Written By:
weka - Date published:
12:43 pm, September 20th, 2017 - 48 comments
Categories: Economy, election 2017, Environment, farming, greens, poverty, sustainability, water -
Tags: #Green2017, #greenthegovt, #partyvotegreen, fiscal plan
Have to say that normally my eyes would glaze over at the term ‘fiscal plan’. But listening to Shaw’s speech on this, I was drawn into a compelling story of why the Greens should have a large influence in the economic management of NZ by the next government (video at bottom of post).
The Greens released their fully costed fiscal plan this week. It’s based on long-term, intergenerational thinking, and brings together all the policy proposals and plans the Greens are offering.
…how to make the promise of a 100% pure New Zealand an actual reality
– James Shaw
The goals of the plan are:
It’s much easier to market a new road than it is to market a zero carbon economy. But we do it anyway, because that’s who we are, and it’s what has to be done.
The policy launch event was aimed at social entrepreneurs, NGOs, scientists, innovators, leading edge start ups, and businesses who are doing the mahi of job creation. Creative thinkers and people who look beyond the normal 3 year political cycle.
Shaw tells a couple of anecdotes that demonstrate the dynamic of how Business as Usual thinking keeps us stuck in the same patterns even when we try to solve problems. So even though Labour and National both now have goals of reducing child poverty by x amount (thanks Greens!), they’re both still using BAU thinking when we need to go beyond that and adapt our thinking around the fast changing world.
I’m not an economics person, but the speech is very interesting. Shaw presents a history of unemployment and welfare from the post-war era until now. Initially the unemployment rate was less than 1% and by the Ruth Richardson era it was 10%, one in ten workers. More recently the average has been 5%, one in twenty workers, this is the new normal. It used to be one in one hundred.
Shaw asserts that the big difference is that back in the day government created jobs – forestry, rail, public works. There was a very generous welfare state post-war. The average benefit was just under 40% of the average wage whereas now it’s around 20%. So there was a very strong safety net but there were also jobs so not many people needed welfare. This meant that welfare was cheap for the country to run.
At that time we had a generous welfare state coupled with plenty of jobs. Shaw then looks at what happens when you take the jobs away (e.g. 1980s Rogernomics). Welfare increases exponentially and becomes unaffordable, so drumroll Ruthanasia 90s policy making it impossible to survive on a benefit with the supposed intention of forcing people to work. But it didn’t work. Welfare costs only went down when more jobs became available in the late 90s/early 2000s. Again, this is setting 5% as the new normal when historically that rate is abnormal.
Then he moves into the consequences of the 80s/90s policies – child poverty.
Nothing particularly new there (although the figures on post-war welfare were new to me). It’s not rocket science, but it’s great to see the Greens laying this out in business/economic contexts. Welfare, fixing poverty, aren’t just touchy feely nice to haves, they’re integral to functioning economies.
He’s making the economic case here, but he is also reminding the audience that this is about human suffering: overcrowding, homelessness, preventable deaths from third world diseases, unnecessary hospitalisations, the long term impacts of children under 3 being raised in poverty.
On the criticism that the Greens should stick to their environmental knitting and not talk about poverty, Shaw makes 2 points.
The first is that if the Greens don’t talk about this, no-one will. Because the Greens talk about it, others have to as well. Beyond the talking about it, the Greens are proposing the most fundamental reform of tax and welfare in a generation:
This plan could life every child in NZ out of poverty.
Alongside that is the plan to transform WINZ e.g. raising the abatement rate level. In case it’s not clear yet, what the Greens are proposing is a de facto guaranteed minimum income. Welfare can be modernised to be something proactive and useful for individuals and the state.
The second reason for the Greens to focus on poverty and welfare is because everything is linked. Shaw demonstrates the connections between poverty, housing and the environment (starts at 17mins 30). He uses John Key’s house as an example. Key’s Auckland property made $1.8million every year for the 15 years he owned it. That is tax-free income. Compared to the median income in NZ via wages/salary of $48,000 per year, on which everyone pays tax. So Key’s house earned 40 x the average income and paid no tax.
The point being that if you have a few million dollars to invest, are you going to start a business, create jobs that help lower the unemployment rate below 5% and pay company tax? Or are you going to make lots of tax free income from property?
