Solving child poverty in New Zealand

The Green Party has announced plans to raise the top tax rate on any income earned over $140,000 to 40 percent. This will have an impact on 3 percent of all taxpayers. We will redirect all new revenues raised into measures that will directly alleviate the causes of child poverty in New Zealand.

We don’t believe that poverty is inevitable in a decent society. Solving poverty is not impossible; it’s entirely possible. Our billion dollar child poverty package will be paid for with this tax increase and by harmonising the trust tax rate with the new top tax rate. And it’s only fair that those who earn more, progressively pay more.

This is what countries with low rates of child poverty do.

OECD top tax rates (including social security payments). Chart source: OECD.
OECD top tax rates (including social security payments). Chart source: OECD.

Even with a new top tax rate of 40 percent, New Zealand will still have one of the lowest top tax rates in the OECD, much lower than Australia and the UK (47%), the USA and Norway (48%), Canada (50%), Denmark (56%), and Finland (57%). New Zealand’s best off face no inheritance tax, no gift tax, and no capital gains tax to tax wealth.

There is no tax-free threshold for people on low incomes, like Australia, and New Zealand is one of the only OECD countries where GST, a regressive tax, is levied on all domestic purchases at a flat rate including food.

Our plans to use the tax system to solve one of our greatest moral challenges of our time – child poverty – are fiscally modest compared to the rest of the advanced world.

Russel

@RusselNorman

25 Comments Posted

  1. Excellent video.

    There are two really important points that fall out from this knowledge that the future will be different.

    The first is that the existing concept of unemployment being “bad” will have to go, and we’ll have to find a societel means of continuing to operate with unemployment levels of 20%, 30%, whatever.

    The second is a different slant on “the one thing this video FAILS to consider is the real cost and availability of energy”. The video mentiones the 1915 “peak horse” event, and when we no longer needed horses we reduced breeding them. The reality is that we are somewhere near “peak human”, and sometime soon we are going to have to reduce the breeding of them.

    By reducing the scale of human (and in the name of human, ie, robot) activities, we can reduce the energy footprint, and this is good for the environment generally and the remaining humankind.

    Of course, reducing human breeding is going to be an intetresting exercise. One can guarantee it is going to be unfair and unjust. The determination of who is worthy to breed will reflect the power structures that exist at the times the decisions are taken. If one is African American, British Black, or Maori, I expect you’ll be on the endangered species list.

    On the plus side, there is a very good chance that child poverty will be reduced.

  2. This isn’t going to be about child poverty or general poverty in the way that people commonly think about it.

    Society is changing, and it is changing VERY fast, and the change is taking away, in reality, the jobs.

    Not a few of them. Just about all of them. The social contract has to change – a lot. The privileges of ownership have to be diluted in fundamental ways, everyone has to have a share of that ownership. The reason isn’t ideological, it is technological.

    http://www.slate.com/blogs/moneybox/2014/08/15/humans_need_not_apply_watch_a_dark_video_on_automation_and_human_work.html

    Now the one thing this video FAILS to consider is the real cost and availability of energy. This is going to make the production and deployment slower than it might be, and people are in some ways, less picky about what they eat than a machine that can only eat electricity… but that advantage of ours is not something I would count on. Basically, the employable minority and the owners are going to have to support a majority of people who are, through NO FAULT OF THEIR OWN, unemployable.

    This is more complicated than the notion of “Child Poverty” but it is in fact very much related to it. People who are willing to work and cannot find any, who get training for jobs that cease to exist… they are going to be even more common as time goes on.

    So while I have SOME sympathy with Jason Read

    “People who dismiss the unemployed and dependent as ‘parasites’ fail to understand economics and parasitism. A successful parasite is one that is not recognized by its host, one that can make its host work for it without appearing as a burden. Such is the ruling class in a capitalist society.”

    I also reckon that this isn’t even about the notion that “Capitalism” is to blame. Capitalism has been pretty ugly on occasion, but in what is happening technologically, it can claim to be an innocent bystander.

    The thing is… it has to change too. The underpinning assumptions of human society are as broken as Humpty Dumpty. Capital has been privileged as a source of income (economic rent) for a long time but that privilege cannot be extended into a monopoly on making money. The technology and the automation make that monopoly inevitable in the current system and untenable as a basis for determining the worth of or the support given to, individuals.

  3. When Spam points out that this is about “poverty” not “child poverty” he’s (in the context of this blog) absolutely right. The Green Party uses the percent-of-median-household-income defintion of poverty as it’s yardstick, so he’s right by the Green Party’s own defintion.

