The Spinoff: Ten things we could do to better support people into work

Read the original article in the Spinoff

During the nine months I recently spent researching our welfare-to-work system, one contrast jumped out at me. 

I’d heard an interviewee describing how her 40-year-old brother, a “typical” Samoan Kiwi, was working as a builder in Norway; despite needing a major operation, he’d wanted to carry on his hard, physical labour. The Norwegian equivalent of Work and Income, however, felt he should be contemplating another career. Having taken the time to deeply understand his background, skills and leadership qualities, they concluded he’d make an excellent teacher – and they’d pay him to retrain.

When, by contrast, I sat down with a group of beneficiaries in Nelson, I listened to a 60-year-old woman, previously a cleaner, talk about her dodgy knees and how she was no longer able to clean at the pace demanded by commercial firms. So what kind of employment did Work and Income keep pushing her way? Cleaning jobs, of course. There could be no starker contrast between, on the one hand, a system willing to spend money upfront to build a more highly skilled workforce, and, on the other, a system that takes someone’s CV as their destiny and pushes them into the first available job, regardless of suitability.

I heard these stories as part of the first research project carried out by the Institute for Democratic and Economic Analysis (Idea), a thinktank I helped launch last year. Improved living standards are a central focus for us, and we’d identified the welfare-to-work transition as a crucial – and neglected – area of policy.

One thing we quickly learned is that the Work and Income system doesn’t serve businesses’ needs any more than it serves those of jobseekers. When Work and Income doesn’t screen beneficiaries for their suitability for a position, businesses just spend precious hours interviewing individuals without the required aptitude or desire. Meanwhile jobseekers’ potential is left untapped. Even when they find work, it is often wildly out of line with their skills: between one-third and half of the workforce experience serious skills mismatches, with all the attendant problems that creates for productivity.

Such issues are especially relevant right now, as unemployment rises and people flock to Australia. When jobs are scarce, we should be investing massively in vocational education and mid-career retraining, both to give people reasons to remain here and to fit them for the positions that will appear when the economy recovers.

We should also provide all the other support – wraparound physical and mental health services, wage subsidies, even temporary public-sector job creation – that can help people move from welfare into paid employment, where that’s the right thing for them at that point in their lives. Idea’s report on this issue, launched last week, is called The Pipeline of Potential because that’s what the welfare system should provide: a steady stream of highly qualified staff, generated by investing in people at a crucial moment in their lives. Below are 10 key ways to make that happen.

1. Raise our game on spending. New Zealand currently spends half the developed-country average on supportive welfare-to-work schemes, known technically as active labour-market policies. Other countries spend more, and reap the rewards: people who get high-quality training, wraparound health services and other such support are significantly more likely to find employment and earn more. They also pay more tax and require less benefit spending.

2. Get to know jobseekers properly. Case managers need to deeply understand jobseekers’ history, skills, aspirations and needs, as a prelude to building them a tailored job plan. Although it gets crowded out by the focus on sanctions, the government is taking steps in this direction – even if Work and Income caseloads (and attitudes) remain a stumbling block.

3. Reduce case managers’ workloads. The typical Work and Income case manager, tasked with helping people move into paid employment, has a caseload of 110 jobseekers, implying they can give each one an average of 20 minutes’ attention each week. Providing tailored welfare-to-work support is, at those ratios, extremely difficult.

4. Set new targets. In the absence of other mandated goals, the government’s target to get 50,000 people off Jobseeker Support can reinforce the “any job is a good job” mentality described above. It needs to be balanced with meaningful targets to provide high-quality training and match the right person to the right job.

5. Connect companies and people. The employer-jobseeker relationship should be at the heart of the welfare-to-work system. Work and Income offices need to better understand what local employers are looking for, and equip jobseekers with those skills and attributes.

6. Provide more holistic support. In 12 of 19 health districts, people can access something called Individual Placement Support (IPS), a highly successful scheme that embeds employment specialists in community mental health teams, so individuals can get both kinds of help at once. IPS participants earn over $4,000 a year more than comparable non-participants. The scheme could be rolled out to the rest of the country for as little as $10 million a year.

7. Help jobseekers support each other. Several European nations have had great success with “launching pad” schemes that bring groups of jobseekers together, under the supervision of a trained job coach, to share life lessons, build self-esteem and develop plans for training, employment and entrepreneurship. By breaking down the isolation many jobseekers experience, and creating a supportive environment for skills-building, such schemes generate dramatic increases in employment.

8. Prevent workforce churn. Of the people who leave benefits, just 40% are still in employment 18 months later. We need a greater focus on matching people to the right job, more post-placement support for those new to the workforce, and a push to eliminate the worst forms of low-paid and precarious work.

9. Support people through redundancy. In mass redundancy situations, which may become more common owing to climate change and AI, trusted locals should be employed to help the affected people find new work. Employers and unions should also be funded to upskill staff ahead of such disruption.

10. Introduce a circuit-breaker job guarantee. Building on successful overseas models, New Zealand should offer a year-long job placement to any young person at risk of long-term unemployment. This would involve the government creating temporary jobs or paying for placements in firms, NGOs and local councils. By boosting people’s CVs, work habits and skills, and making a powerful statement that the government has their back, such schemes overseas have significantly lifted permanent private-sector employment for the under-25s.

