasest of all OECD countries while the hours we work have increased under National… mainly because wages have not matched inflation and the increase in GST is forcing people to work longer to meet their expenses.

    User pays means the poor can no longer get an education without having a huge debt… and that debt coupled with a low waged economy is forcing people overseas to find a brighter future. Student debts are factored against people wanting a mortgage… meaning less home ownership for those with a (soon to be taxed more) student debt.

    Property speculators pushing up house prices means home ownership is now out of reach for many Kiwis… whereby peoples high rents equals less saving. Home ownership continues to fall under National.

    Reduced home ownership creates substandard housing, which contributes to ill health and a prevalence of third world diseases not seen in New Zealand for many years. The cost of this is huge, not only in health costs but also in the ability of the poor to be able to work themselves out of poverty. People requiring the sickness benefit has increased dramatically.

    Luck has very little to do with the situation many New Zealander’s find themselves in photon… your rhetoric is meaningless. All of the dynamics mentioned above are a result of policy that has been hugely detrimental to the already impoverished.

    And whether you train to become a professional or start up a business, you’re never going to make it without years of hard work.

    Training costs money, which happens to be the thing in short supply when you’re poor. Starting up a business usually takes capital expenditure… unless perhaps you’re advocating increased prostitution?

    The problem is that it’s becoming harder and harder to make it if you start out from the bottom rung. The continued degradation of the system that ensures the wealthy are the only ones that benefit from the hard work of the poor has now created a permanent underclass that will take a huge investment and concerted effort to rectify. Those that are poor have the most impetus to work towards parity… unfortunately the powers that be are not allowing them to be properly reimbursed for their efforts. That is the main reason why we have inequality.

    Gerrit

    Why be a skilled tradesman if the cleaner with little skills gets the same income.

    Nobody is arguing that the lower skilled should be paid the same as the higher skilled and trained. What we need to see is people being paid a living wage so there is no working poor that cannot look after themselves or their families properly. Ensuring that businesses pay a proper wage that meets the costs imposed on the worker by those who have the advantage of gaining wealth irrespective of the workers skill level seems like common sense to me.

    Why should my taxes subsidize somebodies wages just so companies can post record profits? That is not the free market the right wing is meant to be promoting. Socialism for the wealthy and capitalism for the poor is clearly a failed experiment.

  44. Gerrit, CGT is one way to make tax fairer. We’d also make Working for Families fairer by rolling what’s now called the in-work tax credit into the family tax credit and making it available to all low income families including those on benefits.

    Our investment in job creation and training (“human capital” the OECD’s term not mine) is outlined in our Green jobs package, focussed on upskilling our economy and workforce to take advantage of the global demand for renewable energy technology.

    Another way to invest in education and training is to extend the training incentive allowance to sole parents to support them to study at University, something I’m particularly passionate about.

    All of these solutions were outlined in my original post and in the link to our Mind the Gap package. They were also part of our three major priorities for the 2011 election, which were fully costed: http://www.greens.org.nz/sites/default/files/fiscal_implications_november_6_2011_0.pdf

    And they’ll be the starting points for any negotiations with National over an expanded Memorandum of Understanding this term.

  45. HOW will the tax be made fairer, WHEN and HOW will the upskilling of the workforce start, WHAT investment WILL be made in human capital (what a unGreen expression – we are people not capital) and WHAT education innitiatives will be implemented?

    WHERE are the costings?

    Initiatives require action steps.

    WHAT will the Greens do to ENABLE the actions steps to be implmented?

    Any discusssions with this government?

    WHAT will the Greens insist on in 2014 if Labour gains a better understanding of the NZL voter and makes government?

    WHAT work WILL Holly do to implement these changes?

  46. “..But again no figures, how much will that bring in?..”

    treasury told harawira it would raise enough money to do away with that regressive tax..g.s.t..

    ..twice over..

    ..but the other day i was at a presentation from someone from the infometrics think-tank..

    ..who reckoned those figures from treasury were wrong..

    ..and given treasurys’ sad/sorry-record..i had no reply..

    ..so..debatable..but a serious wedge of money..

    ..even if it enabled g.s.t. to be wiped out just once..

    ..and the beauty of that tax..is that it hurts nobody..

    ..the amount is so small..it has minimal effect on commerce/the banksters..

    ..there are no real/rational arguments against it…

    phil(whoar.co.nz)

  47. Gerrit – Holly says,
    “So what can we do about it? Well the OECD – that bastion of progressive economic and social policy – recommends policies in three key areas: making tax fairer, upskilling the workforce, and investing in human capital and education.” then goes on to describe how the Green Party has these as policy features. I’m puzzled that you would say she offers “no solutions except to echo the CGT meme.”
    What am I missing here?

