New Zealand: A strategic vision for unions under Ardern's Labour-led government
They have also accepted a commitment to run surplus budgets in most circumstances to repay the accumulated debt when these debt levels are actually very low by any international measure. Budget surpluses require a Government to collect more tax than it spends – which inevitably depresses economic activity rather than stimulates it. That does not mean that I think governments in a capitalist economy can spend what they like or can prevent economic crises – but that is another story.
I intend to look at four areas of Government action or inaction to illustrate my argument. These are the promised increase in the minimum wage, poverty reduction and welfare support, plans for a new prison and housing.
The planned increase in the minimum wage
The Government has made a number of promises in the industrial relations area that could empower workers more. These include “fair pay agreements” that will cover whole industries and an effective implementation of “equal pay” measures in industries where female employment dominates. We don't have the detail of these yet so I will focus on the one promise that they have begun to implement – increasing the minimum wage to $20 an hour by April 2021.
It seems this promise was forced on the Labour Party by their coalition partner New Zealand First. Labour had promised a 75 cents increase in their first year and then a progressive implementation of the goal of 66% of the average wage "as economic conditions permit". New Zealand First had promised $20 in three years and the compromise was $20 in four. This will involve a significant real increase in wages for hundreds of thousands of workers in this country.
Employers will be screaming. Every time there is a bump in unemployment as a consequence of capitalism's business cycles, the increase will be blamed on the minimum wage lift. This is an increase of 27% from the current level of $15.75. The first increase was on April 1, 2018, to reach $16.50 an hour to be followed by at least annual increases of over $1 an hour each year for the next three years. My guess is they will do $1 in 2019, then two increases of $1.25 over the following two years.
The average wage increased by 8.8% in the four years to March 2017. If we apply a similar increase through to March 2021 then the average wage will reach $32.53. With a minimum wage of $20 at that time it will be equal to 61.5% of the average wage. This will be a significant step forward towards the goal of the Council of Trade Unions to make the minimum wage two-thirds of the average wage. This percentage would equal today’s Living Wage number of $20.20 an hour. Making the Living Wage the minimum wage is a realistic and achievable goal when we reach $20 an hour on April 1, 2021. Currently over 500,000 workers earn between the minimum wage and the Living Wage and stand to benefit from such an increase directly.
Internationally, minimum wages are usually between 30% and 50% of the average wage. (https://stats.oecd.org/Index.aspx?DataSetCode=MIN2AVE). But, in New Zealand, the minimum wage has been up to 80% of the average wage just after World War II and was two-thirds (for adult males at least) as late as the mid-1970s. During the nine years of the 1990-99 National government, there was only one increase in the adult minimum wage and the real value of the minimum wage dropped from about 50% to 40% of the average wage. No minimum wage applied to workers under 20 until 1994 when one was established for 16-19 year-olds at 60% of the adult rate.
Then Labour lifted the rates from 1999 to 2008 to restore the level to 50% of the average wage before leaving office. Just as importantly, the application of a youth rate was progressively eliminated by increasing the percentage and dropping the age, first to 18 and then 16. This process was in part a product of the ongoing campaign by Unite Union and others to lift wages and end youth rates in the fast food industry through the SupersizeMyPay.Com campaign.
When it was elected in 2008, we did not know what the National-led government was going to do. During the election campaign in 2008, Unite Union launched our own campaign for an immediate lift of the minimum wage from $12 to $15 an hour. When National took office, they faced a massive public education campaign and petition. We collected 200,000 signatures! We had stalls, banners, speakouts at every festival, sports game and community event over the course of the year following the election. Opinion polls showed two out of three people supported us. We were front page news in daily newspapers.
I don't know if Unite's campaign was necessary or not to make National continue with annual minimum wage increases, but I am absolutely sure that the size of the increases was bigger than would have been the case without the campaign. At the very least, the value of the minimum wage would have fallen rather than risen. There was even some grumbling behind the scenes from some bosses friendly to the Party about their “socialist” policies. However, a youth rate at 80% of the adult rate was restored for 16 and 17-year-olds but restricted to the first six months of their employment in most cases.
Answering right-wing dogmas against increasing the minimum wage
Bosses and their paid servants in the so-called economics “profession” are already screaming about the proposed minimum wage hike. Most of their objections amount to the repetition of dogma which they want us to believe is some sort of science. They simply repeat claims that any increase in price will reduce demand and therefore any minimum wage increase will increase unemployment. Usually, very few facts are ever advanced to support their views. I want to look at what actually happened in New Zealand when we had a similar percentage minimum wage rise over a similar period, from 2004 to 2008. As unwelcome as they are to Rightwing dogmatists, let’s look at some facts.
Labour was elected in 1999 with the adult minimum wage at $7 per hour and a youth rate of $4.20 per hour applying to those under 20. There were some modest increases for the next few years and the youth rate was increased initially to 80% of the adult rate while the age of eligibility reduced to apply only to those under 18. In 2004, the adult rate was $9 per hour and the youth rate $7.20.
This was increased to $12 and $9.60 over the next four years – an increase of 33%. Inflation during that period was 12.5%, so there was an increase in the real value of the minimum wage. There was also an increase in its relative value: rising from 45.4% to 50.6% of the average wage. When it reached this level, then-Prime Minister Helen Clark said she was "comfortable" with the level reached and would seek to maintain it at that level rather than increase it.
The agreement to lift the level to $20 by April 2021 will increase the adult rate by 27% – a bit less than the 33% increase from 2004 to 2008. The Rightwing commentators at that time predicted doom and gloom but were proved wrong by reality itself. Here are some other economic statistics for the same period as the 33% increase in the minimum wage – April 2004 to April 2008.
- The unemployment rate declined from 4.7% to 4.2%.
- The Labour force participation rate increased from 66.7% to 67.7%
- Youth unemployment and participation rates were almost unchanged.
