Stats NZ

A Simple, Fair Solution to the Cost of Living Crisis

A Simple, Fair Solution to the Cost of Living Crisis

Everyone is talking about the cost of living crisis.

Inflation in the first quarter of 2022 was 6.9%, up from 5.9% in the last quarter of 2021 — the highest level we have seen since 1990. The price of food, rent and, in particular, fuel is going through the roof. Add this on top of our long-term crisis of low wages and housing unaffordability, and you have a colossal problem for poor and working class Kiwis who are already struggling to get by. It’s no wonder that a survey by Consumer NZ has found that this crisis has become New Zealanders’ biggest concern, and that the government is taking a huge hit in the polls as a result.

There are multiple causes contributing to these price rises — the war in Ukraine, supply chain disruption due to Covid-19, and the vast sums of money hoarded by the rich during the pandemic and the lockdowns.

The Labour Government’s response has been to reduce fuel tax and public transport costs, and give a one-off payment of $350 to everyone earning under $70,000 per year — except, shamefully, for pensioners and beneficiaries who need that money the most. The Opposition National Party’s plan would be to abolish several taxes introduced by the current government, to adjust income tax brackets for inflation, and to abolish the top tax rate of 39% on income over $180,000, introduced by Labour last year. The Greens, meanwhile, are proposing a tax on wealth to deal with inequality and tax injustice, which they claim would only affect the top 6% wealthiest households.

Labour’s policies do not go nearly far enough. National’s plan would disproportionately benefit high earners, the people who need that money the least. The Greens, meanwhile, have the right idea — a wealth tax would go a long way towards moving the tax burden onto those who can afford to pay. But what if both National and the Greens have a point?

I don’t mean that both policies should be followed. The Green policy would make the economy more fair; the National policy would make things less fair. But the idea of implementing a wealth tax alongside tax cuts for ordinary people is actually a great idea if done properly.

The Tax Revolution of the 1980s

Let’s take a short trip back to the past. In the 1980s, Labour Finance Minister Roger Douglas introduced a series of sweeping right-wing economic reforms. His National Party successor Ruth Richardson followed suit with further major changes in the 1990s. Douglas and Richardson were the last truly transformative politicians in terms of the way our economy is run.

Tragically, they transformed the country in precisely the opposite direction to what was needed. Inequality and poverty exploded thanks to “Rogernomics” and “Ruthanasia,” as their regimes came to be known. They were part of a broader trend which made up the neoliberal free market revolution around the world, led by British Prime Minister Margaret Thatcher and US President Ronald Reagan. Inequality rose in every country which introduced neoliberal policies — though the speed and scale of the inequality unleashed in Aotearoa was one of the most extreme in the world.

According to Michael Fletcher and Máire Dwyer’s 2008 report to the Children’s Commissioner:

“Child poverty rates rose sharply in the late 1980s and the early 1990s. During this period, inequality rose more in New Zealand than in any of the 20 Organisation for Economic Cooperation and Development (OECD) countries for which comparable data is available. The key drivers were low wage growth for many working families, high unemployment and reductions in welfare payments.”

One of Roger Douglas’ flagship policies was the most radical tax reform in our nation’s history. He slashed the top rate of income tax from 66 cents in the dollar to 33; he reduced company tax from 48% to 28%; and in 1986, he introduced a brand new tax, the Goods and Services Tax (GST), initially at a rate of 10%. It was raised to 12.5% by his ally and successor David Caygill in 1989. This transformed our tax system from a fairly progressive system to an extremely regressive regime, with high earners and corporations contributing far less than before. GST has been increased once since then — National Party Finance Minister Bill English increased it to 15% in 2010.

Righting the Wrongs of the Past

The benefit of GST is that it is a very easy tax to collect, which is useful for government bureaucrats. It is a very difficult tax to evade. However, it is also a clear driver of inequality. Poor and working class people spend the highest percentage of their income on goods and services.  The ultra-rich, on the other hand, spend the lowest percentage of their money, and instead either save it, or invest it in assets such as housing, generating even more money for themselves at the expense of everybody else. GST is the very definition of a regressive tax.

