A wealth tax for New Zealand

Tax Justice Aotearoa have just published my paper on the case for a net wealth tax in New Zealand. Below is a brief summary of the proposal.

The idea

A wealth tax would be a small annual levy, perhaps 1% or 2%, paid by individuals on the wealth they have above a certain threshold, perhaps $1 million or $2 million.

The justification

In New Zealand, we pay tax on our income (salaries and wages) to fund public services we all rely on, and to help those less fortunate than us. Unlike other developed countries, we don’t ask for the same contribution from people with wealth (assets such as shares and business investments).

But those assets are, just like incomes, generated partly thanks to public infrastructure like roads, broadband, schools and the justice system. Wealthy people often work hard, but they don’t get rich alone. So it’s fair to ask them to pay back into the pot. Yet many wealthy people find ways to pay very little income tax. That’s why every other developed country taxes wealth in some kind of systematic way – and why a wealth tax would make our system fairer.

The benefits

A wealth tax would be levied on net wealth – that is, the value of people’s assets once their debts have been subtracted.

Such a tax would be highly redistributive. Levied at 1% on wealth over $1 million, it would affect only the wealthiest fifth of the country. And it would generate around $6 billion a year. Even a more modest version, starting for instance at $2 million, would generate billions of dollars a year to fund public services, help those who are struggling get back on their feet, and protect the environment.

There are other ways to tax wealth, and they have their merits, but in general they are either too complicated, generate little revenue, or fail to address the real drivers of wealth inequality.

The design

Just as the income tax system works mostly through employers reporting our incomes directly to Inland Revenue, a wealth tax would rely on banks and other companies automatically reporting the value of the assets people hold with them. This would make the annual valuation process simpler, and evasion harder. Other assets have regular valuations (houses) or insurance valuations (valuables). Small household items would not need to be valued. And the growing trend for countries to swap tax information would hinder efforts to evade the tax by parking wealth offshore.

The summary

A wealth tax would fill a major gap in New Zealand’s tax system, thus enhancing fairness, and bring us into line with other developed countries. It would also generate much-needed revenue for tackling pressing social and environmental problems.

Inequality and poverty: a summary of the 2019 Household Incomes in New Zealand report

The Ministry of Social Development’s key annual report, ‘Household incomes in New Zealand: Trends in indicators of inequality and hardship 1982 to 2018’, by Bryan Perry, makes for depressing if not surprising reading.

Economic inequality remains at the very high level the country was left with in the late 1990s following 15 years of market-based reforms. Very modest progress under subsequent Labour-led government appears to have been undone by National-led governments.

Poverty rates for the general population and children remain high. Relative poverty rates virtually all increased 2008-17. In contrast, material deprivation decreased. Nonetheless, the overall story is the continuing absence of substantial action against economic inequality and poverty, both of which damage individuals and the social fabric alike.

The following document highlights key points from the 300-page household incomes report, focusing on inequality and to some extent poverty, with some material from the companion ‘non-incomes report’. To assess the record of the last National government, this document looks at the changes between 2009 (i.e. data gathered between mid-2008 and mid-2009, the last year in which people were essentially ‘living’ with Helen Clark’s policies) and 2018. Page numbers from the incomes report serve as references.

Income inequality

Looking at the share of income going to the various fifths (quintiles) of the population, New Zealand is now slightly more unequal than the supposedly class-ridden UK, with its poorest fifth taking less, and its richest fifth taking more, than their British counterparts (p.50). (NB: On other measures the UK remains more unequal.)

Table B.9  Shares of total income by quintiles (fifths) of disposable household income (%): international comparisons for c 2016

In terms of the New Zealand trend, the household incomes report notes the sharp increase in inequality between the mid-1980s and the late 1990s (the largest in the developed world). Since then, it notes “perhaps … a slight fall in the early to mid 2000s and a slight rise since, back to where it was in the mid1990s” (p.240). This fall and rise corresponds broadly to the periods in office of the recent Labour and National governments. This result should not be overstated, however, as some of it may be driven by fluctuations in the number of very rich people taking part in the relevant surveys. The report is not definitive on this point. (Note that in the Gini coefficient measure below, 0 = income evenly shared, and 100 = all income going to one person. So a higher number represents an increase in inequality.)

Figure K.6 Inequality in New Zealand and the OECD trend: the Gini coefficient

When it comes to international comparisons, the latest rankings put New Zealand at 22nd out of 34 OECD countries, on the edge of the poorest-performing one-third of rich countries. New Zealand’s Gini coefficient, at 33, is noticeably higher than the OECD average of 31.

