The tax and spend solution to inequality

November 10th, 2015 at 7:00 am by David Farrar

Stuff reports:

New Zealand may be headed for a “Victorian-style” future of haves and have-nots, author Max Rashbrooke says.

Yes modern day New Zealand is just like Victorian times in terms of inequality. We spend a massive $20 billion a year on welfare and this is compared to Victorian-style. We spend more on that subsidising education and healthcare for New Zealanders. But it’s never enough.

He invites the reader to imagine New Zealand’s 3.4 million adults were represented by just 100 people.

The person in 90th place on the wealth spectrum has so little wealth it is “barely visible”, around $500 of assets on average.

It’s generally called being young.

Rashbrooke surveys the policy options that have been suggested could create a more equal society. They include:

  • Introducing wealth taxes like a capital gains tax, or reviving inheritance tax
  • Have strict limits on how much an individual can donate to a political party
  • Introducing highest-earner to lowest-earner company pay ratios
  • Increasing taxes for the highly-paid, and lifting benefits
  • Launching a government “matched” savings scheme for the poorest families giving them up to $200 a year
  • Automatically granting some wealth to people on reaching adulthood
  • Build enough houses to drive down prices so more people can own one
  • Restrict lending by making banks hold more capital against mortgages
  • Remove, or limit, tax breaks for property investors

It’s the usual hard left policy prescription. Never mind it has failed in every socialist and communist state in the world. So the “solution” is:

  • Tax people for dying
  • Taxpayer funded political parties
  • Make it illegal to get paid over a certain salary
  • Tax rich pricks more
  • Pay people more not to work
  • Have taxpayers give students free cash when they turn 18
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The Mythical Link Between Income Inequality and Slow Growth

July 13th, 2015 at 1:00 pm by David Farrar

Matthew Schoenfeld writes at the WSJ:

From 2000-10, many of the 34 OECD countries propped up growth by launching expansive social programs with borrowed money. But not all. The five most “unequal” countries in the OECD report—Israel, the United States, Turkey, Mexico and Chile—largely abstained. They increased sovereign debt by 3% on average compared with a 40% average increase among other OECD members.

When austerity pressures caught up to debt-laden sovereigns in recent years, however, the less leveraged—and not coincidentally, less equal—member countries grew a lot faster than their peers. From 2011-13, according to the World Bank, the five most unequal countries grew nearly five times faster (3.9% cumulative annual average) than the others (0.84%). By using a 2010 cutoff, the OECD has skewed its findings.

Thsi data destroys the argument that an economy grows faster if you tax and redistribute more.

Consider Greece. From 1999-2012, its Gini coefficient “improved” by 6% to .34 from .36—more than any other OECD country. (The Gini coefficient measures income distribution, where 0 represents complete equality and 1 represents a society in which a single person has all the income). Greece’s redistributive social transfer spending also grew most quickly among OECD peers from 2000-12. But Greece’s economy has shrunk by more than 20% since 2010 (World Bank data), and today more than a third of its citizens are considered to be at risk of poverty (Eurostat data).

Equality can mean equality of poverty.

From 1995-2012, OECD member countries that increased government expenditures as a percentage of GDP grew 30% slower than member countries that trimmed government expenditure as a percentage of the economy over that span—average annual growth of 1.9% compared with 2.5%.

This is no surprise.

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Reporting on inequality

July 10th, 2015 at 4:00 pm by David Farrar


This is a fascinating graph from the NZ Initiative.

It shows how compliant the media are with left agenda. When Labour is in office, they barely mention inequality or I am sure poverty. But the moment there is a change of government, then a ten fold increase in reporting on inequality even though it has not changed over the previous decade.

This is why trust in media is at an all time low.

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Despite the rhetoric, inequality not increasing in NZ

June 29th, 2015 at 11:00 am by David Farrar

Stuff reports:

New Zealand needs to “change its tune” on inequality, think tank The New Zealand institute says.

The group, which is supported by many leading business people, made the call following the publication of a Treasury paper which found inequality in this country has, with some variability, largely remained constant for the past 20 years. …

The new Treasury report acknowledged inequality in this country did rise from the late 1980s to the early 1990s. But it said that since then inequality had – with some variability – remained either constant or had fallen slightly. (Read the report in full here)

In a statement on Friday, NZ Initiative head of research Eric Crampton said “New Zealand simply has no problem of rising inequality”.

