Wealth taxes

Many people feel that, following the prime minister’s decision not to implement a capital gains tax while in power, there is no longer any prospect of taxing wealth in New Zealand. I beg to differ.

While a capital gains tax is clearly off the table, the government has not ruled out other forms of wealth taxation, including taxes on land, inheritances, the income from wealth or indeed wealth itself.

In this recent piece for the Spinoff, I’ve run the rule over the various different options, and taken some guesses as to which is most likely.

I would add now that my own preferred option is a direct wealth tax. In essence, households would be asked to pay an annual levy of roughly 1% on all of their wealth over $1 million.

The advantages of this tax are as follows. It is simple to describe, as you can see from the above sentence. It starts off with all wealth, so there is a much larger base of wealth to tax than is the case with, say, a land tax. But by exempting the first $1 million of wealth for a couple ($500,000 per individual), you would target only the wealthiest fifth of the country. That would make it much more acceptable to average New Zealanders, who felt (albeit incorrectly) that a capital gains tax would hit them hard. Rough estimates suggest that, even with the $1 million exemption, an annual levy of 1% could raise in the order of $6 billion. And you would want to think about making the tax progressive, so that people with fortunes of, say, over $10 million paid 2%, and so on.

No tax is perfect, of course. Some very wealthy people might leave the country in protest, although the evidence suggests such flights are far less common than is often believed. People might also try to evade the tax by locating their assets in tax havens, but with increasing exchanges of tax information between countries, I think the net is closing on that kind of behaviour.

People would also have to get their assets valued every year, potentially creating significant administration costs. But minor assets (microwaves, paintings done by friends, and so on) with minimal value could be exempted, massively reducing the burden. Many assets – such as cash in the bank, shares and property – have readily available valuations anyway. The main issue would be privately held companies, the value of which is not immediately apparent. But tax departments have many standard rules for valuing such assets, for instance by looking at their projected profits and rolling them up into an expected value.

We can expect to see much more debate on wealth taxation options in coming months – but for the moment, this is my brief take on the best way forward.

Social Income costings

This week I’ve proposed a Social Income, essentially a more generous though means-tested unemployment benefit set at the poverty line of 50% of average income (currently $19,000 a year approximately) and available for people doing a range of socially useful activities, including caring for sick relatives, raising children and volunteering for a registered charity.

For any such proposal, questions of cost immediately arise. Without access to detailed modelling, or payment to undertake such an exercise in detail, it is impossible to be precise as to the likely cost. Below, however, are some extremely rough estimates, as a general guide.

Payments to existing beneficiaries

There are currently 134,000 people on the unemployment benefit (Jobseeker Support), which is worth around $11,000 a year. If they were all willing to undertake socially useful activities while not in paid work, they would each be eligible for $8000 a year extra, at a cost of $1.07 billion. (A few would not be willing, but not enough to make a material difference to this level of calculation.)

There are currently 60,000 people on the former DPB, now known as Sole Parent Support, which is worth around $17,000 a year. Lifting them up to the Social Income would cost $120 million a year.

There are 93,000 people on the Supported Living Payment for those with disabilities and related conditions. It is currently worth $14,000 a year, and lifting them up to $19,000 a year would cost $465 million.

Both the latter two groups currently receive more than the unemployment benefit, in recognition of their higher costs. To maintain the gap between what they receive and the unemployment benefit ($2000 a year in the first case, $5000 a year for the second) would cost an extra $360 million and $279 million respectively.

The total cost of the above would be roughly $2.3 billion. There would, however, be some savings – maybe $300 million, for argument’s sake – in the Accommodation Supplement, on which the country currently spends $1.5 billion.

Carers

It is difficult to accurately estimate the cost of extending the benefit to people undertaking care for ill, infirm or disabled members of their family. Reports put the total of informal carers at 430,000.

However, calculations are complicated by the fact that a) many such carers are in paid work, reducing or eliminating their entitlement to the Social Income, which would be a means-tested benefit, b) some carers would not want to be paid, as it could be seen to somehow demean the loving nature of the work, c) some of the care might be for relatively short periods of time and d) there is already a complex ongoing policy discussion about how much carers should be paid, which tends to be at least at the minimum wage for the small number of people who qualify under current schemes.