GST should be abolished with immediate effect. And it should be replaced with a wealth tax.

This is a radical proposal. It would be a reform almost as significant as Roger Douglas’ 1980s tax overhaul. But it is also a common sense solution.

Firstly, it would deal in a big way with the crisis of inequality. The vast majority of people, whether poor, working class or middle class, would benefit. Spending on goods and services would increase substantially — a huge boon for the economy. But those on the lowest incomes would benefit the most, with their purchasing power suddenly, and dramatically, rising. This would drive down inequality and poverty. More action would be needed to deal with these deep-rooted problems in our society, but it would be a start.

Secondly, and directly relevant to our current situation, it would dramatically negate the cost of living crisis. Abolishing GST would reduce the cost of all goods and services by 13% — meaning prices would return to 2018 levels. This would reverse the negative effects of inflation substantially. It would mean that people can keep spending rather than having to cut back.

This would certainly be a massive task for the government to undertake. Last year, the government raised $27.2 billion from GST alone. The Green Party’s proposed wealth tax was estimated in 2020 to be worth $7.9 billion in its first proposed year of implementation. Such a wealth tax would pay for a 29% reduction in the current rate of GST — which would be a good start. But a much steeper and more progressive wealth tax is both possible and necessary.

In 2021, the top 10% of New Zealanders held over half of the country’s wealth. The top 5% held 37%, and the top 1% held 15.8%. Meanwhile, the bottom 50% of the country held just 6.7%. This is based on estimates which inequality expert Max Rashbrooke says may be wildly inaccurate; he told Stuff:

“[Rashbrooke] said there was a caveat in that the very richest people in the country refused to be part of surveys. The 1 per cent might in reality have more like 85 per cent of wealth than 20 per cent, he said.”

From stuff.co.nz

This means that the top 5% of Kiwis have at the very least $628 billion in net worth between them, an average of $6.7 million per household. That is an obscene amount of money, especially given how little the bottom 50% have. To redistribute that wealth is an urgent moral necessity, especially in the face of the current cost of living crisis.

To raise the $27.2 billion needed to replace annual GST revenue, we would need to take away just 4.3% of that wealth. It can be done, and it must be done.

Such a policy would take a lot of bravery from the government. It would be a u-turn from Jacinda Ardern’s ongoing stubborn refusal to implement any tax on wealth. It would mean taking on the wealthiest and most powerful people in Aotearoa. That is never an easy feat, and would guarantee the majority of business, media and the ultra-rich elite turning against her.

However, this policy could also save Ardern. It would have massive financial consequences for everyone in the country — it would be a tax cut for the bottom 94%. This would surely be felt keenly by wavering voters currently considering opting for National instead of Labour. It would indicate clear, strong action on the cost of living emergency. That would only be a good thing in electoral terms.

It would allow Labour and the Greens to permanently reframe the debate on tax. In response to National and ACT accusing them of being parties who want to raise taxes for ordinary New Zealanders, the centre-left parties could throw back in their faces the fact that in reality, the government just gave a huge tax cut to the majority of the country, whilst making National’s wealthy mates pay for it.

It would mean Labour would finally be delivering on their rhetoric of being a kind, transformative government, as they would be seriously addressing poverty and inequality in a meaningful and lasting way — which they have not yet done. It would begin to redress the decades-old injury to this country’s social fabric inflicted by the Fourth Labour Government, and mark a clear break from the era of Rogernomics — which would be fitting, given that as Leader of the Opposition in 2017, Jacinda Ardern proclaimed that “neoliberalism has failed.”

Regardless of whether or not Labour or the Greens were to take up this solution, it is the kind of policy the left should be fighting for to demonstrate that there is a radical alternative to this moderate centre-left government other than the austerity and tax cuts for the wealthy offered by the right-wing parties as a false solution to this crisis. Further accelerating inequality will only ever make things worse. Another world is possible, and the left must fight for it.



