A left field example is the destruction of rural communities (which largely revolved around their small local schools) – with the economically justified closure of small schools, communities disintegrated. Hall’s fell into disuse. Community events disappeared, and many people became a little more isolated from the neighbours in the district.

How about this as a rural ‘left field example’ – the ever increasing costs of farming, grinding away at a steady 3-4% per year while incomes swoop up and down, combined with more new regulations on all manner of things, mean that farms are steadily aggregating into larger units. Only ever larger units can cope with increasing regulatory demands and ever larger fixed costs. This reduces the number of people living in a district, negatively impacting all those community events, causing more isolation, and eventually causing the local school to close because there are not enough kids attending.

Now I don’t expect any government to try and directly improve the export returns, but it would be nice if they actually acknowledged the role they have in driving up all those costs and sucking ever greater amounts of farmers personal and work time to attend to the paperwork. But let’s face it, large farms, like large businesses, suit the social democrat. They have the ability to meet those ever-increasing demands that smaller farmers don’t. Just as one recent example – the ever progressive National Radio followed up the Green’s demand for agriculture to be included in the latest Climate Change plan and even found one dairy farmer making the same demands. He just happens to own 4000 cows: what’s the bet that full compliance with Kyoto will result in him owning 8000 cows in fairly short order, courtesy of his ground-down neighbouring farmers.

Big business and big government – I really wish ‘social democrats’ would stop pretending how much they hate the former.

If you increase taxes so that people can only make the same amount of money with more work then how do you know that those people won’t be offset by the people who work the same or less because of the “lower reward” for any increased effort

No wonder giants like Fletcher Challenge flourished in the early glow of the first Labour government. For all the bile that socialists unload about “big business” the fact was that they could be (and were) turned into bonsai versions of the rest of New Zealand – complete with their own internal bureacracies enforcing the same gray, stratified, graduated, hide-bound, rulebook approach. It’s still going on too – most of the policy work in the areas of the RMA, employment relations, paid maternity leave and so on – are aimed at the Fletcher’s of NZ. They can hire a firm of lawyers and another of accountants and another of HR consultants to deal with the paperwork anjd the rules and the people who enforce them. The attitude is that if the little firms can’t meet these progressive requirements then they can go to the wall. Entrepreneurs – pah!

Just look at this collection of comments (all of them from SPC in an older thread on tax):
”…….government policy is about aggregates – it wants the whole economy working more productively”.
”It is not the job of government to run lower tax rates than other countries to compensate lower paid workers here – but to assist in enabling better remuneration of workers.”
Income tax cuts would promote import of cars, wide screen TV’ made overseas.
It’s just not the only thing there is in designing a national economic programme
The relevant issue is creating wealth – and tax on incomes is not really part of that debate.

Socialists just don’t get it. These are precisely the attitudes that lead people to stop making real efforts to improve their situation. If their circumstances are ‘planned’ then they’ll go as far as the plan and no further. Even when the “aggregate” results are staring them in the face they’ll simply ask themselves what further tweak to the system is needed to channel those vast forces in the right directions. Somewhere along the line individuals will get taken care of by whatever collective they belong to.

I think it has probably already been reached and my recommendation to 20-somethings is to stop wasting their time here in NZ, go overseas, and pile up the money there. That way they will be able to return to NZ, buy a house and contribute to the economy in a manner of their choosing, rather than having to live hand to mouth.

Also in any discussion of the effect of incentives on productivity the substitution effect has to be addressed. If you drop taxes so that people can make the same amount of money with less work then how do you know that those people wont offset the people who work harder because of the “greater reward” for their efforts

Substitution is a possibility and as I said productivity is a complex beast that probably requires a lot of different approaches taken together. Tax cuts alone won’t do it. My point is that when I look at NZ I see virtually everything pushing against productivity improvements:
- a lack of venture capital due to a warped capital gains tax regime and potentially small market returns because of the size of the country and the challenge of reaching out overseas, even in this Webified and globalised age.

