Economics

Book Release – The Interregnum: Rethinking New Zealand

BWB7760_Text_Cover_The Interregum_HighRes_0

Kia ora e te kaupapa whānau,

It’s been a while. Aroha mai for that. I can’t say that I’m back writing here on a regular basis, but maybe. It all depends on time. However, I want to pānui out the release of Morgan Godfery (ed.) The Interregnum: Rethinking New Zealand (2016, BWB Books:Wellington).

From the BWB website, here is a teaser:

Is New Zealand’s political settlement beginning to fray? And does this mean we’re entering the interregnum, that ambiguous moment between society-wide discontent and political change? In BWB’s latest book of essays, edited by Morgan Godfery, ten of New Zealand’s sharpest emerging thinkers gather to debate the ‘morbid symptoms’ of the current moment, from precarious work to climate change, and to discuss what shape change might take, from ‘the politics of love’ to postcapitalism.

The Interregnum interrogates the future from the perspective of the generation who will shape it.

I have contributed a chapter on Kaupapa Māori Politics. I’m totally open to discussing (debating!) it, so if you do buy the book, and then want to have a mutually respectful kōrero with me about my chapter, please do comment here.

 

Ngā mihi nui ki a koe.

Collective Efforts

In his recent post, Too quick to take the credit? Morgan Godfery argues that it was a “crass” move by the Māori Party to put out a statement taking credit for the $790 million hardship package included in this years Budget. His key argument was that there were others who shifted political thinking such as Matua Hone Harawira with his Feed the Kids Bill and various advocacy groups, and as such that credit lies with those people not the Māori Party. It’s not that I don’t think others have been strong advocates on poverty. I absolutely do and of course agree they all deserve credit for their advocacy. But I think it’s unfair to discount the efforts of Dr Pita Sharples and Dame Tariana Turia and the continued efforts of Matua Te Ururoa Flavell and Whaea Marama Fox, as well as the party’s previous MP’s, parliamentary staff and members and supporters who have advanced the issue of poverty within the party and in their respective communities for the past decade.

Godfery writes that:

[C]laiming the credit for forcing the government to act seems a little, well, crass. Much of the credit belongs to Hone Harawira. It was Hone who did more than anyone else to help put child poverty on the Parliamentary agenda with his Feed the Kids campaign

Firstly, if you have had an opportunity to listen to Flavell’s Budget Speech, you will note that he said the Māori Party pulled it over the line…with a little help from National. After all, no Budget measures can take effect unless the government agree to it. The Māori Party have been strong advocates for poverty since entering Parliament, and the evidence is readily available in their policy manifesto’s. [Discussed further below].

Secondly, I completely agree that Harawira has been an outstanding advocate on issues of poverty and social justice. He certainly put child poverty on the media agenda but the claim he put it on the parliamentary agenda is bold. It’s worth noting that despite his advocacy in the media, Harawira had 2 years to put his Feed the Kids Bill before the house, yet withdrew and delayed on numerous occasions. It was only put forth following the 2014 Election, by NZ Greens Co-Leader Metiria Turei. Also note, the Māori Party voted in favour of that bill.

I also wholeheartedly agree that Campbell Live, Action Station, Child Poverty Action Group, and Auckland Action Against Poverty among other groups have been at the forefront of many community led initiatives to get the government to address poverty in Aotearoa. That doesn’t mean in order to recognise their strong advocacy that we need devolve into adversarialism. To allege misattribution by the Māori Party and essentially accuse them of riding on the coattails of the work of others is itself a misplaced attribution. The collective efforts and the varying roles each of the organisations have in policy development were not dismissed by the Māori Party. But in my view, they have every reason to say we pulled it over the line, since it is the Māori Party who through their relationship accord were able to directly influence that budget decision and absolutely the public pressure from these groups played a vital role in the Māori Party being able to secure that funding for poverty.

Action Station have expressed their tautoko of the Party in the fight against poverty:

And have acknowledged Fox for receiving the Action Station petition at Parliament on 20 May 2015.

On the above it is only fair then that we also take a brief look at the Party’s history of poverty advocacy.

In 2008, the Māori Party entered their first relationship accord with the National Party. At that time, Harawira was an elected MP for the Māori Party under the leadership of Turia and Sharples. The 2008 Policy programme that the Māori Party campaigned on included Ending Child Poverty by 2020. Part of that policy programme included:

  • Rais[ing] core benefit levels
  • Establishing an Every Child Matters fund
  • Investigating the reintroduction of a Universal Child Benefit

In 2011, the Māori Party entered a second relationship accord. At this time Harawira had left and formed his own Mana Party. The 2011 Confidence and Supply Agreement included:

  1. Supporting the ongoing implementation of Whānau Ora
  2. Establishing a Ministerial Committee on Poverty
  3. Urgently addressing the effects of poverty through health and home initiatives

See also: 2011 Maori Party policy package.

In 2014, addressing the effects of poverty was weaved through critical areas of the Party’s policy platform: Whānau Ora, Health, Education, Economic Development, Homes, Family Violence, Enabling Good Lives and so on. The goals stated were to build on the objectives and the progress made since 2008.

For the Party to be reproached for being proud of their contributions, that is, seeing the materialisation of the work their MP’s and the kaimahi behind the scenes have put in to the relationship accord over the past 7 years, is awfully undermining of their efforts.

I do agree with Godfery where he states:

Improving even one life is a positive step, but we can’t claim success until we begin changing the system which reproduces Maori disadvantage generation after generation. Budget gains may help stop the slide, but they won’t reverse it.

However, to my knowledge the Party haven’t claimed success on the “reversal” of poverty – they’ve indicated that the budget gains are a start to improving the lives of our most vulnerable whānau.

The Budget and the Benefit

In the 2015 Budget the Māori Party negotiated and secured around $1 billion worth of funding directed toward Māori initiatives and the countries most vulnerable whānau.  The most significant gain being the increase in the core benefit rate of $25 per week. The first increase in 43 years. However, in giving with one hand, National took with the other by imposing stricter obligations on sole parents, who will now be required to return to work two years earlier and for longer hours.

