Analysis by Keith Rankin, 2 July 2020
Socialism versus Progressive Capitalism
I was disappointed that the Green Party continues to reject a distributive Universal Basic Income (UBI) in favour of a redistributive and polarising Guaranteed Minimum Income (GMI) model. GMI is the antithesis of UBI. The essence of UBI, through flattening income tax, is the creation of a dividend – a return on collective capital – that is received by every economic citizen of a country. Universal Basic Income should represent progressive capitalism, not socialism.
(I plan to develop the concept of economic citizenship in this space next week. But the essence of the concept is that everyone over a certain age – most likely 18 – is an economic citizen of one and only one country; and that immigration can be understood as a transfer of economic citizenship. Many of the people discussed in my Foreign Lives Matter are in fact economic citizens of New Zealand.)
The essence of the Green policy is to extend New Zealand Superannuation to all working-age adults who are not ‘fulltime workers’. And the graduated income tax scale is steepened, not flattened as per the requirements of Universal Income Flat Tax. The Greens’ GMI is to be funded by redistributive income and wealth taxes.
The Green Party’s recently announced policy divides New Zealand’s working-age population into two distinct groups – a beneficiary group and a working group – and relies on heroic assumptions around the working group’s willingness to transfer huge amounts of income to the beneficiary group. And by replacing the present poverty trap with a ghetto trap. Precarious workers – who are a substantial minority of all workers, and who straddle the two abovementioned groups – would face even more impediments to having their needs addressed.
(The ‘ghetto trap’ referred to can be summarised as high EMTRs – effective marginal tax rates – faced by people who would normally wish to transition from the beneficiary group to the working group.)
This policy announcement confirms, in the minds of most people, that the Green Party is a socialist party – like the former New Labour Party that formed the core of the 1990s’ Alliance – unlike the progressive party that seceded from the Alliance in 1999.
Taxes and Behavioural Change
Taxes may be imposed for two distinct reasons. One reason is to raise public revenue. The other is to modify behaviour; to address ‘negative externalities’ in economist language. The Green Party has always been confused in this regard, seeking to tax bad behaviour in order to raise public revenue. The perfect behavioural modification tax raises zero revenue. When the taxed behaviour – such as vehicle speeding – ceases, then the tax raises zero revenue. Today the Green Party wishes to both raise revenue from asset speculation (what they call ‘wealth taxes’) and to eliminate asset speculation. If they wish past property speculators to become a stable future tax base, then they will need to find policies which will ensure that property prices remain unaffordably high.
The other obvious social change that would result from the implementation of the Green policy would be the reversal of fifty years of shifting from one-income to two-income families. In practice, this will mean a substantial shift of women from the labour force (from the ‘working group’ abovementioned) into beneficiary status.
The policy is generous to one-income families, and quite ungenerous to low-wage two-income families. Based on these incentives, we could expect working class mothers to exit the labour force, and to withdraw their children from childcare. Further, if the fathers are not earning much – or are in precarious employment – they would become dispensable as household providers.
I presume that Child Support would continue much as it does at present. That would mean that – where possible – benefits paid to single or repartnered parents would be funded in the first instance by non-caregiver parents. This would push low paid working non-caregiver parents into quitting their jobs – ie joining the ‘beneficiary group’ in order to avert bankruptcy.
In general, this policy does little for the present crisis of hardship faced by people in work, and could be expected to aggravate the existing disconnect between working class – who now largely vote National – and the beneficiary classes.
The Covid-19 Pandemic and Asset Prices
I suspect that most of the work on this Green policy was done pre-pandemic. The costings – heroic at best – are unlikely to make any sense in the present pandemic environment. During the current emergency, any policy to raise taxes is tone deaf. All initiatives in the emergency need to be funded by new money.