The Post: The power of ideas – why I helped launch a think tank

Read the original article in the Post

Just over a year ago, I was one of the group of hardy souls who embarked on what might seem, in this country, a risky endeavour: the launch of a new think-tank.

We chose the name Idea – short for the Institute for Democratic and Economic Analysis – partly because we were in the ideas business and partly because we were deeply troubled by the intersection of economic and political disparities. When a country allows poverty and political exclusion to combine, it creates the conditions in which marginalisation, disaffection and polarisation can breed.

This line of thought came directly from the Nobel prize-winning economists Daron Acemoglu and James Robinson, whose bestselling book Why Nations Fail set out the recipe for social success (or disaster). In high-functioning societies, political and economic systems are inclusive: because everyone has a say in how that society is run, the economic system delivers widespread benefits.

In failed states, by contrast, those systems are extractive: elites use their political power to skew the distribution of wealth in their favour. While New Zealand succeeds in many ways, it is far from fully inclusive: one child in eight lives in serious hardship, and a million people feel so disenfranchised they don’t even vote.

That dynamic, left unchecked, could haul the country downwards; we want to ensure that it stays on an upward path. We decided to make that contribution via a think-tank, an organisation that unearths solutions to pressing problems and then shares those solutions with politicians and the general public. We also decided to act in a spirit of open dialogue, taking up good ideas regardless of where they originate and trying to foster respectful debate.

I describe this as a risky endeavour because, in a country of our size, there’s seldom enough funding for public-good research. Hence only a handful of think-tanks exist here – the McGuinness Institute, Maxim, the Helen Clark Foundation, the New Zealand Initiative, perhaps a few others.

Still, we thought it was worth having a go. And this week marked a big milestone: the launch of our first-ever report.

Entitled The Pipeline of Potential, it looks at how Work and Income could better invest in jobseekers so as to provide companies with a steady stream of work-ready employees.

Currently, New Zealand spends around half the developed-country average on the schemes – vocational training, wraparound health support, wage subsidies and so on – that help people make a sustainable welfare-to-work transition. Instead we push people into the first job available.

This system doesn’t work for firms any more than it does for job seekers. One employer I met, a courier company owner in New Plymouth, spoke of Work and Income sending her job applicants who weren’t fitted for the role and who’d frankly say, “I don’t know what I’m doing here”. That wasted precious business time.

On the job seeker side, I spoke to a 60-year-old woman in Nelson who’d previously been a cleaner but, following serious health struggles, could no longer clean at a commercial pace. What kinds of jobs did Work and Income push her towards? Cleaning jobs, of course.

The solution is to put the employer-job seeker relationship back at the heart of the system. Work and Income should better understand what local firms are looking for in potential employees. Then its case managers should be given the time – and mandate – to get to know job seekers deeply, understanding their histories, needs and aspirations. And they should build a tailored plan that addresses the job seekers’ barriers and matches them with the right employer.

We applaud the steps the Government has already taken in this direction, but more must be done. Of those who leave benefits, just 40% are still in employment 18 months later. If you push people into the first job going, they don’t stick at it. Matching them to the right employer is crucial.

Our report also recommends bigger interventions, like a circuit-breaker job guarantee that provides a work placement for every young person at risk of long-term unemployment. It would give those young people confidence, work habits and skills learnt on the job. Participants in such schemes overseas are 27% more likely to end up in permanent private-sector employment than their peers.

Well-designed welfare-to-work schemes more generally are proven to boost employment rates, lower benefit costs, raise incomes, and cut overall unemployment. And they have an impressive payback in financial terms, let alone wider social benefits. Better investment in these schemes is, for us, a key building block of a new and more dynamic economy – one that’s built on maximising everyone’s potential.

We can’t say for sure that our ideas will be adopted. But so far they’re getting a good hearing across the political spectrum. And if ideas start life there, breathing the oxygen of open debate, they have a fighting chance of effecting the kind of change that endures.

The Spinoff: Where do I send conservatives the bill for climate change?

Read the original article on the Spinoff

It seems almost impossible to believe, but until two years ago New Zealand’s most expensive weather-related event, from an insurance point of view, was a big hailstorm in Timaru that cost $170 million. Now, of course, things happen at 10x magnification. The Auckland Anniversary floods and Cyclone Gabrielle each led to insured losses of around $2 billion. And – here’s a cheerful thought – such events will only become more frequent and more expensive, as the planet heats and the atmosphere comes to hold more moisture.

Which leads, inexorably, to my current preoccupation: where do I send conservatives the bill for climate change?

In just one news bulletin this morning, two instances of soaring climate-change-related costs: the bill for repairing roads after the terrible Tasman floods is around $1 million every two days, and the damage those floods did to agriculture will drive up vegetable prices around the country. Yesterday a homeowner was on RNZ’s Morning Report lamenting a landslip that had caused massive damage to their house: another cost. After each major flood, public bodies have to repair bridges, community halls, communication infrastructure, and so on: yet more costs. Heatwaves, too, cause droughts and losses to farmers: cost upon cost.

Where, then, do I send conservatives the bill?

Some will try to argue that weather is just weather: floods, cyclones and droughts have always happened. But the scientific consensus is clear: climate change makes all these events much worse. It renders them more likely to happen and, when they do happen, more devastating. A couple of years ago scientists, using a methodology called extreme event attribution, calculated that climate change was costing the globe $16 million an hour, and was set to cost up to $3.1 trillion – that’s right, trillion – a year by 2050, as hurricanes, floods and heatwaves all worsen.