Understandably, many are expressing concern that the hardship package is fraught with challenge and will not remedy child poverty in Aotearoa. For instance, Metiria Turei of the NZ Greens was quick off the mark to point out the flaws and concerns in the package:

In fairness, I’ve not seen anyone claim the hardship package is a panacea to the country’s social and economic ills. Nor would I expect that anyone would think this was some kind of magical fix. Poverty is complex. It is layered and each situation requires different approaches to not only address the hardship each whānau face, but to also step out a plan to overcome hardship permanently. This in my mind, is the benefit of having around $50 million more funding toward Whānau Ora to be distributed by commissioning agencies to ensure those funds reach frontline services, and therefore whānau.

However, unlike some others, I don’t see the increase in the core benefit rate as a negative. I applaud the Māori Party, in Te Ururoa Flavell’s words, for pulling this over the line. I mean even if National only agreed to the increase to save political face, in my mind, what matters is that for the first time in 43 years our core benefit rate has increased. This means that any future government can arguably increase the amount further without causing a massive public outcry. In my opinion, the left (many of whom are being incredibly critical of the increase) should champion this idea. Afterall, the New Zealand public are likely to adapt or perhaps cope better with incremental increases to core benefit rates than they are to sharp increases.

I do agree that the immediate material impact may be minor for many of the whānau targeted by this policy. But the long term prospects for those families who find themselves on a benefit are much better today than they were the day before the budget or indeed since the massive cuts in 1991 under the National government at that time.

A small anecdotal note, however,  for those claiming that $25 per week or the $18.40 or something that it turns out to be is laughable, or not even worth implementing.  I can assure you, as child of a beneficiary parent in the 1990’s, that “something” will always be better than nothing. I am not saying we should just settle for the bare minimum. I am saying that this “something” although not enough to fix hardship, could mean the difference between having a home with power versus a home without power. It could mean the difference between having porridge in the cupboard versus having nothing. It could mean the difference between sandwiches for lunch versus having nothing. It could mean the difference between accommodation versus eviction. It could mean the difference between going on a school trip versus feigning a sick day. So yes, based on my own personal experience I am going to be supportive of any policy that increases core benefit levels.

Is it enough? Absolutely not. But I’d just ask people to be mindful that when you claim $5, $10, $20, or $25 etc is nothing – you might want to check your privilege. It can make a difference. And even if only minor, that difference can change a persons outlook, or even just what kind of day they have. This matters to those who have been forced to become accustomed to having nothing.

Furthermore, when the ethos of a political party changes from ‘slash the benefit’ to ‘increase the core rate’ then progress has been made.  Just over three quarters of a billion dollars targeted at poverty is a milestone in these circumstances. Social change doesn’t happen from people crowing at the sidelines. It takes collaboration and nurturing of relationships to create and instill change. We are yet to see whether the National Party will embody this change in focus and become more receptive to issues around poverty in future. Although, the more stringent work requirements for sole parents on a benefit with toddlers arguably counters the notion of a genuine change.

The other argument as Turei raises above is that these increased work requirements erode the increase in the core benefit rate. I’m not going to dispute that. I wholly disagree with the onerous requirements placed on sole parents to become available for work for 20 hours p/w, as opposed to 15 hours p/w, when their child turns 3 years old, as opposed to 5 years old. Sacraparental sets out 16 reasons why that particular policy is problematic.

However, I think we can support the increase in the core benefit rate for the reasons I set out above, while remaining critical of the increased work expectations. To this end, I think the Māori Party have done some great mahi to negotiate an historic increase in the benefit coupled with the extra funding for Whānau Ora and other initiatives that can help address hardship and also temper some of the challenges inherent in the onerous work availability policy.

Haere rā homeownership

The Landlords Game (the original Monopoly) used to explain Henry George’s theory. See also: http://harpers.org/blog/2012/10/monopoly-is-theft/

As housing prices in Auckland continue to rise at unprecedented rates, the dream of home ownership, especially for many younger Aucklander’s slips away. Well, more accurately put, it is obliterated. Why? Government inaction and a refusal by policymakers to consider different approaches that might actually address the issue. Land Value Tax (LVT) anyone?!

This time last year, Jesse Colombo warned of an economic crisis for New Zealand. He argued 12 points which you can find more detail on here. With regard to the housing bubble he warned interest rates, overvalued land and demand were key indicators.

Colombo was ridiculed by Economic Development Minister Steven Joyce, as an  alarmist and a bubble-ologist. As the NBR point out, this is despite the endorsement Colombo is given through publishing on one of the US’s most influential business websites.

But here we are. On the downward spiral to that bubble popping. The demographic I’m referring to are those of us who have had or have to borrow for post-secondary school education. Most of us will never own our own home. We will pay rent to a landlord for the rest of our lives. We will continue to pay sizeable taxes on our incomes but we will pay for our own retirements.

I’ve banged on about LVT for the past couple of years. Deirdre Kent & Phil Stevens of the New Economics Party have been writing on it for even longer. The idea derives from the work of Henry George who wrote his seminal work Progress and Poverty in 1879, that makes the case for taxing land and untaxing labour. Oh, and a factoid for fun, Henry George began the original weekly newspaper ‘The Standard’ in 1887.

Some Georgists/Geoists prefer not to use the phrase LVT, and consider land rents or similar as a more accurate description. I’m down with that, after all, the intentions and theory behind it are pretty much the same. I’ve written a few posts on Georgism, so to avoid re-writing, you can read them here.

We are constantly told if we just build more houses the market will cool, well, clearly we can’t really build at a rate sufficient to meet the total demand it seems. If we raise interest rates, then fewer people will buy. But this means lower-middle income earners are priced out. These approaches have done nothing. And all the while the government itself has contributed to the skyrocketing prices, for example, by banking a section of land intended for social housing for over 11 years, which is now being sold off privately at market prices. So perhaps Minister Joyce might want to reconsider his views on Colombo.

