With child poverty a major political embarrassment it is time to examine causes and propose solutions. Not only are there 146,000 people out of work in New Zealand but the working poor are really feeling the pinch. Many part-time workers want full time work.So it isn’t any surprise that even the National Government has realised that it is important to make some effort to feed hungry school children. Schools are the perfect indicator of the state of household wellbeing in this country. No measure proposed so far will get at the root cause. Nurses in schools won't give families sufficient purchasing power to feed and clothe their children. Raising tax rates of those on high incomes won’t do it either. Nor will legislating for a minimum income. So let's look at the family budget spelt out in the Dominion Post Sat 1 June. The family was a real Porirua family with three school aged children. The income was two benefits plus accommodation supplement plus family tax credit, which brought in a total of $685.29. The itemised expenditure tallied $752.69, leaving a weekly shortfall of $67.40. There was no tobacco, alcohol or gambling listed in their expenses. Expenditure was $180 for food, $300 for rent. There was also a weekly payment of $80 for a car loan, and presumably this was for both capital and interest repayment. Now let's analyse the family’s expenditure in terms of taxes and interest. For decades we have lived with income tax and assumed it is fair and normal to tax income. Since Roger Douglas introduced it we have also taxed spending in the form of GST, now at 15%. I don’t know how long we have taxed enterprise but our company tax is projected to bring in $10 billion in the 2014 year. So income tax, GST and company tax now comprise over 79% of our Government revenue. Yet we completely fail to tax the use of the commons for private purposes – “the commons” being defined as that which is given to us by Nature. Such resource rentals should include all private land and all commercial operations requiring the use of part of a natural resource e.g. aquifers, forests, fisheries. It includes minerals, oil, coal, gas, waveband spectrums and of course the 49% of Mighty River Power which is now in private hands and the proportion of any port or airport which has been sold off. The potential for gathering resource rent is significant. This means taxing us for the use of residential land, valued by various reports at approximately $300 billion. Numerous tax reviews have recommended taxing land, but no government has adopted their recommendations, largely because the banks have sewn up all possible security on land. Since land will always be there (give or take an earthquake and a subsidence or two), banks want it as their security on their loans. And so government has to have the second best security – the labour of the people. Banks oppose any proposal to tax land. 98% of our money supply is created when banks issue loans. With most of the population blithely unaware, we allow private banks to create our money as interest bearing debt. When a farmer or a manufacturer has to borrow from a bank at interest, that interest is inevitably built into the cost of every item they sell. Secondly when a bank creates a loan, it creates the principal but not the interest. So everyone has to compete to earn enough interest to pay the bank. Because there is never enough money in the system to pay back all the loans with interest at the same time, someone has to go back for further loans. The Porirua family is a case in point. If their budget remains the same, they will have to borrow $67 every week to keep afloat, and pay interest on that. Unless WINZ issues them with another loan, the loans sharks with their exhorbitant interest rates will be circling. So where is this all coming through in prices? Well the landlord is paying interest on his or her mortgage and paying tax on income derived from rent, as well as GST on all landlord related expenses. If he or she buys a heat pump, carpet or curtains, GST is in the price. When the landlord employs a painter the wages have to be large enough to allow for income tax. The Porirua family’s meagre food bill includes 15% GST. The electricity, petrol, vehicle maintenance, vehicle registration and clothing bills all contain GST. Each of these items also contain a labour input. The mechanic had to pay income tax so calculates the charge-out rate to allow for this. Each of the items listed also contains an interest input. For example, the clothing factory may have borrowed from a bank for capital and the selling price of clothes allows for the interest the firm has to pay the bank. We are talking here about purchasing power. My granddaughter says she can easily live on $90 a week in Mexico because prices are low. It is wages relative to prices that is important for purchasing power. According to Matt McCarten (on Q&A 2 June), real wages in the last 20 years have gone down 30%. It doesn’t matter how cheap an item is if you have only a few cents to use as payment. Purchasing power is a better indicator of wellbeing than inflation What this means is that until we change our tax system and return the money-creating privilege back to the people where it belongs we will continue to scratch our heads about hungry children and the growing number of people who can’t make ends meet no matter how hard they try. As you can see, both reforms will have to go together, because no government is going to tax land while the banks have this monopoly on land. While we live with the private creation of money, we won’t be able to tax land rather than labour, sales and enterprise. I am not suggesting the sum of resource rentals should raise all government revenue required. We would still need excise taxes and a Financial Transaction Tax. It’s just that once we face the money issue we can then face the tax issue and liberate purchasing power of the nation so that all may have enough to feed their children while labour is encouraged and enterprise is unleashed.
Today we heard the greenhouse gas emissions had risen by 5.9% in 2010. The world is on track for an 11 degree F rise in temperature and this came from the normally conservative Fatih Birol of the International Energy Agency. He had quite recently stated "We need to leave oil before it leaves us." Something will have to happen quickly or else it will become completely irreversible.
Meanwhile our Treasury has of course stated that it has to revise the preelection forecast for economic growth, which, as I pointed out before, was predicated on three inaccurate assumptions. As I was gardening today I wondered how they managed to get it SO WRONG. Anyone with a brain who was following the developments in the Eurogeddon crisis could see there would be no smooth resolution of the debt crisis there. You can't solve debt with more debt, it just puts off the day of reckoning. And they assumed the price of West Texas oil would not go beyond $93 a barrel by 2016. Well I looked at the trend of that and it has already been beyond $93 but has dropped back. It is the lowest of the three types of oil quoted in our paper every day. On 2 Dec it was $100 a barrel and Dubai, which is the oil we rely on, was $106. As for growth of our trading partners, forget it. I don't know why we pay these Treasury officials so highly if they are so stupid.
This week five people from Transition Town Lower Hutt put out a warning on the Euro crisis and suggested planning for a crisis by having a store of food, money and water. Sensible people all of them. Robin Westenra does a wonderful blog.
But good news. Today we heard from two people in Nelson who want to start our first branch there so we put them in touch with each other! And some really good people have now joined including a well respected environmental economist.
I received a letter back from the Minister of Defence last Friday saying no they had not received any information on the security implications if ur oil supply is disrupted. He referred me to the Defence White Paper 2010 on www.defence.govt.nz. I haven't had time to read it all, but once again I despair if our Minister of Defence and his officials don't read the military reports put out in Germany and in US on the implications of oil supply for defence. Maybe there is a frustrated official somewhere in the Ministry of Defence. A job for someone?
So we await the Merkosy solution to the Europe debt issue