- Inflation averaged 3% a year while the minimum wage increase averaged over 8% a year.
Some of the biggest increases in the minimum wage occurred for young workers. In 2001, 18- and 19-year-olds were put on the adult rate. By 2005 their rate had more than doubled from $4.55 an hour to $9.50 an hour. The increase for 16 & 17-year-olds was from $5.40 to $7.60 – a respectable 41%. Were young people priced out of the labour market as the dogmatists assured us would happen? No, in fact, the opposite happened. Employment for this group increased overall and unemployment dropped.
According to the Household Labour Force Survey, during that period from the March quarter 2001 to the March quarter 2005, employment of 15-19-year-olds increased from 120,600 to 140,600; unemployment declined from 26,300 to 23,800 and the unemployment rate declined from 18.7% to 14.5%. The overall labour force participation rate for 15-19-year-olds increased from 51.2 to 54.3%. Rightwing commentators at the time simply changed course and argued that the minimum wage was too high for young people because it was encouraging them to go and get jobs rather than continue in further education!
This argument was repeated in a Treasury document released at the end of February 2018 which also "warned" that having a high minimum wage relative to Australia will discourage young people leaving New Zealand to find work there. I am not sure what the danger is in having young people stay in New Zealand rather than give up and go to Australia! (See: “Don't Ditch The Youth Rate, Labour Warned By Treasury”, 26/2/18, https://www.stuff.co.nz/business/101746361/labour-warned-if-economy-turns-minimum-wage-plans-will-hit-the-young-and-unskilled).
These facts will not prevent dogmatists like those who write for the extreme Rightwing economic think tanks from predicting more doom and gloom. The New Zealand Initiative (https://nzinitiative.org.nz/) is the most prominent think tank in New Zealand advocating these views.The economic principles these groups espouse derive from a fundamentalist brand of economic thought that actually opposes any minimum wage as an interference with the free market. The free market, in their view of the world, has an extraordinary ability to only deliver positive outcomes at all times – so long as governments and trade unions don’t interfere. The Act Party is their ideological advocate in Parliament.
This is a religion not a science
Their views should be treated with the same respect that is given to Brian Tamaki’s views on sexuality – they are nothing but ignorant bigots. The economists only differ from Brian Tamaki because they have a degree conferred on them by other ignorant bigots who run the academic economics “profession” worldwide. When the media report their comments, it should come with a health warning: “The New Zealand Institute does not use facts to support their argument – they appeal to a god called ‘the market’ to justify their views”.
Take a look at this rather typical article by the New Zealand Initiative’s Roger Partridge in the NBR attacking the planned minimum wage hike headed “Magical Thinking Doesn’t Lift Wages” (3/11/17, https://www.nbr.co.nz/opinion/magical-thinking-doesnt-lift-wages). “It is magical thinking to believe that we can make the poor better off by simply legislating substantial increases in the minimum wage”. Really? What about 2004-08 in New Zealand? The writer does not need to point to a real-life example. His proof comes next: “Labour markets work like other markets. Put up the price and demand will decrease”. That is not proof. That is dogma!
Roger Partridge then quotes Eric Crampton, another dogmatist from his own Institute, for further proof. Crampton doesn’t actually quote any facts, either; he simply quotes the estimates done by the Ministry of Business, Innovation and Employment (MBIE), the Government Ministry responsible for preparing reports over possible economic impacts of minimum wage rises.
The problem with the MBIE estimates is that they are done by economists trained in the same religious dogma; consequently, they predict automatic increases in unemployment for each additional increase in the minimum wage. Here is a typical MBIE comment which I cite in an earlier discussion of minimum wage rises entitled “Exposing Rightwing Lies” as follows: (https://d3n8a8pro7vhmx.cloudfront.net/uniteunion/pages/239/attachments/original/1521498305/Exposing_right_wing_lies_on_the_minimum_wage.pdf?1521498305):
“The estimates of constraint on job growth are based on a neo-classical model of firm decision-making, whereby firms operating in perfectly competitive markets adjust output and inputs, including labour, in response to relative prices. This modelling approach does not adequately reflect the dynamic nature of employment responses to changes in minimum wages, and, in particular, any investments that employers may make to increase the productivity of low paid workers. One consideration for the impact on the demand for low wage workers is how minimum wages change relative to average wages. If minimum wages keep pace with average wages then we would expect to see little change in the relative demand for low wage workers or low wage jobs”.
The problem is that the “neo-classical model” has blown up all over the world and not many major institutions that have defended it for decades even pretend to believe in it anymore. Despite being repudiated by facts, the opponents of the minimum wage rise being proposed will continue to desperately blame any problem in the economy on the increase. Similarly, the continuing problems around youth employment will be blamed on the planned abolition of a separate lower youth or training rate.
As I commented in “Exposing Rightwing Lies”: “Instead of using a model for an economy that does not exist, we can use the actual changes that have occurred in New Zealand”. New Zealand already has one of the highest minimum wages relative to the average wage in the Organisation for Economic Cooperation and Development (OECD) – the club of the most advanced capitalist countries. Yet we actually have one of the lowest official unemployment rates. We have pushed further in the past on the minimum wage; for example, in the early to mid-1970s under a previous Labour government, the minimum wage was 66% of the average wage yet unemployment was lower than today.
Reaching $20 an hour by April 2021 will actually take us much closer to our goal of a living wage equal to the Living Wage, which is around 66% of the average wage. That is why it is dangerous for some Leftwing commentators to simply dismiss the increases planned as being of no significance. An example of this is my friend Daphna Whitmore on Redline (31/10/17, https://rdln.wordpress.com/2017/10/31/a-living-wage-time-to-shift-the-boundaries-and-think-global/).She dismisses the minimum wage rise as “not a seismic shift”.