- a sharemarket that people don’t trust, both because of the insider knowledge nature of a small country and the ever-present threat of a Peters or Cullen or Muldoon arising to appeal to populist stupidity with arbitary rule changes that fuck over any built up wealth.

- an overall tax regime that is driven not by actual needs but by a simple belief that ever increasing government spending is good and that to pay for it there is always plenty more money available from taxpayers.

- the corresponding attitude of taxpayers that gaming the system will be their focus, with all the dead weight of accounting and lawyer work to enable that. Take a look at Gareth Morgan’s stats on the huge increase in the number of people reporting $60,000 per year as their annual income!

- an overall societal attitude that people who get rich are scumbags who did it at the expense of the poor, so why encourage them further.

- combined with that (and stemming from it somehwat) – a government generating ever more regulations and red tape – all for the common good of course.

- the societal attitude that ‘gummint should do something about it’ – whatever ‘it’ may be.

- the other societal attitude I wrote about earlier – which may have always existed in NZ culture but is now reinforced by all of the above.

I don’t think that a New Zealand that combines significant populations of actual retirees with ever increasing medical and care costs, people who’ve returned with their foreign piles of cash to enter psuedo-retirement and live outside the income tax world, and young people desparate to make their way in the world, is going to be a successful, happy society.

As far as the rentier class is concerned I probably can’t help you further with understanding, but I will try to make my point more conciise. Even serfs do produce stuff – whereas the rentiers just dip into whatever government gravy train is running in society. A classic example would be Saudi Arabia or Brunei – people who could be furthering themselves in their careers or starting companies are simply content to take their share of the massive oil revenues: it’s money for no risk and no effort. I think I can safely say that economists hold rentiers in lower esteem than ‘serfs’ because they effectively contribute nothing to an economy. That is just one of the concerns I have about where NZ is heading as left-wing governments come up with ever more ideas for regulating society, requiring ever more bureaucrats and external ‘private sector’ consultants.

With R&D, classical economics indeed does not handle it well. I suggest you read Schumpter as a start for more recent economic ideas. Perhaps your arguments are the reason that Labour dropped the whole idea after the ‘99 election and went for cash grants instead, overseen by bureaucrats and an approval process. Not a great success except for those companies with the spare administrative capacity to work the system.
R&D is an investment that a company makes – just like new plant, machinery and hiring new people. As such it is no more irrational than those when it fails to produce the expected (or hoped for) results. The difference however is that R&D develops new ideas that can (with the aid of the market) spread rapidly across society and benefit it to a far greater degree than the just the profit of the inventor. That’s why it should be treated differently than other aspects of business expenditure, in the same way that depreciation rates for computers are greater than for buildings. The fact that the sharemarket in NZ has not traditionally rewarded R&D – and that NZ business has often simply looked at such tax treatments as an excuse to scam the system – says more about us than it does about the theory. NASDAQ certainly seems to encourage such activity, as has Silicon Valley – but it would be fair to say that few, if any, other economies have managed to replicate that success. That does not mean that we should not try it.

Perhaps it is the obsession with personal wealth values that has lead to our low growth in productivity – maybe national GDP is a bit like the village commons – best developed by cooperative behaviour and not left to the aggregate effect of individual preferences.

Now it’s my turn to not understand what you are saying. I think you are suggesting that perhaps our concerns with personal wealth have led us to not undertake the cooperation required to boost productivity? But markets actually do foster cooperative behaviour, and it is derived from the aggregate effect of individual preferences. This has long been inferred by economics and in very recent times the study of social biology has lent great weight to the idea that ‘selfish’ genes do actually lead to cooperative behaviours.

Are you sure you are not a left-winger, as the themes you have put forward all seem to be very much the standard approach of such.