Figure K.5 Income inequality across the OECD: Gini coefficients c 2014

User-friendly income inequality measures

Most income inequality measures are extremely difficult for ordinary people to understand. Using the household incomes report data, I have calculated two further measures.

The first shows how much someone in the richest tenth of New Zealand makes compared to someone in the poorest tenth. In the 1980s, someone in the richest tenth typically made 5-6 times as much as someone in the poorest tenth. That ratio is now over 9 times. (These figures are for people’s disposable income – that is, after tax.) (Appendix 9.2)

Using the same data, the second graph shows the changes in income since the 1980s for three groups: the poorest tenth, the average person, and the richest tenth. (These figures are again for people’s disposable income.)

The after-tax income of someone in the poorest tenth has increased roughly 30% (adjusting for inflation) since 1982. For the ‘typical’ middle New Zealander, that figure is roughly 40%. But for someone in the richest tenth, their income has doubled.

Wealth inequality

Wealth inequality is slightly higher in New Zealand than in many other developed countries, again a challenging finding for a supposedly egalitarian nation (p.266). Note that the figures below are for households; the share held by the wealthiest tenth of individuals is nearer 60%.

Table M.2  Wealth inequality: shares of total wealth held by the top tenth (%)

Poverty

‘P10’ denotes the people on the boundary of the poorest tenth of the population. In 2017 and 2018, their income (after housing costs) finally surpassed its 1986 level, hitting $11,900 and $11,800 respectively, compared to $11,600 back then. In short, 30 years of significant economic growth has almost entirely bypassed a full one-tenth of the population (p.88).

Inflation-adjusted household incomes (AHC): tenths (decile) boundaries

In absolute terms, the poor are getting richer. The proportion of people who have less than half of 2007’s average (median) income has fallen from 10% in 2007 to 6% in 2018. In relative terms, however, they are getting poorer: incomes have grown more slowly for poorer households than they have for other families. The proportion of people living on less than half of the contemporary average income (that is, the average income in the relevant year) has risen from 8% in 2009 to 10% in 2018. Likewise, the proportion living on less than 60% of the average income in a given year has risen from 17% to 20% (p.134).

The above figures are for people’s incomes before housing costs are included. Figures after housing costs are included tell a similar story, with increases in the proportion living on less than 40% of average income (9% to 11%), less than half average income (15% to 16%), and less than 60% of average income (22% to 23%) (p.135).

In my personal view, the poverty measures looking at how many people have less than an amount fixed in time (50% of the 2007 average income, for instance) are not the most important, though they are useful. After all, everyone in modern day New Zealand has more than half of the average income in 1907. The most important measures (in the long-term) are the ones looking at how much people have compared to the current average income, because that measures the extent to which poor households are falling behind others and will become increasingly unable to afford the things that others take for granted. Looking, therefore, at New Zealand’s progress on those numbers gives the following result (based on pp.134-35). Note: BHC is before housing costs; AHC is after housing costs.

Percentage of the population below selected poverty lines

50% BHC       60% BHC     50% AHC   60% AHC

1986            6             8             13 15

2009            8                 17                   15              22             

2018           10                 20                  16              23          

On all measures, poverty is higher now than it was in 1986 or in 2009.

Material hardship

In contrast, rates of ‘material hardship’ have fallen consistently since 2009. (The data only go back to 2007, so longer comparisons are impossible.) The distinction here is that the ‘poverty’ numbers above are based on people reporting their income (and how far it is below the average), whereas the ‘material hardship’ numbers are based on people reporting how many basic items (like being able to afford decent clothes or heat their home) they have to go without. The table below essentially shows how many people (measured as the whole population, children, and retirees) say they have to go without 6 or more of 17 basic items (non-incomes report, p.71).

Table G.1A  Material hardship trends (rate %), 2007 to 2018

How can it be that poor families appear to be doing better even while (as above) their incomes fall further behind those of others? Well, there are very different experiences among those living in poverty, or close to it. The report suggests the falling hardship rates are driven by increased work, work hours and minimum wages for those at the bottom end of salary scales. It is a story, crudely speaking, of working people. However, because benefits have not been linked to wages, those who are out of work continue to see their incomes fall behind those of others, an effect which at least partly explains the increased poverty rates. It is a story, crudely speaking, of beneficiary families. All this is a good reminder that poverty is extremely complex, and hard to reduce to a single, neat story.