Especially in light of the arguments for informal care to be paid at some kind of wage rate (that is, much higher than a Social Income would be), in this instance the Social Income might best function as a kind of simple stopgap, available for those who need to take short periods of time out of work to care for family members, and given on receipt of some simple proof like a medical certificate for the relevant relative. More demanding or long-term informal care might need to be covered through some kind of wage-based payment, as above.

Just how many people would be eligible for a (means-tested) Social Income is therefore almost impossible to determine. But assuming that, say, for argument’s sake around 50,000 people were accessing it as informal carers at any one time, the cost would be approximately $1 billion.

Volunteers

This is also hard to estimate. Surveys suggest 28% of New Zealanders volunteer, of which 14% do 25 hours or more. That is roughly 158,000 adults. But of those, perhaps 25% are over 65, and already eligible for New Zealand Super. That would leave roughly 120,000 volunteers, which at $19,000 a year each would cost $2.3 billion. (The economic value of volunteering in New Zealand has been put at $3.3 billion.) The true cost would undoubtedly be less, as many people would not want payment. On the other hand, there would be some behavioural effects, as those in low paid work decided they would rather volunteer and receive a Social Income.

The above estimates have a very large degree of imprecision. So, without attaching too much importance to the figure, one could assume that some of the above effects cancel out and the cost would be roughly $2.3 billion.

Students

The Social Income could be extended to tertiary students, depending on society’s views as to desirability and affordability. (Tertiary students, after all, are already disproportionately drawn from well off families, and likely to earn more over their lifetimes than others do.) The current maximum student allowance is $230 a week, the equivalent of $11,960 a year, and costs taxpayers $581 million.

Increasing the maximum allowance to the Social Income level of $19,000 a year would represent a roughly 40% increase to that cost, taking it to around $800 million – that is, $220 million extra. That assumes the current means-testing for student allowances was extended into the Social Income regime. (Estimating the exact cost under the current means-tested abatement regime would require calculations too sophisticated to be carried out here.)

Overall behavioural effects

With a more generous payment available for a range of activities, the number of people leaving paid work and taking up those activities would undoubtedly increase. It is impossible to know how big that effect would be, and people are less sensitive to financial rewards than is sometimes thought. But one could, for argument’s sake, assume a 10% shift across all categories, and therefore roughly a 10% increase in the total cost of the scheme.

Total

Existing beneficiaries: $2.1 billion

Carers: $1 billion

Volunteers: $2.3 billion

Students: $220 million

Basic total: $5.6 billion

Total including behavioural effects: $6.2 billion

Of course, these costings don’t take into account any potential long-term savings. These could be significant, given that – for instance – child poverty is estimated to cost upwards of $6 billion a year (in increased health and other spending), and this proposal would significantly reduce that poverty. But such savings are impossible to estimate without detailed modelling.

Paying for the Social Income

Extra government spending of around $6 billion would obviously have to be generated. The Tax Working Group has estimated that a capital gains tax would raise $6 billion in the long run, but that would take time to achieve and would not leave any money left over for the many other things on which public action is needed.

Rather than a tax levied when people sell assets, we might consider a straightforward wealth tax, of the kind proposed by the lauded economist Thomas Piketty. He proposes a straightforward wealth levy – that is, people pay an annual charge equivalent to a certain percentage of their wealth. This speaks to the fact that people enjoy the benefits of wealth every year they own assets, not just when they sell them.

It does of course create some administrative complexity, but other countries have managed such taxes without overwhelming difficulty. In addition, solutions have to be found for people who have significant assets but limited income from which to pay such a tax. Generally the answer is that the government allows them to defer payment of the tax until their death, or the disposal of the asset, at which point it is paid out of the sale proceeds.

New Zealand’s household wealth is approximately $1 trillion. A simple 1% levy on that wealth would generate $10 billion, enough to pay for a Social Income and some other priorities.

However, Piketty suggests that such a wealth tax should be progressive – that is, the percentage paid increases with the individual’s wealth – to reflect the fact that people with larger fortunes generally get greater returns on them, and to counteract inequality. We might then imagine a scale in which individuals pay no tax up to the value of the average wealth holding, which is approximately $300,000; 0.5% of the value of wealth up to $1 million; 1% on wealth between $1 million and $10 million; and 2% of wealth over $10 million.

