Social bonds an experiment that can’t work because…

This morning during a Q and A current affairs programme I tweeted the following tweet. "#nzqanda Social bonds experiment risky. Can't solve social problems separate from wages, jobs, tax, governance issues @NZQandA" Six people retweeted it and many marked it as favourite, showing it resonated with others watching the programme. Quite frankly the Minister of Social Development, Anne Tolley, is bound to fail with this experiment. And it is not just that you can't privatise social welfare and expect good results. It is because the whole political system is one system so you can't put welfare in a silo, treat it separately and expect good outcomes. Yesterday I heard Kim Hill in a Radio NZ interview with UK Renegade Economist Ross Ashcroft utter this telling remark: "It seems nothing you can do in an economy isn't going to cause some bad effects somewhere else." Well Kim you hit the nail on the head there! Everything is connected. And it is not just within the economic system. It is the tax system, the welfare system, jobs, governance, the credit system and wages structures that are all tied up together. Change the paradigms of a few of these and the whole system gets tweaked for the better. So how do we get a healthy economic system that results in good social outcomes? Looking at the range of social problems from truancy, mental health problems, crime, family dysfunction, stress, educational issues, loneliness, health where does it all stop and where is the best place to intervene? Try education of young mothers? Oh no, they are victims of domestic violence and poverty. Try wages alone? Oh dear the businesses shed jobs. Try crime alone? Nothing changes. Poverty persists, the wealth gap keeps widening. Try housing without changing the tax and rating systems? Oh dear, you get urban sprawl and an inability of councils to build essential infrastructure so you get more social problems. Fix the money system by itself with zero interest rates but fail to address the tax system? You just exaceberate the housing bubble and widen the wealth gap further. Whanau Ora , a cross-government system, an approach that places families/whānau at the centre of service delivery, requiring the integration of health, education and social services, gets it right as far as it goes. This system treats the family as a whole system and refuses to accept that ten state agencies must enter the home that has a social problem. Everything affects everything else. The presenting problem of the misbehaving adolescent may reveal a range of other issues – domestic violence, poverty, educational failure and health problems, housing problems, job insecurity and so on. But even the integrated Whanau Ora programme can't solve the fundamental issues of a structurally faulty currency system, tax system, welfare system and governance system. A currency must circulate at an optimal pace, businesses must create well paid and satisfying jobs and be constrained by a tax system that protects exploitation of the habitat. One of the more interesting admissions from the Minister of Social Welfare was that a lot of problems can be solved locally rather than centrally. Panel member Josie Pagani agreed. Yet devolving functions in the way we have previously understood it isn't going to work either. Why not? Because the state can still intervene, give councils less money, legislate to put further financial burden on councils and so on. The only way to restructure an economy is to change four major paradigms. Instead of central devolving functions and finance try the other way round. Instead of banks creating the country's credit as interest bearing debt, let the people create their means of exchange interest free. Instead of taxing work and spending and enterprise, let's put a rental on the exclusive use of the commons like land, minerals and so on. Instead of a welfare system that is asset and income tested, let's give a basic income derived from the land rents that were previously privately captured. There is a great deal of thinking to do. When the global financial system's huge credit bubble finally bursts let's make sure we start again, but start properly. The New Economics movement is a vehicle for this new thinking. We can and we must develop a new economic system that works for nearly all life. Otherwise we are going to repeat the same failed experiment. And it is not just the social bonds experiment.

Government Superannuation, Basic Income, Duplication and the Housing stock

1280px-Eureka,_California_two_yellow_housesUp till today I always thought the Government Superannuation was the nearest thing we have to a Basic Income for over 65s. It was unconditional and was given to all in that age group.

But I was wrong. Today I heard from a friend on Government Superannuation who has just had to pay for a second toilet (she chose a compost toilet), a new letterbox, a second electricity meter and a new shower. She had to do this because otherwise Work and Income would have cut her Government Superannuation.

Why? Because she is retired, drawing Government Superannuation and owns a biggish house near a shopping centre. A few months ago a recently retired friend came to live in her back building and is doing it up. They have known each other for zonks and being sociable creatures, just wanted company. They both enjoy the same movies and books, both cook well and their conversation is stimulating.