My suggestion is why not an LVT? Even if it is something applied solely to Auckland in the interim to incentivise the competition necessary to drive prices down and then rolled out across the country? I’m not saying I have a model ready and available. All I’m suggesting is that we start talking about alternative approaches to housing affordability especially if they have the potential to simultaneously address other issues that are suffocating low-income families and younger generations (X, Y, Z)

The thing about an LVT is it changes the nature of property rights that we currently know. Rather than individual ownership rights, they become use rights where the land is of the commons and the occupant pays a rent to the community for the privilege of taking the land out of the use of the commons. One comment that remains firmly etched in my mind is this by Nate Blair:

The problem with Georgism is not the idea, which is basically flawless.  The problem with this idea is that it seems both radical and inherently moderate to anyone understanding it.  The revolutionary aspect of Georgism threatens the predators of caricature “capitalism” and angers the conservatives. The justice and honesty threatens communist revolutionaries and angers armchair progressives, who are fine with paying a bit more but not with giving up their privilege.

I hear heaps of people online referring to themselves as ‘progressives’, yet comparatively few advance any alternative ideas, to existing failed models. It makes me wonder how much of that is about a reluctance to part with certain privileges. So since many of y’all liked Piketty’s book, here is a video where Joseph Stiglitz & Thomas Piketty gave a presentation on inequality. Toward the end Stiglitz exposes his own Georgism:

If further interested have a look at the LVT tab up top of this page for some documentaries/clips and websites that talk more about LVT. I personally recommend “The Taxing Question of Land” and “Real Estate 4 Ran$ome”.

Food Security apparently optional for the Children of Aotearoa

Last night the government (National and ACT) voted down two bills that sought to provide food to children particularly in low decile schools. That is, children who live in the most economically deprived areas of the country. The bills essentially dealt with the issue of food security, or alternatively stated, food insecurity.[1]

Food security is considered as existing ‘when all people at all times have access to sufficient, safe, nutritious food to maintain a healthy and active life’.[2] It involves four essential elements: availability, access, stability and utilisation.[3] According to the Food and Agriculture Organisation, availability is measured in terms of the quantity, quality and diversity of food available to consumers, while access is measured by both physical and economic access to food.[4] Access and availability are largely guaranteed through national level policy although there is no requirement for a country to ‘achieve food production self-sufficiency’.[5] Importantly, measuring the extent of food security at the national level (that is, that a country has sufficient levels of food to distribute to meet domestic demand) does not necessarily reflect the extent of security at the household or individual levels. A nation can be food secure at the national level while still food insecure at the individual level due to ‘unequal distribution of food within the country’ which may result from food prices and the issue of affordability.[6] Stability is measured through exposure to food security risk, as well as incidences of shocks such as price spikes, fluctuations in domestic food supply and political instability,[7] while utilisation measures the ‘variables that determine the ability to utilise food’ together with ‘outcomes of poor food utilisation’.[8]

Food insecurity has often been considered an issue of  inadequate food supply at the national level. But this is not the case in New Zealand, nor in most developed countries. Instead, it is often the lack of purchasing power on behalf of households.[9] In his entitlements theory, Amartya Sen emphasised similar issues of consumption, demand and access to food by vulnerable people.[10] Sen argued that a person will starve if their entitlement set is absent ‘any commodity bundle with enough food’.[11] Also, that starvation was imminent if there were a change in their factor endowment, such as, loss of land or labour power, or their exchange entitlement mapping, such as food price spikes or loss of employment.[12] He maintained that these changes would restrict a persons ability to acquire any commodity bundle with enough food.[13]

A problem that arises in respect of the Feed the Kids bill, is that critics imply the problem of food insecurity in New Zealand is not one of a chronic nature (as is often found in developing or least developed regions). Therefore, studies that suggest marginal improvements (and perhaps arguments such as Sen’s) which were largely responding to food insecurity in developing countries should not be used to defend policies that attempt to address transitory food insecurity in children in New Zealand through school lunch or breakfast programmes. The reason being that there is little evidence to show that outcomes will provide any significant benefit for the cost of such policies.  For instance, Dr Eric Crampton writes:[15]

[I]t’s hard to make a case for that we’d get any great benefit from the [school breakfast] programmes. Rather, we often find that they don’t even increase the odds that kids eat breakfast at all.

And:

To the extent that they improve outcomes in some studies, we really can’t tell:

whether the effect is from changing the timing of breakfast, in which case we should instead have a morning tea break;

whether the effect is any better than just giving those families an equivalent cash transfer.

However, the cash transfer option doesn’t ensure that children will become food secure. By that I mean it doesn’t ensure that there will be food available or that they will have access to food.  I appreciate that a cash transfer gives the parent more freedom to choose the kinds of food that the child has available to them. However, a cash transfer may also incentivise food producers to increase the price of their foods to exact a benefit for themselves through the increased purchasing power made available at the household level. This could in effect neutralise any benefit that might have otherwise accrued to food insecure households due to affordability issues. Arguably, this problem could be overcome by adjusting for any inflationary effects. But that pattern is hardly desirable and contributes to the cost of government administration. Additionally, a cash transfer may not increase what the parent spends on food at all. Parents who find themselves without work, paying rent and utilities, school costs, and servicing other debts incurred while employed or those parents that simply don’t have enough money to cover the basic bills each month may not be able to increase their food spend, it may mean they’re able to cover costs that they had been unable to cover – car licensing, dentist, school costs, sports fees etc.

However, there are also issues for advocates of the Feed the Kids bill, such as, who supplies the food to the school? Can a government get value for money if entering into a supply agreement with a corporate (who would likely create terms more favourable to itself), or is contracting with a charity necessarily the best option since they may for example, source food products from corporations? There just seems to be a contradiction in fighting capitalism from the left – who are the main advocates of this bill, to partnering with corporations either directly or indirectly.

In principle, I support the Feed the Kids bill. But like many others have suggested, it needs some work. That would have been the benefit of getting it to the Select Committee where the public could make submissions and where robust research was carried out to attempt to construct an effective policy.

An area where I’d like to see research directed, is where food is targeted at the source. That is, where the government invest in local food production. It might be that there is room to incentivise food producers to produce surpluses that are supplied to their local schools. Sure, this is an un-worked idea but we shouldn’t just limit our imagination to cash transfers or supply by food corporations. There is a human right to food and in my mind that means it is a resource first. If the government can improve local food production by investing more in the sector to deal with issues of household and individual food insecurity then perhaps we can tackle a number of issues (such as employment, health, education) while also ensuring children are not subjected to food insecurity whether it be chronic or transitory.

