If a large majority of us are worried about inequality and National is making the problem worse, not better, why isn’t the Left doing better politically?
A recent UMR poll found 50% of us are 'very concerned' about growing inequality, 37% are 'somewhat concerned', and only 13% 'not concerned at all'.
Seven out of ten of us believe the gap between rich and poor is widening.
Four out of five believe the gap is bad for New Zealand. People want to live in a more equal society.
French economist Thomas Piketty has shown that in the absence of intervention inequality will keep growing because, over time, the profits derived from capital exceed growth. The owners of capital derive a greater share of economic output. No matter how hard people work, or how virtuous they are, their wages will fall further and further behind as a matter of mathematical inevitability when the proportion going to capital is rising.
While we get more worried about inequality, the Government is making inequality worse.
National’s tax changes since 2008 distributed more of the benefit to the most affluent than to the least. The housing prices boom has redistributed wealth to people who own houses from those who can’t afford to. While National’s budget targeted a few small hot spots, like the cost of GP visits, they did nothing to give wage earners a chance to transform their lives.
So why isn’t the Left able to capitalise on this if so many are worried about inequality?
Explanations often aired include: political incompetence; media ‘bias’; or the failure of commentators like me to sound staunch enough on TV and radio. While variations of all these explanations may be plausible, and sometimes contain a little truth, I prefer an explanation based on policy.
In particular, for the political Left to attract more support when inequality is such a salient issue, people need to believe that we are targeting the real causes of inequality, and that our proposals will make a difference that works for them.
We need to show ‘mum and dad’ voters how they are better off in a more equal society. It’s not just the most vulnerable who benefit, it’s all of us. Labour needs to convince more people that its policies will redistribute from the truly rich to the rest, not merely redistribute among the victims of inequality.
Politically, the middle class and the working poor feel like they are the only ones paying for government services and safety nets. But the real cause of inequality is not really the income difference between the middle class and the poor, but the wealth differential between the rich and everyone else.
Therefore the highest priority for tax reform should be to broaden the tax base to switch more of its focus from income to wealth.
Even for fans of financial transactions taxes (and I’m one of them), wealth taxes should be a higher priority. I think the Greens are right to shift some tax from incomes to carbon, as well, but this doesn’t affect inequality, and may even have regressive elements. A capital gains tax is a hybrid of income and wealth tax. After Piketty, there is a strong case to go further and tax capital, not just capital gains.
A progressive income tax is a powerful tool, but we should not ask too much of it. The very rich easily convert income to capital, and pay virtually no income tax. Today it’s not unusual for someone to file a tax return with zero income while driving a late model BMW. Meanwhile most professional or skilled tradespeople pay the top marginal tax rate. But a professional couple doing ok, a tradie who makes good, or anyone else working for wages is not really the source of rapidly growing inequality.
Growing inequality means the concentration of wealth in few hands, and therefore it is concentrated wealth that needs to be the target of taxes designed to reduce inequality.
Alongside wealth taxes, universal services promote equality. We don’t have poverty among the elderly the way other countries do because everyone gets the same flat rate of superannuation when they retire. Everyone pays in through tax. Nearly everyone feels they’re in the game. So the political incentive is to look after superannuitants, not disrespect the elderly as if they were lucky recipients of handouts.
Targeting services, like tertiary education, has made inequality worse because it means middle class earners pay the same as the super rich, while there is a far smaller political constituency for the free allocation to the poor. I remain a supporter of free tertiary education because I see it as one of the most effective investments in opportunity. We all benefit from a high skilled workforce. Ironically this puts me to the left of some in the Labour movement who prefer to see me as a right winger because I didn’t support a man ban in the Labour party caucus.
But the truth is, winning over the public to implement this programme of policies to target inequality is how you fix wages for woman, not by trying to win the argument to artificially increase the number of female MPs in the Labour caucus.
Tax and universal public services can do a lot to reduce inequality, but the single biggest step is to make work pay. A high minimum wage, unionised workforce and investment in skills switch a share of the nation’s wealth from the rich to everyone else.
Pushing up wages as a share of GDP does more than redistribute income. It also makes for a stronger economy and a better standard of living for most because working people spend their higher wages, keeping New Zealand businesses going.
The right claims jobs are destroyed by putting up the minimum wage or by unions winning higher wages for workers. But the evidence is that as wages rise employers invest more in technology, which improves productivity and therefore lifts the ability of the economy to pay higher wages. Unionised workforces are one reason Germany and Australia are more productive and much better paid than we are, with lower or similar unemployment.
Picketty shows, when it comes to inequality the dysfunctions of our economy and politics are not self-correcting. But they can be corrected. It takes a narrative about the benefits to the many - not just the most vulnerable - from rising equality, combined with a credible policy platform to achieve the goal.
Nothing will be easy about persuading people to support a programme of wealth taxes, more universal services, higher minimum wages and more workplace bargaining strength. So it’s crucial not to make the job even harder with distracting life style policies, truck bans and gender quotas
The three foundation stones of our society - our economy, our ideal of equal opportunity and our democracy - are threatened by inequality. People instinctively recognise this and want to live in a more equal society. Labour has the policy programme to do something about it. It can’t afford any more distractions between now and September 20.