My friend’s superannuation is $366.94 a week living alone but the single, sharing payment is $338.71 a week. Both of them would be deemed sharing if they shared a toilet, letterbox, electricity bill and shower. So the house will now have two of each.

Furthermore, there is a third category from Work and Income and that is married, civil union or de facto and that is $282.26 a week.

What message does this send our society? That the government will not encourage friendship and sharing of facilities, and certainly not sexual intimacy, or even, dare I write it love.Old Couple

And if you think it doesn’t have housing implications, think again. The said male friend could well have taken up a whole house and section by himself and had a full single superannuation. Two houses, two sections, two letterboxes, two electricity meters is better than one? Of course not.

I think of the retired single people living in Christchurch where the rentals are horrendous and people live in garages. I think of the Auckland housing bubble, exacerbated by this illogical Work and Income policy. So not only do we have more houses than we otherwise would have had, but this puts up the demand for houses and so house prices rise.

This has been happening of course with younger beneficiaries for decades. Two single parents get together. Both are on the Domestic Purposes Benefit and there is a major financial disincentive to share a single house, a single washing machine, car etc etc.

So not only does the lack of a Basic Income (unconditional, whatever your living arrangements are) discourage intimacy and thrift, but it expands our cities towards ever more green fields, costs us in infrastructure of sewerage, water and stormwater, but it leaves the poor to fend for themselves in caravans and garages or to share with other families.

The New Economics Party – What’s in it for me?

markets-headerWhat is in it for me? What ordinary people want to know about a party’s policies are “What is in it for me?” And that’s a very valid question.

What are the outcomes for you the voter when we fundamentally alter the structure of the tax system and the money system as we are proposing?

OK here is what is going to happen. The whole prices structure will be altered. Because GST and income tax are a component of the price of everything you buy, prices will drop. Because interest is included in the price of everything you buy, prices will drop.

And that will make everything more affordable. But wait? What about other taxes? You said you were going to tax the use of land and other natural resources including the use of the biosphere for waste. Yes for those items that will put the price up again.

For example, for imported petrol the price won’t drop, it will actually rise if we want to do something about climate change. The price of any fossil fuel based goods will rise including artificial fertilisers, pesticides and insecticides. So the farmer will have to learn how to use EM (effective microorganisms), together with other good farming methods, to keep the soil full of nutrients.

What about imported whiteware and vehicles? The lack of GST will keep the price down and since they are manufactured in other countries, but that is about all. It is only when it is manufactured in New Zealand that it drops because of the lack of income tax. And it will include some natural resources taxes, depending on the metal.

The land, because it is fully taxed, will be more efficiently used. The sheer waste of city people living on valuable “lifestyle blocks” just outside a city or township will vanish as Crown Leasehold land gradually replaces freehold land. This land will once again be used by genuine farmers growing food for the city. The need for transport will decline. So we will see fewer huge trucks on our roads transporting chilled goods from Auckland.

And a Citizens Dividend distributed in Land Dollars – how will that change things? Once again, a marvellous result. Even if every man, woman and child gets, say, a L$50 dividend, for a family of two adults and two children that is $200 in land dollars. Spend it at the Farmers Market. The local producers then pay their suppliers with it and can employ labour tax free, thus boosting production. So Farmers Markets could soon occur more often and pretty soon you have the revival of the small fruit and vege store and butcher. Welcome back! Mainstreet is invigorated and the supermarkets that rip off the suppliers of produce take the hit. Meanwhile the local farmers and horticulturists have an incentive to go more and more spray free and organic and employ more labour.

The distribution of the land rental to the citizens through a Citizens Dividend will have a huge impact on poverty. Poor people will spend it on essentials, thus invigorating the local food growing industry. These dividends will eventually be quite big. In the end they will free citizens from boring jobs they dislike so they can take up something they really want to contribute – be it entertaining, art, creating inventions, volunteering or caring for an elderly parent. Mothers with factory jobs two bus rides away will be able to leave the job if they prefer to devote themselves to their family life.

Jobs will return to the provinces. Because when you build in an incentive to use local building materials and locally manufactured fertilisers there is no impediment to building a sawmill or a factory. Factories in Levin lie empty. The clothing manufacturing jobs went to the Pacific islands and to Asia long ago.