Here at home, scientists in 2018 estimated that climate change had already caused at least $840 million worth of damage in a decade, and in truth probably much more than that. The Treasury, meanwhile, has calculated that climate change’s worsening of extreme weather events could cost the state 3.8% of GDP by 2061, while GDP itself could be around 1% lower. Governments, families and firms will all have to spend billions of dollars repairing totally avoidable damage.

Clearly, then, there is a bill to be paid. So where are the conservatives stepping up to accept it?

I ask this because, for the 40 years since the world was first alerted to climate change, right-wingers have consistently been the ones most opposed to doing anything about it. As the documentary Hot Air reveals, in the early 1990s Simon Upton, the minister for the environment, wanted to introduce a carbon tax, but was thwarted by the likes of the New Zealand Initiative – in its former guise as the Business Roundtable – bringing in climate deniers to disrupt the debate.

As Upton explains in the documentary, one of the Roundtable’s “experts” claimed that addressing climate change was a form of social engineering akin to – wait for it – eugenics. “My eyebrows raised at that point,” says Upton, who tried to push on regardless. But this lobbying, allied to the usual right-wing campaigns by business and farming interests, derailed his well-laid plans.

It could be argued that left-wing governments haven’t always had a great record on climate change: emissions rose under Helen Clark, for instance. But her government did introduce the Emissions Trading Scheme (ETS), and if she didn’t go further, it was substantially because of opposition from – you guessed it – the right. Remember National MP Shane Ardern driving a tractor up parliament steps to protest against the ETS? That’s the story of this issue, over and over: left-wing governments trying to do more in the teeth of right-wing opposition, and right-wing governments doing very little despite being urged to do more by left-wing ones.

I return, then, to my theme: where do I send conservatives the bill?

New Zealand right-wingers might argue that their actions, however unhelpful, have been essentially irrelevant, given that virtually all globe-heating emissions are created offshore. And that’s fair enough. They can forward on a big piece of the bill to World Conservative Headquarters, which I imagine as a large and imposing edifice, albeit crumbling around the edges and with some increasingly lunatic fringing.

I’m happy, in short, for Kiwi conservatives to pass on part of the bill – just as long as I know where to send it in the first place.

Domestic right-wingers might feel this argument is a bit too sweeping. Hashtag Not All Conservatives, etc. And that’s true, up to a point. Just look at Upton: he was a conservative, and doing his best. Ditto, at different times, Guy Salmon, Todd Muller and the like. It’s such a shame, then, that – to reprise the old joke about lawyers – 95% of conservatives are giving the remaining 5% a bad name.

There’s a great irony here, in that conservatives are supposed to be strong in a couple of areas, including – you know – conserving things (the planet, for instance). Saving money, too. But although the costs of mitigating climate change have always been vastly lower than the costs of not doing so, this point has somehow eluded the ostensible fiscal conservatives among us.

If there’s one thing that I know conservatives like, though, it’s personal responsibility. They’re always talking about the costs that “feckless” poor people impose on the rest of us, constantly attacking left-wing governments for treating taxpayers “like an ATM”. And so, as the Tasman region reels from the devastation, as hundreds of homes are flooded each year, and as we face the prospect of this fiscal picture deteriorating with each passing decade, I’m sure that everyone on the right who has ever opposed or downplayed the need for climate action will step forward to take responsibility.

And then, at last, I might know where to send the bill.

The Post: Piling on the inequality no solution to climate change challenge

Read the original article in the Post

The climate issue is always an inequality issue. It is through this lens that we must see the subject of buyouts for flooded homes, which reared its head again this week.

As it stands, climate change is a triple blow to the poor. First, it is caused fundamentally by the rich, whose emissions are three times that of even the average New Zealander.

Second, the damage from climate change, in houses and jobs lost, will fall hardest on the disadvantaged. And third, solutions like flat-rate carbon taxes take a bigger slice out of the most meagre budgets.

We must not perpetuate this injustice in our climate adaptation strategy, much of which involves answering this question: where do people live in a world of ever-rising floods? How sad, then, that on Thursday a government-appointed panel advocated for a largely individualist, market-driven approach to flooding, property retreat and buyouts.

Aside from vague statements about governments acting “where broader national benefits can be realised”, the report’s ideological thrust was unmistakable: make information on flooding available, let insurance premiums rise in the riskiest areas, and if individuals face calamity – well, they’re on their own, if not now then certainly in the near future.

Like any market-led approach to large social problems, this tactic would fail on two fronts: it would be neither fair nor efficient.

Taking the worst-affected first, the proposal to wind down buyouts for flood-affected homeowners, then end them by 2045, is risible. As Professor Jonathan Boston has pointed out, what about all the houses hit by newly discovered flood risks between now and then?

What about homes deemed flood-prone in 2046? As climate damage spreads rapidly, unpredictably, those hardest hit will probably need more assistance, not less.

Strategies based on individual responsibility are, moreover, inappropriate to a situation where most people bought homes well before climate change was a known risk. Even if they do not need buyouts, their insurance costs may spiral; we cannot leave them to bear that burden alone.

Ordinary people are also deeply imperfect decision-makers, affected by myopia, a poor understanding of risk, and optimism bias. If they remain in place, their house floods repeatedly and they can’t get insurance, will we really just tell them: you got it wrong, now get stuffed?