This article was originally published on 1of200.nz, and has been republished with their kind permission.

Elliot Crossan is a socialist writer and activist.

29 May, 2022

Posted by Elliot Crossan in Green Party of Aotearoa New Zealand, New Zealand Labour Party, New Zealand National Party, New Zealand politics, 0 comments
Taxing the Richardson Will Not Be Enough

Taxing the Richardson Will Not Be Enough

A shrill screeching sound has been echoing around Aotearoa in the last couple of weeks.  From Cape Reinga to Stewart Island, the deafening screams of the rich — terrified at the idea that they might have to pay a little more tax — have been reverberating across the country, reaching every corner of the land.

This ear-splitting pitch has been induced by the Government’s Tax Working Group, who have finally, after sixteen months of deliberation, released their report exploring ideas of how to adjust the country’s taxation system.  This report has the audacity to suggest that the Labour-NZ First Coalition should bring in a tax on capital gains at a similar rate to how ordinary income is currently taxed — a radical, far-left proposal which is found in the communist dictatorships of… the United States, Japan, Australia, and no less than 18 other OECD countries.

Leader of the Opposition Simon Bridges has condemned this suggestion, issuing an outraged warning that a Capital Gains Tax (CGT) would be “an assault on the Kiwi way of life”.  Ever-outspoken and ambitious National Party frontbencher Judith Collins has proclaimed that Labour going ahead with a tax on capital gains “would make Simon Bridges Prime Minister” — something she must be even more worried about than everybody else in the country right now, given that her hopes of successfully challenging Bridges for the leadership of their party are currently looking rosier than ever!  Meanwhile, Business Central have called the proposed CGT “fatally flawed”, while the Taxpayers Union have complained that it would be “aggressive and unfair”, and the architect of our current free market economy, Sir Roger Douglas himself, has labelled the suggested policy “a joke”.

From page 33 of the Tax Working Group’s final report.

Take a glance at the anticipated effects of a CGT, which are outlined at length in the Working Group’s report, and you will instantly see why the richest people in Aotearoa and their political representatives in the National Party are so angry and upset.  Page 33 of the report shows the spread of total net worth for each fifth (or ‘quintile’) of New Zealanders, excluding owner-occupied family homes, which would not be taxed by CGT — something Business Central actually object to.  The bottom two-fifths of households combined have a net worth of around $28.9 billion — meaning 40% of the country own roughly 4% of the total net worth above and beyond people’s personal houses. The next 40% own $159 billion, or 20% of that wealth.  Then there’s the top fifth of the country. They own $602 billion, as well as the homes they live in; that means that the top 20% own 76%, more than three times what the other 80% of us do.  The kind of wealth which a Capital Gains Tax would apply to is concentrated in the hands of those at the very top of society.  The vast majority of the country hold very little of the wealth which CGT would affect — it’s far from “an assault on the Kiwi way of life” for ordinary people.

The reasons why the rich are so scared of a CGT are further illuminated by the statistics provided on page 62 of the Working Group’s findings.  The bottom 30% of the country would have around 0.13% of their current disposable income taken by the proposed tax. How much would taxes go up for hard working middle New Zealand?  Well, an average of 0.5% of what the middle 40% of households are earning right now, after existing taxes, would be paid to the government through this new tax. It’s not even that bad for the upper middle class!  Deciles 8 and 9, the group richer than the bottom 70% but poorer than the top 10%, would have approximately 1.65% of their current disposable income taxed.

From page 62 of the Tax Working Group’s final report.

It’s only the top 10% who would be hit hard.  7.7% of their current disposable income would be paid to the state if the Government decided to accept the Working Group’s proposal of a CGT.  Even if you include owner-occupied housing, the five hundred thousand New Zealanders who make up decile 10 currently own significantly more total wealth than deciles 1 through 9 — the other four-and-a-half million of us — put together.  The wealthiest citizens in the land would still be ridiculously well-off even if the CGT was implemented — in fact, they would still be far, far richer than everybody else combined.