We know the changes we advocate in designing and creating a second national currency backed by land are massive. After all 79% of our government revenue is from either income tax, GST or company tax. We believe that you should pay for what you hold or take and not for what you do or make. We need to share the rents of land and the harness the power of monopoly. We need to design and issue our own currency and not let the private banks keep control.

Health and Education When essential food items become more affordable the health of the population improves. The Asian takeaways that line the streets of the small poorer centres will gradually disappear as young mothers are empowered through their Citizens Dividend. Remember the plan is to give the children’s dividend to the primary carer, which is most often the mother. Once the Citizens Dividend rises to the stage where it frees the mother financially, she can choose further education, once again benefitting the children too. Our population will end up healthier and better educated.

Tax Department IT behemoth shows need to untax labour and tax land

In May 2013 the Government announced it had approved $1.5 billion over ten years on an upgrade of the computer system for our Inland Revenue Department (IRD).  Apparently IRD's 20-year-old computer system is stretched and is struggling with a patchwork of programmes like Working for Families and KiwiSaver so Cabinet has agreed to the money.

I was curious about this, as it seemed an enormous figure. So I looked up the Budget. Well, Government spending for 2012 was $82 billion. This makes the figure for this computer upgrade nearly 1.8% of one year’s total government spending.

Behemoth_by_Wen_M

A tax system unsuited to encourage work and trade will always be expensive to run

Economist Keith Rankin, a long time advocate of Universal Basic Income, summed up the situation in an article for NZ Herald May 20, 2013. He described the gradual growth of the IRD as it was required to deal with more Government schemes. He called the proposal an “IT behemoth”.

National Superannuation was introduced in 1976 and continues as a partial Universal Basic Income to all those over 65 because it is not means tested.

He says Family Support was introduced in 1986 (a means tested family support programme) Child Support in 1992, Student Loans in 1992. The Department of Social Welfare had a name change to Work and Income New Zealand (WINZ).

Rankin says Child Support became an administratively complex compliance scheme for the IRD, in which levies were deducted from liable parents and payments made either to custodial parents or, as benefit recovery, to WINZ.

Student loan repayments became unnecessarily complex, despite the IRD's role being quite straightforward, managing repayments as an additional income tax.”

Then in 2004 we had Working for Families. This  is a package designed to help make it easier to work and raise a family. It pays extra money to many thousands of New Zealand families. Greater financial support is available for:

  • almost all families with children, earning under $70,000 a year
  • many families with children, earning up to $100,000 a year
  • some larger families earning more.
  • This increased assistance is delivered by Work and Income and Inland Revenue. You can get if your income comes from salaries or wages, or self-employed earnings
  • a student allowance, or
  • NZ Super or Veteran's Pension.

Working for Families Tax Credits are made up of four types of payments:

  • family tax credit
  • in-work tax credit
  • minimum family tax credit
  • parental tax credit.

You may qualify for one or more , depending on your personal situation.

The Accommodation Supplement is available to more working families and many people without children. They can also get childcare assistance. It is an incredibly complex scheme.

inland-revenue

Simplify the tax system by taxing land and resources and use of the commons. Don't tax work or trade

Ever since that legislation it has become apparent that if parents are on benefits their children are penalised, as their parents don’t qualify for Working for Families. In 2012 the Children’s Commissioner’s Expert Advisory Group on Solutions to Child Poverty released a report showing that 270,000 children in New Zealand were living below the poverty line, and it all came to a head when the John Key National Government had to introduce a scheme to feed hungry children in schools in May 2013 after an series of television programmes highlighting the need.

The scale of the IRD upgrade shows just how impossibly complex our tax and welfare system has become.

The Inland Revenue has to deal now with income tax, company tax, GST, child support, student loans, Kiwisaver, Working for Families and Paid Parental Leave.

Our proposals (see http://neweconomics.net.nz/index.php/2013/06/how-to-build-a-life-supporting-economic-system/) to create a second national currency linked to a completely new tax system would avoid all this. There would be no income tax, GST or company tax on trades in the new currency. Because it is also linked to the distribution of a Citizens Dividend to all citizens including children and other dependents, there would be absolutely no need for extra means tested payouts like Child Support and Working for Families.  And because work is untaxed it favours job rich investment. If the Worgl experiment of 1933 is anything to go on, unemployment drops dramatically fast.