She continues: “The minimum wage has risen every year for over a decade, mostly pushed by union and community campaigns for a Living Wage. Despite talk of the new coalition (Government) being a ‘change Government’, the Labour [Party]-led team will have boosted the lowest-paid workers a mere 25 cents an hour more than the National government likely would have. The Living Wage remains, as ever, postponed. If by 2021 the minimum wage is $20 an hour, it is unlikely to be a Living Wage with costs rising in the interim”. In my view, this is an example of the unhelpful “glass half empty” analysis which seeks to always minimises any progress. Facts are useful sometimes – even for Leftwing commentators.
Victory for minimum wage campaigners
The minimum wage has actually been increased every year for 18 years. The increases have taken it from 40% of the average wage to 53% today. This was a victory for campaigns like those run by the Unite Union and others. By 2021, I estimate that the minimum wage will have gone from 53% of the average wage to 61.5% of the average wage. Rather than "postponing" the Living Wage, this will bring us within sight.
The Living Wage calculation today is approximately 66% of the average wage. The Living Wage is also being implemented immediately by the new Government for all directly-employed staff and then for contractors to the Government in the future. This is also significant. It is not being "postponed". Because it is a significant change that will make a real difference in the lives of hundreds of thousands of workers, this will continue to be a contested area for the class struggle. Ignorance won't help our side win.
The planned minimum wage increases also allow the unions to bank those gains and focus their attention on other improvements that are necessary for workers. One important area for improvement is the need to restore margins for skill and service that have been undermined in the last few decades in part, ironically, because of the past success in increasing the minimum wage.
As I explained earlier, the starting rates in many agreements are tied to minimum wage increases. We already have situations where whole industries are now based on paying the minimum wage and not much more. The security industry, for example, has been turned into a minimum wage industry with very little recognition of skill and service as workers were caught between a rising minimum wage and a contracting-out model that drove wages down toward the legal minimum and no more. For example, the guards we see outside the Work and Income NZ (WINZ) offices are usually on the minimum wage when they are often very well trained and have years of service.
The new Government has also promised to quickly make all directly employed staff on at least the Living Wage and in time, contract staff as well. This could have a good impact in industries like security in terms of lifting the base rates at least. But rewards for service and skill would remain a challenge. Even in industries with union-negotiated agreements we have sometimes not protected those margins as well as we should have. Because the minimum wage has generally been increasing faster than the Consumer Price Index we have sometimes done agreements that have compressed margins by just increasing the rates in the agreement by the cents increase in the minimum wage rather than the percentage increase in the minimum wage.
In case anyone thinks I am pointing the finger elsewhere, this has been true for some collective agreements negotiated by Unite as well. It is certainly true in the cinema industry which Unite has negotiated agreements for over the last 10-15 years. We often fought for the recognition of skill and service with steps above the minimum wage in our first agreements but the dollar value of these has often stagnated over the years rather than increasing in the same percentage terms as the minimum wage. That is why we have pledged to improve the rates above minimum wage in our 2018 negotiations.
There is actually an economy-wide problem. A study by Council of Trade Unions (CTU) economist Bill Rosenberg found that rates just above the minimum wage have not been increasing at the same rate as those on the minimum wage for some years. This actually creates problems in the labour “market” for maintaining the incentive to remain in a job and to upskill. There is truth in the complaints by employers that they can’t get the skilled labour they need because they have compressed wages so much there is little incentive to gain the skills.
There actually needs to be a periodic “shortage” of skilled labour for the labour market to restore the margins for skills so workers will make the investment in time and money to upskill (see the CTU’s “Shrinking Portions To Low And Middle‐Income Earners: Inequality In Wages & Self‐Employment 1998‐2015”, August 2017, https://www.union.org.nz/wp-content/uploads/2017/08/Inequality-Wages-Self-Employment-1998-2015.pdf).
Bosses have used the large importation of migrant labour to get around this problem in recent years. The dependent migrant workers were often willing to do skilled work for less than workers with full rights because they desperately wanted to be able to transition to permanent residence. I am convinced that all workers on so-called “temporary visas” must have the same rights as residents to change jobs. This would weaken the dependency on their employer and give them similar bargaining power as citizens or permanent residents to try to get the full value of their labour power.
For a living wage plus restoring margins for skills and service
2018 will see Unite Union campaigning to rewrite all new collective agreements to ensure that all workers benefit from the planned increases in the minimum wage. Unions must immediately set themselves the target of closing the gap between the start rates and the Living Wage in their collective agreements by 2021. In some collective agreements where we have had some strength, we negotiated pay increases that included the minimum wage "plus". At the collective agreement negotiations with McDonald's in 2017, for example, they agreed to increase the start rate by ten cents above the minimum wage for each of the three years from 2017 to 2019. The contract we negotiate that year should aim to completely close that gap with the Living Wage by 2021.
Another goal of the unions today must be the reestablishment of overtime rates for work over eight hours a day or 40 hours a week. Most other advanced capitalist country have overtime for excessive hours – even workers in the US have this right. And we have one more battle to win around security of hours. First, we won a fight against zero hours contracts. In 2017 we moved forward to ensure most workers have 100% guaranteed hours from week to week. But some companies are trying to slip out of this as well. But we need to move forward to the right to fulltime work as an option in all workplaces rather than having companies rely on most of their staff only having access to part-time hours.
These are big challenges
Employers will get more and more creative about how they can get more unpaid work out of people. We already have some employers doing staff meetings before work and claiming they are unpaid because they are “voluntary”. Using and abusing more vulnerable workers like migrants hoping to get permanent residence will continue. Discrimination on the grounds of race and sex will remain challenges.
Capitalism exists as a system of profit extraction. Profit comes from the surplus gained between what a capitalist pays a worker and what they are able to sell the products of their labour for. Reducing the value of labour power directly through wage cuts or wage theft, or indirectly by raising the intensity of work, will continue and must be resisted. That is the class struggle. That struggle will continue until we have got rid of this archaic system and founded one based on solidarity and equality.