  48. So when will we see deatils of a Greens tobin tax.

    Mana party wants 1% on all stock exchange transactions and foreign exchange markets.

    http://mana.net.nz/wp-content/uploads/2011/06/Mana-Movement-Cost-of-Living-and-Tax-Policy.pdf

    But again no figures, how much will that bring in?

    Man also wants a CGT but as per Greens exclude the family home PLUS all Maori land.

    At least they specify ALL income. Who wants to be in a KiwiSaver scheme when that CGT come in? 30% of employers contributions plus any income received greater then the inflation rate will go as tax to the state.

    Great way to save for retirement.

  49. Working hard is the key to becoming rich, you say, photonz?
    Wealthy drug dealers are ‘hard workers’, I suppose, but skew the ethical value of your claim a little. Financiers? Gamblers? Speculators? Despots? Thieves?
    I don’t know, it’s such a mixed bag. What of those who work hard and don’t become rich? Those who selflessly devote their energies to charitable work, where other are en-richened by the hard work of people who don’t become wealthy as a result.

  50. (this one ..from the whoar archives of 2007..is quite illuminating..as in what those fighting for greater equality are up against..)

    http://whoar.co.nz/2011/the-rich-wont-speak-for-themselves-so-ill-step-up/

    “If you have less than $750 million,” a billionaire told me in 1984, “you have no hedge against inflation.”

    Those who have never considered that problem can’t possibly grasp the special burdens of wealth.

    But for a real understanding of the Rich’s resistance to taxes, we must step into the chamber of pathology.

    For the ultimate shocker about the Rich is that some of them don’t want to pay dividend and capital gains taxes at all.

    Their minions dance right up to this view when they argue that the Rich contribute more to the economy than any other group.

    What they really want to say is what some of the Rich I know have actually come to believe:…

    … They’re role models for the rest of us —

    – proof that discipline and effort, not entitlements and coddling, are the straight path to success.

    They see themselves, in short, as national treasures…”

    phil(whoar.co.nz)

  51. and i am chuffed to see..gerrit..that you have moved on/past the why?’ of the issues..

    ..to the mechanics of implementaion..

    ..well done there..!..that tory-green..!

    phil(whoar.co.nz)

  52. of course i wd argue for the tobin-tax..

    ..the reversal of the key tax cuts..

    ..the ending of corporate-welfare..

    (and on that corporate-welfare subject..

    ..can someone tell me why multi-millionaire rod drury was given a gift of over four million dollars by the key govt..?

    i mean..the guy is already a multi-millionaire..

    ..why the fuck are we financing his latest wheeze…?

    ..and not even a loan..but a fucken outright gift..

    ..the media just let that one slide by…unquestioning of the 1%..as they are…)

    ..and of course legalise/tax pot..

    ..and seriously crank up the sin-taxes on tobacco/alcohol/pot..

    ..mm-kay…?

    and ..’action steps to implementation’..

    ..need to be done by parliament..

    phil(whoar.co.nz)

  53. Para 4 is a statement without action step to implementation. Not an answer.

    Para 5 is CGT which has been questioned at length in this and other comments.

    CGT will never bring in $4.5B per annum. Unless we have $15B capital gain turnover per year. Or put another way, someone has to find $15B to buy or realise assets every year to gather that much tax.

    para 6 is meaningless without action steps to implementation

  54. “..Can we move on from discussing the problem to discussing answers please…”

    can i refer you to paragraphs 5 & 6 in the article at the top of this thread..?

    (to be read in sequence..)

    phil(whoar.co.nz)

  55. Greenfly,

    Problem is we ALL know the problem. Can we move on from discussing the problem to discussing answers please.

    To me Holly’s post is another “here is the problem” essay.

    But no solutions except to echo the CGT meme.

    All good but when it is pointed out that the CGT wont raise the money to redistribute income more equitably, what other answers are forthcoming?

    Just citing “it is Neo-Liberalism fault” is not good for a new member of parliament. We know the fault for goodness sake, lets hear some answers!!!!!!

    So looking forward to having some solutions paraded before the assembled masses.

    Such as what sustainble level of inequility can she (and the Greens) envisage as being fair and how will that be achieved and maintained?

  56. “..And most have come from not very well off families. ..”

    well..maybe that is the case in the oracle circles you move in..

    ..but i have done stories on whoar..

    ..reporting the stats that make yr assertion a pile of stinking bullshit..

    ..money comes from money…

    ..and the less equal a society..

