Just Left

Fiscal responsibility

There was a nice set of numbers in a Stuff story yesterday about net Government debt levels in the past few years:

Net core Crown debt in $NZ:
2000: $25.9b
2002: $25.3b
2005: $19.9b
2008: $10.3b
2011: $40.1b

Forecasts:
2012: $53.8b
2014: $67.8b
2016: $72.5b

These numbers show Labour's prudence in office, and National's profligacy.

Yes, there has been damage to the government's financial position through the Canterbury earthquakes and the global recession. Those are granted. But the chipping away at NZ's debt levels has also come about through wilful cuts to government revenue through tax cuts to those who need them least, only partly offset by tax rises on those who feel the pain the most.

The story contains a broader narrative about public impressions of who is responsible for the debt.

I've never understood why anyone would think it's a left wing thing to run up public debt.

The Clark governments in 1999-2008 weren't exactly National-lite, and they paid off a large volume of net debt. The Nats in the 1990s left it more or less where they found it; Labour in the 1980s and National in the 70s both lifted debt significantly.

Modern social democrats aren't interested in running unsustainable deficits. Given the New Zealand private sector's obsession with borrowing to the hilt, it is more important for the NZ Govt to be conservative fiscally than is the case for many other countries.

That is why our policy last election was a mix of tax increases and spending restraint that would have seen borrowing a little higher in the short run but lower after about four years, and for all time after that.

David Shearer has decided the policy should avoid the confusions inherent in the 2011 pledge to re-start NZ Super fund contributions while the deficit still exists. That's fine. Since National is promising surplus by 2014/15, which Labour was too, I anticipate the incoming Labour led government in 2014 will pretty quickly be looking to start the pre-funding again.

Fiscal responsibility is what we are all about -- along with a broader responsibility to society and the economy which isn't part of National's DNA.

We will on average run higher levels of government spending and tax than National, because we have different judgements about where the line should be drawn between individual and community responsibility in some areas, and because we use the State to undo the inequalities the market creates by its ordinary operation.

We will be tougher on pollution than National because we don't believe in giving some sectors a free ride that they don't deserve.

We will be more careful about preparing for the upcoming baby boomer retirement and the costs it will impose on super and health spending. Thus our painful pledge to raise the retirement age over time; thus the KiwiSaver initiative; thus the creation of the NZ Superannuation fund; thus our determination to run fiscal surpluses and pay off debt.

Two final thoughts.

First, external prospects. If the world enters a prolonged low-growth period, then Labour will have to do tough thinking. It is easy to be fiscally responsible when revenue is rising through economic growth. When it is not, tougher choices will be required -- and our take on them has to be clear well before 2014.

Second, the broader economic fight between the parties isn't on fiscal issues - it's on how to grow and develop. The wider structures that are driving poor performance in our economy - flawed tax regimes that exempt capital and incentivise non productive investment; limits on firm scale growth due to lack of access to capital; an under-regulated labour market that keeps wages low and lets firms avoid tough choices about productivity - are the actual real difference between Labour and National these days. Even in a world of low growth, doing these things better will leave New Zealanders better off.

As David Parker said in his excellent pre-Budget speech this morning: "Change nothing, and nothing changes -- but don't blame Greece!".

2012 and interventionism in NZ's economy

The government in its pre-election economic update forecast rosy growth and an improving economy.

In its policy framework, National set out what it called a 120 point economic growth strategy.

World headlines are full of economic doom and gloom. Agencies as conservative as the I.M.F. are saying that the global obsession with cutting deficits is damaging all the things we want from our economies: higher wages and more jobs.

So: what happens to New Zealand if the rosy forecasts don't come true, and the non-plan in National's manifesto doesn't save the day?

Here is my prediction. More state.

Stronger economic development policies, more state investment, more regulation, corporate welfare, the lot.

Change will come because the global conditions will worsen, and because the hands off model isn't up to the job. Eventually the facts will out.

The Auckland business crowd will hate it, but I think I am right with this. National will not face a neo-classicly inclined opposition. Key's instincts and those of Joyce are pragmatic. From milk to broadband markets, heavy handed state is already visible. All the options and opportunities will be on the 'do more' side of the plate.

Assuming for a moment I am correct, what are the opportunities and consequences?

For National, the loss of some vote.