Shaw points to the wealth in the property market being 3 x that of capitalisation in the share market. He ties the tax loophole to why our productivity is low, our salaries are low, and our housing costs are astronomical.
This is the other driver of poverty and all the problems that flow from that:
There is a direct link between the people who live in these houses and the kids who are dying of rheumatic fever in damp, overcrowded houses or how are living in cars. And the reason is, that tax loophole.
Hence a CGT on everything except the family home as one part of addressing the housing crisis. Yes lefties, the Greens actually want to tax rich people and give it to the poor.
So here’s another part of the broken economy and how it affects NZ.
In the last thirty years, we’ve transitioned to an intensive dairy-based economy which is killing our rivers and waterways and threatening our native species, and we don’t have any kind of regulation or tax or enforcement to mitigate or offset or prevent all of that catastrophic environmental damage because . . . We just don’t.
Making the connections. The plan is to introduce pollution levies, so that businesses that pollute either pay the cost or preferably change how they run their business. The difference here is that the Green policy attacks the problem at the source, not the symptom (via the nitrate levy). The revenue generated then goes back into farming via Funds that support practical changes on farms and big picture shifts in how we farm. Think sustainability here (and for the permaculture/sustainability design geeks, Shaw basically says the problem is the solution!).
Which leads us neatly to the plan to shift NZ to a post-carbon economy. A big part of this is proposal to plant 1.2 billion trees on marginal land in NZ. This both mitigates farm pollution, helps rivers, prevents erosion, sequesters carbon, and creates jobs. This is mostly going to happen in the regions, so this is regional development too. The plan is paid for via a carbon tax, that also pays a yearly dividend back to NZers. i.e. NZers also directly benefit from solving climate change and protecting the environment.
So that’s why we talk about poverty and tax and the economy alongside climate change and the environment. The problems and the solutions are bound up with each other.
More on the Climate Protection Plan here.
This isn’t policy development via focus groups. This is the Greens again stepping up and talking about what needs to be done and finding ways to make it acceptable to the mainstream.
Because the only way you get these issues out in front of the public and make progress on them is by talking about things that are difficult and that don’t test well in focus groups.
Finally, there is the fiscal geekery stuff. Explanations, charts and documentation, and even a picture of Winston Peters holding up a sign. You can read the details in the speech transcript and in the policy announcement. I hope lefties take the time to look at this and critique it, I’d like to learn more about how what the Greens are proposing might fit into the mainstream understandings of the economy and where it sits in the progressive and social democratic scheme of things.
Love NZ: Fiscal Plan launch video: (if you can’t see the embed, click through to the Facebook version)
From the Green Party website:
____________________________________________________________________________
Love New Zealand: Fiscal Plan
We have provided a fully costed plan to deliver on our bold goals that we have committed to for New Zealand’s future.
Voters have every right to be sceptical about the hope and inspiration their political leaders sell them at election time.
The goals of our plan are:
Goals for a Green government
The Green Party in government will:
The promise of a cleaner economy, a healthy environment, and a fairer society is 100 percent possible. Here is our plan to achieve that:
________________________________________________________________________
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James’ll choke on this!
Our resident James, that is, 3-nil James, not James Shaw. James Shaw will be grinning.
Yep – 2008, 2011, 2014, My record of picking the winning result is going bloody well so far.
Not choking on this – Even if the greens do make the 5% (and that’s an if) – they will be losing a ton of MP;s and their influence will be somewhat watered down.
Thanks for this well written and indepth piece weka.
+1 yes, nicely done weka
I’m sold. The worst thing about the plan is “….to deliver on our bold goals that we have committed to for New Zealand’s future.” The plan is not even that bold, it’s more along the lines of sensible so shows how far NZ has gone in accepting discounts on the future for short-term financial gain that leaves out whole sectors of society. This needs to be turned around. 2020 is not 3 years to late. it’s another 3 years too late.
Party voted Green.
And this is why I am an active member of the Green Party, and give two ticks Green. (Well I nominated our candidate so can hardly not vote for him! – anyway he has done an excellent job on the campaign and would be a good MP as would all Green candidates).
