Posts Tagged ‘tax’

August 7th, 2011


Time to Take the Road Less Traveled

Last week I attended the Fabian Conference entitled “Fresh Ideas For A Productive Economy” held at Parliament in the Legislative chamber. It’s the third time I’ve been there for a conference and it’s a good place to debate ideas away from the main chamber. As the title says, the focus was on fresh ideas and this was very appealing given the current government has been rather light in that area.

Two key themes developed from the 8 speakers and their various proposals:

1) New Zealand’s financial position and framework must be addressed.

The current debt situation is untenable in the long run. The borrowing binge of the government is driving up the currency and causing serious problems for our export sector. Whilst NZ has, so far, been exempt from the debt dramas of the US and Europe, that may not last forever. The exchange rate is volatile, our interest rates too high and our investment in property has led to a mis-allocation of resources. Market liberalisation has seen financial markets (the capital account) rather than the productive sector (the balance of payments) drive the economy. This has led to severe imbalances within the NZ economy which are leading to entrenched impoverishment for a large section of society.

2) We must invest more in Research and Development in order to create a more dynamic, broad and innovative economy.

Our investment in people is woeful. We are a low wage, unproductive economy heavily reliant on basic commodities to pay our way. We need a revolution in investment in order to boost productivity, innovation and general skills. As a small country and economy, we have to be clever and nimble in how we generate our wealth and the revenue we need to pay for the goods we import. Our good people leave and many don’t come back. Without sustained investment into research, development and education, we will continue to fall behind. This is about building core infrastructure at the human level. See Dr Rhema Vaithianathan’s research at the University of Auckland.

There seems to be a recognition that the current system is not working and that we need to look at alternative options. The ongoing turmoil in the global financial markets is further proof that the system is irreparable in its current form. When you add in dysfunctional welfare systems and a job market seeing huge technological dislocation, then the time has surely come to take a different track.

The policy proposals from the Savings, Tax and Welfare working groups have been disappointing. Perhaps they have been limited by their terms of reference and by the selected participants, but the output shows very much a business as usual approach, looking for solutions from the same place they found the problems. So what’s the new road?

Simply it is nothing less than a revolution in the way we think about income, sovereignty, wealth and entitlements. What is it that we, as citizens, should be entitled to? How should the state pay for it? How should citizens be taxed? and so on.

I believe strongly that the answer lies in a system underpinned by a Universal Participatory Income (UPI). This a variation of the more commonly know Universal Basic Income (UBI) or Guaranteed Minimum Income (GMI). The main difference is that to receive it you must participate in society in one of the following ways: employment, education, volunteering or caring. In other words you can’t sit around doing nothing. There are always jobs to be done even if those are not in formal paid employment. In this way people will be recognised for making a contribution to society and welfare will be seen as a stepping stone to a more fundamentally just system.

The good news is that there are at least fully costed options for a GMI open for discussion. One is from Lowell Manning entitled a “Guaranteed Minimum Income for NZ” and the other is from Gareth Morgan entitled the “Big Kahuna”. They are both similar in that they see the dissolution of the welfare state and the system that supports it. No longer will there be a raft of differing benefits, just one single payment to all citizens. There are similarities in how the new GMI will be funded in that the tax base will shift from income and towards capital. Morgan proposes a Comprehensive Wealth Tax (CCT) and Manning a Wealth Tax (WT). There are slight differences in the broadness of the tax capture but they are minor in the grand scheme. Income tax would be flat and superannuation would disappear.

The key point to note is that this does not remove the incentive to find paid employment but recognises the contribution made to society by non-paid work such as raising children, caring for the sick and elderly, as well as voluntary work. The removal of superannuation would take way the silly idea that all people “retire” at a specific age.

No doubt there will be a great deal of debate around the specifics once people have got their heads around the idea. For example, one question that will be asked is whether people will have lots of children to access lots of GMI. This is easily dealt with by limiting the number of children that will be granted the child amount of the GMI (I would argue for 3, some maybe 2). This would deal with concerns that people might game the system.