In contrast, income inequality had risen in may parts of the world and New Zealand seemed to have imported the narrative that the gap between rich and poor in this country had been widening to the same degree.

“The most striking finding in the latest Treasury work is that inequality in consumption is lower than it was before the reforms of the 1980s. While salary-based measures of income inequality have not declined as dramatically, a lot of work ignore the fact that the tax and transfer system already works to equalise incomes,” Crampton said.

“In the end, it’s consumption-based measures that give us a better picture of real differences in how people live.”

So when you take account of the tax and welfare system, there is less inequality in NZ than the early 1980s when for some bizarre reason socialists hark back to as a golden era.


Global inequality dropping

June 26th, 2015 at 11:00 am by David Farrar

Noah Smith writes:

Tomas Hellbrandt of the Bank of England and Paolo Mauro of the International Monetary Fund show in a new working paper that global inequality is falling, as poor countries power ahead. The global Gini coefficient – a standard measure of income inequality – is falling fast. In 2003 the coefficient was 69 (with 0 being perfect equality and 100 being perfect inequality). In 2013 it was down to 65. If current trends continue, it is on course to reach 61 by 2035.

So inequality may be increasing within some countries, but over humanity as a whole, the gap between rich and poor is closing.

The reason for this is what free trade and capitalism have done to countries like China and India, with hundreds of millions rising out of poverty.

So around the world, a rising tide is lifting all boats, and it’s lifting the boats at the bottom faster than the boats at the top. This is really an extremely good, successful outcome (though it would have been nice to see this happen without the increase in inequality within some countries).

A nice break from the gloom and doom.

It’s important to realise is that this is a recent phenomenon. For a long time, the opposite was happening. In 1988, for example, economic historian Brad DeLong showed that the poor countries of the world had mostly failed to catch up to the rich countries since 1870. The former colonial powers of Western Europe, the US and Japan were zooming ahead, with the former colonies either being left in the dust or struggling just to keep pace.

So we may be seeing something like a global Kuznets Curve. In the early stages of global growth, rich countries – and the rich people in them – zoom ahead of the pack, but eventually the masses catch up. If the forces that move inequality really are global in nature, then it means that capitalism and trade really are a force for good. It means that we don’t really face a tradeoff between wealth and inequality in the long run. And it implies that once the poor countries have done some more catching up, inequality will begin to fall within countries, too.

The new data, and the global Kuznets narrative, also destroy the idea that the wealth of rich countries is based on the exploitation of poor countries. Capitalism is not colonialism after all. Most of our global wealth is created by trade and industriousness, not plundered or extracted by force. The world isn’t a zero-sum game.

That is the most vital thing to remember.


The Herald’s inequality calculator

September 4th, 2014 at 10:00 am by David Farrar

The Herald has a calculator where you enter in your income and it tells you what income decile you are in, and how much your decile has gained over time compared to others.

If you are in the top 10% it shames you with your 29% income growth and tries to make the other 90% resent you.

And then just for balance, it provides a link to a left wing inequality campaign site, for people to join.

Very fair and balanced.

A reader also points out another flaw:

I have checked the fine print and it talks about needing to know your household size to compare like with like but doesn’t refer to what income to include. 

 As an example one woman i know initially did it using just after tax on her pay slip… Didn’t include WFF, tax credits, accomm supplement, cash jobs etc. Once added changed her position by two spaces 

Additionally, we are top bracket – we have grown our businesses in last few years to point where we have gone from employing three people to eleven and a financial position where we had huge debt in the business (that we have now paid off) and now getting dividends plus additional $ with me working more. 

I inputted what we had as income five years ago (I wasn’t working, kids were little, plus still had significant debt in business that we were paying down plus mortgage). The Herald indicator put us at the third tier. We weren’t poor by any stretch of imagination but it was bloody tight – and high stress trying to make a business work. We didn’t claim WFF as don’t believe in it. Damn principles!

 One of the things I love about NZ is ‘ where there is a will there is a way’ – I’d hate to think people will believe we have always been top tier because we just are… Bloody hard work got us there. And we give back where and when we can.  We don’t pull the ladder up behind us. Please recognise we need people like us to employ people and to invest in new ventures. 

Most of those in the top 10% moved there up the scale. We should applaud that, not envy them and want to pull them down.

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Again Labour wants equality of outcome, not opportunity

July 7th, 2014 at 11:00 am by David Farrar

Stuff reports:

Labour’ deputy leader and finance spokesman David Parker has stressed the party’s egalitarian roots in a scene-setting speech at its election-year congress.

