Category: recession

The difference between Green and Labour: a tale of two Finance Ministers

Photo source: Newshub

So the Greens co-leader James Shaw recently made a mistake. In his role as Associate Finance Minister approving funding for “shovel-ready” projects, he fought hard for a private “Green school” to get funding to expand their buildings and, therefore, their student capacity. There are many problems with what he did: forgetting to oppose private schools as per Green policy; supporting an approach to environmentalism based on individual education of wealthy elites’ children, rather than systemic change; finally showing some spine around the cabinet table and for this; being so out of touch with his party’s kaupapa and membership that he actually thought his actions would be seen as a “win” for the Greens. It was a big mistake and it doesn’t say anything good about Shaw’s political judgment.

But here’s what happened next: the Greens’ membership, supporters, and former MPs flipped out. They rightly criticised what Shaw did, instead of sycophantically defending his actions because he’s the party leader. And Shaw called an emergency meeting with members, admitted it was a mistake, apologised unreservedly, and tried to do whatever he could do to reverse his actions.

Meanwhile, Grant Robertson, Shaw’s fellow Wellington Central-based MP and carpool buddy*, was working on an announcement of his own. Robertson is also effectively the second most important leader of his party, and he’s also a Finance Minister… and not just an associate one, but the proper one.

Robertson’s announcement was that his party, Labour, are finally going to increase tax on the rich. First, they’ve brought in a new top income tax rate of 39% on income above $180,000. And second… there is no second. That’s it. In this country of notoriously low taxes on the rich, in the greatest economic crisis since the Great Depression, their revenue policy is: Bringing back the Helen Clark/Michael Cullen top income tax rate of 39c, but to qualify for that top tax rate you have to earn as much as someone working 183 hours and 10 minutes per week on the minimum wage. No wealth taxes, just a small income tax change that even right-wingers think is too low. Australia, the UK, and other OECD countries have higher income tax on the rich, lower taxes on the poor, and of course capital gains taxes, even before the COVID recession… but Labour’s pathetic approach is literally lower taxes on the rich than what Don Brash proposed as National leader in 2005.

So what happened next after Robertson’s announcement? Well, there was dismay and anger from the left and from the centre (this example from No Right Turn is characteristically concise and well-reasoned: If not now, when?). But did Labour’s membership and supporters revolt? Did Robertson, like Shaw, call an emergency members’ meeting, apologise profusely for his massive misjudgment, and do everything in his power to rectify his mistake? Nope. None of that. The leader of the country’s biggest union, the PSA, even welcomed the announcement. The policy stands, and will probably become government policy after the election, unless polls change and the Greens get some leverage. Yet another opportunity for Ardern’s and Robertson’s promised “transformational change” has been wasted.

And therein lies the difference between the Green and Labour parties.

* “carpool buddy”: My partner saw Robertson giving someone a ride in his Labour car during the 2017 election campaign, and she’s like 76% sure it was Shaw.

Averages, intentions and inequality: more Key trickery

median vs mean

Graph from latest Household Incomes in New Zealand report; yellow and pink annotations are mine

John Key is being a Spurious George again. In explaining why he’d love to cut taxes for (mostly) the rich, but just can’t afford to yet…

Key pointedly said that when National took office the average wage was $47,000 a year but had risen to around $55,000 today, and was expected to climb to $62,000 by 2017. This was creeping towards the top tax bracket, where salary earners pay 33c in the dollar for earnings over $70,000.

“I don’t think it was anyone’s intention that someone on the average wage would be paying the highest marginal tax rate in New Zealand,” he said, echoing arguments National has been making in private for months.

Well, Mr. Key, it also wasn’t anyone’s intention for the incomes of the rich to rise so much faster than those of the poor, pushing up the average (mean) income to a level less than 30% of people reach. (Actually it was some people’s intention: right-wingers who think inequality is a good thing)

Key is trying to give the impression that the average (mean) income is the income earned by the person in the middle. But mean doesn’t measure the middle of the people, but the middle of the money; and of course the money is weighted towards wealthy outliers at Mr. Key’s end of the spectrum, who push the average up with their exponentially higher incomes.

A far more useful statistic is the median income: the amount that half the people earn more than, and the other half earn less than. This truly represents the average Kiwi. The median individual income is almost exactly $30,000 p.a. – just under the middle of the third-to-top tax rate band.