Child poverty

Unsurprisingly, the story for child poverty is similar to that for the whole population. Absolute poverty has declined: fewer children now live in households with less than half of the 2007 average income than was the case in 2007. As the graph immediately above shows, material hardship rates for children have declined strongly in the last decade. But relative poverty has increased, as the following table shows (based on pp.140-41):

Percentage of the child population (0-17) below selected poverty lines

50% BHC        60% BHC      50% AHC    60% AHC

1986           10                    19                12                   21          

2009           10                    20           21                   29    

2018           15                    24                21                   31     

Again, child poverty is higher now than it was in 1986 and 2009.

It remains the case that (on a conservative estimate) four in every 10 children in poverty have a parent in full-time work. (As a side note, among two-parent families, the proportion with both parents in full-time work has increased from 30% in 1982 to 46% in 2018 (p.174).)

In terms of international comparisons, New Zealand is among the worst half of developed countries. Its child poverty rate (defined here as children in households with less than half average income, before housing costs) is 14%, some 4-5 times the rate of the best performer, Denmark (p.232).

Table K.3  Child poverty rates (%) in the OECD-35, c 2014: 50% of median threshold (BHC)

Green shoots of open government

One of the current government’s most famous commitments was Clare Curran’s statement that it would be the “most open, most transparent” administration ever. I think this is technically true, in the sense that it hasn’t unwound any previous open-government policies, problems like abuse of the Official Information Act are probably no worse than previously, and the government has added a couple of substantive pro-openness initiatives, such as publishing ministerial diaries.

I’m not sure the claim is yet substantively true, however, because we haven’t seen the big shift towards openness and transparency that I think the above claim implies. But there are a few further promising signs emerging.

Reforms to the justice system announced earlier this year by Andrew Little, for instance, promised that future initiatives would be codesigned with Maori, a significant step – if made reality – compared with the traditional approach of telling Maori what kind of services would be delivered for their benefit.

There has also been, finally, increased funding for Whanau Ora, which again is a codesign process that redesigns services around family needs, and which – in my view – can dramatically enhance the accountability of public services to citizens. The employment of more ‘navigators’ to help homeless people navigate the welter of services available to them is another such step.

At a different level, the Department of Internal Affairs recently issued a tender for research on how local councils could more closely connect with their communities, including case studies on citizens’ assemblies and participatory budgeting – two of the most exciting innovations in democratic practice.

None of this is transformative, of course: real transformation would involve the actual uptake, on a broad level, of things like participatory budgeting, or major reform of the Official Information Act, or some other genuinely world-leading move. Nonetheless these moves could be seen as the green shoots of an eventual flourishing of open government. Let’s hope!

Pressure for mayoral candidate transparency begins to bear fruit

Transparency International’s Wellington mayoral candidate forum last week showed contenders promising – and providing – greater transparency and citizen participation, going well beyond what the law requires.

The pressure for more openness, created by many years’ work by civil society groups, was evident at the forum, held at Wellington’s Old Government Buildings on Thursday 26, which heard from six mayoral candidates.

Even ahead of the forum, some candidates had done sterling work disclosing their campaign donations in real time, rather than simply doing so after the election, as the law currently requires. Conor Hill, for instance, had declared the total of his crowd-funding campaign, plus a $1000 donation from his mother. Jenny Condie also provided a similar, highly detailed account of her campaign donations, right down to $20 from an unnamed teacher.

At the forum, Justin Lester disclosed that he had one donation over $1500, from the union E Tu. Significantly, Diane Calvert, who had not previously disclosed her donations, said she had received $4000 from a “retired person” as part of total donations of around $12,000 – but nothing from “big developers. … Just normal people.”

Meanwhile, Andy Foster said he had asked his “pretty significant backers”, Peter Jackson and Fran Walsh, if they would be happy for him to disclose their donation to his campaign ahead of the election – though he was still waiting to hear back from them.

The candidates also discussed existing initiatives to deepen citizens’ participation in politics. Calvert and Foster both praised the plan that Makara residents were drawing up, alongside the council, to adapt to the effects of climate change. Norbert Hausberg made the case for recording more council meetings and putting them up on YouTube, while Lester noted the way that initiatives such as ‘Mayor in the Chair’ helped get politicians directly in front of residents.