Many people, especially the poor, won’t even have good options. How can they afford to move if their house becomes uninsurable and no-one will buy it? And where would they move that is affordable and not equally flood-prone?

The individualistic approach is neither compassionate nor fair. It also wastes resources.

Instead of a managed retreat, the panel’s report seems to envisage an unmanaged one. Some residents will, haphazardly, abandon a community, while others with few options stay; councils will be left providing expensive services to dwindling numbers of people.

Poor people will remain, insurance-less, in increasingly risky areas. The expense of rescuing them will rise, their lives will be ever-more dysfunctional, homelessness will increase, and the fiscal, health-system, and economic costs will spiral.

Far from the cool, artificial world of economists’ models, where prices and individual actions neatly align, the reality of unmanaged retreat will be wasteful, inequitable and chaotic.

Because climate change is a collective problem, it requires a collective solution, as Boston advocates. That starts with clarifying who merits support.

Of course, as the panel argues, we should protect ourselves against free-riders: sooner rather than later, we must stop people building on floodplains. Or, failing that, make clear that if those homeowners are well-off and knew the risks, they can’t expect state aid.

If we prevent these unacceptable costs being imposed on the rest of us, financial headroom is freed up to support those who deserve it. We can collectively pay for the relocation of decades-old communities rendered inhabitable by climate change (or, indeed, the low-cost lifting-up of slightly less flood-prone houses).

If buyouts are restricted to first homes, and capped, the fiscal costs can be limited and the demands of fairness satisfied. In this structured and compassionate adaptation, we recognise our interdependencies, and the reality that we are all better off if blameless people are supported through unforeseeable shocks.

We may also need, Boston suggests, a beefed-up Natural Hazards Commission, its remit extended to cover both flood prevention and flood insurance. Again, when well-planned, policies work together.

If we build better stormwater systems and rain gardens to limit flood damage, and the most catastrophic risks are socialised, private insurance may remain affordable for more people, perhaps with subsidies to the poorest.

We could also abolish the bizarre cap on the levies people pay to the commission, which allows palatial home-owners to get away with paying the same amount as the dwellers of modest bungalows. That’s just one of the many inequities disfiguring our climate response system.

The only fix, in truth, is a co-ordinated and egalitarian plan. “Devil take the hindmost” has never made good policy.

The Spinoff: David Seymour’s hypocrisy over drugs and poverty

Read the original article in the Spinoff

On Tuesday, as the weight-loss drug Wegovy finally became available on prescription, Act leader David Seymour renewed his call for more to be done in just about the only area of government spending he likes: pharmaceuticals. We must, he argued, consider the “whole of society” benefits from this spending, because without such analysis the state will – in his view – always underinvest.

Which would be fine, were it not for the colossal hypocrisy of his opposition to such analysis elsewhere.

Let us rewind briefly. In an interview with RNZ’s Guyon Espiner last year, Seymour argued that, when it comes to pharmaceuticals, governments could save money by spending money. Not only was a new drug good for the individual, “but it would probably increase their ability to work and pay tax, reduce the need for [welfare] benefits, reduce their admission to hospital and save money in a bunch of other ways”. Unless government did that “whole of society costing”, future spending on pharmaceuticals would be “pretty tapped out”.

This is not an unreasonable argument. The problem is Seymour’s refusal to apply it to other forms of spending – notably, those that might tackle child poverty.

In a press release last September, Seymour dismissed Treasury analysis that reaching our child poverty reduction goals – to halve hardship, in crude terms, by 2028 – would take around $3 billion a year. The last government had increased welfare spending by more than that amount yet child poverty was “virtually static”, he argued.

Seymour’s analysis is flat-out wrong: official data showed very clearly that the big welfare spending increases, notably the 2018 Families Package, led to a noticeable drop in child poverty and the number of kids going hungry. The only real problem was that, when the pandemic hit, Labour didn’t continue down the same path and do more to cushion the impact on the poorest New Zealanders.

More than that, though, Seymour’s argument ignores the fact that a genuine “whole of society” approach would commit a government to spending vast sums tackling child poverty. Early-years hardship, after all, shows up in later-life damage: children born into poverty typically have worse school results, and lower employment rates and earnings, creating a drag on economic productivity more broadly. They’re more likely to be on benefits, they experience twice the rate of heart disease of richer kids, and they require higher spending on health, housing support and criminal justice.

Economists have produced various estimates of the total cost this imposes on society. The Poverty by Design conference last year heard that researchers had put the cost at 1-2% of GDP in Britain, 3.8-4.5% of GDP in Canada and as high as 5% of GDP in America.

In New Zealand, the estimates – from roughly a decade ago – were around 3% of GDP (Infometrics in 2011), upwards of 3.5% of GDP (Analytica Auckland in 2010), 2.8-3.7% of GDP (the Expert Advisory Group on Solutions to Child Poverty in 2012), and 3.8-4.6% of GDP (the Child Poverty Action Group in 2011). Child poverty has, admittedly, fallen since then, so the lower estimates are probably the most accurate. But even today, hardship in New Zealand is roughly the same as the European average, and a 2022 OECD study of 24 European countries suggested the cost of child poverty was typically around 3.4% of GDP.

Applied to the New Zealand economy, which was worth $415 billion last year, that figure implies child poverty costs us about $14 billion annually. If we take seriously this “whole of society” approach – to use Seymour’s words – we could justify spending a genuinely enormous amount of money to slash child poverty rates. Even just the increased tax take – generated from healthier and more productive workers – would cancel out the cost to government in the long run, quite apart from the wider benefits.