How much this would raise is harder to estimate. But the poorest 80% of New Zealanders, who have only approximately 30% of all assets, would generate very little tax, as most would have less than $300,000 each. (80% of the population can have less than half the average wealth holding because the wealth distribution is heavily skewed towards the top.)

It might nonetheless be possible to generate $10 billion in taxes (the same as a straightforward 1% levy) from the $700 billion in assets held by the wealthiest fifth. The few hundred individuals on the annual Rich List, for example, have $100 billion in wealth, which alone would generate nearly $2 billion (not all of them are resident for tax purposes).

2019: the prospects for fairness and openness

The 2019 political year is now well and truly up and running. So what progress might we see in two key areas of interest for me, and I think for most New Zealanders as well: economic equality, and more deeply open and participatory government? In brief, I think the current government has better ambitions than the previous one – but is in many cases trying to achieve those ambitions using the same old methods.

Economic equality and fairness

The passing of the Child Poverty Reduction Act, with cross-party support, was a milestone. And the Families Package is a first step in that direction, potentially lifting tens of thousands of children out of poverty. So far, so good.

The problem here is that the act’s targets are very ambitious – essentially halving poverty in the next decade – and to keep on track will require the government to do far more than it has currently contemplated. But for the moment it is hamstrung by its Budget Responsibility Rules, which severely limit spending. If the government is to ensure not just that incomes for the poorest increase but also that they increase more quickly than those in the middle, as it must to reduce relative poverty, it is going to have to either relax the rules (assuming it gets a second term) or find significant new sources of revenue.

This leads naturally to another big issue in this space: the Tax Working Group’s report, due to be released next week. Following its interim report last year, the group is likely to recommend some kind of capital gains tax, albeit it appears not to be united.

When it comes to reducing inequality, however, the OECD has made it clear that tax on capital gains by itself is insufficient, unless accompanied by direct taxes on wealth and inheritances or gifts. A capital gains tax will also raise limited revenue, at least in the short term. My view, then, as set out in this Stuff opinion piece, is that a capital gains tax is better than nothing, but not as good as what we need.

Much more could be said about inequality. Housing, for instance, has dominated debate, especially KiwiBuild. The only point I would make on the latter is that it is surely too early to judge a program that is really only a few months old, after decades of failed housing policies and pent-up problems. And don’t forget that the government is also building new state housing, and is probably doing so about as quickly as constraints in the construction market – the supply of competent builders, for instance – will allow.

One last point is worth highlighting: the need to reduce some economic inequality at source, in other words the disparity in salaries that exists before government swings into action with its taxes and benefits. A report on Fair Pay Agreements – which would effectively allow workers in one part of an industry with good terms and conditions to spread them across the rest of that sector – has been published.

The government has also taken steps to slightly strengthen collective bargaining for workers. These steps, plus the agreements – if implemented, and made compulsory – could increase the average worker’s share of company profits, and reduce inequality. But they will almost certainly fall short of a significant restoration of bargaining power – an area where some serious policy thinking is needed.

Liquid government

In my new book Government for the Public Good, I use the phrase ‘liquid government’ to denote a more open, more fluid and more deeply participatory way of running the country. It’s about not just publishing more information, although that is important, but about creating more opportunities for people to come together and, through high-quality public debate, directly shape policy and the kinds of services they receive.

The government has, famously, committed itself to being the most open and transparent ever. And there have been some promising moves in this direction. All Cabinet papers will now be released within 30 days unless there is good reason not to – something that puts us miles ahead of most countries. Summaries of ministerial diaries will shortly be released, responding to years of demand for such a move.

We are also part of the Open Government Partnership (OGP), an international initiative that does pretty much what it says on the tin, though its definition of openness is pleasingly broad and incorporates the kind of participation that I also stress. The government’s latest OGP action plan is longer, more detailed and more ambitious than previous ones – something which of course I welcome.

I think there is significant room to go further, though. The initiatives aimed at increasing participation, for instance, focus on things like holding more public events at parliament, strengthening the youth parliament, and improving the teaching of citizenship in schools. No one sensible would disagree with any of these moves. But they still leave an enormous amount of room for more genuinely participatory schemes.

I’m thinking here of the forums in which citizens’ considered discussions on important issues directly influence policy – citizens’ assemblies, processes in which local councils give up a proportion of their infrastructure spending to a public vote, genuinely democratic national policy conventions, deep and rapid online consultations, and so on. We could also be copying cutting-edge countries by creating platforms for people to directly propose laws to go before parliament.