The right to adequate food is recognised and protected in both the Universal Declaration of Human Rights (UDHR) and the International Covenant on Economic, Social and Cultural Rights (ICESCR).[16] The UN Special Rapporteur on the Right to Food defines this right as:[17]

…the right to have regular, permanent and unrestricted access, either directly or by means of financial purchases, to quantitatively and qualitatively adequate and sufficient food corresponding to the cultural traditions of the people to which the consumer belongs, and which ensure a physical and mental, individual and collective, fulfilling and dignified life free of fear…

The government also has obligations to meet food security goals as set out in the Millennium Development Declaration[18] and the Rome Declaration on World Food Security. [19] I haven’t even touched on issues of undernourishment, nutrition, food sovereignty, the role of agribusiness, deforestation, land grabs, climate issues, infrastructure issues, armed conflict, GMO’s. The topic of food security is vast, and is a priority at the international level. Pity the New Zealand government see it as optional. Perhaps, the next development in the feed the kids campaign, then might be to focus on the wider issue of food security at the household and individual level and find ways to address it that aren’t merely palliative, but involve addressing the network of challenges that cause food insecurity.

 

[1]  Some of the content of this post comprises parts of a dissertation I wrote for my LLM.

[2]  Rome Declaration on World Food Security.

[3]  FAO State of Food Insecurity in the World (2014), at 13.

[4]  Ibid

[5]  Christopher Stevens, Romilly Greenhill, Jane Kennan and Stephen Devereux “The WTO Agreement on Agriculture and Food Security” (paper prepared for the Commonwealth Secretariat, Economic Series No. 42, London, 2000), at 3.

[6]  At 2-3.

[7]  Ibid.

[8]  Ibid.

[9]  World Bank Poverty and Hunger (1986)

[10]  FAO “Chapter 2. Food security: concepts and measurement” in Trade Reforms and Food Security: Conceptualising the Linkages (FAO, Rome, 2003), at 28.

[11]  Amartya Sen Food, Economics and Entitlements (World Institute for Developmental Economics Research, United Nations University, 1986) at 8-9. For Sen, an entitlement is ‘the set of different alternative commodity bundles that the person can acquire through the use of the various legal channels of acquirement open to someone in [their] position’.

[12]  Ibid.

[13]  Ibid.

[14]  Stevens et al, at 5.

[15]   Eric Crampton “Breakfast” Offsetting Behaviour (15 May 2013)

[16]  Universal Declaration of Human Rights GA Res 217 A, III (1948); International Covenant on Economic, Social and Cultural Rights GA Res2200A XXI 993 UNTS 3 (1966).

[17]  “The Human Right to Food” UN Office of the High Commissioner for Human Rights

[18] Millennium Development Declaration

[19]  Rome Declaration on World Food Security

Death Duties

I was reading Martyn Bradbury’s post Generation X have been betrayed by neoliberalism and baby boomers.

I agree with many of the points he makes including some of the points made in the article he cites, insofar as economic inequality is a massive issue.

But I do not agree that we can attribute the cause of economic inequality to a birth cohort. The focus on generation ignores or at least treats as ancillary, an obvious cause, namely, speculation or rentseeking. It is not the fact of being born between 1946 and 1964 that destroyed free education, a robust welfare system and affordable housing in NZ. It is the speculative rentseeking behaviour of those – many born within that particular cohort, some before and some after – who were already privileged enough to participate in the speculative markets that created widespread economic inequality and preserved it through the 1980-1990 economic reforms through to today.

But I want to focus on the last statement Bradbury makes at the end of his post:

“A progressive Government coming into challenge this intergenerational theft should first consider reapplying death duties to redistribute all that boomer good luck to other generations”

The argument it stems from is more or less this: Baby Boomer’s (BB) were born into and lived through a unique economic boom that created many opportunities such as affordable housing (really it was cheap land), a robust welfare system and free education. This implies that during and as a result of the economic boom, BB’s were the recipients of the benefits that flowed from those opportunities without the struggle of repaying student loan debt and being priced out of the housing market unlike the generations following the BB’s. Therefore, BB’s should compensate future generations for the loss of opportunities by paying a tax on their death.

I understand why people romanticise about taxing the BB’s on their death (as morose as it is), because when faced with communities living in poverty, there is a whole generation to blame because we are told that BB’s had everything sweet.  In doing so, we neglect the highly unjust tax and monetary system.

Often missing from the debate also is that death duties will likely incentivise the wealthy BB’s (those these arguments usually target) to shift the funds of their estate to offshore tax havens.

So, in my view, changing the tax system to capture unearned income (during the lifetime of the individual) and targeting speculative behaviour is better than waiting for people to die.

An objection also worth noting (although highly unlikely and very slippery slope) is that wealthy BB’s may become targets of vigilante groups in extremely tough economic times, on the perception that they are worth more to society dead than alive [I don’t seriously think this is an issue, but its not an impossibility either].

The idea of death duties, in my opinion, is flawed for three key reasons (although this isn’t an exhaustive list).

Firstly, it is inefficient to (re)introduce another tax into an already complex tax machine.

Secondly, there is a simpler, more efficient and effective tax that could deal with speculative behaviour/rentseeking – land value tax (LVT).

Thirdly, death duties are hardly hallmarks of a progressive government, unless what we view as progressive is retro politics. Death duties were introduced in the 19th Century in NZ and by the mid-1950’s were (mostly) abandoned [see Michael Littlewood’s History of Death Duties and Gift Duty in NZ].

On the first point, I consider death duties inefficient for many reasons, including  that it is difficult to determine (even approximate) how much revenue will be raised in any given year and so that makes planning/budgeting on how to redistribute those funds uncertain. Also, no-one mentions how these funds might be redistributed back to society e.g. citizens dividend? or just paid into the states general fund? There is also the issue that the argument for death tax is intended to assist future generations, yet these are usually the direct beneficiaries of inheritance, so the tax takes from those generations. Although the suggestion is, it is fairer because it redistributes back to all. However, by putting back into the general fund, means that living BB’s still benefit from the deaths of their birth cohort, while the direct recipients have their inheritance taxed.