    And when we talk about “inequality”, and perhaps fixing that, we’re talking about wealth redistribution, what was once a core socialist value, but its been given a rebranding exercise. Rebranding, good enough for Telecom, good enough for the left.

    And when Russel says “And it’s only fair that those who earn more, progressively pay more”, thats an opinion, a perspective, there is no underlying truth behind it, and life experience tells us that generally when quantities go up, costs go down, the reverse of that statement.

    But the biggest problem with the Green Party’s plan is that it isn’t a solution.

    The Greens Plan is, basically, to give money to poor households. What the Greens have forgotten is that the welfare state is supposed to be a safety net for those who have fallen upon difficult times, not an ongoing support arrangement or an alternative lifestyle.

    The problem that needs to be solved is not how to be a better Robin Hood, but how to fix ther problem at the bottom of society where the poverty resides.

    This is a common failing of many socialist parties and indeed many socialists; all they can see is people at the top who need knocking down, rather than people at the bopttom who need building up.

    And, of course, this is just the good news; the bad news is the drum I’ve been banging on my lonesome for many years is now being banged by others. The problem is bigger than a few bucks being reallocated; we have societal, structural problems that are with us now, and, as ever, those deckchairs being rearranged is taking up far too much management time, whilst the water level continues to rise…

  4. Clearly the position of the new proposed tax rate has to be shown in its proper position, the OECD provides the tax data, you are sticking exactly to what I expect from someone who holds your beliefs.

    Never argue the substance… just try to baffle the poor sods who can’t see your efforts to mislead us for what they are.

    The top taxes in New Zealand are currently 4th lowest in the OECD, and whatever else you want to argue, we don’t HAVE a “Capital Gains” tax. The tax “burden” on the wealthiest New Zealanders is risible when compared with Sweden, Finland, Denmark… basically you are standing up for the principle of greater inequality when we know with great accuracy just how poorly that inequality serves our society.

  5. Spam. your religion of free market fundamentalism is far more prone to being disingenuous, and given that linked specifically to the Swedish levels and the graph shown is FROM THE OECD, not from the Greens and normalized, my comment stands and yours is clearly in error.

    So the OECD helpfully showed two top tax rates for New Zealand, did they?

  6. Spam. your religion of free market fundamentalism is far more prone to being disingenuous, and given that linked specifically to the Swedish levels and the graph shown is FROM THE OECD, not from the Greens and normalized, my comment stands and yours is clearly in error. In several ways.

    You didn’t actually provide a reason why raising taxes on the people who are doing far better than average here, is so wrong. You don’t actually need a reason apart from your religion, but it would be useful for you to be honest about it with us.

    Moreover, one has to ask in what way you think I have some sort of religious views.
    I find the complete gormlessness of climate deniers disgusting, but that’s not a religious issue, there is plenty of evidence for it…

    …and I suspect John Key isn’t actually working for New Zealand, and knowing his position in FOREX as the FOREX scandal/fraud was in play, and the nickname the other players gave him, I have a small suspicion that he isn’t exactly honest either,

    We do not want mining of our undersea reserves, we do not want deep sea drilling, we do not want our environment destroyed in order to obtain dollars to buy stuff we should be making ourselves. The exploitative economy you champion spam, is a third world model and it doesn’t end well, has NEVER ended well, for any country that embraced it. To the extent that countries actually work through the comparative advantage as understood by Ricardo who invented it, they can succeed. The model you (and many other New Zealanders) embrace, never has.

  7. We utilise well when we are educated to so the focus of the Greens is still correct – cold or hungry kids don’t listen as well. Baby boomers who want to justify there selfish crap in Economic purism ignore it is about choices we leave the kids.

    Recycling and reusing instead of throw away consumerism and mining make much more sense. The Greens aren’t against mining but want policies that look after future options by looking after the natural infrastructure we will all die without.

    Of course we see vested interests trying to deviate from this wisdom that is growing. They try and talk pure economics as if it is a god when economics is about human choices, especially about limits of resources such as land.

    Thats why politicians and companies keep the likes of WhaleOil afloat as time is showing these old rape and pillage answers are suicidal, but investments have been made in this craziness.

  8. Interesting. I would add problems with “Utilisation” of resources as a contributor. I would also note that the Greens philosophy of limiting access to resources (mining, land use changes) appears to be more on the “cause” side than the “solution” side.

  9. Spam I see poverty as a result of several possibilities. There are not enough resources to support yourself in total , or as a result of a poor distribution of the resources. Money is a tool we use to distribute these resources, either with credit creation or tax reallocation. The result of this when many resources are getting short – no more land or planning that puts people in urban isolation from it – is a huge inflationary pressure that has been hidden by excessive borrowing. This is just making it harder for those less endowed or skilled to get a share. Redistribution by taxation makes more sense, but I feel resource taxation can tax the monopolistic holding.