For a liberal right wing party (like ACT used to be, but unlike the nascent Conservative party), the chance to become a serious player with some real pull among those who would hate this direction for National.

For Labour, opportunities galore. The ability to poke holes in the gaps between National's actions and its principles or values; to poke holes in state centric approaches; to benefit from a resurgent consensus that government matters.

It's early days. But in a year from now we will know. So far and based on the past three years, the evidence is in favour of my prediction.

Work and Wages: more of both thanks, to #ownourfuture

Should we close the wage gap with Australia a bit?

Would organising the world of work a little bit more similarly to the way Australia does, to help with that task?

My answer to both questions is yes, which is why I was pleased with our release today of Labour's Work and Wages policy.

Ever since the 1980s, New Zealand workers have seen wages lower than they should have done.  The radical reforms of Rogernomics weren't the issue so much as the massive stripping away of labour market deregulation.

Instead of dealing with a sclerotic system of compulsory union membership by sorting things out, political parties of the right conspired with employers to remove almost every protection Kiwi workers have, other than the barest minima of procedural fairness.

The result, partly of this and partly of other anti-fairness policies, is a hollowed out labour market with poverty wages at the bottom, and stagnant incomes in the middle, with the rich running away with the loot, pardon the phrase.

Those people have had a dream run.  The basic attack on collective bargaining embodied in the ECA was not fully turned around by the Employment Relations Act.  The voices of the powerful made sure that Act could never be as effective as it should have been.

So today, aside from other important and welcome minimum code improvements like better minimum wages, we announced a new form of employment agreement that can join individual and collective agreements: Industry Standard Agreements.

These offer industries with some baseline collective bargaining going on, the chance to extend core norms for minimum conditions across the whole industry.  It's like customising the minimum code for a particular industry, depending on its ability to pay and other circumstances.

It's a great idea.  It avoids the pitfalls of compulsory membership of trade unions, but strengthens the impact of collective bargaining none the less.

Watch for the people who complain about it.  They will form into two camps.  They'll be motivated apologists for, or attack dogs of, the political Right.  Or, they will be representatives of employer and industry groups who have enjoyed a long period of free-loading on the shoulders of people who work hard and pay their taxes.

Neither should be given much attention on an objective basis, but the voices of the rich and the powerful are always amplified loudly - especially when someone challenges their assumed privileges (in this case, the privilege to under-pay people).

By moving towards the more regulated Australian labour market, we will see relatively higher wages in New Zealand than we otherwise would.

National is pledging further weakening of labour laws.  That would feed through into lower wages, greater inequality, and the top end pocketing the lot -- precisely what has happened every time it's been tried, no matter where.

Decent wages are a good thing for the people earning them, and for the companies who employ too.  They focus management minds on lifting productivity.  They honour the efforts people make in the work place.

There's only one hitch: it won't happen on its own. 

To make things better, you've got to vote for change, and that means a change to a Labour-led government.

The centre-right's policy is the opposite.  Lower wages and vulnerable work is their ambition. That is what National and ACT stand for.

The choice is up to you.

Will the #occupation movements fly in New Zealand?

My short answer is: they might if their organisers focused on mobilising the 99% instead of the 1%.

The protests, growing out of #occupywallstreet, seek to critique a global capitalist class whose negligence gave us the Global Financial Crisis, and who are smirking at us from behind their tinted windows as our taxes pay for their debts.

In New Zealand these problems are less acute, so the momentum for change is accordingly less. We have suffered less than many other places, incompetent government notwithstanding.

But you can't fight the global elite 1% by mobilising the protest-friendly 1% of Kiwis.

Real change will only happen when the 99% organise to make it.

Which comes back to my point. I remember my first student protest. Before it became intoxicating, it was deeply off putting.

People were loud and angry and shouty. There were socialist worker posters. The demo was calling for workers to occupy the factories while students should occupy the campuses and thus Revolution would emerge, or something.

It was a high hurdle to join. It was exclusive. It made no effort to get most people on board. Nobody joined it from the footpath. It felt like a dangerous place, not a safe one.

Now I haven't been down to OccupyQueenSt but from the sound of the march earlier today, and comments on twitter, I fear the environment may be similar.

I'm an armchair critic. Maybe I should be out trying to achieve this. But I have another commitment (the general election) and so instead I offer an observation and a question.