The uncertainty of fund levels also impacts on administrative costs such as staffing, office space, office equipment – noting that some of the revenue collected would be redistributed back into administrative costs, reducing the pool of funds available for social redistribution.  And the tax itself adds to the growing number of taxes (increasing bureaucracy) the government expects individuals to pay thereby increasing the reach of the state from the life of the individual into their death.

On the second point, the level of tax paid by the community is already excessive. Most people agree we need to reduce the tax burden not amplify it. The focus should not be on how many other taxes we can use to collect the revenue necessary to provide public services. I maintain my position that LVT and abolishing or significantly reducing all other productive taxes appears to be the fairest and most efficient way to deliver public services, alleviate poverty, disincentivise speculative behaviour and incentivise innovation and entrepreneurship.

So discussions on economic inequality ought to focus on how we can collect revenue efficiently and effectively while reducing the tax burden. Without reiterating previous posts, I have written on LVT  here and here and you can also view the LVT page of resources by clicking on the tab at the top of this page.

[Note: There are many Georgists/LVT proponents who do support inheritance taxes, so this post isn’t intended as a reflection of the broad church of Georgism/Geoism]

The third point is that NZ has had death duties in the past and they were abandoned. Calling a government progressive for reintroducing them is like saying a Beatles Tribute band is progressive. Death duties are retro politics. Admittedly, the same claim might be levied against LVT; however, LVT has not existed as a single tax and is currently being researched around the globe as economists and political and non-political groups look for ways to tame the speculative beast and ensure prosperity for all.

I’ll also point out, that some BB’s actually saved their earned income to pass on to their children. They may have struggled through their life for this specific purpose. Are their earnings something that we can justifiably tax? I’m not convinced it is at all.

I absolutely agree that we need to deal with economic inequality – and fast.  I also support the idea of redistribution, provided it is done in a manner that minimises hierarchy rather than reinforces it.  But if we unpack the phrase ‘death duties’ we see that it grants the state a ‘right’ to collect revenue from individuals on their death, since  individuals (would) have a correlative duty to pay the state on their death. Death duties are effectively a death tax, and taxes are collected through enforcement measures exercised through state hierarchy. So, death taxes reinforce state hierarchy through a perverse strategy for managing economic inequality by ‘waiting for people to die’ so that the state can ‘benefit from their death’.

I suspect many readers will disagree with me about death duties; however, my question is what does it say about humanity if there is not even freedom from the reach of the state in death?

Xenophobia is ugly and embarrassing

The concern over home ownership in New Zealand is valid, especially since statistics indicate that home ownership in New Zealand has fallen below 50% – the lowest since records began. House prices are simply too high and the necessary wages to finance a mortgage too low. Something has failed.

However, instead of turning to our failed tax and monetary system and looking for disincentives to land speculation, we resort to blaming foreigners. At which point accusations of xenophobia come into play.

I refer to this piece by Duncan Garner: LOOK AT THIS! THIS IS WHY HOME OWNERSHIP IS LOW

Garner claims that:

12% of all homes in Auckland are being bought by people living overseas

This is misleading. It does not necessarily mean that homes are being bought up by ‘foreigners’. How much of the 12% are NZ citizens living abroad? Without defining ‘peple living overseas’ its difficult to attribute the 12% simply to foreigners. Additionally, it means that around 88% of homes are owned by New Zealanders. Thats a significant majority.

Garner goes on to insist that:

we desperately need decent and reliable statistics to show just how many houses in NZ are sold to overseas speculators.

Again, ‘overseas’ is not indicative of ‘foreigner’. The conflation astounds me.

Agreed, speculation is undesirable and particularly harmful in widening economic inequality. However, speculation should be the target, not ‘foreigners’. Even if the 12 % of homes owned by people living overseas are owned by foreign speculators, it does not mean domestic speculators have an insignificant effect on housing prices. We need statistics on speculators in the market, irrespective of their nationality.

Jamie Whyte criticises Labour’s economic policy as failing to discourage ‘rentseeking’ (speculation) and ‘crony capitalism’. The argument in short: if a government causes losses to accrue to the wealthy, it has to compensate for those losses with taxpayer money. Labour are not alone here. National also have the system set up so that tax revenue is redistributed upwards just using different kinds of subsidies.

Of note, Labour (and the Greens) advocate for a capital gains tax (CGT), yet appear to wilfully ignore that this device was in place in other countries and did not prevent the GFC in 2008 that was largely the result of a property boom.  To extend on Whyte’s point – taxing capital gains creates obligations between the government and the parties subject to that particular tax – in order to ensure gains aren’t moved offshore or that investors don’t stop investing here, those subject to the particular tax will need incentives, usually in monetary or ‘regulatory’ forms.

My point is that if any political party is serious about tackling speculative behaviours that affect housing affordability then land value tax (as a single not an additional tax) must at least be up for consideration. We need innovative solutions. David Cunliffe (Labour Party) stipulated that in his economic upgrade speech yet offers only a CGT.

But moving on, Garner’s boldest claim is to:

ban foreigners from buying old stock, build new houses if you want to invest here – that’s what happens in Australia. It’s time to stop the madness

Garner’s effectively suggests that we signal to foreigners that we in New Zealand don’t think they should buy homes where we want to live, they should instead build homes where we don’t want to live.

All those accusations of Māori separatism, come home to roost in the suburbs of the middle class.

A further problem is that xenophobic policy is dangerous for diplomacy. New Zealand has adopted declarations that create obligations to avoid discrimination and to uphold human rights. These declarations may only amount to soft law (not legally binding), but our actions do indicate our commitment to shared principles across the globe. They speak to our moral character. Xenophobic policies damage our international character.

There are strong arguments [from cosmopolitanists] for principles of distributive justice to apply at a global level. In context of this post, if we consider how we did not create the land, our claims on {absolute) ownership are questionable. Arguably, our only legitimate entitlement to it, is to share in its wealth. It might follow then, that those not born in NZ or who don’t fit the legal requirements for the arbitrary notion of ‘citizenship’ should still have every right to purchase land in New Zealand. Afterall, our birth place is contingent.

In my view, any governance model, must ensure that the communities affected by land ownership are properly compensated for that resource being taken out of the commons.

I  appreciate that some Māori might be uncomfortable with supporting policies that give foreigners access to land, particularly, if there are no safeguards around land that might be in dispute or customary land. Disputed and or customary land is a different case, they are about just possessory claims and ought to be dealt with separately from the general residential housing market.