I am not a “left winger”. I don’t know what in my post causes you to think that I am. Quite the contrary, as a relatively young professional who has had to pay far more for my education than my predecessors, and face far more expensive housing, increasing social welfare is no longer to my advantage – during the period when it would have suited me it was heavily reduced and from a personal perspective increased social spending will only hurt me for the next 30 years. But I am confident that increased social spending (and the concomitant higher taxes) is exactly what I will see for the next wee while as boomers start to suffer the increased incidence of medical ailments and worry about their super as they realise that a lot of the young people can’t afford to buy boomer houses at their current “value”.

You write about people who have scaled back their earnings because they are happy with what they’ve got. Those people may just be good for society because it seems that our race for wealth has stretched out the field so much that the people at the back may be at the point where they decide to stop running.

New research from the Centre for Housing Research says:
“The report found someone born in 1956 had a 75% chance of owning their own home at the time they turned 35. In contrast a 35-year-old in 2006 had only a 58% chance of owning their own home.”

http://www.stuff.co.nz/4431800a19716.html

Now I have to ask you – how low does the level have to drop before a 20 year old is wasting their time scrimping and saving trying to get on that ladder.

Also in any discussion of the effect of incentives on productivity the substitution effect has to be addressed. If you drop taxes so that people can make the same amount of money with less work then how do you know that those people wont offset the people who work harder because of the “greater reward” for their efforts.

I don’t understand what you are saying when you write:
“Worse – people will simply turn into the most dreaded economic persona – the renter.”

Typically it was the rentier class that was most widely considered despicable not the serfs!

Perhaps it is the obsession with personal wealth values that has lead to our low growth in productivity – maybe national GDP is a bit like the village commons – best developed by cooperative behaviour and not left to the aggregate effect of individual preferences.

You might consider an often-noted characteristic of NZ business people: once they get a starter company or concept to a decent size they sell the idea or even the whole shebang to some overseas outfit, take the money and plonk themselves down in some beach-side pool to enjoy the rest of their lives in hedonistic joy. Combine that with the fact that numerous “right-wing” commentators here (VTO, GD, me and others) have said repeatedly that we have very much scaled back our earnings, not just in reaction to feeling that we’ve long passed the “from each according to his ability” threshold, but also because we’re comfortable with what we’ve got. A decade ago I stepped off the American partnership track and returned to NZ because I just did not think it was worth it.

But I was there long enough to have made a pile I could never have amassed in this country – and the result is that I have been able to effectively retire since returning. I often wonder how many other people have followed a similar route? It might explain some of the descrepancy between the millions spent on coastal property and the actual income generation capabilities here in NZ. The bottom line however is that people like me are not “focused on our next money fix”.

All of that speaks to a cultural attitude that is very unlike your portrayal above. It’s really one of the key reasons for our steadily slowing economic growth rates – because what lies behind this steady decline is the leading indicator of poor (and reducing) productivity over the last several years. Anybody who has followed that would have known that it was going to hit economic growth before the decade was out.

Productivity is a somewhat general catch-all title for what is a very complex and poorly understood aspect of economics. But it boils down to a lack of sufficient individual incentives to generate more income or build more wealth – why bother if it just means pushing further into the stratosphere of rich prick status on the income side or not getting R&D writeoffs or finding that an overnight decision by some history lecturer has just screwed a chunk of your retirement investment for political gain. The response is going to be “why bother”. Worse – people will simply turn into the most dreaded economic persona – the renter. They move, in increasing numbers, into the great government cash cow as employees or members of some firm or other that feeds off the government teat. Life’s easier – if more boring but actually better paid than many private-sector jobs nowadays.

The problem you face, as a left-winger, is that you need your vision to be true if you’re ever going to get all the tax revenues you need for your various social engineering programmes. You actually need a chunk of society to be as money-obsessed, driven and greedy as you imagine – and in NZ business people and capitalists in general, you don’t have that. Which is why that fabulous “re-building infrastructural capacity” growth of 9.8% and 33% core is not going to last much longer.