So, the poorest households in Aotearoa would have to pay as little as 13 cents out of every hundred dollars earned, while the average working family would only have to pay 50 cents, and even the upper middle class would be charged just $1.65 out of every $100.  The top 10% would have to rummage around in their oversized bank accounts and hand over just $7.70 out of every $100 they make. They can more than afford that, many times over. Taxing capital gains is common sense. It would help reduce the speculation in the housing market which has caused the price of buying a home to skyrocket in the last few decades, and it would raise a solid amount of money for the Government to spend — the Working Group have proposed to spend that money on income tax cuts of around $15 per person per week, but the money could also be spent on public services, or on building the new houses which we so desperately need.  Either way, it would reduce the obscene levels of inequality this country currently experiences by a small fraction. What’s not to like?

A Door Opens — Only to Be Slammed Back in Our Faces

It is most amusing to see the richest citizens of this country freak out at the idea of a minor increase in their taxes.  Unfortunately, amongst the panicked screams of greedy landlords and corporate fat cats terrified of a small reduction in their vast hoarded wealth, there lies a sinister pledge to take revenge if this CGT goes through.

It’s a pledge which perfectly demonstrates why merely tinkering around the edges of the existing economic framework — raising taxes on the rich and redistributing that money to working class people, but ultimately leaving the fundamentals of the system unchallenged — is always going to be entirely inadequate.  The unpleasant truth is that the wealthiest people in Aotearoa hold the real power in society. Their power is derived from their control over the economy — meaning they can hold the government to ransom if the elected representatives of the people dare to even think about going against the interests of the wealthy.  They can make day-to-day life very hard for ordinary people, because they own our workplaces, and they even own many of our homes.  They are determined to get their way, no matter the cost.

Enter ageing ex-cricketer Mark Richardson.  Richardson is a pundit on the AM Show — he is officially their sports presenter, but he also uses his platform on the popular radio program to give voice to his mean-spirited, increasingly brazen political views.  Last year, Richardson expressed exasperation at the media’s “unfair” treatment of Donald Trump, telling people to “give the guy a shot” in response to his co-presenter Amanda Gillies calling the US President racist.

Image from Newshub.

After Labour’s 2018 Budget a couple of months earlier, he had been complaining that “I’m going to be left out of pocket by this Budget […] I’m running a business here, you know!”.  He announced live on air, without even telling the people affected beforehand, that because of the rising costs the Budget would give him, he would be increasing rent for the tenants in the properties he owns.

The latest of Richardson’s angry right-wing rants came last week.  He insisted to AM Show listeners that “there is no housing crisis in this country, there is an accommodation crisis.  That’s very different!”  He elaborated by saying “I don’t give a rat’s arse if you can’t afford a house!  What I care about is if you can’t afford to rent a nice place to stay.”

Here are a few facts about the housing crisis which Richardson denies the existence of:

Never mind all that though — as he says, Richardson couldn’t give a rat’s arse about the colossal crisis in home ownership.  So surely, as he points out, everything is fine, and people are able to get by renting lovely accommodation to live in.

How utterly out-of-touch he is with the real lives of working class people.  Rents have also been skyrocketing in the past few decades, well outstripping wage growth.  The 600,000 households who rent are up to their ears in outrageously high bills from landlords, and it shows — housing costs for the bottom fifth of New Zealanders nearly doubled between 1990 and 2015, going from an average of 30% of their incomes to a staggering 54%.

Source: The State of New Zealand Housing, The House Site.

As for “a nice place to live”?!  Don’t make me laugh! The appalling conditions which so many renters have to put up with every day have been thoroughly documented.  Cold, damp, mouldy flats — it’s a story which scarcely needs repeating.  I know myself and too many of my friends have suffered symptoms such as disgusting skin conditions and shortness of breath in the winter — the situation is even more horrible for children who have to grow up in this environment.  Aotearoa is a developed country. It is positively criminal that serious health problems which were thought to have been eradicated are returning to the poorest and most vulnerable of our communities, while the wealthiest citizens of the nation enjoy such extreme affluence.