“I am an egalitarian politician,” he said.

Parker stressed Labour’s commitment to a balanced economy and greater equality of outcomes.

Equality of outcome is basically a socialist and communist policy.  You can justify pretty much any intervention by the Government on the basis of wanting equality of outcomes.

Fighting for equality of opportunity is very different. I’m all for equality of opportunity. But equality of outcome is very different. Equality of outcomes means reducing the outcomes for people, rather than increasing the opportunities.


Now they want wealth equality as well as income equality!

June 16th, 2014 at 1:00 pm by David Farrar

The Herald reports:

The richest 10 per cent of New Zealanders are wealthier than the rest of the population combined, according to figures cited by Oxfam NZ.

Oxfam says data from the 2013 Credit Suisse Global Wealth Databook also shows that the top 1 per cent of Kiwis hold more wealth (25.1 per cent) than the bottom 70 per cent.

First of all, the data shows the top 10% have 48% of the wealth. And you know what, who cares? It’s is their wealth – not ours. What matters is whether the composition of the top 10% changes (social mobility), bot that the top 10% have more wealth. By definition the top 10% of anything always have more of whatever you measure.

But let us look at what countries have a greater share of wealth in the top 10%. We’re at 48%. Higher than us include:

  1. US 74%
  2. Switzerland 71%
  3. Denmark 69%
  4. Sweden 67%
  5. Indonesia 65%
  6. Norway 65%
  7. Austria 62%
  8. Germany 59%
  9. Cyprus 57%
  10. India 53%
  11. Portugal 53%
  12. Luxembourg 51%
  13. Canada 50%
  14. France 50%

So countries with higher “wealth inequality” include Denmark, Sweden and Norway. Even Canada and France.

But let’s do what Oxfam wants and make sure we have less wealth with the top 10%. What countries have managed this best:

  1. Slovakia 32%
  2. Japan 34%
  3. Slovenia 36%
  4. Greece 39%

That is the Oxfam vision for NZ – Slovakia and Greece!


Labour supporters want tax hikes even if they bring in no more revenue

February 3rd, 2014 at 12:00 pm by David Farrar

Daniel Hannan writes in the Telegraph:

Ponder the graph above. Sixty-nine per cent of [UK] Labour supporters would want a top rate tax of 50 per cent even if it brought in no money.

I’m sure they’d dispute the premise. I’m sure they’d insist that it did bring money in. And, on one level, they’d believe it; it’s human nature to start with the result we want and then rationalise it to ourselves with what look like hard data. I think their rationalisation would be false, obviously – once the behavioural consequences of the tax are factored in, it becomes a net drain on revenue – but I might be subject to my own confirmation bias in the other direction.

Anyway, this isn’t a blog about the statistics – I’ve already posted one of those. No, this is a blog about the mind-set of people who see taxation, not as an unpleasant necessity, but as a way to punish others.

This is amazing. Over two thirds of UK Labour supporters want higher taxes, even if those higher taxes did not produce more revenue for the Government.

I wonder what the percentage would be in NZ?

Envy is an ugly and debilitating condition, but it seems to have an evolutionary-biological basis. The dosage varies enormously from individual to individual, but even toddlers often display a sense that, if they can’t have something, no one else should either. If they had the vocabulary, they would doubtless, like the 69 per cent of Labour supporters, explain that emotion “on moral grounds”. Few toddlers, and few Labour voters, openly admit to being actuated by vindictiveness.

Hannan also touched on inequality:

I accept that there are advantages in homogenous, Nordic-type societies. Huge inequalities of wealth can lead to higher stress levels, higher crime rates and weaker social engagement (oddly, the people who deploy these arguments in support of economic homogeneity almost never extend them to multiculturalism, but that’s another story).

The case against state-enforced equality is not that a narrowing of the wealth gap is in itself a bad thing; it’s that it carries a disproportionate cost in terms of lost prosperity and lost freedom.

Wealth taxes make societies more equal; but they do so by making them less prosperous. We can push plutocrats into shifting their money abroad. We can drive hedgies to Singapore or Switzerland. We can, more prosaically, make entrepreneurs spend more time with their accountants and less creating jobs. We can encourage by far the most common forms of legal tax avoidance: shorter hours and earlier retirement. All these things will make our country more equal. All of them will make it poorer.