In my role as Commentator for the forum, I noted the new wave of democratic energy that’s sweeping the world and leading to yet more far-reaching, innovative ways of encouraging participation. Accordingly, I asked candidates whether they would implement, or at least consider implementing, two specific deeply democratic processes: citizens’ assemblies, in which a statistically representative group of residents would be brought together to articulate a considered consensus view on an important issue; and participatory budgeting, in which the council would put up a significant proportion of its capital spending budget for residents to decide directly, after deep discussion amongst themselves.

Generally the candidates were enthusiastic – Condie, for instance, had already stressed the importance of a citizens’ assembly and drawing up “a people’s budget” in her opening remarks. Foster declared himself “a fan” of participatory budgeting, while Calvert pointed to existing initiatives such as the Kaka scheme used in Brooklyn. In direct response to my call for citizens’ assemblies and participatory budgeting, Lester said simply: “That’s a ‘yes’ from me, too.” All these commitments, though in some cases relatively general, are extremely welcome – and can be used to hold to account those who are ultimately successful in the elections.

Three decades of Rich List growth

I’ve just run the numbers on the latest NBR Rich List, released earlier this month. The graph below shows how the List has grown in the three decades of its life. Very rapidly, is the short answer: from $13 billion to $84 billion (in constant 2015 dollars). It has almost doubled – increased by 95% – since a low point a decade ago during the global financial crisis. (Note: I am counting only the New Zealand resident members of the List, not the overseas billionaires with the occasional bolthole here.)

These wealthiest New Zealanders are definitely enjoying an increased share of the economy. To quote a paper I wrote with Auckland University’s Tim Hazledine a couple of years ago:

We find that the wealth held by the richest 0.01% of the New Zealand population has risen from 6% of annual GDP in 1996 to more than 21% in 2015. There is some evidence that this wealth has persisted or will persist across multiple generations.

These figures, and this increase in wealth concentration, are a useful reminder that wealth inequality is undoubtedly underestimated by the Household Economic Survey that Statistics New Zealand runs – because wealthy people refuse to take part in it, generally speaking.

What else can we tell from 30 years of the Rich List? My principal observation is that the data are consistent with the gloomy prediction of Thomas Piketty, namely, that we are in the long run reverting to a state of Victorian-style levels of wealth inequality. (Albeit our social arrangements, in particular the welfare state, are very different to those which pertained in the 1800s.)

We see, firstly, an increase in wealth concentration at the upper end. Second, much of the new fortunes are being generated in property, according to the NBR itself. Thirdly, inheritance appears to be highly important. As Hazledine and I found, in 2015 around 80 of the 180 fortunes on the List had a strong dynastic element, having either been inherited from previous generations or passed down to the latest ones. And that measured only the fortunes where there was public evidence of multigenerational direct activity in running the business itself. The number of fortunes in which wealth would simply be distributed to the next generation was undoubtedly far greater – perhaps close to universal.

Piketty’s central point is that capitalism tends to generate very large inequalities: the forces tending towards inequality are greater than any ‘natural’ self-correcting mechanism. Inequality is reduced only when its level becomes insupportable to the population. When will that point occur for New Zealand, one wonders?

The politics of love and power

In recent years the idea of love has become increasingly important in political thinking. It’s one of life’s main driving forces, of course. But it’s not a word that has in previous decades been much associated with politics.

In the New Zealand context, Max Harris – channelling a range of thinkers including bell hooks – has been the most prominent advocate for the idea that we need a politics of love – that politics needs to be motivated by feelings of warm affection towards others.

I agree with the basic idea. In fact, if we can’t manage feelings of warmth, affection and love towards our fellow citizens, things will be pretty grim indeed. There are limits on how much we can love people we don’t see regularly or who are not related to us; love does become attenuated. But it’s still a valid ambition.

My reservations are probably more to do with the other things you need in politics. It is all very well loving our fellow citizens: but what if they don’t love us back? What if, furthermore, despite our best efforts at building a more compassionate society, some people continue to seek excessive and illegitimate power over others? What if those who currently exercise power hold onto it very tightly, and are quite resistant to the calls for a politics of love?

Questions like these stop me from being unconditionally supportive of the politics of love agenda. To put it differently: politics, like life, is complex. Love, to be sure, is a powerful force. You could say, “All this earth is love,” and that would be true in a general if not in an exact sense. But, without wanting to be too grim and Manichaean about things, who holds power also matters enormously, and you have to understand where it lies, who holds it, and how it can be redistributed more equally. After all power can be used to oppose love. A politics of love, in short, is nothing without a politics of power.

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.