Until then, the battle continues. But people who claim to speak for working people, union leaders or political parties, need to be much more ambitious. Rather than just protecting what we have, unions must raise our sights to achieve real gains today. We must:
- Make the Living Wage the start rate for all collective agreements by at least 2021.
- Restore margins for skill and service.
- Re-establish time and a half rates for all overtime hours
- Re-establish the right to fulltime work for those who want it.
We also have a duty to go beyond what is being promised to ensure that all workers will be able to achieve a Living Wage. The official policy of the Council of Trade unions and the Labour Party is to increase the minimum wage to two-thirds of the average wage. Coincidentally this is also the calculation for the Living Wage in New Zealand. On current calculations, the Living Wage is $20.20 an hour or 66% of the average wage. By 2021 the Living Wage number should be about $21.50. Making the minimum wage a Living Wage is within reach. A campaign for that objective needs to start now. We should also ensure that any Government elected in 2020 is committed to continuing to increase the minimum wage to 66% of the average wage.
Poverty and inequality won’t be challenged by Tax Working Group
Statistics NZ recently released the National Accounts for the year to March 2017, which revealed that working people are receiving only 48.7% of the national pie compared to a peak of 58.7% in 1981. The value of this decline in today’s dollars is $11,500 a year for every one of the two million wage and salaried workers in the country. Most of this decline happened in the late 1980s and early 1990s under both Labour and National governments. During this period, for the first time since the 1930s’ Depression, unemployment re-emerged as a social scourge. Official rates went from almost nothing to hit 10% in the early 1990s and then have rarely ever again fallen below 4%.
Real wages were driven down by around a quarter and they have not been fully recovered since. Union membership went from two-thirds of the workforce to 20%. Private sector membership dropped from around half to less than 10%. Workforce protections like overtime rates after 40 hours a week disappeared for most workers. Zero hours contracts and other forms of precarious labour conditions became endemic.
The real value of benefits was slashed by up to 25% and has continued to decline as a percentage of the average wage because the level has only ever been increased by the Consumer Price Index (CPI) over the last 30 years which has been less than the average wage movement. A few years ago, the Maori Party helped National put the knife in a little bit further by supporting the decision to remove the impact of the cost increases imposed by taxes on the price of cigarettes from the CPI calculation.
This simply reduced the already small increases by a bit more. No one explained how cutting the real value of benefits for all beneficiaries helped anyone give up smoking. Overall, these policies have seen the basic benefit levels fall from around 40% of the average wage to 25%. The poverty produced by this cut is real and felt and can’t be discounted as simply the result of a “relative” decline.
National Superannuation was cut from 80% of the average wage to 72% but kept at that level since, unlike other beneficiaries since the Superannuation rate is linked to the average wage. Raising the age of eligibility from 60 to 65 also radically reduced its overall cost to the Government, however. Official rates of child poverty doubled to 20% and have stayed at that level ever since. The inequality statistics also grew rapidly in the late 1980s and early 1990s and have not improved since.
At that time, the top rate of income tax was cut from 66% to 33% and the massively unfair flat tax GST was introduced and then progressively increased to its current level of 15%. Inheritance tax, which targetted the very wealthy was abolished. Most forms of capital gains tax were eliminated. Corporate taxes were cut. Taxes on dividends were cut.
Working people on an average wage or less in New Zealand pay around a third of their income in tax of one sort or another.
The wealthier you are, the less tax you pay
The top 1% treat tax as a voluntary activity. Official IRD data show that less than half of the people with $50 million in wealth pay the top marginal tax rate for declared income. The whole tax system is radically unfair. It has been designed to shift wealth from working people to the rich and entrench that inequality. The widespread poverty amongst working people in and out of employment and the associated and growing homelessness was barely touched during the period of the last Labour-led government. Unions were weaker after nine years, not stronger.
We cannot allow that to happen again. One of the worst things that was done by the last Labour government was to maintain the unequal position for parents in work or those not in work in terms of child support payments. This was simply a vindictive creation of an artificial difference between the “deserving” and “undeserving” poor. It was also during the last few years of the 1999-2008 Labour-led government that WINZ radically reduced the percentage of people receiving welfare support from the State.
People receiving a benefit as a percentage of the working age population fell from 13% to 8% when unemployment only fell on average from 8% to 6%. I am convinced the big growth in homelessness since 2008 is directly related to that policy of excluding people from even their minimal entitlements. Getting that 3% of the working-age population (about 110,000 people) off benefits essentially has just removed about a billion dollars a year from working-class communities.
It is reflected in overcrowded homes, people living in garages or on the street, kids staying at home longer, poor health, poor nutrition. That billion dollars saved isn't going to the likes of you and me. It is being used by a big business-friendly Government to hand out favours to their friends. And of course, there is always enough for the police, prisons, military and spies to protect their system.
That is why it is extraordinarily disappointing to find out that the Tax Working Group parameters include – no discussion of GST rates, no discussion of an inheritance tax, no discussion of increased income taxes for the rich, no discussion of taxes on wealth. It seems the only thing it can do is look at forms of capital gains or land taxes. This can and should be part of a progressive tax reform but it will not be enough to tackle the accumulated problems associated with the entrenched poverty and inequality in this society.
We need wealth taxes. If two-thirds of people with wealth of $50 million or more can't make more than $70,000 a year in taxable income, the tax system should encourage them to make more productive use of it or give it to someone else who can. That is what wealth taxes are for. And we need an inheritance tax to catch all those people who successfully evaded taxes all their lives when they die. We could at least be looking at Financial Transaction Taxes rather than GST. One proposal I read recently that is worth considering is a tax rate of 70% on income over $200,000 and no tax on the first $20,000. All forms of income should be treated the same as wage income for tax purposes – including capital gains and dividends.