    ..the more difficult for (even hard working) members..

    ..to ‘better’ themselves…

    (and..)

    “..As they say, the harder I work, the luckier I get…”

    tell that to the cleaners/fast-food-workers..

    ..on $13 per hr…

    (might make shift-manager..?..woo-hoo..!..)

    phil(whoar.co.nz)

  57. dbuckley says “Ok, this is an unusual example. But its not the only case.”

    No – poor people sometimes win lotto.

    dbuckley says “Working hard is not the key to becoming rich.”

    Yes it is. Without exception, all the well off people I know have worked very hard to get where they are. And most have come from not very well off families.

    There may be a small number at the very tip of the pyramid that don’t have to do much, but those I know work significantly harder and longer than the average person.

    And whether you train to become a professional or start up a business, you’re never going to make it without years of hard work.

    As they say, the harder I work, the luckier I get.

  58. If we accept that the degree of rift between the poorest and the richest negatively affects the well-being of a community, and that an actively widening rift signals an increasingly negative affect, then we ought to be concerned and seeking to reverse the trend somehow, in my view. Quibbles about how poor those on the bottom are and so on only serve to slow any chance of solving the problem. Demanding that anyone negatively criticising the situation that exhibits the characteristics discussed, here must also provide constructive solutions, is wrong, in my view. There is a need for someone to say,’The Emperor has no clothes.’ and no requirement that they recommend a good tailor. If Holly and others can do so, all the better, but they aren’t to be dismissed for sounding the alarm. That said, I don’t doubt Holly has solutions that will satisfy you, Gerrit 🙂

  59. inequality will ALWAYS grow between someone who is working hard, and someone doing nothing.

    Not true. And because you said ‘always’ I only need one example to disprove your assertion.

    Gerry Rafferty (orbituary) earned 80,000 UKP per annum for writing a song 30 years ago. In the intervening peiod, many, many people will have done 30 years of hard work, but only a small proportion of them will have earned so much money.

    Ok, this is an unusual example. But its not the only case. Working hard is not the key to becoming rich. Getting other people to work hard whilst you collect the benefit of their work is the way to do it. But I suspect you know that already.

  60. Holly,

    I think this goes right to the heart of the neo-liberal world view that anyone can pull themselves up by the bootstraps with pure hard work and good choices and overcome poverty.

    Is there another way that is fair, equitable and sustainable?

    This war of words on neo-liberal is glib but the answers would be more informative.

    CGT (have you investigated where the $4.5B tax will be generated?) wont make it happen, taking more and more from the tradeable sector goes so far and then you find that the higher paid income is on par or just above the low paid.

    Why be a skilled tradesman if the cleaner with little skills gets the same income.

    You still havent answered the question on what YOU see as a fair inequality, what is YOUR measurement?

    Your answer is very politician-esk, blame someone or a system, but offer no workable and sustainable solution. Real easy but not worthwhile.

    So ask again, what is your measure for an more equal society?

  61. Thanks for all your comments. One of the things I find most interesting about the impact of inequality is that high levels of inequality actually limit social mobility – i.e. the more unequal a society, the harder it is to achieve a higher income status than your parents.

    See from 8min 15sec at this video: http://www.ted.com/talks/richard_wilkinson.html

    I think this goes right to the heart of the neo-liberal world view that anyone can pull themselves up by the bootstraps with pure hard work and good choices and overcome poverty. This is often used to excuse punitive welfare policies and harsh restrictions, when in fact the evidence suggests the exact opposite is needed.

  62. Absolutely the cleaners are important people.

    But the MOST important?

    Trouble is MOST people do their own domestic cleaning so the demand is only commercial and state.

    Skillset required to be a cleaner is minimal.

    Hence lots of people can be and are cleaners. Low demand, high supply equals lower wages.

    You suggesting that a cleaner should get as much money as a aluminium fabricator who reads plans, weld, turns a lathe, runs a milling nmachine, fits components to close tolerances, is responsible for the fabrication in use, etc.?

    And you wonder why a cleaner gets $13.00 per hour while a top notch fabricator gets $30.00? Answer is skillset.

    Who be an aluminium fabricator if all you have to do is be a cleaner for the same money and less responsibility.

  63. Those remarking on the increase in Sweden do need to examine where they started from and note that even with the increases they are in the bottom 5 in 2008 and still in the “sweet spot” just below 30. Not sure about the provenance of the numbers. We were higher by the measure I saw.. as was the USA which had a GINI closer to 44. Just saying that this chart looks “low”.

  64. No Gerrit, the difference between a living wage for everbody or not is a political “problem”. Cleaners are the most important people in the country, without them we all get sick and die.