    If we don’t do it history shows social problems and breakdown tip things anyway – wise enlightened societies do this for the maintenance of itself. Catching up to the OECD averages as opposed to poorly thought out Rogernomic theory brings us back to enlightenment and humanity. Children that are well and comfortable enough to feel loved and to grow ensures the baby boomers can retire to a stable society and not the mess we are heading for with this Government. Dollars invested won’t look after us if society isn’t cohesive.

  10. I am trying to figure out what your complaint is…. raising taxes so that we’re closer to the middle of the OECD than the least taxed? Is this some sort of religious issue with you?

    Oh the irony of a Greens supporter suggesting that a political issue is religious!

    My argument is twofold:
    “Child Poverty” is simply “Poverty”. Russel (and Meteria, and most other commentators) are simply using emotive language and spin. That’s politics. I understand perfectly why they are doing it, but I am calling them out on it.
    Secondly, “Raising taxes so we’re closer to the middle of the OECD”? That is not what the graph is showing. How’s this: We set a top tax rate of 61%, and have it kick-in at $100,000,000 / annum. Huzzah! We are now at the top of the OECD as per that graph. See any flaws with this suggestion?

    If Russel wants to raise taxes, then show us the tax burden, not the top tax rate. Don’t be disingenuous.

  11. I forgot to say before that the OECD table used for the comparisons is labelled “OECD top tax rates (including social security payments)” so I would imagine has allowances for the variations??

  12. Ha.. it didn’t offer me the log in in the usual place so I didn’t have that. Now better.

    Gerrit… you do NOT want to embed social contract stuff in the tax code. When they clear my prior comment you will see why I say that. Trust me on this one. I’ve seen what happens.

  13. Therefore to see if the comparisons of tax rates has a bearing we have to have an analysis also of excemptions and welfare payments of all types.

    I guess a simple cut off point about greed could be, if a child is going hungry regularly and those with extra in their pocket, or accumulated resources is not helping, it is greed or inhumanity.

    Much of the new economics that the baby boomers grew up with justifies this greed, eg. trickle down that is a long time coming – in fact we see monopolisation of resources instead. I am sometimes ashamed to be a baby boomer when I see this callous disregard of human dignity.

  14. oldlux,

    Was simply pointing out that just comparing tax rates is not the best. Portuguese tax rate may be high so Dr Norman can compare it to New Zealand’s low tax take. But when you take the exceptions into consideration the take may well be quite a bit lower depending upon personal circumstances. Judging by the exception list and this backgrounder http://countrystudies.us/portugal/62.htm , welfare is not big in Portugal.

    I’m not sure the point you are trying to make but if you could define the point where the accumulation of money and assets turns from “wants” to “greedy”., that would be great.

    dbuckley,

    Agree with you that tax exceptions are not good, hence my aversion to removing GST from fresh food. I was merely pointing out that a simple graph of top tax rates is meaningless if the underlying “accommodations” in the tax rate are not compared.

  15. I hate tax systems with exceptions like those listed above.

    These exceptions provide loopholes, and raise the cost of tax administration.

    I see them as a sign you’ve got the basic taxation policy wrong.

    For a really great example of why tax exemptions are a really stupid idea, see this douzy from the UK Revenue and Customs.

  16. Gerrit Maybe the Portugese understand that money goes round and welfare are linked. Accumulation of money and resources is simply greed when it is past a certain point.

  17. Spam

    I am trying to figure out what your complaint is…. raising taxes so that we’re closer to the middle of the OECD than the least taxed? Is this some sort of religious issue with you?

    Probably. Free-Market Fundamentalism. The neo-liberal approach to economics, complete with wage slavery and the darwinian answers for people who cannot afford bread.

    http://en.wikipedia.org/wiki/Taxation_in_Sweden

    We might do well to scrap ALL our government and replace it with a guy in Sweden and a photocopier… save us a heap of dosh, we could rent out the office space in the Beehive, and we’d have better laws and systems than we have now. 🙂

    Realistically we have favoured the wealthy here, in many many ways. The attempt to break the social contract and turn the society towards entrenched privilege and wealth not much different from the semi feudalism in the USA or the oligarchy of Russia, is getting more attention… and that is the last thing you want, and you don’t want it fixed either.

    Well we want to fix it. So maybe we’re going to have some disagreements with your religion.

  18. Gerrit

    No… don’t go there Gerrit. It is a really really bad idea in the end.

