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. 


Comments (11)

by mikesh on June 09, 2014
mikesh

A capital gains tax is not an income/wealth hybrid tax but a tax on wealth. It is, unfortunately, a fairly selective one since it exempts private dwellings (though this seems to be for largely political reasons), and it targets only those that sell their property, leaving other owners untouched. Exempting private dwellings may be justifiable if their owners are poor, but there is no reason whay the well-to-do should be exempt. A land tax would be preferable since it could easily be offset by a reduction in income tax and it would also be progressive inasmuch as the wealthiest members of the community probably own the most expensive land.

A land tax has other advantages too. It would be easy to collect and would encourage more efficient land use.

by Josie Pagani on June 09, 2014
Josie Pagani

I agree Mikesh, a land tax worth considering. Also an inheritance tax. But so too is a tax on capital - not just the capital gain - that was my point. And that can be off-set by a reduction in income tax, as you say.

by Lee Churchman on June 09, 2014
Lee Churchman

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'. 

Sure, but it doesn't follow from this that their feelings about inequality will determine their vote come September. Nor does it follow that their beliefs are coherent. I know an awful lot of people who complain about inequality, but support the sort of hyperindividualistic authenticity based approach to politics and everyday life that end up exacerbating inequality. I've often thought that the problems people find intractable are usually caused by the things they are least willing to give up. The people who complain about identity politics are often fully engaged in it themselves. 

Piketty shows, when it comes to inequality the dysfunctions of our economy and politics are not self-correcting.  But they can be corrected.

I'm not sure he has shown this (although I haven't finished the book yet - countless end of term papers to mark). It's clear that the world wars were a wealth consuming conflagration that led to a period of g being greater than r, but this wasn't by design. If the price of correcting inequality is as high as that, it's not clear that we aren't better off living with vast inequalities. A global wealth tax seems to me about as likely to see the day as compulsory worldwide Morris dancing.

by Chris Trotter on June 11, 2014
Chris Trotter

Here's an idea, Josie.

 

Take and then publish the results of the Political Compass test.

 

 http://www.politicalcompass.org/test

 

And then challenge your critics to do the same.

 

The results are likely to be surprising - and highly revealing.

by mikesh on June 11, 2014
mikesh

As Gareth Morgan pointed out in "The Big Kahuna" a wealth tax could be justified where the owner benefits without registering any taxable income. However Morgan's capital tax is not a tax on capital at all but a tax on the yield from capital (ie it's an income tax), but subject to the proviso that where the yield is deemed inadequate it would taxed on the basis of an adequate yield. It should be noted that he considers private dwellings to be assets whose yield, being zero, is inadequate.

A pure wealth tax may be worth considering, though it could involve difficulties relating to valuations of assets and the possibility of concealing assets.

by Alan Johnstone on June 11, 2014
Alan Johnstone

The article is based on the flawed premise that people actually care about inequality. They may tell polling organisations that they do, hell they may even tell themselves that they do. But they don't.

In The Godfather, Don Corlone advises his sons, "Words are meaningless, you judge a man by his actions"

People don't vote for parties that care about inequality or even appear all that interested.  

Actions speak louder than words.

by Josie Pagani on June 11, 2014
Josie Pagani

Alan - you're right, this is based on the premise that people care about inequality because that's what the polls are saying (and not just this one). Either you accept that polls have merit or a plague on all their houses and just ignore them all. I do accept what the polls are saying, so the next question has to be - why isn't the Left doing better? I think the high % of people who care about inequality reflects an anxiety in the middle and the working poor who feel like no matter how hard they work, they can't get ahead because wages haven't risen at the same pace as returns on capital. It's about 'inequality up' as much as inequality down towards the most vulnerable. As the gap gets bigger between most of us and the very top, more people join the 'very worried'.

by Josie Pagani on June 11, 2014
Josie Pagani

 

Here you are Chris....Turns out I'm more left wing than Obama, Francois Hollande, Nelson Mandela and the Dalai Lama.

This is a toy, Chris. Why would you decide to heretic hunt with a toy designed to measure where you stand on American Culture War issues, rather than engaging directly with argument? The substance of the argument is more important than litmus tests to see if the person advancing the argument is trustworthy or not.

by Draco T Bastard on June 11, 2014
Draco T Bastard

Therefore the highest priority for tax reform should be to broaden the tax base to switch more of its focus from income to wealth. 

That was the excuse used to implement GST - the most regressive tax ever invented. In the context that you use it in it's also wrong. If you focus taxes upon wealth rather than income you shrink the number of people who pay tax rather than broaden.

After Piketty, there is a strong case to go further and tax capital, not just capital gains.

After Piketty we should be boosting our highest income tax to 80%+ and putting in place Gareth Morgan's 2% wealth tax.

The very rich easily convert income to capital, and pay virtually no income tax.

Our tax system needs to be redesigned from the ground up. No more of the tinkering that we've seen as all that's doing is leaving the same problems in place but in a slightly different form.

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.

I've recently signed up to go back to Uni. Doing so is going to drop me around $40 per week from what I was getting on the unemployment benefit when what I really needed was about $100 per week more so that I could actually afford to go.

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.

Productivity has gone up about 80% since the 1980s and the 4th Labour governments neo-liberal reforms. Wages have declined 25%. So much for wages going up with productivity. Rising productivity must, if all else remains the same which is what really happens unless the government steps in with massive R&D and building infrastructure, must result in deflation and falling wages.

 And the real big problem with rising wages is that we live on a finite world and Labour, just like National and Act, refuses to accept that.

by Draco T Bastard on June 11, 2014
Draco T Bastard

Oh, and I'm amazed that you got -7, -7 on political compass. Considering what you've said and general agreement with Hooton on many matters perhaps you need to consider why what you say conflicts with your beliefs.

by stuart munro on June 15, 2014
stuart munro

Mmm - your mate Julia comes in on the right Josie - and it might be that you do too. Likerts tests for constructs are dodgy at the best of times however - bet we could make a more robust metric for NZ left representatives in an afternoon.

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