Surprised DPF missed that one, damn fishing trip. 9.8% increase in govt spending, 33% increase in core government? That is insane, and unsustainable. You can’t tell me that the central govt was underfunded the year before last – so all that 33% could go up on waste-watch, and be legitimate target for cuts without any impact to the average NZer.

Basically it points to the numbers of people taking up interest free student loans by age group. Those over 60 have increased dramatically. I’m not sure what happens when you die, but I suspect the loan gets written off. Basically over 60s can borrow interest free money with no need to ever repay it. Interesting, and I would agree that it is perhaps not a good use of taxpayer money.

I’d agree with almost everything you say, with one important exception: the economy exists to provide us with goods and service, yes, but if we think this means happiness then we are truly daft.

Once we have our basic needs met (courtesy of the economy), then we can start looking for happiness which comes from something other than goods and services.

This is why we need less tax and less regulation – not more.

Small retail owners and private school operators etc have to put up with so much regulation and red tape it makes a lot of endeavours hardly viable.

With a larger economy there is more room for niche stores / products / services / schools / social clubs & events etc.

Economic growth is not what has cut out small retailers and rural schools – Government regulation, red tape and taxes have.

By creating State employment – even if not necessary – the unemployment figures look better.

The issue with socialists is they can’t understand intelligent spending on the state service. They think more is better, regardless.

Now take health, we are spending an extra 6.5 Bil a year on health, yet, when the waiting list numbers were finally extracted from Annette king prior to the last election, we learned they had DOUBLED! Only a socialist government could nearly double health expenditure with such a poor result. We now have 12,000 managers and admins in health, one for every hospital bed. It costs up to 5 x more to stay one night in a public hospital than private etc.

Socialist parties like Labour cannot understand that Bureaucracy when given free run, relentlessly expands.

In my mind, the answer is obvious. Cut the massive expenditure in the state service, and then tax cuts can easily be afforded. I mean in health alone, why do we need more than – say – 1500 managers and bureaucrats?

Then explain the US economy after Reagan, the Bush 1 economy.

After Bush 2, the Bush 2 economy of today.

“The prescription is well known less tax, less government spending and less government control”

One can only cut taxes and government spending for so long, then where does growth come? The course is not sustainable.

“But its pointless argueing this with a left wing activist like you who refuses to face the facts”

I can admit that one can only increase taxes and consequent government spending for so long until there are negative economic concequences (the infamous Laffer curve), but I suspect you are more blinded to economic reality that many on the left.

>>Yes communist countries joining the EU will quickly grow

“BTW it’s former (and largely anti) commuinist, and they were growing just as fast before entering the EU, …”

Countries grow when the stop being communist, they also grow more when they also join a free trade zone which provides development assistance.

>>Nations close to large markets and whose product range is not facing trade barriers will do well too.

“Okaaaaay so what about the free trade deal we are about to sign with China”

It looks like its going to include agriculture the way the Australian one with the USA did. But generally we should be pushing free trade with ASEAN and within APEC (there was full free trade promised by 2020 back in the 1990’s – we should remind them all), meantime Korea should be next (Chile, Singapore, Korea and us – we could suggest an Enzed, Australia, NAFTA unity within APEC, if the others delay).

I am not unduly confident of WTO progress – but eventaully they are going to be dragged kicking and screaming to the table when there are world shortages and they give out all that higher and higher priced grain to give to their livestock. We can always remind the EU that China likes long term supply contracts for scarce resources and we may one day be committed elsewhere if the WTO lags because of them.

“Socialist? I have voted Labour and Green but generally socialists are into state owned farms etc (ownership of the means of production) whereas social democrats are really only into state delivery of “public” services and perhaps ownership of natural monopolies (especially services). ”

Labour and the Greens are into state owned farms – Landcorp.

Labour is also into state owned railway tracks, banks, airlines, insurance companies, television networks, radio stations, energy companies and more.