Garner concludes that banning foreigners from buying homes in New Zealand is:

…not racist. It’s common sense. Let’s put New Zealanders at the front of the queue and help them, before it’s all too late.

If we want to make it easier for New Zealanders to buy homes in the areas they want to live, then tax the land and untax productive incomes.  The mere suggestion of banning foreigners is both ugly and embarrassing,  does not resolve the pricing issue and is most certainly not common sense.

#Herecomesthesun: The Greens Solar Home project

Firstly, there is some magic in using a Beatles song as a hashtag to promote your policy on solar energy. On one hand, it will resonate with the diehard Green voter given that its a criticism of corporate life. On the other hand, one can’t help but smile when listening along given its folky beat. And its The Beatles, well, more correctly George Harrison. Maybe its just me, I don’t know. But I think that its use is some political psychology gold.

Secondly, the Greens Solar Home project is the kind of radical policy that the Greens need to reinvigorate their voting constituency. Its a bold move amid their neolibral-lite policies, to encourage consumers to ‘take the power back’. Another pun from a band also likely to resonate with the diehard Green voter and anti-state renegades. But pertinent since it implies that the consumer has the power both in terms of their energy source (no more bills to Mr Deep-pockets) and their choice on how best to manage their energy needs (self-determination).

BUT there is a ‘but’ when considering the specifics of this policy and I’m hoping my critique doesn’t minimise the clout of the overall message.

The thing about political parties is that they seem to abhor revision. In the face of criticism, parties often dig in their heels – even if that means advocating bad policy. I hope the Greens can internalise the feedback from Green voters and even non-Green voters and use it to show that they are open to revision where necessary, which is in itself conducive to participatory democracy, and in line with the underlying message of solar project – self-determination.

For ease of reference the Greens policy document can be located here.

In it you will see, that the Greens offer low interest loans to homeowners to install solar panels. The repayments are made through the homeowners council rates. That is, the loan is to be repaid at $900 per year on top of their rates. The interest on the loans is said to be about 4.1% p.a, although this interest figure is subject to change.

The Greens envision a savings of $100 per year for homeowners. Given interest must also be paid on that loan per year, its unclear if the Greens will require the interest on top of the $900 repayment, in which case, the savings figure of $100 is false. Or if the interest is included in the $900 per year, which means the term of the loan is longer.

Some argue that at least the repayments aren’t going to a foreign-owned company. But the loans are made through a foreign bank and provided to the consumer via the government. So in effect, the repayments go to the worst of them all. The Bankers.

What about the effect on homeowners? Its true that some homeowners will benefit from solar power, particularly those who live in the homes they own. Depending on social preferences, house prices may rise if solar is viewed as an improvement to the property. Which is fine for those who tenant their won properties.

What about the renters? landlords may decide to install solar to improve the value of their properties. The effect, is likely to see the rent increase for two reasons: the market rate for solar homes will increase if there is demand for solar powered homes, and the landlord will need to repay the loan for the installation of the solar panels. So for low income renters, this may be a negative, since renting can already place a large burden on those individuals or families. If landlords are prevented from passing on the costs of the loan to install solar, then fewer rental properties will have solar, which affects a large proportion of the lower socio-economic demographic who are the people who need access to soalr the most. Also, it diminishes the purpose of the Greens policy.

Also, the idea that excess power generated could provide a return to the homeowner is a bit disingenuous. If the uptake is significant then power prices will fall. This means that the price at which you can sell your excess power is probably negligible. In addition, the Greens NZ Power policy, intends to drive down the price of power!

This article by  George Monbiot  (h/t to @gtiso) suggests that solar panel installation ‘is the ideal modern status symbol, which signifies both wealth and moral superiority’ [in the middle class], ‘even if it’s perfectly useless’. The suggestion is that the policy either intentionally or inadvertently operates as a wealth transfer to the middle class. Similar could be said of the Greens policy.

What about disposal? It was pointed out that solar panels are difficult to dispose of because they contain toxic materials. Solar panels are estimated to have a life span of about 25 years. The policy is unclear on how the Greens intend to dispose of the panels at the end of their life spans. If they will create landfills in NZ, then there are additional costs involved in setting up a land fill for this purpose, not to mention issues with dumping toxic materials into NZ soils. The alternative is to export the waste material and have some other community deal with the effects of solar panel pollution. Admittedly, I’m not very clued up on how to dispose of toxic materials or the extent of the toxicity in solar panels, so this worry of mine could be completely unfounded.

So I have outlined my gripes, so let me just reiterate that I wholeheartedly support initiatives to address climate change and moves towards decentralisation and clean energy. So  one way I see for improving the policy is implementing the combination of LVT and UBI (see my post on the benefits of UBI here).

LVT as mentioned multiple times in previous posts, brings land (broadly defined to include all natural phenomena not produced through human exertion) into common ownership – distinct from collective or private ownership. The economic rent collected is pooled and can be redistributed via a UBI. Income taxes are abolished (or significantly reduced during the transition) giving workers and non-workers (due to UBI) the ability to invest in their choice of clean energy (if that’s what they desire).  It might even be that communities decide to reduce the UBI for each person and use the remaining amount to invest in infrastructure and clean energy. Who knows. But that is self-determination. It extends this policy and makes it fair for all.

Reviving Georgism: George was a root hacker not a branch wriggler

Universal Basic Income vs Minimum/Living Wage

Bryce Edwards compiled a round-up of the inequality debates regarding NZ’s 2014 Election. I suppose, whether the motivation to focus on inequality is well-intentioned or a vote grabbing exercise is yet to be determined.

My issue with the inequality debate is that it is most often framed in terms of whether we should (a) increase the minimum wage, (b) legislate for a living wage, or (c) target assistance through wages subsidies like Working for Families. Not really root hacking stuff.

The presumption from those advocating increasing the minimum wage or having a living wage is that it will improve outcomes for the working poor.

Minimum or Living wage (MLW)[1] proponents also tend to argue that it is unfair that government subsidises businesses through the various welfare packages made available to low-income earners absolving businesses of the responsibility to pay fair wages to its workers.