And be careful with what you wish for:

Following the credit crunch, inequality fell. City salaries plummeted, average salaries fell slightly, benefits stagnated. In other words, the 69 per cent got their way: Britain became poorer and more equal. Yet, in the event, it was Labour supporters who moaned loudest. There’s no pleasing some people.

The focus should be on economic growth. If you grow the pie, then you get better options as to how to divide it up. Taking more tax off hard working taxpayers so you can give it parents earning $140,000 does not grow the pie.

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Labour’s binding policy is to have “equality of outcomes”

August 7th, 2013 at 9:00 am by David Farrar

Labour has just released the final draft of their policy platform, for adoption by their annual conference.

It is meant to be a high level document that sets out their principles, and the manifesto must be consistent with it. Despite, this they have managed to make it 60 pages long!

There’s a lot in there I can and will comment on, over time. But the part which I think is the most newsworthy is their policy platform on equality which reads:

Labour believes that social justice means that all people should have equal access to social, economic, cultural, political, and legal spheres regardless of wealth, gender, ethnicity, or social position. Labour says that no matter the circumstances of our birth, we are each accorded equal opportunity to achieve our full potential in life. We believe in more than just equal opportunities—we believe in equality of outcomes.

People need to reflect on just how extreme this is. They are saying that New Zealand must have equality of outcomes. Everyone earning the same, working the same, maybe even weighing the same.

There is a philosophy that proposes equality of outcomes. It has been trialed in numerous countries, and failed in all of them. Without being melodramatic – it is communism. Their basic principle was that a doctor should be paid the same as a street cleaner.

This is the fundamental divide between centre-right and well hard left. Equality of opportunity is goal that almost everyone agrees with and aspires to. Equality of outcome is, well nuts. Name one country that has equality of outcomes – unless it is equal misery.

Their explicit commitment to equality of outcomes, is significant for what they see as the role of the state – which is basically unlimited. If you believe in equality of outcomes, then every single policy that involves state intervention can be justified so long as it leads to more equal outcomes.  A party which has said that their binding policy goal is equality of outcomes, sees no or little room for choice. If people make bad choices, then that leads to unequal outcomes – so they must be protected from those bad choices.

I think it is great that Labour have come out and said that they do not believe in equality of opportunity alone. It is another step to the hard left, that helps make them unelectable. New Zealanders do not believe in equality of outcomes. They believe in people being able to get ahead by hard work, and dedication. I can’t wait for the election debates when David Shearer has to get up and say that Labour’s core belief is equality of outcome, not just equality of opportunity.

And while this is a draft, this is a draft signed off by Grant Robertson and the Labour Party Policy Council. Under Labour’s rules it will, if adopted, be binding on the Labour Party. Caucus will not be able to come up with policy inconsistent with it. This shows the same sort of thinking as came up with the man ban – a classic example of Labour’s fixation with equality of outcome, over opportunity.

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Equality at work

November 16th, 2012 at 12:00 pm by David Farrar

Food News reports:

A school lunch lady in Falun, Sweden has been told by education authorities to get in step and stop serving better quality meals than lunch ladies at other schools.

Horrific. That means there is no food equality. It is not fair kids at one school get better meals than kids at another school.

She has been told to stop baking her own bread in favour of the store-bought version and to reduce the range of vegetables she offers in her now famous vegie buffets.

In spite of working within her budget, and meeting all health and nutrition standards, Annika Erikson has been told her super lunches are unfair on students at other schools, and she must stop such anti-social behaviour immediately.

Yes, initiative and excellence are anti-social behaviour.

Katarina Lindberg, head of the authority which overseas school meals in the region, told local news media, “A menu has been developed. …It is about making a collective effort on quality, to improve school meals overall and to try and ensure everyone does the same.”

Oh yes the collective effort, This is the same collective effort that argues against performance pay for excellent teachers because it is all about the collective effort.

Another article on this has a great quote:

The “same,” even if everyone is worse off. Or as Winston Churchill put it, “socialism is the equal sharing of misery.”

Equality, comrades!

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Robinson on equality

January 9th, 2012 at 4:00 pm by David Farrar

Martin Robinson writes in the NZ Herald:

New Zealand rugby players come in all ages, shapes and sizes, and both sexes. Players vary greatly as regards their skill levels, commitment and training schedules. Rewards for players are extraordinarily unequal, as most actually pay to play while a very few are paid hundreds of thousands of dollars.