James has continued to impress throughout the campaign – this exposition of the green economy is so fundamental to what we have been on about for years. Many were cautious of James initially because of his corporate world background thinking he would lead off down a “conventional” economic pathway. But I think that while this is not a complete economic revolution, it is a path that can only result in a far more equitable society. This wisdom is not new and James shows that in NZ’s hey day of the 1950’s when despite the depravations of a hugely costly war (and those who lived in those times will remember what those were) no one – no one lived in poverty as we have today.
By the way – this connection between poverty and environmental degradation isn’t new:
Hosea 4: 2-4
My bold wrt the lies and stealing from the public purse by you know who.
This is the best contribution to political debate in NZ I’ve read for a long time – certainly better than anything I’ve seen from “Labour” in recent years. And yes, I gave the Greens my Party Vote (the first time I’ve ever voted for a Party other than Labour since 1990, and Party Voted since the inception of MMP). As someone posted, above, the Greens won’t be in a position to implement any of this; while I think they will poll higher than 5 percent of the Party Vote, their caucus in the next Parliament will be smaller than it was in the last. Consequently, “Labour” will treat the Greens, and their policies, with all the respect and consideration that it has displayed toward them to date. That is a terrible pity for our country and its people. Business as usual after 23 September.
That’s a good summary, thanks. I cut and pasted it into another thread too.
https://thestandard.org.nz/why-i-voted-two-ticks-green/#comment-1387783
I will give them credit for clear policies, fully costed.
Unfortunately many of them are awful. And nobody affected is going to tolerate a tax rate of 40%. An income of $NZ 150,000 is modest these days. Young people will leave. Older people will go fishing. Why on earth would anyone slog their guts out to give that much of their marginal income to the Government? it will simply chill effort by the people we rely on to meet most of the tax bill.
On the health ad education funding, whether it is value for money depends entirely on what it is going to be spent on. If the money is for kids in South Auckland then fine, but if it is being gobbled up by Kelburn mums getting child care subsidies, then not so much.
Sp much of their policies are crap, but kudos to them for acccurately measuring the crap. Which, as you point out, is much more than Labour has managed.
What an ignoramus you are. Germany’s top tax rate is over 45%. I expect that’s why they have the weakest economy in Europe. Does the shit you believe make its way into the sophistry you use to bludge taxpayers’ money?
It’s 40% on income above $150,000. Nice try though.
Current rates,
Income Tax rate Effective tax rate
$0 – $14,000…..10.5%…..10.5%
$14,001 – $48,000…..17.5%…..10.5 – 15.5%
$48,001 – $70,000…..30%…..15.5 – 20.0%
Over $70,000…..33%…..20.0 – 33.0%
https://en.wikipedia.org/wiki/Taxation_in_New_Zealand
According to my calculations (someone can check), a single person on $160,000 would pay $43,720 in tax now, whereas in the Greens’ plan they would pay $44,210. That’s a difference of $490.
http://www.ird.govt.nz/calculators/keyword/incometax/calculator-tax-rate.html
Cheap price to keep our kids out of poverty.
I would have thought so. I assume mostly it’s going to affect people on extremely large salaries.
Actually, I make the difference $6300.00
$90.000 (the difference between 160,000 and 70,000) x 0.07 ( the difference between 40% and 33%)
Can you post a link to Act and National’s independently costed promises. I have looked everywhere for National’s but cannot find it anywhere
I´m always suspicious of politicians who say they will run operating surpluses, not because they can´t do it, but because it´s generally better to run deficits paid for with Reserve Bank interest free credit. Providing a government can do this without causing inflation this seems a much better monetary plan.
Incidently, if John Key made $1.8 million a year from his property, why did no-one think of dobbing him in to the IRD.
what tax laws were broken?
Unfortunately at least advertising your intention to run surpluses appears the be the thing of the day politically at present. We will probably need to put up with it for a while until they can explain how government spending actually works to the media and public in plain english.
Apparently they have been using at least a reasonably progressive economic model to do their budget here. The biggest uncertainties in their budget will however be in the assumptions their model makes rather than where spending should be allocated.
Assumptions about what?
For example if the budget deficit expands you make some assumptions about how the economy will respond. On assumption would be that the economy can expand supply (produce more output) and therefore there will be more output created and higher employment and higher taxation collected. A conflicting assumption would be that the economy has no room to respond to this and the economy will respond by increasing prices but not supply.
In terms of the modeling for the government budget we don’t really know enough about the economy to say which will happen in practice.
