Labour can’t win by being a neo-liberal lite version of National. The market economy fails and is failing and it is a mechanism that doesn’t let Labour help ordinary people because it simply doesn’t work that way.

Transformation is about changing the underlying assumptions and drivers in the economy.

For example, GST is a neo-liberal tax designed to shift the tax burden onto consumers/the demand side of the economy freeing the suppliers of good and services/supply side so they can invest in their business. It hasn’t worked because GST is extremely damaging to the economy.

Firstly, Keynes identified that the strength of the economy depends on the strength of the demand side. If you are heavily taxing the demand side you are taking away the revenue stream from businesses who are producing goods and services for the domestic economy. Small businesses in particular will struggle and the economy as a whole will slow. And presto, we see the effects of GST with New Zealand being stuck in a low wage, low growth economy (it’s really a low wealth distribution economy). And low tax rates for businesses but higher tax rates for individuals compound the problems that GST makes of stripping purchasing power out of the demand side of the economy.

Secondly, if the demand side is weakened, as GST does to consumer spending, then the financial incentives to produce a good and service as the path to wealth is weakened because the profits gained are weakened. Money then starts to look for another way to make wealth. And its done this. So the scarce investment capital starts running around looking for shares, bonds, land to invest in as secure wealth holding assets (that aren’t taxed).

Thirdly, GST also significantly undermines the ability of small firms, New Zealand based firms especially, to get a start because of how GST impacts demand. A quality locally produced good or service will tend to cost more, so GST as a percentage will have a greater dollar impact on a quality good or service in pushing it higher in price compared to a cheaper/inferior good or service. People see the higher dollar impact, not the % equality, because it pushes up their opportunity cost. This creates a comparative advantage for low quality and that often comes from overseas imports. And low quality just fills up our dumps with plastic poison. GST is damaging the ability of local innovators to sell domestically and get a start.

Fourthly, when the demand side of the economy/consumers have money they tend to spend locally. So removing GST should encourage local spending and smaller local businesses should benefit. The internet purchasing makes this a little harder, but again we can take actions on that when imports arrive. At cost handling charges could be applied to imports (checking for drugs and bio-security could be significantly beefed up and the costs fully passed onto these importing consumers) these charges are not tariffs but they could significantly impact the cost of those choosing to import directly over the internet. There are some other challenges but it’s a start.

Fifthly, and of course GST is a regressive tax. Get rid of it.

TDB Recommends

This loss of GST revenue can be recovered through raising existing tax rates, or the options I have previously outlined of taxing gross income and defining income in legislation for a non-individual as simply income that ‘comes in’. I have discussed the exceptions previously. This in effect taxes capital gains to non-individuals.

Government needs money, the costs of climate change, our need for better sewerage treatment, for better drinking water. The impacts are huge. Is it really too late to retrace the decision not to have a wealth tax? It gives a real point of difference to National (but there were better tax options anyway).

Labour needs to stop using private enterprise services to deliver public services. Private enterprise has introduced some excessive salary expectations and the cost of providing a profit for the private sector is driving up costs. That cost of profit is rippling throughout the economy. For example, we need to remember the old electricity boards for years and years ran the electricity grid very efficiently on fairly low public sector salaries..

And National are hysterical in their reckless promises. National’s policies on restoring interest deductability for rental landlords will re-inflate the housing market as a secure investment. Gone will be any chance of affordable housing. Scarce investment capital will be take away from start ups.

If National can promise massive spending Labour can to. (Not that stunningly stupid light rail idea. Use the existing heavy rail systems and build huge amounts of government state housing around exisiting rail infrastructure. Even overseas young commentators on You Tube who love rail are saying the light rail in Auckland looks ill considered and trying to do too many things. Far cheaper as well to use existing).

Leave a Comment