One of the main advantages will be a huge simplification in the fiscal framework. No more welfare bureaucracy, a very simple tax system and the knowledge for people that they can move between different forms of work, knowing that they have a basic income to support them. This will lead to a more efficient and productive economy and will ultimately lead to a more cohesive society.

It would be the most revolutionary change in the fiscal systems since welfare was first introduced and now is the time to start discussing and debating the different proposals.

July 5th, 2009


NZAE ’09: Looking Forward

I’m just back from 3 lovely days in Wellington (nice weather for a change!) at the NZ Association of Economists Conference. It had a good vibe and felt like there was a wider range of interesting papers than the last one I attended. The topics of interest for me are listed below (I will post in more detail once the papers have been uploaded to the NZAE website):

- Tax Reform: The perennial favourite, Capital Gains Tax, made some waves as did some more detailed examination of a possible Land Tax. This initially popped up 18 months ago as a floated idea and more recently was discussed at length over at  The session on Tax Reform was sponsored by the Treasury so expect more debate on this in the near future.

- Aid and Development: There were a few papers on corruption and developmental outcomes which were worth following (though I haven’t seen anything to rival Paul Collier’s work). I especially enjoyed a paper on whether aid was helping to achieve the Millenium Development Goals. To me it was clear that whilst aid can make some contribution, targeted p2p actions such as microfinance and giving are more likely to have a lasting impact as they tunnel through the swathe of government and administration on both ends of the aid pipleline. Message to Government: Let people do the giving.

- Business and Innovation: It’s good to see economists looking at this topic since it’s of major importance to NZ. Again lack of capital and R+D incentives for business was a clear problem. We simply can’t compete with countries like Finland or Israel when all our capital is tied up in housing.

- Health: One good paper on “fat” taxes or food “subsidies”. It simply reinforced my position of taking a supply side approach. It’s hard to influence demand through pricing strategies when the underlying commodity (food) is experiencing huge swings in price. As with oil and carbon taxes, the prices movements in food prices will overwhelm any attempt to reduce demand by taking away GST for example (12.5%). Perhaps incentives like gift vouchers/cash in savings accounts will help focus (a bit like the idea to pay girls an annual stipend for each year they don’t get pregnant). We have to get our future health costs down somehow and creative solutions may be required. Time to call in the behavioral psychologists methinks.

- The Financial Crisis: Nice paper looking back at financial collapses over the last 200 years. Yes they happen with regularity…..whoa…yes we know that. The cycle goes back as far as records allow. Even the Bank of England was not immune from overstretching itself… a run on the Central Bank itself. Ooops. So my simple question is: When are we going to change the system?

Overall it was a good conference and a lot came out of it. For next year I can see more focus on the impact of microfinance and p2p activities, more focus on tax reform, more focus on the debt based financial system and hopefully we will have some more ideas to contribute ourselves.

Also good to see someone with a laptop on the go! Surely a first for the NZAE.

June 8th, 2009

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Small Things Challenge

This is a no brainer.

Intel donating 25cts for every time you click on this page.

There are links to Global Giving, Save the Children and of course Kiva!

Giving as a way of life, monetarily or time wise, is a growing movement. Technology and social media is helping this really transform the process of philanthropy. It’s creating social innovation and driving potential long terms changes in how society can work.

Perhaps even sending a signal to the tax and welfare system. Maybe we don’t need big government. Maybe something new will come from all of this.


I’m a Londoner who moved to Christchurch, New Zealand in 2002. After studying economics and finance at Manchester University and a couple of years of backpacking, I ended up working in the financial markets in London. I traded the global financial markets on behalf of investment banks for 11 years. I write about the intersection of economic, social and environmental issues . My prime interest is in designing better systems to create a better world. I welcome comments and input.

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