For the new currency, IRD would only have to deal with ensuring that the full ground rent was paid and that resource taxes and sin taxes were paid at source.  As jobs were created and Citizens Dividends were distributed, the need for social welfare would quickly decline. The need for Social Welfare would soon decline as people’s basic needs were being taken care of by the other currency.

Economist Susan St John says in a 64 page 2009 paper

Working for Families reduced child poverty among many of the employed poor, but entrenched the position of beneficiary families and introduced more complexity and discrimination into family assistance.

There is no clear way out of the welfare mess in the foreseeable future; only more complexity, less adequacy, increased child poverty and less ability to cope with recessionary influences in the labour market. (http://www.cpag.org.nz/assets/Backgrounders/Escaping%20the%20Welfare%20Mess.pdf)

If it takes 64 pages to explain and summarise the history of our complex welfare system, there is something really wrong. I don’t pretend to understand it all. What I do understand is that we need a tax and welfare system suitable for the 21st century. This must include a Universal Basic Income whose forerunner must be a series of Citizens Dividends and a tax system favourable to job creation rather than land speculation.

In an economy where everyone has sufficient and there are jobs for all there will be virtually no need for government support programmes. The Social Welfare budget for 2013 was $22.4 billion out of a total government spending of $82 billion. So Social Welfare was more than a quarter of government spending!

The patchwork solutions are now requiring $1.5 billion upgrade of the IRD computer systems and that must surely ring alarm bells.

 

ACC’s profit and its purpose

Last night we were treated to an outstanding Sunday interview on TV3. Top journalist Melanie Reid had finally managed to get complainant Bronwyn Pullar give an interview, and it was revealed what we all in our bones knew. ACC has for years been trying to reduce its claims and it does this by going after and harrassing long term claimants. These people are the most vulnerable. While some accident victims will obviously try and wrought the system, the majority are genuine innocent victims of accidents. So I looked at their latest financial statements. After making losses of $2.4billion in 2007-8 and $4.8billion in 2008-2009, it reversed its position in 2009-2010 to make a surplus of $2.5 billion. Now this is up again. Chairman John Judge writes in his 2011 annual report "I can report that we have achieved a net surplus in excess of $3.5 billion as at 30 June 2011". They appear to have another figure as well called the actuarial release. The Annual reports said "As at 30 June 2011, ACC had achieved an actuarial release of $4.4 billion." I think that was the one quoted by Bronwyn Pullar, a huge sum indeed. The purpose of ACC is to compensate for those unfortunate enough to have accidents. Some accidents leave more permanent damage than others. It is clear they have the money to pay Bronwyn Pullar and to stop harrassing her and other genuine claimants. Looking at the composition of the board of ACC, I would say it appears to lack in victims of accidents and in community representatives. Board members have business experience and may be in danger of looking at ACC as a profit making company.  

Education, Health and Social Welfare

Education and Health and Social Welfare

Decentralise education, health and social welfare

These three categories account for the vast majority of government spending.

The best way to redistribute power from central government to local government is to allow health, education and possibly social welfare to devolve to local government. The health, education and welfare function at national level would be for servicing, research, and coordination.
1. People should receive benefits in their own right. When a woman is the secondary breadwinner in the household, she disappears in all of this.
New Zealand welfare entitlements are not based on individual but joint assessments. This system is having a negative impact on many families. It can undermine marriage or partnerships – separation in order to get a benefit. The system should be changed so that welfare entitlements are based on individual needs rather than household income.

2. The second idea is for a form of universal basic income in which all citizens over a certain age are entitled to receive from the state a certain fixed amount of income (financed out of general taxation) regardless of their employment status.
The Social Security Act 1964 should be repealed and a new system devised which provides an untaxed universal basic income sufficient for people with families to live on.
Implement, as Gareth Morgan has suggested, a state paid income for all adult New Zealanders.
This is called a Guaranteed Minimum Income, Basic Wage, Universal Income, National Dividend, etc, etc. Our version should be called a “Kiwi Dividend”. … The name “Kiwi Dividend” more correctly labels it as a payment made to all citizens as of right rather than as an act of charity.

(This section to be reviewed in the light of our policies on timebanking and the reciprocity principle in Nature).