Transnationals operating in this country should have a tax assessed by IRD and imposed on them. If they think the assessed rate is unfair they can open their books to inspection if they want to appeal. Accountancy firms that facilitate tax avoidance like that revealed in the Panama Papers and most recently the Paradise Papers should be made criminally liable as well and prosecuted. There are many ways of making the rich pay if there is a will to do so. The Tax Working Group could have looked at the whole tax system and proposed a tax policy for the next election that would have significantly increased taxes on the rich and reduced taxes on the big majority. That tax policy would have been a winner in the 2020 election.
Take back ACC’s $30 billion in stolen taxes
The decision by the Parties making up this Government, Labour, NZ First and the Greens, to adhere to a position of “fiscal responsibility” means that there will not be any new taxes imposed on the very wealthy for at least three years. The Government is also committed to steadily paying off the existing Government debt. This means that the money available to the Government to spend is not that much different to what would have been available to the previous National government. This means that if we accept their parameters there is very little that can be done to fundamentally change the inequality and injustices that abound. But we don't need to accept their limited ambition or vision.
Actually, there is money that could be taken and used to do a lot more than the Government has promised simply by taking over the ACC investment fund. The last time I looked there was over $30 billion in this fund and if confiscated by the Government it would give them enough money to do almost whatever they wanted. Given current Government expenditure of around $75 billion a year, this fund could increase Government expenditure by 10% overall each year for four years, or until a new tax plan was put in place to fund ongoing expenditure.
This fund was built up by taxing working people through higher and higher ACC levies over the last few decades as a prelude to the eventual privatisation of the fund. When ACC was established there was no fund needed to cover liabilities into the future. The system was deliberately established as a "pay as you go" system which meant this year's liabilities were paid out of this year's income. There is no risk that the Government will lose the ability to get revenue from taxation.
There was no need to change to the system we have unless you planned to sell ACC. In that situation, the private company needs to have reserves to cover potential liabilities like other insurance companies. That was the plan of the National Party in the past. That plan no longer exists. The fund does not need to exist. The money should be returned to the people or its representatives – the Government – so we can spend it on our needs. So, when someone says “we can’t afford it” – that is actually a lie.
Similarly, there is no need to resume funding the Superannuation Fund. The idea that future Government spending needs to be financed by a fund that is established by taxing people today is economically illiterate. Future Government expenditure can be fully financed by the income that is taxed in the future assuming modest productivity growth over these years.
If we are producing much more per person in the future then we can tax a bit more for expected expenditure growth for an ageing population. The only reason it was a potential "problem" was that Labour and National governments refused to tax the very wealthy in society to pay their fair share. All of the wealth created through economic growth and extra productivity was being captured by the one percent and hoarded here or overseas in forms that couldn't be taxed.
If a Government has a spare billion dollars or so to spend each year then the whole society would benefit from the improved productivity associated with ending functional illiteracy for many adults or ending the traffic gridlock in Auckland. The economic and social benefits of that type of spending would far outweigh the money the Super Fund is able to earn from investing in bonds, shares and money markets in New Zealand and overseas.
The Treasury mistake is an opportunity
So, the announcement by Treasury that due to an accounting error on their part that the Government targets for reducing child poverty will not be reached as soon as hoped should be seen as an opportunity to take more radical measures than already planned. The Government has announced goals to halve child poverty in three critical measures over the next decade. These are realistic and achievable targets that will be welcomed. However, it is wrong for the Government to delay the introduction of their boost to Working For Families (WFF) for a further five months until July 2018.
WFF is being underfunded by an estimated $700 million a year as a consequence of the steady decline in real value that occurred under the National government. The planned boost in July only restores $500 million of the cuts.
The Government also plans to increase the abatement rates from 20 to 25% after earning $42,700. A family earning $5,000 above the threshold could lose up to 84% of the additional income in taxes and abatements! At the very least, the increase in the abatement rate should be stopped.
Pay the full Working For Families Package to all low-income families
In particular, it is time to support the call by the Child Poverty Action Group (CPAG) and others for all beneficiaries to be eligible for the $72.40 a week “in-work tax credit”. This change could start immediately and would cost only another $500 million a year – exactly what is planned on being paid to the Super Fund. The exclusion of beneficiaries from accessing this benefit unless they worked at least 20 hours a week maintained an unjust distinction between the “deserving” and “undeserving” poor. If the beneficiary working 20 hours a week lost their job or their hours were cut they were doubly punished by the system by losing the “in-work” benefit. Extending the full entitlement of the WFF package to all low-income families would boost the incomes of 200,000 children in the worst poverty.
The Government’s goals of halving child poverty can’t actually be achieved without this change happening sooner or later. Discriminating against low income families not in work has been a festering sore that needs to be lanced. It was a product of the previous Labour government maintaining the “Third Way” ideology associated with Tony Blair and Bill Clinton that differentiated between the deserving and undeserving poor. It has no place under this Government and the commitments that have been made to halve child poverty in a decade.
It is good that the Government is moving to remove the sanctions imposed on mothers who did not name the father of the child for whatever reason. That should happen immediately. Why delay a day? We could then move to end the punitive systems associated with WINZ investigations and prosecutions against women who have started a relationship with a man and not declared it.
The best solution is to individualise all benefits and not deny a benefit to someone if they are married or live with someone who is working if they are unemployed. Thousands of families have been forced apart with a low wage father living in a separate household while Mum stays at a parent’s place with the kid or kids to give access to a benefit. These are simply practical choices many people have to make. Such a policy shift would also be a practical first step towards a Universal Basic Income for those who support that idea.