[Unfortunately at least advertising your intention to run surpluses appears the be the thing of the day politically at present.]
One would hope that this ¨neoliberal¨ idea has been included in their agenda just to keep the voters happy, and will be abandoned once they are in government.
Another foolish ¨neoliberal¨ practice in place at the moment is borrowing from Westpac, for government expenditure, rather than from our own Reserve Bank. (Central Banks have traditionally been ¨governments´ bankers¨.) Rectifying this doesn´t seem part of any party´s agenda in this election, though I´m pretty sure Winston would be amenable to doing rectifying the problem.
But they are friends with Westpac, and got Power that lovely job there when he showed he had a conscience
Actually the borrowing from westpac part is a common misunderstanding.
The governments account in the interbank market is nominally handled by westpac though its separate from westpac banks interbank account. When the government spends or taxes, or sells bonds then transfers happen in the interbank market, just as if one bank pays another. The only kind of money which exists in the interbank market is high powered money (in electronic form) and therefore must have been created by the RBNZ which operates the interbank market system.
Interesting.
So if the government, for example, wants to pay civil servants´ wages it would create the money and transfer it to the account it has with Westpac in the interbank system. Westpac presumably would then transfer the money to the department concerned through the regular banking system. So in fact the whole thing operates through subsidiary ledgers, with an Interbank control account in Westpac´s Main Ledger, and a Westpac control account in the Reserve Bank´s Main Ledger. Presumably Westpac would be paid a fee for this rather than receive interest.
Essentially, yes. At present the DMO probably sold bonds to get the funds into the govrnments account. This is actually done for monetary policy reasons allowing the RBNZ to maintain the OCR system.
However all the high powered money in accounts in the interbank system can only have been created by the RBNZ.
Westpac (and other banks) generally accept deposits and even pay interest on them, just so they have access to the high powered money to make further payments for their customers (and borrowers).
The government designates this account to a commercial bank just so government staff can have access to credit cards, bank machines, public facing accounts and the like without having to run a bank account system themselves.
Thanks for the info. We live and learn.
I look at this manifesto and it seems to include a lot of social spending and not a lot more tax. How can this be explained , in plain English?
A.
Do you mean you don’t believe the Green and the external audit when they say that the social spending plans have been costed? Or that you just don’t see how it works? Have you tried looking at the individual policy costings and how they are to be paid for? Maybe start with the nitrate levy and farming fund.
> Do you mean you don’t believe the Green and the external audit when they say that the social spending plans have been costed? Or that you just don’t see how it works?
The latter.
I was hoping someone understood well enough to give a simple answer, off the top of their head, like “It isn’t actually much new spending” or “They have cancelled National’s planned spending in area X” or “Actually new taxes Y and Z will gather quite a bit of money” or “Crown debt will increase”.
Does anyone understand well enough to do this?
A.
No tax cut next April = 450m
Removal of indirect subsidy of Farmers from exclusion from ETS = 450 m
Levy on polluters
Thanks, so does that mean there is a billion or so of additional social and environmental spending (per year)?
A.
I think it’s more complicated than that. Tracey can probably explain it better, it’s not my area, but as I understand it, if you look at individual policies, they’re costed. Eg if you are interested social spending, look at the Mending the Safety Net policy, there will be detail in there about what they want to spend (that’s a whole range of things) and how they want to pay for it (off the top of my head, one source was a 40% tax rate on income above $150,000).
One diagram showing all this at a high level would be nice, he said wistfully
I was thinking that about the farming ones. I wanted a flow chart showing taxes/levies and benefits and who they flow to and from and how. Plus highlighting which taxes are revenue generating to run the country and which are designed to change behaviour and that’s eventually be redundant for revenue purposes.
I am not an expert on this but it has been auditted. Unlike Nationals daily promises which we have to trust cos English and Joyce have proven themselves so honest
> One diagram showing all this at a high level would be nice, he said wistfully
Ah, it’s there now I look. p23-24 of https://www.greens.org.nz/sites/default/files/policy-pdfs/The%20Green%20Party%27s%20fully%20costed%20plan%20FINAL.pdf.
So for 2020/21, they have:
– About $14.2B of increased spending (mostly carbon dividend, health, welfare, education, Super fund, and a large operating allowance).