This is what I mean when I say that the government is still often using the same old methods, methods better suited to the twentieth century than the twenty-first, even if its ambitions are greater. There are exceptions: I understand that the education policy review meetings were deep, considered and deliberative. But too often policy is being formulated by bodies like the Tax Working Group – which, with no slight intended on its members, is still an old-fashioned, top-down process that falls well short of the demands of genuinely deliberative and citizen-led policy-making.

The other outstanding question is, of course, the Official Information Act, which – it is widely accepted – needs a serious upgrade. The OGP action plan holds out the prospect of a complete review of the act, something I think is needed; some changes around the edges will not be sufficient. The action plan also continues to stress the need to shift a proactive release of information, as with Cabinet papers.

In summary, there is much to cheer in both these key areas of interest. But the Prime Minister’s recent comments that this has to be the government’s year for delivering holds particularly true when it comes to fairness and openness. Expectations have been raised; now they need to be met.

New book published: Government for the Public Good

I’m delighted to announce the publication of my new book, Government for the Public Good: The Surprising Science of Large-Scale Collective Action. It is available from all good bookstores and online.

The culmination of several years’ work, it goes right to the heart of one of the dominant ideas of the last few decades – that markets should take over more of the tasks previously done by governments.

It subjects that claim to a kind of scrutiny that is all too rare in public discussion. Instead of arguing from anecdotes or one-off examples, it looks deeply at the latest, most reliable evidence about the performance of privatisation, deregulation and other market-based reforms of the last 40 years.

Presenting this evidence in an engaging, fast-paced style, the book argues that, although there have been some privatisation successes, by and large the more-market reforms have failed to deliver the promised better services at lower price.

In contrast, classic public services – delivered collectively and drawing on strengths such as the power of public discussion, altruism and economies of scale – have often proved far more effective than we generally think.

These findings matter, because people’s confidence in government determines how much it will be allowed to do to address the big challenges of the 21st century, such as climate change and the rise of the robots.

The book sets the stage for a renewal of active government – but also argues that government will have to be still better, if it is to meet modern expectations and retain public trust. And the best route to that improvement lies with the deepening democracy. The book shows how, around the world, forums that allow citizens to intelligently debate issues together and directly shape policy are already delivering that kind of improved government.

You can read more about the book here.

Rumblings about transparency

For people interested in greater transparency, the last seven days have been filled with little rumbles that could turn into earthquakes.

The biggest deal was an announcement by the Green Party over the weekend that its MPs would stop accepting corporate hospitality, and its ministers would soon publish the diaries that detail who they have been meeting.

Both are extremely welcome announcements, especially the latter, because it helps us start to get to grips with the extent of lobbying in New Zealand. People are allowed to lobby politicians, of course, but problems arise when some people can afford much more lobbying, and therefore much more influence, than others. So it needs to be out in the open, and the Greens announcement is a step in the right direction.

Ultimately, though, I think a bigger shakeup is needed, and New Zealand should emulate Ireland’s online register of lobbying. This requires all lobbyists to disclose, every quarter, their meetings with ministers, MPs and senior civil servants, and the issue discussed.

New Zealand also has a major problem with the ‘revolving door’ of people leaving Parliament to work for lobbying firms, most recently the Prime Minister’s temporary chief of staff. Information that should be used only for the general public good gets appropriated for private ends, and there is a high chance that officials will bias decisions towards companies in the hopes of getting lucrative employment later on. As I’ve previously suggested, New Zealand should follow Canada and have a five-year ‘cooling off’ period for everyone leaving government.

Also in the last week, we have seen Parliament announce that citizens can now start and organise petitions online – a welcome reform that was underway under the previous government, but also something very basic in the 21st century. I think the petition system is fundamentally inadequate, because nothing is guaranteed to happen – not even a proper response to the issues raised – even if the number of signatures is high.

As I set out in my report last year, Bridges Both Ways, I would like there to be a website where anyone can suggest a law to go before Parliament, and if it gets enough signatures (50,000, say) it gets treated like a Member’s Bill and has to be debated and voted on – even if it is ultimately rejected – in Parliament. But again, some small rumbles of this kind are hopefully a prelude to a bigger shakeup.