The Government is also making a small improvement in the real value of a beneficiary's income for the first time in decades by paying a "winter allowance" from May to September of $140 a month. This can be spent on anything. So, it is a real increase in the main benefit (including for those on National Super) of $450 a year. Finally, it is good that the Government has re-established a near-universal child allowance available for babies born on or after July 1, 2018, except those on paid parental leave. This will apply to all children without means testing for one year, then two more years for low and middle-income families.
We actually need to re-establish universal child allowances for all children. We used to have such a system in New Zealand for decades. After World War Two, when we were a much poorer society and families were larger, the value of the benefit was about $40 a child. You could also capitalise its’ value for 16 years to get a deposit for a home. Combining a benefit for all those not working, and a universal child allowance for all children would eliminate most of the coercive and bullying character of the benefits system. The cost can be taken from the rich and super-rich through targetting income and wealth taxes. It’s simple. And we can afford it. The system is broken. In the medium term, we need a return to universal entitlements that is recouped with taxes on high incomes and accumulated wealth.
Prisons: There must be a better alternative
The fact that half the prison population in New Zealand is Maori is simply a national scandal that must be ended. Many Maori are in prison for being poor ie unable to pay fines the wealthy have no trouble paying or victims of laws that shouldn’t be there in the first place, like those criminalising cannabis possession. It simply a fact that Maori are subject to racist discrimination at every stage of the so-called justice system. You are more likely to be stopped in the street if you are brown, more likely to be arrested once stopped, more likely to face more serious charges if prosecuted, more likely to have no legal representation if in court, more likely to be convicted, more likely to be imprisoned, more likely to receive a lengthy sentence.
Prison population numbers have increased by 364% over the last 30 years to over 10,000 today. New Zealand’s imprisonment rate at around 150 per 100,000 is the second highest in the wealthy advanced capitalist world and is second only to the super-star of imprisonment – the United States. Both Labour and National governments have spent taxpayers’ money in an endless bidding war when it comes to “law and order” policies.
Prison sentences have become almost mandatory for many offences, the length of imprisonment has got progressively longer, early release for good behaviour harder to get, without any evidence being provided that this made the community any safer. It has been made increasingly more difficult to obtain release on bail when arrested and more difficult to get an early release to reward good behaviour. There is almost no ability for prisoners to access mental health or addiction services in prison despite the admission from the Chief Executive of Corrections, Ray Smith, that, of the roughly 20,000 people going through prison each year, approximately 91% of them have alcohol or drug addictions, or mental health issues over their lifetime. The number entering prison with those issues is 61%.
Labour & National both responsible for prison surge
Everyone knows that access to family, health services, education and training, decent jobs has the best impact on preventing reoffending, so we seem to insist on creating a system of punishment that does the exact opposite. There have been two recent surges in imprisonment numbers. The first was under the Labour-led government from 2002-2007 under the “tough on crime – tough on the causes of crime” Justice Minister, Phil Goff. Goff led a rewrite of the law with the explicit purpose of increasing penalties and bail conditions. Briefing Papers warned that the changes would lead to an increase in the prison population and the need for more prisons.
Phil Goff was proud of his achievement as the following press release from March 2004 boasted that the numbers being imprisoned were increasing while crime rates were decreasing (“Tougher Laws Driving Up Prison Population”, 10/3/04, https://www.beehive.govt.nz/release/tougher-laws-driving-prison-population). I will quote this hideous statement in full to show just how appalling the value system of the last Labour-led government had become in this area:
“Tougher sentencing and parole laws enacted by the Government in 2002 will see New Zealand's prison population increase by over 20% in the next seven years, Justice Minister Phil Goff said today. ‘The Ministry of Justice's Annual Update of Forecasts of the Prison Population, released today, predicts there will be around 7,400 in jail in 2010, an increase of 1,300 on the 6,100 inmates in 2003’.
“‘The forecast says the predicted increase in the prison population is a reflection of legislative changes and a series of initiatives undertaken by this Government’, Mr Goff said. ‘As intended, the has resulted in longer sentences being imposed. At the same time, the Parole Act 2002 is expected to increase the proportion of sentences that inmates actually serve. Under the Bail Act 2000, more high-risk defendants are being denied bail’.
“‘The projected increase in the prison population is not the result of increasing crime. It comes at a time when New Zealand's crime rate, and total recorded crime, has dropped substantially from a peak in 1996. There has also been little change in the average seriousness of offences over that period, according to Ministry of Justice research’, Mr Goff said. ‘A record number of police, and a of over $1 billion, has resulted in increased crime resolution rates again last year (2003), and more people brought to court and sentenced for their crimes. The Government's Crime Reduction Strategy and Methamphetamine Action Plan have also resulted in more people facing prosecution’.
“‘The public referendum in 1999 showed New Zealanders wanted tougher measures taken against criminals, and the Government has acted on that. These figures are the proof. The forecast confirms that since the Sentencing Act 2002 came into force, the average sentences have increased across the board. We have also abolished the nonsense of serious violent offenders being automatically released at two thirds of their sentence’.
“‘New Zealand's worst offenders are also now receiving the harshest sentences ever handed down. Already this year (2004) two double murderers, Joseph Samoa and William Johansson, have been given life sentences with minimum non-parole periods of 22 years and 23 years; while last year William Bell received 33 years' non-parole for triple murder; and Bruce Howse was given 28 years' non-parole for murdering his two step children. Tougher sentencing comes at a high cost. Four new prisons under construction or planned will cost over $600 million in capital expenditure, with operating costs of over $120 million a year’.
“‘It's money, ideally, we'd much rather spend on areas like health and education. However, in the short term tougher sentencing is necessary to deal with serious recidivist offenders and to keep the community safe. Over the longer term, it will be measures to address the causes of crime, rather than simply prisons, which will bring down crime. Early intervention, which deals with anti-social behaviour at a young age, is ultimately a more effective and cheaper way to cut crime. Over the next two Budgets the Government will be increasing its efforts in this area’, Mr Goff said”.