    Embedding the social contract in the tax policy leads to a lot of things being embedded in the tax policy, which ultimately leads to the situation one finds in the USA, where tax policy is a matter of a wing of the library of congress as interpreted by lawyers, judges and precedent, with exclusions and exceptions that can be identified (if found) as targeting one specific company in one specific district in one specific state, but only while it is owned by some specific minority. Seriously.

    The Tax Code of the USA is subjected to exactly that, and it makes a mockery of any attempt to deal with it… giving excuse for the Tea Party to exist… making inequality pay for itself. No thanks. Tax is about tax. Social benefits and welfare are NOT to be administered through the tax system. This part at least, is something New Zealand has correct. We may alter the Social Benefits and Welfare, but the only issue with respect to tax, is that when we tax what we tax there are no privileged incomes and that we manage things progressively to compensate for the free-market capitalism tendency to concentrate wealth.

    If we had a sane sort of money (as I have often asserted we need), it is likely that the tax would no longer need to be progressive at all, could be flat and still be fair, but we don’t, and that change isn’t on offer yet at all, so we have to go with the progressive taxes.

    Don’t complicate the tax more than it HAS to be to make it “fair”. That is complicated enough thanks.

  19. Taxing (punishing) those that make good choices and work extra hard to earn higher income is not a solution at all to help the poor. You cannot solve this issue with throwing more money at a sector of society that already eats up a huge chunk of the hardworking people’s tax money. You simply cannot tax your way out of poverty. No one has been able to do it. However, sterilization would work perfectly.

  20. It is interesting that Portugal has the highest tax rate, but then they have a number of deductions that we should have in New Zealand. Perhpas this is something the greens should look into as social tax deductions?

    It is possible to make a number of limited income deductions in Portugal, such as:

    A general deduction for each taxpayer and each of their young or old dependants
    Health expenses (unlimited in some situations)
    Education and training expenses
    Old person’s day/night care burdens
    Burdens related to real estate and renewable energies
    Burdens related to life and health insurance policies
    International double taxation
    Some special tax exemptions and/or reductions

    There are also some specific deductions depending on the kind of income obtained.

    http://portugal.angloinfo.com/money/income-tax/

    So we are not comparing apples with apples if we look at tax rates alone. I would suggest that depending upon social commitments and health, the actual payments could be quite low.

    I personally like the social contract within the tax policy.

  21. Graham – The family situation you describe is one in which the children should not even be left WITH the parents, and on the basis of this anecdotal, not common, situation you are attempting to define policy for every poor family in New Zealand. That you are wrong is not in doubt.

    However, let us examine what would happen if we defined the policy as “in kind rather than in cash” so that the kids get care from the state. Can you imagine all the self-righteous indignation and nanny-state accusations flung about? I can.

    The other alternative you present is basically to ignore and punish the children who are born, for their parent’s mistakes. In no way do you actually address a problem that IS addressable, as proven by Sweden and Iceland. We are at the bottom of the OECD, and there is NO excuse for that shabby performance, no matter how many anecdotes are provided as a substitute for data.

    BJ

  22. Spam, the problem in our present economy is not just confined to parents. Our common economic theory is based on a lot of assumption about money. Resources such as land, buildings, base materials are not endless but in a finite world. Debt to get a share of these diminishing resources only puts more of the future resource into the hands of those who have enough already.

    This all works as disincentive to trying your best and for innovation. In a world that is so full of luxury for some and showing signs of permanent damage it is spurious to blame some parents when our whole society has to come to grips with sharing more in a competitive economy – Gazza is an extreme example.

    The Greens are the only ones that have a comprehensive analysis and are therfore looking the right direction. They have been saying the same things over several decades – the collective understanding shows this – and time is proving them ahead of the ball.

  23. Is “Child Poverty” in some way related to the poverty of the parents? While don’t you simply call it “poverty”, or is that not emotive enough? Or is it an implicit admission that the problem is actually with the parents?

    I note that you, like every other advocate for strongly progressive taxes is completely disingenuous when comparing our top tax rates with those of other countries. At what point do the top tax rates kick-in in those other countries (hint: it is one hell of a lot higher than the 140,000 apples that you are comparing to their oranges).

  24. That’s great you’re giving another $60.00 a week to children in poverty but I heard you guys are giving the money to the parents. The reason some kids are not getting fed is because their parents make bad choices. Unless you put controls over how this extra money will be spent it will go straight down the porkies or into other useless things. The poverty starts for the kids because their single parents continue to make bad choices. More welfare does not solve this problem , that’s a fact . This Robin Hood tax to pay for this election bribe will go straight down the toilet. All societies have bad parents with Hungary kids because they’re selfish. The money is better spent on parenting courses or sterilisation . These poor kids were mostly unplanned mistakes.

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