In response to the proposed Capital Gains Tax, Richardson decided that he needed to add yet more injury to his insulting attitude towards working people.  He once again proclaimed live on the AM Show that, if Labour’s planned CGT and accompanying $15 per week income tax cuts are implemented, he will take back whatever he loses by raising rents for his tenants.

“These tax cuts, alright?  I’m sorry — I went through how much people stand to make in tax cuts if it comes in, about $575 a year — I’m sorry, that might make a small difference to those right down the bottom, but that makes diddly-squat difference to the people who will be hurt by this tax, which is the middle class, who are trying desperately to get ahead, not to be a burden on the system when they retire, trying to get their kids ahead — they’re the ones who will take a proportionally greater hit!”

He continued:

“If they don’t own something, what are they doing, they are renting.  Well I will take that fifteen bucks a week back within the next couple of years, thank you very much!”

The sheer ignorance.  Richardson is genuinely convinced that the “middle class” are as wealthy as he is, and that people who don’t own investments, rental properties and businesses are a small group at the bottom of society.  He couldn’t be more wrong if he tried. The class who will “take a proportionally greater hit” are the top 10%. They’re the ruling class. They are the only group who will see a tax increase of 7.7% from CGT; they’re the group who between them own more wealth than the bottom 90% of us combined; they are the greedy profiteers, the leeches on society who live off the backs of the hard work everybody else does.  Yes, a $15 a week tax cut would make a difference to ordinary middle New Zealand — that is, if you didn’t raise rents and take that cash straight back for yourself, you elitist bully-boy.

The absolutely revolting hypocrisy.  Within a week of saying he will raise the rents of his tenants to make up for a modest tax increase on his massive wealth, to proclaim that there isn’t a housing crisis in Aotearoa!  To act as though it’s fine because people who don’t own anything can afford to rent “nice places”!  How Richardson can make these two statements within just a week of each other without the blindingly obvious contradictions causing his brain to explode simply baffles me.

A Useful Idiot

It’s infuriating that this man can espouse such ignorant, selfish and hypocritical views with such a mind-numbing lack of self-awareness.  However, on the other hand, I would argue that it is actually very useful that Richardson is being so honest. He is not only exposing to the rest of us, with absolute clarity, the odious position he occupies in society.  He is in the same breath illustrating the odious nature of his class. He is revealing for all to see the utter disregard for fellow humans which landlords embody; he is displaying the mental contortions they must necessarily exercise in order to avoid feeling guilty for their actions; he is demonstrating that himself and people like him either simply cannot understand the realities of life for the vast majority of working class people who exist around them — or even worse: if they do understand, they do not care.

Above all, he is shouting to the world, more sharply and concisely than a thousand of my wordy articles ever could, the exact reason why capitalism as an economic system and a political power structure must be overthrown.  Yes, it is possible to elect a Labour Government, and yes, if pressure from below is applied, that government will have to concede reforms to the majority of people in order to reduce extreme inequality and the daily suffering it causes the working class.  But reformist governments will always be powerless to actually change things on the scale necessary to truly end that suffering — precisely because a reformist government, even one led by the most brave and radical of people, will never hold any true power in society.

Housing Action Now march.

The power Mark Richardson is expressing when he tells AM Show listeners that he is going to raise rents for his tenants is the power which is the source of the crisis of inequality Aotearoa faces today.  We have a housing crisis because of the all-consuming greed of property speculators and landlords. It’s not a technical hiccup in an otherwise functioning system. It’s a problem which will always exist when the small group at the top of society control the vast majority of the wealth and power.  It’s a problem which will always exist under capitalism.