What would it take to build a movement for change that genuinely excited and involved New Zealanders?

One that was culturally relevant, inclusive, open and welcoming?

If the #occupy movement thinks about that and pulls it off, well the #changegonnacome....

I wonder...

We have had a double downgrade of our credit rating, because there's no plan for growing our investments & our savings for the future.

We have oceans of red ink in the public accounts, because of unaffordable tax cuts to the people who need it the least.

We see ongoing attacks on the capacity of the core public sector to do it's job.

Will people choose more of this approach?

Downgrades #gfc etc

New Zealand owes the world too much.  It's not a government problem, but government can help the privatae sector fix it. That stock of debt was the main driver for the downgrades we faced on Friday.  It's the main thing politicians have wanted to avoid, but now it has happened.

Our fiscal situation is broadly OK.  Government paid off a lot of debt in the 1990s and 2000s, and the level is quite low.  We need investments to drive growth that will help close the debt gap, and we need a tax system that drives productive investment and closes the fiscal gap in the future, but Labour's already set those things out.

Private sector savings is the next big frontier.  KiwiSaver was really starting to turn things around, building a culture of savings where people could see the cash adding up and plan what to do with it when they retired.

It was a good scheme that's been cut at, but it needs to be rebuilt and extended.  We need to tackle with even greater urgency the need for Kiwis to save more. It's the only way we can #ownourfuture.

By itself though it won't be enough, and Labour's acknowledged already that in the 2000s we didn't move in the right direction or fast enough on some things. I think savings is one. Regulation of the finance sector, and doing something about the property bubble are two others.

The election is now going to focus more sharply on these things than it was going to before the downgrades.  The country needs a credible plan to lift growth, reduce the government deficit without cutting needed investments, and get people saving again.

Democracy v Finance #gfc

The tensions in the European Union arising from the financial crisis that has been hitting the world since 2007 appear to be reaching another peak.

Europe is probably one of only two places that can make and enforce a choice between democracy and the finance markets.

Which way will Brussels with Berlin and Paris jump?

Will they take the hard way and defy finance, resetting the world's policy path onto a more democratic path?

Or will they cravenly surrender, handing over still more power to an intellectually bankrupt industry whose insane gambling has left us all poorer?

I hope they fight for democracy and I hope you hope the same.

Inquiring after milk - and the rest!

I'm glad Parliament is going to look at the milk price issue. The commerce Select Committee, ably chaired by Lianne Dalziel, will give the issue a very thorough shake.

It raises a wider issue though, of generally high retail prices in New Zealand for most consumer goods.

I would love to see a rigorous look done at the state of competition and costs in a wide range of markets, including grocery, housing construction, energy supply, air transport and more.

We have a light handed competition law based on conventional ideas of perfect competition in product markets, with residual regulatory powers if needed.

In a country where many industries have 2 or 3 firms with 85% market share or more, perhaps that settlement isn't right.

I don't know, but I would like to see some evidence about it. It would be bad if Kiwis pay a lot more than they have to due to an ideological fixation in market regulation that might suit big countries well, but which did not stand up to New Zealand needs.

Something to think about...

Taxing times in the capital gains debate

There are media reports this morning that Labour is going to announce a capital gains tax as part of its policy manifesto for 2011.

These reports have generated the start of a really interesting and important debate about the future of New Zealand's economy, and whether we want that future to be a prosperous and fair one, or not.

Labour will make its policy announcement in due course and from what I have seen, the Party isn't ruling in our out any particular approach.  That'll be an announcement that seems likely to happen in the next week or two, again going by the media reports.

So nothing in this post is about announcing or speculating on Labour's policy.  I just want to say why I support a capital gains tax, and why I hope it will be part of Labour's policy.

It's a simple issue of fairness for me.

If you own a business and apply your energy and talents to make a profit, you pay company tax on that profit (28c in the dollar).

If you work hard as an employee - say as a nurse, or a callcentre worker, or a web designer, or one of those people who annoyingly applies parking tickets - you pay income tax (up to 33c in the dollar).

If you sit on an asset for long enough and it goes up in value, you pay no tax on that unearned income when you cash it up.

That's not fair.