The only possible counter-objection is that even if tackling child poverty is so important, direct government spending is not the way to do it. But the evidence says otherwise.

Although we can’t rely solely on the state putting more money in families’ bank accounts, it is an extremely effective form of action. Decades of evidence show that when you lift family incomes, parents generally spend it on things that benefit their children. And the results are impressive. Just US$1,000 extra a year in family income, for instance, closes up one-quarter of the achievement gap between poorer and richer kids. In long-term US research, state payments made to families decades ago show up in adults’ better health and higher earnings. The government recoups so much tax from those more productive adults that the payments quite literally pay for themselves.

Of course an anti-poverty strategy can’t rely on welfare alone. Where possible, people should be supported to earn more through paid work. But even that, the evidence shows, requires greater investment in vocational education, mental health services and other welfare-to-work supports. (We also shouldn’t forget that four in 10 poor children have a parent in full-time work; as it stands a job is not a guaranteed route out of hardship.) But when people don’t have the option of paid work – when disability rules it out, child-raising has to come first, or individuals just need help getting their life back together – then they will need higher welfare payments to support themselves and their children in dignity, and to avoid all the damage that poverty can inflict.

Not that Seymour, of course, finds such arguments persuasive. Whereas he cannot blame cancer patients for their situation, he can blame poor parents for theirs, and this harsh moral judgment overrides the investment case. As do political pressures: in his interview with Espiner, Seymour notes that his Epsom constituents regularly complain to him about pharmaceutical underfunding. And those constituents are, of course, some of the richest in the country. Taking a “whole of society” approach to funding cancer drugs is very much on their radar. Doing the same for child poverty? Not so much.

The Post: What the Sensible Adults don’t tell you about the cost of super

Read the original article in the Post

One of the firmest beliefs held by elite commentators – and one of the most ill-founded – is that New Zealand Superannuation is unaffordable. It is, in certain circles, a truth universally acknowledged, an opinion not worth questioning, the ultimate proof that our political system – which obstinately refuses to deal with the “problem” – is broken.

Nor does this opinion exist by itself: it forms part of an incessant drumbeat of fear, a repeated motif that there is no more money left. The country is about to go bankrupt, children, and the Sensible Adults are here to tell you that it’s time to cut super’s cost.

The basis for all this alarm? A projection that that cost will rise from 5% of national income in 2021 to – in 2060 – a startling … 5.9%.

Hang on, you may think: that sounds like nothing at all. But surely the Sensible Adults can’t be wrong?

Actually, as it turns out, they are. Their own, more alarming calculations typically fail to account for the multi-billion-dollar contributions the Super Fund will soon be making, not to mention the extra tax all those old people will pay.

Economist Bill Rosenberg, writing a few years back, pointed out that once those facts are incorporated, the estimated cost of Super in 2060 drops from 8% of national income to the 5.9% quoted above. And that’s on current settings, including eligibility at 65.

Ah but, the Sensible Adults say, you’ve forgotten about the dependency ratio. The total cost increase may be small, but a declining number of working-age people will each have to pay a skyrocketing amount.

Again, though, Rosenberg has a riposte. More pensioners will be counterbalanced by fewer children, so the number of non-working-age people sustained by each working adult in 2060 will be not much different to what it was in 1972. (Many people, moreover, will work past 65, easing the burden on younger adults.)

Nor is this a rogue interpretation. The Retirement Commission established last year that our pension spending is the eighth lowest of 38 OECD nations. Claims about super’s unaffordability, the commission concluded, are “not supported” by hard facts.

Still, the Sensible Adults insist, our retirement age remains ridiculously low. Again – alas! – inconvenient truths intrude. We already have a higher age of eligibility than 70% of developed countries, the commission found.

And, contra elite opinion, the point of super is not to give people the same “fixed” period of retirement they got in the 1980s. It is, rather, to provide a retirement that is as long, as comfortable and as secure as we, with our increasing national affluence, can afford.

There are, of course, other demands on the state’s budget, health spending chief among them. One could then ask: even putting aside the confected panic about the public finances, is it still wise to spend billions of dollars more on pensions, especially when some recipients are earning mega-bucks? Couldn’t we somehow free up cash for other purposes?

First off: if one did want to limit super’s cost, raising the retirement age would be absolutely the worst way to do it. That discriminates deeply against manual labourers and others with broken-down bodies, just hanging on till they hit 65, not to mention Māori, Pasifika and other workers with shortened lifespans. No-one has ever developed a convincing scheme for early super access on medical grounds.

A fractionally more sensible approach to cutting super’s cost would be to means-test it. Economist Susan St John has a conceptually elegant solution: over-65s who are still working would face a significantly higher tax rate on their labour income unless they give up their super.

The problem with this, other retirement experts think, is that politically it boils down to much the same thing as the “surcharge” levied in the 1980s and 90s, a policy so detested that it contaminated the whole idea of means-testing.

A means test only on wage income, moreover, wouldn’t capture retirees enjoying large capital gains or huge wealth holdings. But it would encourage assiduous tax avoidance, the artificial rearrangement of people’s financial affairs, and the deployment of armies of accountants.

The loophole could, theoretically, be closed by testing people’s assets as well as incomes. To which one can only say: good luck dealing with the radioactive political fallout from that.