The second surge in prison numbers came in 2015 after National reformed the bail laws. Again, Labour endorsed the bail law changes. The Bail Amendment Bill passed into law by 102 votes to 19. It was opposed by the Greens, the Maori Party, Mana and Brendan Horan (the latter three have all since disappeared from Parliament. Ed.). It was claimed the change would make the laws fairer and only increase the number in prison by 50 or so.
The actual increase was 1,500 over the next two years. Again, Maori were the big majority detained without bail. And one of the main reasons for being denied bail was not the nature of the offence but because they did not have accommodation outside of jail that was deemed "suitable". Being poor becomes a jailable offence in itself without the need for a trial or conviction first. National has also imposed so-called “double-bunking” to slow the prison building cost – at the price of degrading and violence-prone overcrowding. The Corrections Department is predicting the prison numbers to continue increasing to 12,000 by 2026 if there is no change in policy. A new 2000 bed prison was set for sign-off in April 2018.
The so-called free-market extremism carried out in New Zealand under the term “neo-liberalism” was also accompanied by a cruel and callous promotion of an attitude that “failures” should be abandoned to their fate. Failures were deemed to be anyone who lost their job, got into trouble with the law for using recreational drugs, had a baby without a proper partner. Academic literature actually shows that the greater inequality in a society the greater overall level of punishment is.
The new Government has signalled that it wants to "have a dialogue" about the high imprisonment rates. But it has a duty to simply reject the new prison as being a product of all that has been wrong in this area for decades. The billions it will cost will be better spent anywhere else. The union movement needs to take a lead on this issue. What Maori face is in many ways what all working-class people face from this system with an added twist of the knife
The Labour Government's Minister of Justice, Andrew Little, has been quite brave so far in at least questioning past dogmas in this area (“Andrew Little: ‘Longer Sentences, More Prisoners - It Doesn't Work And It Has To Stop’”, NZ Herald, 22/2/18, http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11999980). This is another area where we should be supporting the Government on the need for a genuine discussion. But action speaks louder than words and stopping the new prison would send the signal that a new way is genuinely being sought.
The new Government has stopped the planned privatisation of large parts of the State housing stock of around 70,000 homes. At least another 30,000 had been built but these were sold off in previous years. But the current stockpile hasn’t increased in decades. The State housing stock has been starved of support for decades and become simply the place of last resort for the destitute. Despite stopping further sales, housing remains one area where the Government remains committed to almost a completely market-based solution. For various reasons in this country, housing has become a speculative nightmare with prices beyond what working people can afford.
The new Government has promised tens of thousands of more private homes will be built for sale and that more of these houses will be “affordable” housing. But this seems like an empty dream unless there is a massive economic crisis and collapse in prices which would wipe out hundreds of billions of dollars of equity of NZ households and throw the country into an economic depression.
The problem the Government faces is that any form of subsidy to allow working people to buy a home is simply capitalised in the increased price of the home the day after it is bought. Builders of housing projects are actually property speculators looking to make a killing, not social service providers. Supervision of these projects is usually so slack that the “affordable houses" are simply sold on the side to friends and family to take advantage of the immediate speculative gain.
The only realistic answer is to begin the Government’s fundamental duty to provide housing to those most in need first and then extend that duty up the chain of need as fast as possible. That demands the immediate launching of a massive State house building programme with lifetime guarantees of tenancy at affordable rates. An initial goal of 10,000 a year is easily achievable with a determined effort.
Labour has promised only 1,000 more State houses a year and the Minister of Housing, Phil Twyford, has said he hopes to double that. That is almost a joke. The sad fact of things is that the Government could actually borrow and build State houses without breaching the “fiscal responsibility” rules because the State house becomes an asset in the Government's books.
We could also do a massive programme of community and marae house building that could create cooperative housing forms that guarantee tenancy for life. The home must be sold back to the community with only compensation for improvements made being given rather than profit from inflated land values because the land would remain in State, local council, marae or cooperative hands. Whole communities could be built so we no longer lived as isolated individuals but as part of a broader community with accessible community centres, sports facilities, schools, child care centres, local shops (not malls), parks and gardens, and areas for growing food.
In this way, the State could lead the building programme needed with quality housing being built but with modular patterns and economies of scale. Every unemployed Kiwi, including all school leavers, could be offered on-the-job trades training if they wanted it, and surplus labour could be recruited from overseas with the promise of permanent residence from day one to prevent exploitation.
The obsession with “owning your own home” does not exist in countries as wealthy as Germany because they have lifetime tenancies and any home build must be able to last three generations! The Government has a responsibility to provide everyone who needs one a sturdy, clean, sustainable home with tenure protected. The State does not have a duty to make sure everyone has an asset for speculative gain – or loss, as the case may be, under capitalism.
Capitalism has failed
There is a growing recognition that capitalism is at least a part of the problem we face in this society. First, we had Winston Peters comment (20/10/17, https://www.stuff.co.nz/national/politics/98084598/winston-peters-wants-todays-capitalism-to-regain-its-human-face) when he announced he was forming a Government with the Labour Party. He said: “Far too many New Zealanders have come to view today’s capitalism, not as their friend, but as their foe. And they are not all wrong. That is why we believe that capitalism must regain its responsible – its human face”.
Then the new Prime Minister and Labour Party Leader Jacinda Adern was asked directly if capitalism had failed low-income Kiwis she was unequivocal that it had (21/10/17, http://www.newshub.co.nz/home/election/2017/10/homelessness-proves-capitalism-is-a-blatant-failure-jacinda-ardern.html). “If you have hundreds of thousands of children living in homes without enough to survive, that’s a blatant failure. What else could you describe it as?” she said. Her alternative was to “acknowledge where the market has failed and where intervention is required.”