It’s actually getting more and more misleading to portray average income as a reflection of middle-income earners: As inequality worsens, the “middle of the money” (average income) is moving further and further from the “middle of the people” (median income). My eye makes it less than 10% difference in 1980, up to about 25% now:

Mean and median over time

Graph from latest Household Incomes in New Zealand report; yellow and pink annotations are mine

It’s also worth noting that the increased average income Key mentions has accrued almost entirely to above-median earners:

income changes recession and recovery

Graph from latest Household Incomes in New Zealand report; yellow and pink annotations are mine

Another problem with mean income figures is they hide inequalities like these and portray a boon for the rich as a boon for everyone.

I do agree in principle with indexing tax-rate thresholds (in fact, all thresholds… *cough*student loan repayments*cough*) for inflation, but Key’s trying to use that principle as a smokescreen for more tax cuts to the rich, spinning this as a release for the average NZer from crippling over-taxation, which is not true on any level whatsoever. Taxpayers between the median and mean incomes actually pay the lowest proportional tax:

Salmond Fig 8-2-01

Graph from Rob Salmond; yellow and pink annotations are mine

And in the context of a supposedly progressive tax system it’s the rich who are really best off:

“At very low incomes, New Zealand’s taxes are a little above the OECD average … But for high incomes, our overall “tax wedge” … is the lowest in the developed world.

Our tax system asks too much of those with little, and too little of those with much.”

This would only get worse under National’s proposed 2017 tax cuts.

In any case, if Key is really worried about too many NZers in the top tax bracket, there’s an obvious solution: Implement a new top tax rate(s) for the super-rich, like most similar countries have:

income taxes NZ aust
income tax UK france
income tax US

Soooooooooo: whatever people’s intention about who should be on the top tax rate, it’s clear John Key’s intention in referring to the mean income, rather than the median, is to mislead (or perhaps he simplify misunderstood statistics in a conveniently misleading way, as with child poverty at the last debate). Sadly he’ll probably largely achieve that intention.

Let’s get one thing clear

NZ’s political parties at the 2011 election now updated for the 2014 election, according to PoliticalCompass.org

“It’s actually a very clear decision for New Zealanders. It’s sort of centre-right versus the far left.” – John Key today

Coming from the most right-wing prime minister in NZ’s history, this is the height of dishonesty and hypocrisy.

At most, Cunliffe et al will take NZ as far left as the Kirk government (1972-1975), which was the last government that didn’t make a total mockery of our claims to be an egalitarian country.

More likely, the next Labour government will be centrist or centre-left… still considerably to the right of traditional Labour values yet hopefully a genuine alternative to the neo-liberal inequality consensus of the last four Labour/National governments. Cunliffe has gone on record acknowledging that this neo-liberal inequality experiment has failed our economies and our people.

Meanwhile, Key, a long-time architect of this failure, is still drinking the neo-liberal Kool-Aid… dogmatically pushing National’s far-right, anti-democratic, economically idiotic, ultra-capitalist inequality ideology as far as we let him get away with.

Key, with his loyal servants in the corporate media, will attempt to claim the ‘centrist high ground’ and whip up McCarthy-esque hysteria about Cunliffe. For the second time in Cut Your Hair history, I’m advising: set your bullshit detectors to maximum.

Now the politicians are struggling too?

tremain comic mp pay

“Should the nation’s wealth be redistributed? It has been and continues to be redistributed to a few people in a manner strikingly unhelpful.”
– Kurt Vonnegut, Timequake, 1997.

Just like every summer, the Remuneration Authority has announced a back-dated pay-rise for MPs, and just like last summer, they’re claiming that we should actually be feeling sorry for politicians, because their pay is rising slower than average wages, and certainly slower than inflation.

This spurious justification completely misses the point that in the worst financial times since (arguably) the Great Depression, those who are earning at a luxury level – and can live without some of their excess – should be asked to sacrifice more than those who are struggling to make ends meet.  Still more so when they are so-called public servants whose pay is symbolically significant.

Unfortunately, it seems that the current government’s stance is pretty much the opposite of this principle – they’re willing to protect a tax system that’s “very generous” to the rich and an environmental policy that’s compassionate towards polluters, even if it means they have to claw an extra $2 from poor people’s prescriptions.

All pay should rise by the level of inflation by default, but as long as politicians are earning more than 99% of their people, they should willingly exempt themselves from the right to a pay-rise in these difficult times, as Hone Harawira has done the last two years.

Better yet, surely this economic climate is a pertinent time to rethink the ridiculous salaries and perks politicians, CEOs and other high-status personages receive?  Underlying the Remuneration Authority’s crude proportionalist argument is the assumption that what everyone earns is what they deserve, but the numbers are making that assumption less and less plausible.

Un-elected public service executives’ salaries are even worse than those of elected politicians, and in the private sector, worse still.  Over the past ten years we’ve had very healthy economic times and then we’ve had a recession, but one thing has remained consistent: CEO salaries have continued to grow and grow, and are getting more and more out of proportion to workers’ pay.