And the loophole, ironically, points us towards a better answer. If we had comprehensive taxes on capital gains or wealth, much of which would be paid by the elderly, the richest over-65s would effectively cancel out the cost of their super payments.

Super could then remain universal, a payment more likely to protect the poor because even the rich would fight to preserve it. There’d be no expensive state apparatus to administer means-testing, no gaming the system, no troublesome edge cases.

Neither a capital gains nor a wealth tax, of course, is politically perfect. But still they might be the most logical solution to the super conundrum.

The Spinoff: The Greens have broken dramatically with the James Shaw era

Read the original article in the Spinoff

Back in the mists of time, in the dim and distant past – in the year 2017, in other words – Grant Robertson proudly announced something he called the Budget Responsibility Rules. If elected, he proclaimed, a Labour-led government would largely maintain National’s financial settings, capping day-to-day spending at about 30% of GDP and infrastructure-related borrowing at 20% of GDP. 

The rules would have kept state expenditures well below those of comparable European countries. Rather than being economically justified, they were pure politics: an attempt to reassure swing voters that Labour was a financially prudent party.

The rules – which Labour adopted in government but then rapidly relaxed – were hotly debated at the time. The Green leadership team, however, willingly signed up. (Well-placed sources even argued they had originated the rules.)

The party’s leaders were, for their troubles, castigated by former MPs like Sue Bradford, who accused them of conforming to a neoliberal orthodoxy. But Bradford would, I suspect, have been delighted with the scenes that unfolded at the Wellington Museum on Tuesday, as Chlöe Swarbrick launched a new Green fiscal strategy under the heading of “Real economic responsibility”.

The Greens had already signalled a fresh radicalism with May’s “alternative budget”, which envisaged an extra $25bn in taxes, most of it supplied by the wealthiest 1%. This would have lifted New Zealand state spending to western European levels: at last the social-democratic nirvana was beginning to take shape, in Green policy papers at least.

Those taxes were designed to fund government spending on day-to-day services: teachers’ salaries, payments to the long-term ill, GP consultations. But, in orthodox economics, governments also borrow money to build long-term infrastructure that will be around for generations: schools, hospitals, wind farms. 

In return for borrowing this money from the private sector, the government pays interest over many years. This deal allows it to build things now that it otherwise could not, if limited by its current reserves of cash; it also ensures that future generations, who will benefit from that infrastructure, pick up part of the tab.

New Zealand commentators and policymakers, however, have long taken a peculiarly constrained approach to such borrowing. Partly this reflects a vague memory of the 1980s, when successive administrations played a little fast and loose with the public finances; partly it reflects the enduring influence of small-state thinking. Either way it has constrained state borrowing to levels well below those seen in other nations now or New Zealand in the past.

This fear-laden atmosphere surrounding public debt also shaped the choices made by people like Robertson and his Greens economic counterpart James Shaw. Nor has that atmosphere really dissipated: dire warnings about the government “going broke” are everywhere, and even some progressives fret about state borrowing.

Times, though, have changed: the sense of a country crumbling at the edges has strengthened, likewise the urgency of the climate crisis. Institutions like the National Party and the Treasury seem caught between two worlds, tolerating higher debt levels than seemed possible in 2017 – 40% and 50% of GDP, respectively – but constantly portraying it as a negative force, one liable to ruin the country at any given moment.

There were no such qualms apparent on Tuesday, however, as the Greens made it clear they were willing to challenge the conservative narrative – and challenge it not with empty rhetoric, not with mere assertions, but with a fairly forensic dismantling of what Swarbrick called the “straitjacket” currently placed on public investment.

Packed with graphs and citations, her new fiscal strategy envisages government borrowing – to fix our failing infrastructure and tackle climate change – at around 55-60% of GDP, roughly three times the level backed by Robertson and Shaw. Borrowing could, the strategy argues, go far higher still. It justifies this by finding multiple flaws in the current orthodoxy.

The first target is the Treasury’s belief that we need to keep borrowing low because we might at any time be hit by an economic shock so huge that it costs the government 40% of GDP – around $160bn currently – to fix. This, as Swarbrick pointed out scornfully on Tuesday, assumes we need to be ready for “two Covid-19-size shocks occurring simultaneously, or more than 23 simultaneous Cyclone Gabrielles” – a wholly unnecessary level of insurance. 

Second, the Treasury’s analysis – by its own admission “very conservative” – assumes that the interest rates our governments pay on their borrowing will significantly outpace economic growth, weakening the state’s ability to “grow” its way out of debt. Yet interest rates have, over the last 30 years, been only marginally higher than growth rates.

Equally importantly, the Greens’ new analysis hones in on a “fundamental asymmetry” in how we think about public investment (which is what state debt really is). The Treasury’s models meticulously count the interest paid on state borrowing, while failing to properly capture two things that strengthen the case for investment: the damage done by not spending money, and the benefits that occur when it is spent. 

Decisions, in other words, are systematically weighted against extra investment. As Craig Renney of the Council of Trade Unions often points out, the Treasury can tell you exactly how much it will cost to build a new hospital, almost down to the brick – but not how much it had cost the relevant region, in lives degraded and shortened, to not rebuild it for decade after decade. Nor does the Treasury properly quantify the benefits – in improved health, lives and productivity – once said hospital is completed.