  65. Solka,

    Nobody ever questions that the low paid dont work hard. The problem is skillsets offered by the low paid dont meet the critiria of higher paying employers.

    Currently one cant get a decent aluminium fabricater skilled enough to read plans and fabricate, no matter how much money one pays.

    That is the difference between low wages and high wages, skillsets.

  66. People in New Zealand on the minimum wage or similar do not work hard and mostly sit around doing nothing. Quack.

  67. Kerry,

    Gerrit. Simply out of fairness and a broader tax system. why should someone, who gains their income from speculation in existing assets, not pay taxes when an entrepreneur, who starts a new business, and a worker who contributes their labour does.

    You get no argument from me on that score.

    The question remains (and have asked this before). Where is the $15B capital gain per annum turnover?

    Remember to collect $4.5B in tax, someone has to raise the capital to purchase the sale of assets to be taxed.

    Is this $15B per annum capital borrowing? Is it “foreign” investment?

    Another problen not addressed with the CGT is that any capital gain you make above the rate of inflation will be subject to CGT.

    So the 1.5% diffence beween interest received and the inflation level you get on bank term deposit, will be CGT liable.

    So will your KiwiSaver employer contribution, plus the income above inflation that your KiwiSaver provider collects on your behalf. That will be subject to CGT.

    The Greens CGT is

    – inflation adjusted
    – realisation-base
    – applies to assets sold in NZ
    – a blanket exemption for the family home
    – treats capital gains as income for tax rate purposes

    ———————————————————————

    Returning to the original question, what KPI would the Greens measure to be a reasonable and acceptable level of inequality?

    And how would they achieve that level of equality seeing the CGT is a very high figure for taxation ABOVE what is currently taken from the economy.

  68. Kerry – inequality will ALWAYS grow between someone who is working hard, and someone doing nothing.

    As the graph shows, some of the biggest growth in inequality have been the Scandanavian counties. Perhaps that’s because in places like Sweden youth are too expensive to employ, so they have 25% unemployment in young people.

  69. Gerrit. Simply out of fairness and a broader tax system. why should someone, who gains their income from speculation in existing assets, not pay taxes when an entrepreneur, who starts a new business, and a worker who contributes their labour does.

    CGT should be on all capital gains, including family homes over about 650k and at the same marginal rate as other income.

    The wealthy take the most benefit from our system. They are wealthy!
    Therefore they should contribute the most. At present, half of the wealthiest people in NZ do not pay taxes, and contrary to the figures given by RWNJ’s about taxes paid, most of all taxes are paid by middle income earners.

    People like Farrer prefer to only use the figures for income tax to give a distorted picture of what the top 10% really pay. 60% is paid by the middle. You can look it up yourselves on the MSD and IRD sites.

  70. They did it more recently than us, but the Scandinavian countries, after years of being the most successful societies ever, with a mixed democratic socialist model, are also taking the nose dive into neo-liberal meanness and de-regulation.

    Photo should be proud. Every country does worse, by all indicators, including the neo-liberal’s own ones (Credit ratings, Economic growth etc) the more they follow the dogma.

  71. Before complainiung about the inequality gap, should one not set a figure for what inequality is reasonable?

    We always will have inequality but what we dont have is an exceptable level KPI.

    What would the Greens KPI be?

    The Greens CGT is said raise $4.5B per annum.

    A capital gains tax will make houses more affordable for young buyers who are currently priced out of the market, and over time it will raise $4.5 billion a year in revenue for the Government.

    http://www.greens.org.nz/tax

    At 30% income tax rates that means a captial gains annual turnover of $15B is required in NZL.

    Could you ask Russel where this capital gains turnover exist please?

    Who will pump the $15B (you need buyers for capital gains) annually into the NZL economy?

    And just how this will make housing more affordable?

  72. Interesting data this. What really interests me is when you look at the worst performers – NZ, Finland and Sweden. You would not normally associate the Scandinavian countries with increasing inequality (Norway and Denmark haven’t performed that well either).

    The Scandinavian’s are often held up as a model for NZ in terms of socially liberal, robust parenting, health and education policies. One could argue that the Clark administration modelled their approach on this Scandinavian model.

    So what has made these countries more inequitable? There has to be more to it than, as you say ” … A particular perfect storm of deregulation, state asset sales, recession, cuts to welfare and entitlements, and lack of wage growth in the 1980s and 1990s has left our economy, and our society, sick at heart.” The same can’t be said of the Scandinavians, so what is really driving the inequality?

    Of course, I don’t have any immediate answers … !

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