– About $2.2B of reduced spending (mostly by cancelling National’s Families package)
– About $3.5B of new revenue (about half through the carbon tax, with CGT and increased taxation of trusts also contributing significantly).
By my arithmetic, that increases net Govt spending by in excess of $8B per year.
Is my arithmetic wrong? If not, where does this $8B come from?
A.
Doesn’t National have some extra money floating around currently?
Is that the $8B? What were the Nats going to do with it?
Its be great if someone who actually understands this stuff could weigh in. Does no one who worked on the policy package post here??
No, no GP staffers commenting here afaik.
Aha! I found the Nats promises at http://www.scoop.co.nz/stories/PA1709/S00113/national-releases-updated-policy-costings.htm, details at http://img.scoop.co.nz/media/pdfs/1709/Summary_of_policy_costings_10_September.pdf.
National has approx $500M of additional spending as of 2020, most in health and education. Plus a few hundred million of capex, roads (but these are to be funded from NLTF and PPPs), and rather large operating allowances which are as yet unallocated.
So even if you cancel all this National spending (which is not obviously a good idea given that it contains items like ‘Parents and Newborns package’), it barely scratches the surface of the Greens $8B extra annual spending.
So what am I missing? Have I got my facts or my analysis wrong (I am pretty new to all this)? Or if not, where is the Greens $8B per year supposed to come from???
A.
Have you read through the GP documents? I assume I don’t get it because I don’t understand economics very well. There was a whole bunch of debate going on re the projected accounts in the past month, I didn’t follow it.
What about that nice Matthew Whitehead? Maybe he knows.
Weka summoned me on your behalf, as requested. (I have replied upthread so as to notify you instead of Weka, as your latest comment is at the bottom allowable tier of the reply nesting)
As a note, I’m not a GP staffer, just a member, so I am only working from publicly available info, but I have followed the Labour side of the accounting allegations you refer to.
$8b extra spend relative to National is nothing, and I can explain why without even adding up the Green books, (I will take your word for now on $8b and check it later) because you’re looking at what is there, rather than what isn’t, because it’s assumed as a starting point.
The plan is relative to PREFU, remember. There is significant (ie. $17.34b, lol, or $15.36b after National’s new spending if you assume none of it will be cut, which some of it will as it duplicates promises in opposition budgets or is promised to be cut as part of a change in direction) discretionary spending, which National has kept very large in order to promise extra policies with right up to the wire and then claim that they can do that due to the oxymoron of National being “better economic managers,” and then acted outraged when Labour won the argument on services before tax cuts, then beat them to it on spending the discretionary fund and forced them into instead defending tax cuts and not spending enough, so instead they opted to lie about the oppositions’ plans. This discretionary fund is abnormally large right now.
I don’t think you’re lying about being worried of course, just that you’ve heard about fiscal holes. (which is what happens when the finance minister tries to critique an opposition budget and the numbers add up but he gets confused about the labels, then just keeps digging, lol)
What Labour and the Greens are proposing to do is leave little (but more than English did in his own near-zero budget as Finance Minister under Key) money for discretionary spending and go into a tiny bit further debt if a $10b disaster necessitates it, in order to restore public spending to sustainable levels. This is Joyce’s backup claim for where his imagined hole is- he argues that Labour will need a massive discretionary budget when governing because they like to spend spend spend so much, which compared to National’s budgets on anything but tax reduction is true, but they also like to consider revenue, and debt, and everything else, and are much better at handling all but one of the key government economic indicators than National are. Economists back him up that the budgets are tight and think Labour might end up spending more than the discretionary budget, but that’s very different than an actual hole, that’s like, their opinion, man.
I would also point out briefly that if Labour must go into debt to restore responsible spending and cover unexpected expenses, this is not the fault of Labour’s poor fiscal management. We have had nine long years of National government that has depleted our natural disaster fund and let immigration outpace infrastructure spending in order to chase imagined surpluses and pretend they were doing something to stimulate economic growth when Bill English basically pretended he was Herbert Hoover as far as government spending was concerned, and put all of his extra money into tax cuts for the wealthy. I will go on record as saying that we would have just crawled out of a recession twice as long as the one we did if not for the Canterbury quakes allowing the government to entirely drain the natural disaster fund, and carefully mandate as little topups as possible in repairing Canterbury. And even then, Labour is actually promising not to reverse the original lot of tax cuts, just cancel the new ones and redirect them to people who are actually struggling, where they will be better for society, for families, and for the economy. The Greens only want a modest bit extra of taxes, which is hardly disastrous.