Media’s disclosure of interests under spotlight

One fascinating development this week has seen the long-running concerns about undisclosed interests in the media finally burst out into the open.

First, it was revealed that a commentator on Radio New Zealand, supposedly an ‘independent’ PR consultant, was actually working in the Prime Minister’s office. Then, even more strikingly, the NBR column of prominent lobbyist Matthew Hooton was abruptly cancelled. When asked why, NBR publisher Todd Scott told journalist John Drinnan: “It’s time to draw clear lines, mainstream media is murky enough. We need to respect the power we yield [sic] and protect its abuse by those who are funded to sell a point of view.” (Hooton has subsequently been hired to write for the Herald.)

For a long time, there have been concerns that the commercial interests of people writing in the media have not been adequately disclosed. This is particularly true now that there are probably fewer ‘pure’ freelance journalists and writers operating.

In the new gig economy, many people combine writing with PR and other paid work for companies and other organisations, even if they would rather just be straight writers. That heightens the need for strong and clear declarations of their interests, so that the public can see what might be influencing them and supposedly public spirited arguments cannot be used to disguise the promotion of private interests.

These are complex issues, affecting many people, myself included, as I have previously had one of those gig economy type existences. I’ve always declared possible conflicts on my own personal website, but I think there needs to be more rigorous disclosure, and for it to happen on actual pieces of writing, not just on personal websites that the average person may or may not read.

That would ideally require some kind of coordinated disclosure standards across the media – something I think we will hear more about in future.

Some thoughts on Shaw’s State of the Nation speech

I was at James Shaw’s agenda-setting speech yesterday. Overall I thought it was a good, ambitious, far-reaching speech, and it was pleasing to hear a party leader who clearly reads and thinks, and who has a sense that we’re living at a time of the end of one global political settlement and the birth of another, as yet unformed one.

What I thought was missing was a connection between the overarching problem – the failures of the existing settlement – and the solution, which apparently is environmental economics. The problems we face have been created on all sorts of levels: ethics, the desire for excessive consumerism, personal motivations, ideas about how large the public realm can be, the role of government, and so on. You can’t replace all of that with environmental economics; you need some wider belief system, and I didn’t feel that was sketched out.

Despite some references to Kate Raworth’s doughnut economics (which I think is a useful visualisation but not as revolutionary as has been touted), I wasn’t sure that the connection between economics and everything else was clear, nor what the structuring principles of environmental economics would be. Do all companies need to be social enterprises, or cooperatives? Do we have to be agnostic about growth, or push for radical decoupling of growth and emissions? If one broadens indicators of success away from GDP, will changes automatically flow, or do the ethical challenges mentioned above also have to be confronted? Maybe I’m being too much of a policy wonk here, but I would have liked to see those issues at least sketched out.

Separately, it was good to see all the Green MPs also speak briefly about their priorities, and when you added them up – real progress on equal pay, a big shift to environmentally friendly transport, aiming for zero waste – you could see that the change Shaw was talking about was actually underway.

It was interesting to hear, though, Shaw say quite plainly to Green activists that they need to understand how much the Greens “need” Labour and New Zealand First, and insisting that he wants to “call everyone in not call everyone out”. Of course he’s right that one should often look for compromise where needed, and seek win-win situations. But politics is often also fundamentally about winners and losers: few policies are universally popular. Adapting to climate change will create some massive losers, particularly among the fossil fuel companies. And the priorities of some other Green MPs, such as Jan Logie’s desire to overhaul the welfare system, will be extremely unpopular in some parts, both with the Greens’ coalition partners and more broadly. In short I suspect there needs to be both calling out and calling in, which is a very difficult balancing act for the Greens, and is as much about tone as the content of what’s said. But then that won’t come as a surprise to anybody.

Does the new government mean open government?

In one of her first major interviews after becoming prime minister, Jacinda Ardern told Checkpoint that she wanted not just to do more with government but also change the way it operated. “I also want this government to feel different, I want people to feel that it’s open, that it’s listening and that it’s going to bring kindness back.”

This sounds very promising. It is, though, the sort of thing that new leaders often say but which is much harder to sustain when they are under full attack from an Opposition searching for dirt, embarrassing official information act requests are landing, and so on.

So will it be sustained? The agreements that Labour has signed with the other parties provide some good, if vague indications that it might.