We all know this, so why do we tolerate it?

Bosses’ salaries and child poverty are two of the most extreme symptoms of inequality, which is at an all-time national high.  In order to fix either poverty or excessive salaries, we’ll need a massive mindset shift: we’ll need to stop pretending inequality, poverty and excessive wealth aren’t problems, we’ll need to put to death the delusion that people automatically deserve whatever pittance or fortune they receive, and we’ll need to develop an of the causes and effects of inequality.  And we’ll need to gain more control over our workplaces and government, so that we can attempt to halt the banal and relentless redistribution of our wealth into the hands of a few.

emerson comic dpb mp pay

The ideology of middle class struggle

fwp-pillows
I thought this Sunday Star-Times article was quite interesting.

Three economists (from Infometrics, the NZ Institute of Economic Research and the University of Auckland) all agree that although the middle classes in the United States have been hit hard since the global financial crisis, it’s not accurate to say that the same is true here.

Despite the myth of the “middle class squeeze” and politicians’ attempts to appeal to the embattled middle classes, in New Zealand it’s the poor who have been hit hardest by the recession (and by government responses to it).  The middle classes, on the other hand, have “never had it so good”.  While the economists disagree about whether the rich are doing better or worse, all agree about “the growing level of inequality in New Zealand – it’s this chasm between our poorest and richest that’s probably the real issue“.

The article also provides eight stories from middle-class people about how they’ve been coping financially in recent years.  Karol at The Standard points out that this undercuts the above points somewhat, because they don’t give any stories of the people actually struggling.  Also, the stories are foreshadowed by this rather peculiar statement:

“Of course, this is about statistics – the average. This isn’t you, living from pay cheque to pay cheque, scraping together the school donation, the football subs, the car repayment, the Sky bill, the rent for the bach this Christmas.”

This might be an odd expression of post-modern skepticism about attempts at pure objectivity, and/or it might be ordinary garden-variety dumb reporting. It seems to be saying: never mind the facts, we know that you’re struggling, and an evocative description of your hypothetical woes can substitute for an argument. But maybe they just meant that you may be struggling even though on average the middle class aren’t.

Some of the stories do represent these exceptions… Those who have lost or quit jobs in manufacturing and the public service, or lost houses in the earthquakes, have indeed found things getting tougher, as you might expect.  However, they’re all pretty philosophical about it, and even their complaints are about first-world, nice-side-of-the-tracks problems:

“An expensive holiday is shelved and Mr Barton is holding onto his ageing television and car.”

“We were lucky to have steak at all. Sky was going to get the chuck. Any slight luxuries were gone.”

“they hid their financial struggles from their son and refused to withdraw him from private school”

So what’s behind the myth of the “middle class squeeze”?  Is it just lazy importing of American complaints, or is there more to it than that?

I think the best way to understand it is to see it as an ideology, in a critical or Marxist sense: it’s a worldview that functions to justify and support the present economic system and current unequal power distributions.

People from all levels almost always feel like they’re struggling to make ends meet, because their expectations rise with their incomes (usually staying just ahead).  That’s how market capitalism works; dissatisfaction and desire is what keeps the wheels turning.  If people were content with what they have, capitalism wouldn’t work, or at least not the way we know it (maybe it could work in a nicer, more sustainable way).

This malaise is always there; we’re born into it, and too often we let ourselves remain in it.  And I guess when we’re constantly hearing about tough financial times and how our class is supposedly suffering, it’s more socially acceptable for middle class people to express it openly.

The ‘Returning Kiwi’, Emily Swan, gives voice to this plight:

Does Swan appreciate that with that income and a house, many Kiwis would see her as well-off?

“Yes! The average household income is what, $30,000? Crazy. But then a lot of people are sending their kids to school without breakfast. We are grateful for what we’ve got.”

And yet . . . “I look at my age and think, I’m nearly 40 and I’m still living from pay-cheque to pay-cheque. What do I pass on to the next generation? Will I ever pay my mortgage off? I do feel like I’ve f—ed up somewhere along the way.

If she’s “f—ed up somewhere”, it’s not in not having enough money; she and her partner earn $130,000 between them, but people earning twice as much probably feel the same way (and some people earning half as much have learned not to feel that way).

Perhaps situations like this can serve as a reminder not only that perceptions don’t also match reality, but also of just how mouldable our perceptions, desires and expectations are.  Hopefully we can learn to mould them ourselves to what we think they should be, rather than letting them be moulded by advertising, conformity and the pressures of a consumer capitalist society.