Is this fair or unfair? Should the Labour Party, the Greens or the Occupy Auckland movement campaign for more-equal payment of rugby players? Should the “greedy” All Blacks be forced to hand over some of their colossal income to the more impoverished fellow players? Should the Government intervene to reduce this glaring disparity in rewards?

Reducing the pay of All Blacks and spreading it among the less well rewarded rugby players, even if it is a good idea in theory, poses immense practical problems. Would the All Blacks agree to a significant pay cut? If they did, the team would become a 2nd or 3rd XV of players who were willing to play for the reduced reward.

We would never beat the Aussies, and maybe the All Blacks team would disappear. So the equality campaign would have succeeded in narrowing pay differentials, but at the cost of destroying the world’s greatest rugby team.

But the players would finally all be equal.

Inequality and the poor will always be with us. People vary greatly in their talents, work ethic and attitudes. Some people are lucky, others are unlucky. Whatever any government does, the lucky and hard-working will tend to be wealthier than the unlucky and lazy.

Every family is unequal. Both my brothers are much richer than I am, but I don’t envy them or think there is anything unfair about it. I don’t regard them as greedier than I am.

I am the poor relation. If I had worked harder, invested more wisely and spent less time on holiday, I would have more money in the bank, but they are the choices I made. I don’t regret anything so I’m content with our financial inequality. When I met my brother on holiday on the Gold Coast, I stayed in a motel-cum-backpackers while he stayed in the Sheraton.

He should have complained to the Government that his brother had been too successful.

New Zealand is an unequal society, just like every human society, just like every family. An equal society is impossible, an unworkable nightmare involving zero incentives and gross unfairness. Why should a cleaner be paid the same as a surgeon? It’s a ridiculous idea. I’ve cleaned toilets at the minimum wage but I don’t think it was unfair that I was paid less than when I was a teacher.

The All Blacks and some chief executives earn mega-salaries but they also pay stacks of tax. New Zealand’s tax and benefit system transfers many billions of dollars from rich Kiwis to poor Kiwis year after year.

In fact if you have a couple of kids you don’t even pay net tax until you earn around $55,000 or more.

The way to reduce poverty in New Zealand is to increase exports, improve workers’ skills and productivity, create more wealth and jobs, and then raise the minimum wage.

If New Zealand is becoming more unequal, the answer is for us poorer ones to work and save harder and smarter in order to even things up.

How outraegous. He has overlooked that it is all society’s fault.

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Gaps over time

June 7th, 2010 at 2:00 pm by David Farrar

Red Alert posted this great video.

When you watch the video, recall how the Greens argue against economic growth, because they say its rob the world of resources. They argue for greater income equality, such as the world had 200 years ago.


Inequality vs Social Mobility

May 24th, 2010 at 9:38 am by David Farrar

The left tend to measure most things by talking about inequality, and how anything that increases inequality is bad. Inequality, being the gap between those on the lowest incomes and the highest incomes.

This of course means that most of the focus grows on how to divide up the cake, rather than grow the cake.

But even putting that to one side for a moment, I want to make the case for focusing on social mobility rather than merely inequality.

In many cases inequality is a normal and good thing. It is a good thing that a 50 year old with 30 years of experience gets paid more than a 16 year old with no experience.

It is also a good thing that someone who spends six years at medical school and four years of specialisation gets paid more than say a parliamentary researcher.

For the vast majority of New Zealanders, they start their working life earning a lot less then they finish it. And this is good – otherwise you extra skills and experience are not valued.

So I reject many measures of income equality as unsophisticated and even counter productive.

The measure that I would like more emphasis placed on is social mobility. I don’t have a problem with a 19 year old earning $10 an hour as a kitchen hand if when they are 30 they are earning say $25 an hour as a cook. However I will agree that someone who spends their life earning just $10/hour is going to have a relatively deprived life.

But for me the solution is not to raise the minimum wage to $25/hour, but to have a society and a labour market which will help people on $10/hour gain skills and experience so they move up the pay scale.

In the UK social mobility has historically been difficult with such a class ridden society. In New Zealand I think it is far less so. Few people really care about where you were born (unless it was Palmerston North) and what your parents did.

In a society with very low levels of social mobility, I can understand why reducing inequality is more important. But in a society which does have opportunities, I want the emphasis to go increasing social mobility, rather than merely the blunt instrument of inequality. If you take inequality to extreme measures, then you end up like the old USSR where cleaners and surgeons get paid much the same.

The data on social mobility in NZ is fairly sparse – partly because you have to measure it over extended periods of time. But that is where I would like more focus to go.

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