Then a Newshub poll found that two-thirds of New Zealanders agreed (31/10/17, http://www.newshub.co.nz/home/shows/2017/10/poll-has-capitalism-failed-or-succeeded.html) with their new Prime Minister and Deputy Prime Minister that capitalism had failed New Zealanders. Given the dominant views being propagated in the media by Government leaders, political and economic commentators, and Big Business-owned media has been the opposite of that view for decades, this has been a resounding failure for the orthodox view. The truth is that inequality has been growing, along with widespread poverty in the most advanced capitalist nations on Earth in Europe, North America, Japan and Australasia.
The UBS/PwC Billionaires Report (https://www.ubs.com/microsites/billionaires-report/en/new-value.html) has found that the wealth of 1,542 billionaires in the world rose another 17% in 2017 to $US6 trillion, or six thousand billion dollars (that’s $US6,000,000,000,000)! Joseph Stadler, the lead author of the report, is worried there will be a backlash against this concentration of wealth as has occurred in the past. He told the UK Guardian that: “Wealth concentration is as high as in 1905; this is something billionaires are concerned about. The problem is the power of interest on interest - that makes big money bigger - and the question is to what extent is that sustainable, and at what point will society intervene and strike back?”
The international aid agency Oxfam has found that (https://policy-practice.oxfam.org.uk/publications/an-economy-for-the-1-how-privilege-and-power-in-the-economy-drive-extreme-inequ-592643): "The global inequality crisis is reaching new extremes. The richest 1% now have more wealth than the rest of the world combined. Power and privilege are being used to skew the economic system to increase the gap between the richest and the rest. A global network of tax havens further enables the richest individuals to hide $US7.6 trillion. The fight against poverty will not be won until the inequality crisis is tackled". Millions of working people have felt the harsh truth of that reality, but it has not often found a political voice.
The system’s defenders have always argued that inequality and poverty that has been central to the reality of the capitalist system was some sort of mistake caused by interfering with the market, rather than caused by its natural laws. Just a few months ago, UK Prime Minister, Theresa May, was arguing that: “A free market economy, operating under the right rules and regulations, is the greatest agent of collective human progress ever created”.
She added that this system was “the only sustainable way of increasing the living standards of everyone in the country” (1/11/17, https://www.theguardian.com/books/2017/nov/01/marx-capital-and-the-madness-of-economic-reason-review). Those comments are religious dogma, not science. Millions of citizens of the UK used the 2017 election to repudiate her lies by voting for an Opposition Labour Party led by someone who speaks openly for a socialist alternative.
Even big bosses in the UK are getting worried at the failure of their own system. The Financial Times in the UK is a leading mouthpiece of Big Business. Talking among themselves they let slip the worries they have. On October 22, 2017, they printed the views of a number of business leaders also concerned at the failures of capitalism. Baroness Shriti Vadera of Santander UK contradicts the assertion of Theresa May and says that: “The underlying promise of Western capitalist economies — that a rising tide lifts all boats — has been broken”. She then adds that “A better model” is now needed.
The problem with all these commentators from Winston Peters to Baroness Vadera is that capitalism has not “lost its way” or its “human face”. Capitalism is actually showing us the inevitable outcome of its nature and its true face. Capitalism has been the dominant economic system on the planet for at least 150 years. It has produced extraordinary economic growth. For many decades one generation was generally better off than the next. But that has ceased to be true other than for China and possibly India today (for reasons we will discuss at another time).
Today working people in the most advanced capitalist countries are going backwards from one generation to the next for the first time in the system’s history – including periods of world war. The capitalist economic system is also based on endless growth. On average, the system has grown about 3% a year for 200 years. But today, that perpetual growth machine is suffocating the planet and, as it does so, it will destroy humanity’s ability to coexist with the planet for their own survival.
This is a life and death struggle
Capitalism exists as a competitive system. It produces winners and losers. Capital is concentrated and centralised. That is the source of monopolisation and the domination of the 1% - actually, to be more precise, the domination of the financial oligarchy comprising 0.001% of the population. This system cannot be regulated or controlled. It needs to be overthrown and a new system of production and distribution that is not based on the profit motive brought in to replace it.
We have a name for that system. It is called socialism. And this system, at least in theory, is becoming more and more popular around the world. Even in the United States where being a socialist is almost unlawful, some four out of ten people say they prefer socialism to capitalism (18/3/17, www.nationalreview.com/article/445882/socialism-polls-indicates-its-alarming-rise-public-opinion) .
Capitalists have controlled most businesses that exist in the world and they operate according to its laws. Capitalists own most of the newspapers which churn out daily propaganda defending the eternal nature of the system. They have entire professions devoted to furthering their needs and interests and explain why the laws of capitalism are almost God-given. Yet two out of three people in New Zealand thinks this system has failed. That is extraordinary.
We need to transform that “anti-capitalist” sentiment into a pro-socialist one. This can be done by developing a series of demands that seem reasonable and sensible but which lead to the transformation of society rather than trying to make the system work. The system does work. The problem for the system – capitalism – is that we don’t like it. We need a new system.
No one in the Labour-led government is actually saying that. The measures being proposed are relatively minor tinkering with the system. But small measures like the Government's policy for one year's free tertiary education is actually a repudiation of decades of market-based education policy. It opens a door to a discussion of why only one year, why not all tertiary education and why can't it be done immediately. I repeat – we can afford it now.
That is why people who do see the need for system change need to begin work on a programme of transformation. We need to develop a system of social measures that can deal with the daily crises working people face as well as point towards the new society of the future. At the moment there is no genuine Leftwing political alternative. But there are plenty of people within existing parties and not part of any party, participants in climate justice movements, fighters against gender and race discrimination, defenders of indigenous land and language rights – all of whom would be ready to have that discussion. We need ways to find each other collaborate on the biggest task facing humanity – survival.
Mike Treen is National Director of Unite Union.