Those with the most assets make the biggest capital gains. Those gains are not taxed. Those people are paying less tax on their income than people who are working hard to get ahead in ordinary jobs.

To me that's the core reason why we need to end that loophole.  A matter of fairness.

Of course, there are other economic effects. 

People (or economists) go on about the absorbtion of investment capital into unproductive housing (bubbles), instead of into productive, income-earning, job-creating, export-growing businesses. To the extent that levelling the tax playing field encourages better use of capital, we will all be richer in the long run.  I'm not sure of the size of this effect, but there will be some induced shifts, and that's good.

Some claim a massive change in housing prices. I don't think so. From the reading I have done (which is not extensive and which might not have the full picture), a capital gains tax could induce a small fall in prices, which would then resume their general pattern of growth. Housing costs tend to reflect more fundamental issues of supply & demand, and the factors affecting that including land availability, cost of new housing, housing market liquidity, credit availability and so on.

Some thing it'd be especially complicated. Well, the Income Tax Act 2007 is 3,586 pages long. Our tax system is reasonably simple. Broadening the base is important in making the tax system fair. A little complication might be a price we can pay.

Now there are some fears here. People will be stoked up about the risks of big declines in housing prices.  People will wonder what the revenue gained from the tax will be used to pay for.  I think those are all reasonable questions to ask and I expect that if a CGT forms part of Labour's policy, there will be a clear explanation given.

Not everyone will agree, of course.  In some parts of the asset-owning classes the expectation of a free pass is no doubt well entrenched. They laugh, sometimes openly, about "little people paying tax" as tho it was a silly thing to do and only for those too stupid or rich to be able to avoid it.

Those people need to realise that at some point, many people will declare that enough is enough, and the free ride is over.  The party that pledges to introduce a CGT will be the party that gets the support of those many people, because it'll be speaking to their instincts about what is fair and right. 

As I said, Labour will make its announcement, but my view is clear. 

A tax on capital gains is an essential component in the test of fairness that a tax system needs to pass.

I hope Labour promises one.

We need to end the days of huge unearned wealth being tax free, and the wages that most of us work hard to earn being taxed.

If that's Labour policy, I'll proudly campaign for it from the date of the announcement through to election day.

And as you can see on my Twitter feed (twitter.com/jordantcarter) - in advance as well!

Why youth minimum wages don't help

The National Party Leader is a very clever politician, as we all know. John Key has been in the media today mulling on the prospect of discriminatory youth wages, paying people less for the same work if they are unlucky enough to be aged under 24.

It's clever politics because there is a widespread view that this would help with the issue of youth unemployment.

Well, there's a nice graph you should look at from StatsNZ, which charts (chart 3.2) youth unemployment compared with general unemployment from 1987 to 2006. Here it is.

 

In this time, there have been low and high minimum wages, youth minima at 60%, 80% and 100% of the adult minimum wage, and different regimes for people in training etc.

What is clear to me anyhow is that there is no significant relationship between the regime we apply to youth minimum code issues, and youth unemployment.

Low youth minimum wages don't encourage youth employment.

High youth minimum wages don't discourage it.

There isn't a relationship.

This is counter intuitive. But the evidence is right there in front of you. Overall, young people's employment like everyone's employment depends on the general economic situation.

These numbers cover 15-24 year olds. I suppose there might be some minor shifts among 15-20 year olds, but they are not big (because there is no obvious reason why there would be cancelling shifts among 21-24 year olds).

Even if such shifts existed (e.g. higher min code transfers some employment from teenagers to twenty-somethings), I am quite relaxed.

After all, we want our young people to be in school, in education or in training to build a stronger economy and society for the future.

The trouble for those of us who oppose the disgraceful and irrelevant discrimination that youth wages present is that the intuitive case is there and the Nats will run it elegantly.

My view is simple. People should get paid based on experience, ability and shortages or surpluses of skills in their work, within the context of a strongly collectivised labour market.

They should not face lower wages SOLELY because they are young, or because they are women, or because they aren't white.

I'll never budge from that principled position. If there was evidence that showed this was causing youth unemployment (and I think the graph above shows that that evidence is lacking), then other measures in the area of active labour market policy that gets people work ready and so on are the answer.

Not discrimination.

The old slogan still applies: equal pay for equal work. To which I add, and universal minimum conditions, fair for all.