As the Greens’ new strategy argues, official forecasting covers – at best – the short-term economic benefits from government investment, missing things like “productivity gains from investments in health, education, infrastructure, and R&D, which emerge and diffuse over time”. While, in short, we have over-emphasised the supposed dangers of borrowing too much, we have been consistently inattentive to the dangers of borrowing too little. 

Right now, given the desperate need for state investment in our crumbling infrastructure, it is under-borrowing – not over-borrowing – that is economically irresponsible. That, at least, is the message the Greens want to send. Their radicalism is not one that seeks to overturn every last principle of orthodox economics: there is no suggestion, for instance, that printing more money is the solution to all our woes.

What the Green Party displayed this week is a carefully calibrated radicalism, one that delights in demonstrating that others – principally, the Treasury and the National Party – have been doing orthodoxy wrong, and that even the current financial rules leave far more room for manoeuvre than they have realised. “The things the Green Party are putting on the table are entirely credible,” Swarbrick carefully noted at the launch, “and will be recognised as such by international debt markets.”

The latter is an interesting point. The fiscal strategy argues that international lenders care far less about the percentage of state debt than they do about the economic fundamentals, and that no one is going to downgrade the credit rating of a country that is effectively strengthening its infrastructure, lifting skills and making itself more climate-resilient.

Even if that is so, the argument does rely on extra state investment being well spent. Our infrastructure woes stem not just from under-spending but also from our extraordinarily inefficient approach to building things. A lack of tradies, not state funds, is arguably the biggest constraint on new construction. And plenty of extra cash has been pumped into the education system in the last two decades without noticeable results.

How to get the machinery of the state working better is, in short, an entirely separate question, one which the Greens – and, in their defence, most people – have not yet fully confronted. It was evident on Tuesday, though, that Swarbrick had her sights set on a different problem. “No area is treated with more mysticism than economics,” she declared. “That’s where the real power lies.” And that’s where the Green agenda for change is now clearest.

The Post: Biggest obstacle to tax reform? A lack of ordinary Kiwi anger

Read the original article in the Post

Are you having a nice recovery? The question was first asked back in the 1990s by the Wellington musician Don Franks, whose satirical song of the same name pointed to colossal inequalities in a nation supposedly returning to growth.

“Are you having a nice recovery? Is your champagne chilled just right?” he sang. “Or are you scratching to find something to feed your children tonight?”

The same question could be put now, when more than 500,000 New Zealanders are forced to use food banks but the Rich List, as announced this week, has just topped $100 billion, up $7b in the last year alone. Complaints, however, are puzzlingly muted.

On RNZ’s The Panel, chef Martin Bosley did note there was something “a bit tone-deaf” about celebrating extreme wealth when so many ordinary folk are struggling. Even his fellow panellist, former ACT MP Heather Roy, was moved to remark that we are “leaving a lot of people behind”.

Yet there is no sign of mass unrest. Why not? Well, for one thing, New Zealanders just don’t harbour any great dislike for the wealthy in the abstract. A decade’s worth of polling on economic disparities makes this clear: broad-brush attacks on “the rich” simply don’t land.

New Zealand’s Rich Listers, by and large, know how to fit in. They are remarkably good at maintaining a low profile, keeping controversial opinions to themselves, and not making themselves conspicuous objects of derision.

There is no New Zealand equivalent of Australia’s Gina Rinehart, an ultra-combative mining heiress who wants to slash minimum wages and slates her fellow Aussies as work-shy slackers. Our nearest equivalent might be the toy magnate Nick Mowbray, possessor of a $10b fortune and some really quite reactionary views. But even he has nothing like Rinehart’s profile.

Our business tycoons also benefit from glowing media coverage, constant deference to their opinions, a raft of other accolades. And there is, of course, nothing wrong with people working hard, building useful businesses and enjoying at least modest rewards. But there is much more – and, in a sense, much less – to the Rich List than that.

For one thing, property-based billionaires make up – alongside investors – the largest share of the Rich List’s Top 10 – hardly a sign of an innovative, cutting-edge, export revenue-generating economy. And while the list is far from uniformly dynamic, it is conspicuously dynastic.

According to an analysis I carried out a decade ago, and which I doubt is much changed, roughly four in 10 of the fortunes have a large intergenerational component. The Spencer family business was passed on from the previous generation; the Masfen investment empire is now run by the founder’s children; the Gough family fortune is multi-generational.

Given that these firms have not been driven into the ground, their inheritors are presumably smart and hard-working; but so are children growing up in poor families who don’t have multi-hundred-million-dollar opportunities fall into their laps.

Moreover, the rewards – even when tied to individual effort – are often excessive. A successful business generally relies on hundreds of staff; in days gone by, stronger trade unions ensured that a greater share of company revenue went to those frontline workers, and the country as a whole benefited. Not so today.

Anyone who has accumulated wealth, what’s more, has done so by drawing deeply from a collective pool of resources: government-run hospitals, taxpayer-funded roads, state-supplied courts and police. The traditional way in which that pool is replenished is through people paying a decent amount of tax.

Not so today’s wealthy. As the Inland Revenue has established, our Rich Listers pay just 9% of their income in tax, less than someone stacking shelves in a supermarket and half the rate of middle New Zealanders. Nor is this surprising, in the world’s only developed nation not to levy a capital gains, wealth or inheritance tax.

Such facts have not, however, registered with most voters. People who observe focus groups tell me that New Zealanders’ overriding opinion about tax is very simple: they pay too much.