“As to helping the poor, generally there best hope is in higher incomes (and receipt of free public services) rather than tax cuts (they pay little tax), it is usually those who have already realised a high income who focuses on the tax cut (or tax avoidance via trusts etc). ”

The “poor” as you put it, are simply people who have expenses equal to or greater than incomes. The increase in the number of “poor” people in NZ has come about because the Government has continued to subsidize family breakdown, splitting up households which doubles household costs and halves household incomes.

“There are two distinct factors to consider in the relationship between Australia and New Zealand.

One is productivity and one is wages.

The following column speaks to one of these.

“A 2007 paper by the Child Poverty Action Group argues that our income tax structure needs urgent reform to make it more progressive and less inequitable and confusing, ”

The Socialist propoganda action group shot themselves in the foot with their argument. “Progressive” and “Less inequitable and confusing” is an oxymoron.

“and that while the greatest pressure for tax reform (in the form of tax cuts) is coming from middle- and high-income earners, it’s low-income earners who have the greatest need of additional income.”

Taxing one person to pay another doesn’t provide any additional income. It’s merely a transfer of wealth from productive to non productive people.

“Its authors, Auckland University economists Dr Susan St John and Dr Steve Poletti and health researcher Donna Wynd, blame our regressive tax regime for “a good part of New Zealand’s rapid growth in inequality”.

The socialists are at it again. Our tax regieme is the reason that hard work and increasing of incomes is discouraged. Some people’s marginal tax rates are so high there is no point in working any harder. It’s the progressive nature of our tax system that is the very problem!

“And the poverty action report concluded that we ought to be lifting the bottom tax threshold of $9500 to around $20,000 at least. We ought to be taxing housing investment which advantages individuals at the cost of the country.”

That is an absolute myth. It’s investment in the housing stock that has kept it from going further back than it already has. Taxing it would be the worst mistake they could make. It would decrease investment, and the tax would just be passed on to renters in the form of higher rents and first home buyers in the form of higher prices.

It’s the left wings “smart growth” “lock up the urban limits” policy combined with the Reserve Bank printing money to pay for Labour’s spending binge that has pushed up prices.

” We shouldn’t be giving tax breaks on KiwiSaver, which benefits the better off, and is unlikely to increase the nation’s overall rate of growth or savings.”

Kiwisaver shouldn’t even exist. It’s corporate socialism for the fund managers.

“Because, as they say, “there is really no such thing as a free tax break, one group inevitably pays to support another’s reduced tax burden”.”

There really is no such thing as “Government income assistance” it is inevitably one person’s wages being taken from them and given to someone else.

I agree that there is a (limited) place for economic growth but I doubt that growth alone is going to help us. This is where education comes in. What are we educating our young people (and old ones) for? I wonder if we are becoming a nation and a world of simply producers and consumers. Our identity is increasingly wrapped up in these simple terms and nothing else.

I get the impression that many of us – myself included at times – are engaged in a feeding frenzy. Try going to the shops the week before Christmas or Foodtown in Mt Eden before a rugby match at Eden Park. We feel we have to earn more money each year so that we can consume more. The economic argument is always used to trump any other argument (e.g environmental or social ones).

In our schools and universities the emphasis seems to be less on thinking and caring about ourselves and others, and more on getting a job which pays well. What, I wonder, is the point of a marketing degree? Or an advertising industry? Other than to persuade us that we need more and if we produce or consume more we’ll be in some sense better. I have my doubts.

I am reminded of a debate between an economics Professor and a student in a 101 class. The young socialist was asking why there was no study of comparitive economic systems, or at least the study of economic alternatives to the market economy in the first year class.

The “scientific” answer was that the market applied in all systems, but some had different deciding mechanisms (political control), the “idealistic” answer was that once one had learnt the market order arrangement one was an expert in what one would later apologise for (much like a graduate of a seminary). Of course in the end all politicians of whatever party bring their own deciding mechanisms into the equation because of the interest groups they represent – and economists are sometimes useful when cited in support of a political decision, but also sometimes inconvenient.