In fact, I have made this argument myself and while I have revised my views on MLW strategies, I do think it has some merit. But whether MLW strategies address the issue of economic inequality is a different story.  In my view, part of the remedy to overcoming economic inequality is to implement a Universal Basic Income (UBI).[2]

I have posted this particular piece in my Reviving Georgism series because like many Georgists,[3] I think UBI and Land Value Tax (or land rent, land fees etc) are complementary policies for tackling inequality.

I do not necessarily oppose a MLW, in fact, a living wage is precisely what I advocate. I’m just not convinced that state regulating private enterprise to pay a particular minimum amount will necessarily have the effects intended. I think that UBI is a better goal because it benefits all society, not just one group, i.e. low skilled, low-income ‘workers’.

I also think we overlook that a MLW is a legal privilege that favours business and is therefore out of step with the objectives of the Unions and campaigns who typically lobby for MLW. I set out my argument below.

MLW as legal privilege

A MLW is a legal privilege weighted in favour of business because it removes the negotiating power of the worker to obtain a higher wage. It does this by legally entitling businesses to pay workers less (the minimum) than they might otherwise be willing to pay. Moreover, businesses are likely to choose to pay the legal minimum required simply because the law says they can.

Robert J Murphy adds another dimension where he argues that:

“Raising the minimum wage might represent a drastic harm to the most vulnerable and desperate workers…What could happen is that the higher wage would attract new workers into the labor pool, allowing firms to become pickier and, thus, to overlook the least-productive workers, who would remain unemployed or lose their jobs to more-highly-skilled workers”

I agree that MLW increases could represent a harm to low-income earners and I think that Murphy’s point reinforces my argument about privileging business. Additionally, MLW strategies might attract those who are unemployed but looking for work, to take on low skilled jobs in the interim, thereby potentially increasing unemployment for low skilled workers – an unintended consequence.

I’m not ignoring the fact that in non-minimum wage societies businesses can (and do) exploit workers.  My criticism is not that MLW strategies are inherently bad for all workers, indeed they probably do have some positive short-term effects for some but as Fred Foldvary points out [Henry] George would argue that minimum wage simply treats the effects [of poverty] not the symptoms, and that it distracts and appeases to avoid confronting the remedy.

Wages increase when rent decreases

George argues that ‘the line of rent is the necessary measure of the line of wages’.[4] He thinks that under free conditions, no-one would work for someone else if they could make the same amount working for themselves.[5] He argues its only when land is monopolised that individuals are forced to compete for work.[6]

George’s theory argues that wages are determined by what is left after rent is taken out.[7] Rent being that which is paid for using land.[8] He further argues that:[9]

“No matter how much they might actually produce, they receive only what they could get on land available without rent—on the least productive land in use. Landowners take everything else. Hence, no matter how much productive power increases, neither wages nor interest can rise if the increase in rent keeps pace with it”

He also proposes that:[10]

“Where land is subject to ownership and rent arises, wages will be fixed by what labor could secure from the highest natural opportunities open to it without paying rent (i.e., the margin of production). Where all natural opportunities are monopolized, wages may be forced by competition among laborers to the minimum at which they will consent to reproduce. Clearly, the margin cannot fall below the point of survival”

At first glance, this quote seems to support having a MLW, but in context George would say MLW is not conducive to solving inequality – it simply ‘appeases’ the workers to avoid dealing with the free lunch income enjoyed by land owners at the expense of workers who are forced to compete for a minimum wage. Noting, a minimum wage could never be lower than the margin or landowners would risk an uprising that could threaten their privilege. So even without a MLW setting, landowners will always have a minimum at which they can charge rent, and businesses would have a minimum at which workers would consent to work or they risk workplace strikes.

On this basis, I think a MLW plays right into the hands of the landowners and businesses to the detriment of the most vulnerable members of our society because it provides a sense of certainty around rents i.e. a MLW provides a legally specified minimum wage that must be paid to workers (by businesses)  on which land owners can base their rents.

Importantly, as Nate Blair points out minimum wages in the long-run can only shift economic rent to different locations or decrease aggregate wages. And while a minimum wage can benefit labour in the short-run, including labourers who also happen to be landlords,  the long term impact on real wages is negligible.

Arguably, UBI is no different than MLW because it too provides everyone with a specified minimum amount of income. However, this is why I think in order for UBI to be effective it must be accompanied by a LVT and because it focuses on long term outcomes.

Another benefit of UBI is that it provides a mechanism for recognising and rewarding our currently economically invisible members i.e. those who carry out valuable but unpaid work such as stay at home parents, or volunteers.

The UBI and LVT combination also provides a foundation for setting up a participatory democracy framework which would enable individuals to voluntarily take part in public decision-making forums (e.g. multi-body sortition etc) without the stress of having no income. But that is a discussion for another post.

To conclude, if the politicians aren’t going to address the root of inequality by looking at tax evolution and a UBI, then we deserve an answer as to why. This is what I believe we ought to challenge our politicians on this year to determine if their policies are simply vote grabbing or genuine. How we decide the amount, or the age, or the frequency at which individuals receive a UBI (or the rate or measure for determining LVT) is beyond the scope of this particular post but I think what we should be focusing on (as the title of this post suggests), is hacking at the roots instead of simply wriggling the branches of the failed system we have inherited.

UPDATE:

Its been brought to my attention that I have probably been a bit presumptuous in assuming that readers would take into account the current wage subsidies and welfare packages already available in NZ.

Its important because this is the context within which I base my argument. Here are a few sites to help get your head around NZ minimum wage and the government transfers available:

In NZ there are two predominant broad views about how to improve poverty. The first broadly subscribes to the Scandinavian model – progressive taxation and increasing the top marginal rate to increase revenue to provide free core public services. Critics of the welfare system and of those advocating for a Scandinavian model in NZ argue that welfare creates dependency and this dependency causes the poverty and wage gaps we see in our country.  The critics are the second group who typically subscribe to the neoliberal model – lower taxes, privatisation, user pays services, the free market. Scandinavian model advocates usually argue that if the wealthy paid more taxes on their productive incomes that we could afford to provide core public services to those most in need.

There is a strong tension between these two groups. As a relatively recent subscriber to Georgism, I think that both models are flawed because unlike Georgism, they ignore the role that speculative behaviour plays in creating inequalities.