The asset valuations used to estimate revenues from wealth taxes are largely fictions, based on the assumption that demand for these assets remains high, and that selling of assets is restrained. Assets can only be correctly valued when those assets are realised (ie sold). The inflated ‘paper’ valuations are dependent on few realisations (sales) taking place. Any situation that prompts increased sales of financial assets would lead to substantial reductions in asset prices, unless those prices were to be propped up by a willingness of the Reserve Bank to bail out asset-holders by purchasing assets (ie printing money) at inflated prices. These fickle assets are by no means the “rainy day savings” that their owners can assuredly “fall back on in hard times” (quoting from the policy document). In unmitigated hard times, nobody has economic security.
Learn from the 1930s
The Great Depression of the 1930s brought to light the cruelty of a welfare system based on providing private charity only to the ‘deserving poor’. The result was a strong public groundswell in favour of universal benefits, and away from the intrusive processes of household means-testing and character evaluation.
The First Labour Government was elected in 1935 on the basis of promises to deliver a universal welfare state. This meant free education and hospital care. And it meant access to decent social security benefits with minimal intrusive bureaucracy. And it meant universal superannuation for persons over 65 who did not qualify for an age benefit; and the promise of a universal family benefit, payable to all mothers.
(It is important to note that, while Labour won the 1935 election in part on this promise, it also benefitted from a union with the monetary reformist ‘social credit’ movement – very strong in the provinces – and from a split in the then governing coalition; a split that lead to the formation of the Democratic Party. The Democratic Party played a spoiling role in the 1935 election, much as the New Zealand Party did in 1984.)
In practice politics post-1935 was not so simple. While a plan for universal welfare was formulated in 1936, Labour’s left-wing preferred a redistributive welfare state much as the Green Party want today. Labour’s right-wing – mesmerised by compound interest – wanted to establish actuarial (contribution-based) welfare funds; funds that promised to pay big future benefits to higher earning working men.
For most of the next three years, the Labour government’s factions tore at each other over which was the best way to dishonour their 1935 promise. In early 1938, it seemed very likely that Labour would lose, when all it had to do to win was to implement the reforms it promised in 1935. Labour’s position was rescued by its leader – Michael Joseph Savage – who belonged to neither faction, and had the ability to read the public mood. (It was Savage’s leadership at this moment which made him, in the evaluation of many, the New Zealander of the twentieth century.)
Savage went to the people with a policy on universal superannuation that united rather than divided the people. The 1938 result was the biggest electoral victory for a single party in New Zealand’s history. The universal superannuation began in 1940, initially at the modest amount of $20 per year, but with a formula to raise that amount annually, with the long-run aim that it would reach the level of the Age Benefit, and then combine with the age benefit.
(That convergence eventually happened, though the merging of the two benefits only occurred in 1976 under Robert Muldoon. Roger Douglas – a descendant of Labour’s actuarial school – abolished universal superannuation in 1974; Muldoon, again reading the public mood, reinstated it.)
The inchoate public mood is for a Universal Basic Income based on the Universal Income principles that I have outlined; an inclusive rights-based payment. The political problem is that five sets of gatekeepers keep the proposal off the immediate agenda. These gatekeepers include the ‘redistributive left’ and the actuarial ‘financial literacy’ right; essentially the same groups who opposed the 1938 reforms. They also include mainstream journalists (some of whom still do not get MMP, let alone UBI), career academics, and career bureaucrats; people whose careers are more enhanced by having problems than by resolving them.
(I recommend ‘The politics of social security: the 1938 Act and some later developments’ by Elizabeth Hanson, published in 1980 by Auckland University Press.)
The Green Party tax-welfare policy represents an example of orthodox redistributive western socialism. It is divisive left-wing politics. While the Green Party knows that such a policy will never be implemented, it nevertheless represents a gambit designed to put pressure on Labour to produce a ‘lite’ version of the same policy. (The Act Party has used use the same stratagem re National.)
There are alternative policies that unite people rather than divide them. In 2020 we need to focus on people’s basic economic rights, just as in the 1890s we focussed on people’s political rights.