It’s not just a problem found in housing.  Workers experienced a huge reduction in our real median wages in the 1980s and early 1990s, aided by the policy of full employment being endedstate-owned industries being privatised, and unions being smashed.  Real median wages have been stagnant ever since this reduction.  Just as the housing market has been driven into crisis by speculators and landlords pursuing ever-higher profits, bosses have held down wages in order to achieve the same goal — cut the share of income going to workers so they can hoard that cash for themselves.

It is why inequality has soared in the last 35 years, to a point where the top tenth of the country own more than the bottom nine-tenths, and the two men at the very top — the richest men in the country, Graeme Hart and Richard Chandler — own more wealth between them than the bottom 1.4 million people.  It’s a class war which has been waged against the working class of Aotearoa by the bosses, landlords, bankers and investors.  It’s a war which has been fought by their representatives in government, both under National Party and under Labour Party rule.  And it’s a war which cannot be fixed even if Labour are prepared to tax the rich a bit more and redistribute the wealth — because the landlords can just make rents even higher, the bosses can just push wages even lower, and the banks can just raise interest rates.  They will get their way under this exploitative economic order.

Capitalism isn’t working.

Another World Is Possible

It’s time to fight back.  Mark Richardson has shown us why, as do all the statistics about the housing crisis, wage suppression and inequality.  We don’t even need those statistics to understand; most New Zealanders, especially young New Zealanders, can feel that something is deeply wrong.  We can feel the unbearable pressure we are under as we see house prices, rents and debts soar through the roof while wages are stuck on the floor; and we can see clearly that the super-rich are the only ones benefiting from this state of affairs.  The mental health crisis amongst the youth of today is largely caused by the hopelessness and stress produced as an inevitable result of capitalism.  Again, my personal experience, and the experiences of my friends, make the statistics on this issue strike far too close to home.

We’re ready to fight back.  That’s why National were kicked out of power after the nine long years of misery they gave us.  That’s why 2018 saw the biggest strikes in decades, with tens of thousands of nurses, midwives, teachers and public servants taking industrial action against the Labour-NZ First Government, demanding a better deal — these workers know that nothing is going to happen if we wait in vain for Labour to deliver, and that we have to take matters into our own hands.

The fight against obscene inequality is happening across the world, not just in Aotearoa.  Young people in the United States of America — of all places! — prefer the idea of socialism to capitalism.  Not only that, but in Britain and Germany, a majority of the total population have a favourable view of socialism and a net unfavourable view of capitalism.  Working class people, especially amongst the youth, are rejecting tired old status quo politics in favour of unashamed left-wing reformists who are willing to call out the rigged economic system for what it is, and promise meaningful changes which will make a genuine difference in people’s daily lives.  That’s why in the last few years, out of the political wilderness and into the centre stage have sprung self-proclaimed socialists such as Bernie Sanders and Alexandria Ocasio-Cortez in America, Jeremy Corbyn and John McDonnell in Britain, Jean-Luc Mélenchon and his La France Insoumise movement in France, Die Linke in Germany, Pablo Iglesias and the Podemos party in Spain, People Before Profit in Ireland, and SYRIZA in Greece, just to name a few examples.  Their political messages all contain a common theme: as Jeremy Corbyn’s iconic slogan states, they stand “for the many, not the few”.

There is no question that we need a new political party in Aotearoa which will fight without compromise for the interests of the bottom 90% of New Zealand — the workers, renters and debtors who deserve a better deal — and against the bosses, landlords and bankers who exploit us for their own gain.  There is no question that such a workers’ party would be popular — the number of people desperate for change is massive. The only questions are of detail: who, when, and most importantly, how?

I, for one, can’t wait to see the look on Mark Richardson’s face when his beloved ‘middle New Zealand’ turns out to be a complete myth; when the real majority in this land turns out to be the exploited and righteously angry working class; and when that working class turns out to be ready to stand up, fight back, put Mark and his rich mates in their place, and build an Aotearoa which works in the interests of everybody.



This article has been republished. You can read the original here.

Elliot Crossan is a socialist writer and activist.

6 March, 2019

Posted by Elliot Crossan in New Zealand Labour Party, New Zealand politics, 0 comments