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We knew this already, but its nice of the OECD and its Growing Unequal report to provide the concrete evidence. Yes, the social and economic rewards of the free market reforms of the 1980s were captured by the relative few, with disastrous social consequences for New Zealand. In fact, New Zealand was one of only two OECD countries where income inequality rose sharply between 1985 and 2005. We were also one of only a handful of OECD countries where the proportion of those living in poverty – as measured by those living on half of the median wage – also rose sharply during the same period. The entire Growing Unequal report can be found here and the notes on New Zealand are here.
Talk about useful timing. The OECD report also serves as a useful yardstick for the economic policies being touted by Labour and National at this year’s election. The links between poverty and crime are well known. So are the impacts of poverty on health outcomes and educational achievement. Obviously, if the free market reforms created greater inequality and poverty for the next 20 years at least, then plainly, voters should be baulking when much the same economic policies are being touted again, at this election. As Bob Dylan said long ago, what do we have to pay to get out of / going through all these things twice ?
Besides the big picture perspective, the OECD report has some telling detail as well. For the first ten years of Rogernomics, the wealthy few made out like bandits – real household incomes not only fell for the poor, but among middle income households as well, while rich households enjoyed a rise in income. Since 1995 and in conjunction with the global economic boom, the income of all groups has risen, but middle incomes have risen the most. According to the OECD, this explains the gains made since 2000 on narrowing the gaps in in come inequiality, even though the numbers living in poverty actually rose in New Zealand between 2000 and 2005. Since 2005, in the period not covered by the OECD report, the Working for Families package has reduced income inequality and the extent of poverty in New Zealand.
In other words, the old rightwing combo of free market reforms and benefit cuts succeeded only in concentrating wealth in New Zealand at one end, and poverty at the other – and we are still living with the social fallout from that polarisation. Moreover, while the global and domestic boom periods of the past 15 years have benefitted the middle class and lifted their incomes, little of that largesse has trickled down to those at the bottom. It took the Working for Families package to alleviate poverty, and then only for the working poor – beneficiaries to date, have been excluded from the fruits of the economic good times that New Zealand has enjoyed this decade.
In his response to the OECD report, Bill English has pointed to the numbers of New Zealanders on benefits as being a major part of the problem. In fact, the OECD report does much to refute the hoary old myth that New Zealand is a nation dependent on state benefits. “On average,” it says, “New Zealand’s households [between 1985 and 2005] receive just 13% of their income from the government in the form of public benefits. In the average OECD country, it is 22%. But New Zealand targets these benefits more tightly on low-income households than other countries : one third of total cash benefits go to the poorest 20% of the population. Only Australia and Denmark target their benefits more.”
Seen in that light, the subsequent expansion of eligibility for Working for Families into the lower middle classes was not an aberration. By relaxing the targeting of state support, it merely brought New Zealand closer into line with the practice in most other OECD countries.
By any social indicator – crime, poverty, health – the free market experiment in New Zealand has been a resounding failure. Since 1985, the OECD reports, child poverty has increased from 10 to 15%, which is at the higher end of the OECD. Poverty among younger adults aged 18 to 40 has also increased. On the other hand, and despite the focus of debate and resources on the plight of the elderly, the incidence of poverty among the elderly has remained at one of the lowest levels recorded across the OECD, at around 2%.. That low level of course, may be due to under-reporting, but it also reflects the relative effectiveness of National Superannuation.
In today’s Dominion Post, John Key committed National to retaining the Working for Families package, a policy he had previously criticized as middle class welfarism. However, the abatement provisions will be changed to encourage people to quit the scheme. Key’s statement is here :
We acknowledge and recognise the significant support Working For Families is giving New Zealand families and to take those payments away from them would have a dramatic impact on the security of a lot of New Zealand families so that’s not something we support or propose.
Secondly, we’ve worked as hard as we can to try and ensure that the scheme is as workable as possible by ensuring that the effective marginal tax rates are now lower and therefore the incentives for people to move off the scheme and ultimately to earn more income in their own right is enhanced.
In the same set of exchanges, Key also surprisingly expressed support for increasing the minimum wage, and adds – “I would anticipate that there will be increases in the minimum wage on a regular basis under a National government.” While this is less than an absolute promise, this should be enough to muzzle Hone Harawira, who might otherwise have been opposed to a post-election deal between National and the Maori Party.
Last week, Labour announced its intention to raise the permissible income thresholds at which benefits start to abate, from $80 to $100. Well, whoopee. Not only is this identical to what National already proposed a few months ago, but Labour’s related five year target – to enshrine in law an abatement threshold that will be equivalent to ten hours pay at the minimum wage – is actually, a backward step. As No Right Turn has pointed out, the initial threshold. when set in 1996, was supposed to be at 12.5 hours of minimum wage work. “So, [Labour’s] supposedly bold and innovative move to support beneficiaries transitioning into the workforce is actually cementing in place that decade of erosion, and so cementing in place lower living standards for those at the bottom of the heap.”
Essentially, the size and the shape of their tax packages are the main tools that the major parties are offering at this election to generate wealth. and combat poverty and income inequality. As even the NZ Herald has pointed out, National highly regressive tax package offers nothing to low income workers. Moreover, National’s so called ‘growth’ policies merely recycle the same socially disastrous ideas – namely, tax cuts that mainly benefit the wealthy and de-regulation, in the form of changing the RMA to limit the democratic inputs into decisions.
There is also a very 1980s fixation on short term returns, best exemplified by National’s plans to scrap tax credits for research and development. This will have the effect of throwing the burden onto the state – which, by default, will have to do the bulk of our R&D effort, on behalf of a private sector too lazy, greedy and shortsighted to do it itself.
Given the 20 year performance charted in the OECD report, these kind of policies are likely to make the extent of poverty worse, not better. Labour performs better in this comparison, but not by much. After spending nine years NOT correcting the benefit cuts of the early 1990s, it has a more progressive tax package than National, and shares the rewards more evenly. Again, see No Right Turn’s comparative tables here for Labour and here for National
Why has Labour in government remained relatively indifferent to the beneficiary poor ? A few months ago Michael Cullen provided Scoop with some insight into the mindset involved. Evidently. its not called the Labour Party for nothing :
Scoop : Some would say…the supposed need for that incentive gap [ between wages and benefits] is a Tory mindset –
Cullen: No. I don’t think it is.
Scoop – that holds sway at the expense of the children of beneficiaries.
Cullen: No. I think it comes back to the heart of the matter. The Labour Party isn’t the party that says living on a benefit is a preferred lifestyle. Its position has always been that the benefit system is a safety net for those who are unavoidably unable to participate in employment. From its history, the Labour Party has always been about people in employment.
Keep that in mind as the election approaches. And as we head into what looks like being a long and deep recession, both locally and globally. Protecting the most vulnerable members of society – the beneficiary poor, and their children – is not seen to be a top priority. Not much change there, since the 1980s.