The coalition agreement with New Zealand First notes a general desire for “building public confidence in, and engagement with Parliament, and Government and the electoral system as a whole. We are committed to an independent and robust public service.”

Slightly more specifically, it promises an “independent review of the integrity of electoral processes and enrolments” and a review of “the processes of Parliament to reflect an MMP environment”.

Meanwhile the confidence and supply agreement with the Greens has a more intellectually rigorous, if equally unspecific, commitment to “strengthen New Zealand’s democracy by increasing public participation, openness, and transparency around official information”.

I’m not sure what the first New Zealand First commitment refers to, since the integrity of our electoral system is regarded as being pretty strong. On the second, Parliament’s processes definitely need overhauling, and I have set out ideas for that elsewhere, but I’m not sure they are MMP-specific, rather something that all Western parliaments need to do to bring themselves into the 21st century: allowing more direct input from citizens, making better use of digital technology, finding ways to deepen scrutiny and deliberation, and so on. So it’s hard to know what will come out of that.

As for the Greens, they have put forward various proposals for open government in the past, so I would expect them to keep pushing things like bringing the Offices of Parliament under the Official Information Act, putting annual limits on donations to political parties (not that that is likely to progress), creating a register of lobbyists, and so on.

At this stage it’s all a guessing game, but in general I would expect movement on some of the more technical elements, especially around the OIA; the real question is whether anything more substantive will change. We’ll just have to wait and see.

Newsroom: A big idea 5 — ‘Electoral funding vouchers’

Read the original article on Newsroom

Max Rashbrooke is a senior associate at Victoria University of Wellington’s Institute for Governance and Policy Studies, and has recently published the report Bridges Both Ways: Transforming the openness of New Zealand government. This article sets out the last of the five ‘big ideas’ drawn from the report.

One of the most long-standing concerns about democracy is that it can be distorted by money. Because running political parties and election campaigns is expensive, parties are reliant on private donors. That raises the prospect that, to keep those donors happy, parties will shape policies towards their interests, meaning that those who can afford to donate to parties will have more influence over politics than others – a fundamental contradiction of the ideals of democracy.

Is this concern real? It certainly is in the US: academics such as Martin Gilens have shown that the way American politicians vote is strongly connected to what their wealthy constituents want to happen, while bearing almost no relationship to the desires of their poorer or even middle-income voters. In the UK, there is a clear link between donating to political parties and receiving political honours.

In New Zealand, we don’t have such detailed evidence. But we know that both the main political parties openly sell access to politicians, National through its Cabinet Club and Labour through its President’s Club. Whether that access turns into influence is another question. But we have seen enough scandals involving favours given to wealthy donors, by both main parties, to think that something similar is happening.

And the amounts given by wealthy people are significant, in the New Zealand context. Between 2011 and 2014, donations over $30,000 totalled $12 million, while total advertising spending during the 2014 campaign was under $9 million. Donations from wealthy people are clearly large enough to influence campaigning.

For this reason, political donations are consistently one of the issues singled out by international bodies concerned about the integrity of New Zealand’s democracy. There are no limits on how much anyone can give a political party, and relatively little transparency: you don’t have to put your name on a donation unless you give over $15,000. This is a much more lax regime than operates in other countries.

The most modest response to the above concerns would be greater transparency: ensuring that donors were named if they gave more than, say, $1500. But that won’t really resolve the issues. Often, transparency just tells you how bad the problem is, rather than doing anything about it.

An alternative would be to increase government funding but also, crucially, to democratise it. This could be done through the government’s giving every citizen a small amount of money – an ‘electoral funding voucher’ – to give to the political party of their choice, once every electoral cycle.

More far-reaching reform of political donations would have two elements: a very strong cap on private donations, and either democratising or matching the public funding of parties.

On the first point, individuals could be limited to giving only small amounts, say, $1500 a year to any political party and $1500 to any candidate, to minimise inequality of influence. This would put New Zealand in line with Canada’s cap on annual donations, currently set at C$1550. Such caps are common in other countries, including Japan, France, Spain and Ireland.

Limiting donations in this way would cut party funding by around $20 million over three years. The most obvious way to address this shortfall would be to increase government funding of political parties, which is currently around $49 million over three years. And indeed many other countries provide extensive public subsidies, including Australia, Canada, Germany, Ireland, France and Sweden – sometimes as much as 80 percent of party revenues.

