Can Labour Close The Gap?
The poor stay poor, the rich get rich, That’s how it goes, Everybody knows. Leonard Cohen
Let’s talk about policy
By Roger Childs
Labour’s alternative budget is a welcome shift from the recent media obsession with political donations. The quiet spoken, thoughtful David Parker offers the nation a genuine alternative to the current economic management which favours the better off in the community and is widening the gap between rich and poor. Hopefully the election campaign can be fought over what policies are best for New Zealand and not about leadership styles and donations.
The failings of capitalism
French economist Thomas Piketty’s book Capital in the Twenty-First Century is widely regarded as an excellent analysis of the evolution of capitalism and the inequalities it has created in recent years. He argues that the return on capital has been consistently higher that the rate of economic growth especially over the last few decades.
So the system favours those who have money and disadvantages those who have little. A key tenet of Marxist theory was that the increasing accumulation of capital and wealth in the hands of a decreasing minority would lead to the overthrow of capitalism.
Piketty doesn’t think that will happen, however he contends that inequalities must be reduced. One of the ways he feels would rectify income differentials is to have a global tax on capital to put more money into government coffers.
OECD secretary-general Angel Gurria said recently: Inequality undermines societies and damages economies. It is not enough to put in place policies that harness growth, we must also ensure that the benefits of growth are shared by everyone.
Inequality in New Zealand has increased by 21% since 1982, according to Statistics New Zealand. This has of course covered a period when both National and Labour governments have held power. And it’s still going on (See Tom Scott’s cartoon alongside.) But do New Zealanders care about the widening gap?
In 2006 a survey was held in 32 countries asking the question Do you think it should be the government’s responsibility to reduce the income differences between the rich and the poor? Only 50.1% of Kiwis polled said “yes”, placing us 32nd in the list.
Will Labour policies lessen the gap?
~ increasing tax on incomes over $150,000
~ aligning trust taxation with the highest rate
~ a capital gains tax of 15%, but excluding the family home
~ reducing tax avoidance especially by multi-national companies. (Not easy!)
This … will allow the Labour-led Government to run surpluses and pay down National’s record debt by the end of our second term, David Cunliffe says.
Add these to Labour’s proposals for lowering power prices by setting up NZ Power, to act as a single buyer of power for households, and affordable housing schemes and you have a workable strategy for improving the living standards of lower income earners.
The expected National reaction
Their response to the Labour proposals has featured the usual derision and misinformation.
Steven Joyce highlighted the threat to New Zealand’s rapid economic growth, as if government policy was the key reason for it. There are other major factors accounting for the economic expansion in recent years such as
~ high dairy prices
~ strong world demand for other produce
~ favourable weather for increasing farm production
~ the spending of the wealthy
~ business initiatives by individual companies and exporters.
National regards itself as the natural party of government and sees periodic left wing rule as unfortunate aberrations in the development of the nation. Their leaders constantly raise the fears of the tax and spend syndrome, rising interest rates, a fall in business confidence, lower investment and financial irresponsibility if a centre-left government gets in.
It is easy for them to forget that Michael Cullen has been one of New Zealand’s best finance ministers in recent decades and Rob Muldoon one of the worst.
Vive la difference
One thing that everyone will agree on, is that the country has a definite choice of how the New Zealand will be economically and financially managed in the next three years. Hopefully debate over the different approaches and how inequalities can be reduced, will be at the centre of the election campaign.