All the opposition is asking you to believe is that Robertson and Shaw are collectively nearly as competent as Bill English and Joyce, a standard which this campaign has shown merely requires you to lie only some of the time, and to actually check in with each other before making outrageous allegations that could undermine their own positions and in any sane world would necessitate a resignation, and to have passed your economics papers and be able to add up numbers even when you find the labels a little confusing. I also would be skeptical of Joyce’s numbers on what the discretionary fund needs to be, as Labour used different accouncy practices to Joyce and put some things in line items that Joyce insists will cause problems if they’re not in the discretionary fund. (this is the level of pedantry, or as Keith Ng called it, “ethics in accounting journalism” in reference to GamerGate, he was forced into to not look like a complete drongo when defending his original main point, which he has now abandoned)
In my estimation they will manage much better on these tight budgets than National did, although they will find it difficult to deal with anything unexpected that comes up if Labour is serious about ruling out a CGT in the first term.
(I suspect if they have the numbers to govern alone, they will be “forced” to “negotiate” into accepting one, they make it near revenue-neutral in reduces other taxes instead of fully neutral, and boom, there goes your fiscal tightness, the sacred discretionary fund is restored! I also expect if they are forced to deal with Winston they will make it clear his more expensive promises will require a CGT, but I could be wrong on this. I have constantly been disappointed in Labour’s bullheaded insistence that they didn’t win the CGT argument convincingly in 2014 because John Key was a media darling who got the benefit of the doubt when shouting over Cunliffe about money)
Keith Ng has been very good on this, he was actually the original one to go through both PREFU and Labour’s alternative budget and confirm that the hole claim was outright wrong. He’s not an economist, just an ordinary data jockey like me but probably better because he’s paid to do it, and after he blogged to the spinoff that he’d found where Joyce went wrong suddenly all the economists backed him up on the accounts. If you have questions about this I would direct them to him. He will likely tell you much the same thing if asked, possibly correcting a few details but largely the same story, but with at least more subtle if not less savagery of Bill English and Steven Joyce. I also maintain that by the ancient ettiquette of dueling, Keith Ng is now de facto finance minister until the election, having defeated Steven Joyce at his own job. Enjoy your new irrational cryptocurrencies, and sudden investments into open-source software and new episodes of Community. He may also be less generous than I am on my last two paragraphs, but they are reasonably ancillary to the main point, which, for the TL;DR crowd, is that 15 minus 8 does in fact equal 7, and that 7 is more than 0, and even James Shaw and Grant Robertson, known advocates of responsible left-wing budgets and Not Tax-and-Spending ALL The Money, can make do with “only” $7 billion for surprises.
And yes, I did just troll you with a two-page detailed answer when I could make my point using basic arithmetic but Steven Joyce did that trick first so I’m just following his example.
I suppose I look at it and it seems to me that National would pay down debt much faster than the Greens. (Or would they blow the excess billions on some kind of spending?)
A.
I didnt write it. I am telling you what I know.
It’s a fallacy to assume that a CGT would lead to a significant boost of new business start ups. Which exposes a major flaw in the Greens rationale.
New business start ups are a far more riskier investment, property investors tend to be risk-averse investors.
Additionally, bank lending is largely funding property investment and banks prefer the security loans on property provide over business.
Therefore, attempting to tie this tax loophole to low productivity, low salaries and astronomical housing costs is a huge leap of faith at best and a disappointing joke if this is what the Greens are basing their CGT policy upon.
Moreover, as shown overseas, a CGT hasn’t put an end to property speculation or astronomical housing costs.
And introducing a more comprehensive CGT may result in more houses being flipped as investors become more aggressive and look to make up the shortfall. Exacerbating the problem.
If it’s the housing crisis you are concerned about then look at all the relevant policies together. Pulling one policy out and examining it in isolation will lead to a misunderstanding of the plan.
“If it’s the housing crisis you are concerned about then look at all the relevant policies together.”
No. It was the flaw behind the rationale (given above) for a CGT and attempting to tie this tax loophole to low productivity, low salaries and astronomical housing costs, that I was highlighting.