But this can be unpopular, and creates few incentives for parties to engage with the public. An alternative would be to increase government funding but also, crucially, to democratise it. This could be done through the government’s giving every citizen a small amount of money – an ‘electoral funding voucher’ – to give to the political party of their choice, once every electoral cycle. This could create a strong incentive for parties to engage with the public, while spreading influence equally. Such a scheme is being trialled in the US city of Seattle.

In New Zealand, the funding thus handed out would be the $49 million in existing government funding combined with an extra $20 million to make up the private donation shortfall: a total of $69 million per three-year electoral cycle, which would work out as an electoral voucher of around $20 per adult.

People on the electoral roll could be sent an email, once every three years, with links to simple online donation forms for each registered party, and a unique random number to identify their voucher and prevent fraud. Non-online options would also be needed, especially for disadvantaged communities. Unused vouchers would be allocated to parties based on their number of MPs and other criteria, and parties could be allocated minimal amounts at the start of each Parliament, to ensure some security of income. Spending another $7 million a year this way might be publicly unpopular, but it would be a small amount compared to the government’s $93 billion annual spending, and certainly less than the (three-year) $35 million cost of running an election.

If the voucher system were deemed too complex, another way to partially democratise funding would be for the government to match amounts given by members of the public, up to the above limit of $1500. Either way, the point is to ensure that influence over political parties is, as much as possible, spread evenly among citizens, in line with the long-standing ideals that guide our democracy.

Will Budget 2017 really lift 50,000 children out of poverty?

One item in May’s Budget that slipped through without much discussion was the claim that the changes to income tax and Working for Families payments would lift 50,000 children out of poverty. At the time I was sceptical, and information released by the Treasury last month – some to the whole public and some to me under the Official Information Act – paints a mixed picture.

The documents show that the Treasury’s modelling predicts that substantial numbers will be lifted out of poverty. One key measure of poverty is how many people are living on less than half of the typical (median) income, for a household of their size. The Treasury modelling predicts that the changes will lift 22,000 households and 49,000 children over that line. That represents around 30% of all the children currently under the line (although Ministry of Social Development officials warned against treating the percentage figures as highly accurate), leaving another 109,000 children still in poverty, on that measure.

A more demanding measure is that people need a bit more – 60% of average income – to be out of poverty. (I tend to think that is the most useful poverty measure, because surveys of people’s actual budgets indicate that is about how much they need, but the 50% line is widely used internationally.) The Treasury modelling indicates 16,000 households, including 36,000 children, will be lifted over that line.

The chart below, although complex, essentially shows that there is a large group of households on low incomes (the peak of the solid line just to the left of the dotted lines representing the 50% and 60% poverty thresholds) who will get thousands of dollars extra a year (the black bars under that peak), pushing them over the poverty line.

While that doesn’t do enough to address the situation of the very poorest, it is obviously welcome, assuming the modelling is correct. What is puzzling is why the government didn’t make more fuss about that, given that child poverty is a major political issue and ministers are eager to look like they care on social issues.

One clue may come in the e-mail between Treasury analysts released to me under the OIA, in which one notes, “The level figures for number of households below the income threshold are likely to be highly contentious as they rely on modelling assumptions.” It is not clear what modelling assumptions were made, but unless I’ve badly misunderstood the figures, they represent how much money households will have in their pocket before they have to pay housing costs.

That is significant, because, as we all know, housing costs are spiralling at the moment, including for renters, which many poor families are. There is so little housing available that there is effectively not much competition among landlords: people are desperate for places, and take pretty much whatever they can get. That makes it very easy for landlords to raise rents to the highest amount they think their tenants can sustain.

That, in turn, implies that although more money is going into poor families’ pockets, there may be a lot of what is called ‘landlord capture’: landlords may capture much or most of that increased income by raising rents. Since the changes in income were heavily publicised in the Budget, landlords will have a good idea of how much they can do that.

As far as I know, Treasury doesn’t know how great that effect will be, and so they don’t know if all those households will actually be lifted out of poverty once housing costs are taken into account. It would be very interesting to try to estimate the scale of landlord capture in New Zealand, but until we can, I think we have to treat the 50,000 children figure with some scepticism – and assume that the above concerns may be part of the reason that ministers aren’t making as much of a song and dance about the claim as they would otherwise have done.