In this post, I tried to clarify that I didn’t think a MLW was inherently bad, just that UBI with LVT was better overall.

The reason most often cited for pursuing a MW is ‘fair pay for a fair days work’ and I agree with the sentiment. However, I don’t think ‘fair pay’ and ‘minimum wage’ are the same, but this is how MW proponents often frame their arguments.

In fact, MW’s often aren’t ‘fair’ for the work carried out. If they were then government transfers i.e wage subsidies wouldn’t be necessary. No matter how little a worker is paid by their employer, the wage subsidies supplement those incomes enough so that supplemented income makes working more attractive than just receiving jobseeker support (a welfare payment).

So if we had no MW (in NZ), and some workers were to receive less from an employer than they might currently get those low-income earners would have their incomes supplemented by wage subsidies.

Additionally, no business could pay below the maximum someone could get on welfare because most workers would choose not to work for less than what they could get for not working. This would apply in any country who has a welfare system. In effect, even if there was no legally specified MW there is actually already a minimum in place i.e. more than a worker could receive as their maximum on welfare. Admittedly, in NZ this rate would probably change depending on the region a person lives, because the accommodation supplement is location based.

Aside from the arguments set out in this post, MW also has the effect of forcing workers to compete for jobs, which gives business the upper hand to choose the person willing to accept the least amount in wages i.e. the minimum legal amount.

I reiterate, I don’t disagree that MW’s can have short term benefits. However, I think that focusing on MLW prolongs getting to the real remedy because it appeases workers, which means the more vulnerable members of our society – those who are unable to work for whatever reason, only receive welfare payments, which are necessarily less than those who earn any productive wage with additional government transfers (wage subsidies). A UBI and LVT combo would iron out this inequality and ensure even those who were unable to work had access to a living wage, not a bare minimum.


[1] For ease of reference, I use MLW to include those who advocate:

  1. a minimum wage; and or
  2. increasing the minimum wage; and or
  3. a living wage.

[2] Others refer to this is Guaranteed Minimum Income or Guaranteed Basic Income.

[3] I have resolved to use the term ‘Georgism’ (as the title of each post suggests) to reinvigorate interest in Henry George’s economic theory. However, in doing so I think I may have inadvertently neglected the preferences of some who prefer ‘Geoism’ and others who reject describing themselves under an ‘-ism’, such as Martin Adam’s who writes at Land, A Humaniteer Project. Adam’s proposes that while Henry George’s economic theory is traditionally understood as Georgism, a more accurate term is ‘Geoism’ because it ‘contains the prefix Geo, from the Greek word γαια, meaning ground or earth’ and because George’s philosophy advocates the sharing of nature. Please note that I use the term ‘Georgism’ broadly to include any persons who share in advocating the fundamentals of George’s economic theory.

[4] Henry George and B. Drake (ed.) Progress and Poverty (2006, Robert Schalkenbach Foundation, New York) available online: http://www.henrygeorge.org/pdfs/PandP_Drake.pdf  at 117.

[5] Ibid at 116.

[6] Ibid.

[7] Ibid at 93.

[8] Ibid at 89.

[9] Ibid at 93.

[10] Ibid at 116.

Credit for the title of this post belongs to Adam John Monroe

Thanks to all those in the LVT Facebook group that helped me get my head around this and directed me to relevant chapters!

National signs NZ up to Ethiopia land grab

A media release from the National Party states that NZ have signed a Food Security Cooperation Arrangement with the Ethiopian government.

Foreign Minister Murray McCully states that NZ’s involvement is:

…to assist in the development of commercial scale agriculture in Ethiopia, and build food security partnerships in the region.

Indicatively, the food security arrangement is less about feeding one of the poorest countries in the world, and more about commercial agri-business gaining access to millions of hectares of land in Ethiopia.

Fred Pearce explains in his book The Landgrabbers that:

The [Ethiopian] governments five year plan promises to lease 3 million hectares for large scale mechanized agriculture by 2015, much of it in the rebellious tribal border lands of Gambella (chapter 1, p.12)

Pearce also points out, the development of commercial-scale agriculture has devastating effects on those regions where the land is most sought by commercial interests. In order to get land ready for commercial agriculture, the government collects the dispersed local inhabitants (predominantly tribal groups) into state-designated villages while foreigners get exclusive use rights of their land, forests, fields and hunting grounds through arrangements like the Food Security and Cooperation Arrangement.

The effect on the inhabitants, the ecosystems, the wildlife and biodiversity in general is disastrous. In addition to being forced from their lands and into a lifestyle they are not accustomed to, they have their livelihoods snatched from them as their fields and forests are cleared, waterways diverted and lands enclosed.

Many end up working on the farms for low pay because they are now required to pay rent in the village they did not freely choose to live in to a landlord who took what had been freely available to them. Moreover, because they work on the commercial farms, they are unable to tend to their own food crops which makes food security even more difficult than their previous subsistence living.

The governments and commercial enterprises that participate in these land grabs often proclaim their businesses will lead to prosperity and jobs for locals. This is rarely the case. In Ethiopia, the companies bring in foreign nationals and the highland Ethiopians to do the technical work, while limiting the local lowland Ethiopians  opportunities  to unskilled  very low paid work. Despite that its the lowland Ethiopians whose land is most often subject to these land grabs.

To make matters worse these companies export most the food grown on these commercial farms. The locals lose their own ability to feed themselves through loss of land and an inability to buy expensive imported food, so that commercial agri-business can use their lands to feed foreigners for profit.

McCully’s media release highlights the commercial advantages for NZ in signing the agreement, pointing to Ethiopia’s proximity to key markets in the Gulf, but it is vague on the issue of food security.

Food security is defined by the WHO ‘as existing when all people at all times have access to sufficient, safe, nutritious food to maintain a healthy and active life.’ However, given the signals in the media release focusing on commercial scale agriculture I am doubtful that the arrangement concerns food security for the most vulnerable Ethiopians.

The National governments acceptance and support of commercial agri-busness in Africa is evidence that the colonial past lingers on.

This is exploitative, destructive, neo-colonialism. We should be ashamed that our Government would make us complicit in a practice that intentionally destroys the lives of already marginalised people for profit.