This is not a relative view, a sense that they pay too much because someone else is paying too little. They just think they pay too much, full stop.

Ordinary Kiwis are strikingly not angry about Rich Listers’ low tax rates. That’s partly because no-one really knows about the Inland Revenue research, or can properly absorb its findings, and partly because there are – as above – few domestic figures to which people could easily attach their anger.

Kiwis are very willing to believe that overseas firms or investors aren’t paying their way. But although that’s true – tech-giant tax evasion costs us hundreds of millions of dollars a year – this pales into comparison with the under-taxation of our home-grown rich. Until that fact registers, though, the lack of any domestically oriented anger robs pro-tax advocacy of the fuel it most needs.

The Spinoff: Ruth Richardson’s state honour is a slap in the face for the poor

Read the original article in the Spinoff

In the early 1990s, two Porirua preschoolers burned to death when their state house was set alight by a candle their family had begun using after the power was cut off. They had been forced to this extremity by a National government that, obsessed by “market forces”, had decided to remove their housing subsidy and require them to pay market rents instead. This sharp rise in costs had left them unable to pay their power bill; hence the candle.

Labour MP Graham Kelly caused an uproar in parliament when he attributed these deaths to National’s policies – but even allowing for imponderable factors, like whether a candle falls over or not, he was in the broadest sense right. Policies that target the poor always have consequences in the end. And no one targeted the poor harder than Ruth Richardson, who on Monday was made a Companion to the New Zealand Order of Merit.

Alongside the market-rent reforms, Richardson is most notorious for the 1991 “mother of all budgets”, which cut the benefits of some of the poorest and most vulnerable New Zealanders by up to one-quarter. In a move familiar throughout history, she decided that the burden of tackling New Zealand’s (admittedly severe) budget deficit was to fall disproportionately on the poor, rather than those better able to bear it.

The result was immediate: a doubling of the number of those living in the most extreme poverty – that is, on less than 40% of the typical income – from 4% in 1990 to 8% two years later. Most policies are much slower to show their effects; Richardson is among a select few who can claim to have doubled poverty overnight.

The effects of this stark rise, quite apart from the pain and misery inflicted on families, have spread right throughout New Zealand. Food banks used to be virtually unknown in this country; in the 1990s they became commonplace.

Unable to afford to heat their homes, or indeed pay the rent, multiple families began living under one roof, enduring the cold or huddling together for warmth. Mould and damp proliferated.

Diseases like rheumatic fever, long since eliminated in other developed nations, flourished in these conditions, wrecking childhoods and ending lives prematurely. A sharp uptick in the hospitalisations of children for medical conditions – from 50 per 1,000 to 70 per 1,000 – began in 1992, just after Richardson’s budget. While she was not, of course, the sole author of these misfortunes, she undoubtedly wrote much of the script.

Child poverty leaves scars that later affluence never really erases. Children born into hardship have, in adulthood, twice the rate of heart conditions of those born into wealth. They also have far lower reading scores and educational results.

Quite apart from being devastating in their own right, these deficits create colossal financial costs: the annual bill from child poverty in this country is estimated at anywhere between $12 billion and $21 billion. This is particularly ironic because Richardson’s legacy on the right is one of financial rectitude: she is seen, in particular, as the author of the 1994 Fiscal Responsibility Act, which aimed to improve the transparency and long-term management of the government’s accounts. But not only is this relatively small beer compared to the appalling damage poverty inflicts on people’s lives, the long-term economic costs of increased hardship are an example of massive financial irresponsibility.

Not that Richardson has ever been able to acknowledge as much. Interviewed by the academic Andrew Dean a decade ago, she denied her policies had resulted in any wider harm: “Over time, was there a social cost? No, there was a social benefit.”

That, then, is the person the New Zealand state decided to honour this week: someone who not only did immense damage to the country’s poorest but is also quite disconnected from the realities of that harm. The puzzle is less – as some commentators suggested – that it took so long for her to be recognised, but rather that she has been recognised at all.

Maybe, though, we should not be surprised. Over in the UK, a similar strategy of slashing government budgets and benefit payments took place under the Conservatives between 2010 and 2024. This austerity cut access to the social services on which ordinary people rely, reduced ambulance services, and sparked poverty-related “deaths of despair”. All up, it is conservatively estimated by researchers to have caused 190,000 preventable deaths.

The man most responsible for this social devastation, former chancellor George Osborne, nonetheless occupies a gilded position in British life, having moved smoothly into editing the Evening Standard newspaper and pontificating on global politics. Inflicting misery on the poor is, in short, socially acceptable as long as it is clothed in the classic establishment rhetoric of taking “difficult” choices, “balancing” the books and fiscal “responsibility”. The poor may be, as the Christians say, always with us, but that does not guarantee that their lives will ever be accorded the proper respect.

The Post: How the pay equity ‘gift from the Government’ will keep on giving

Read the original article in the Post

f you’d been underpaid by $18,000 over the last few years, you’d be fuming. Which is the situation that faces Tamara Baddeley, a Napier-based care worker who – in return for her socially essential labour – is paid the princely sum of $26.94 an hour.

Visiting the elderly and the vulnerable in their homes, she lifts them out of bed and gets them showered, fits catheters and colostomy bags, and provides much-needed social support. The work is mentally, physically and emotionally demanding. And it’d be much better paid if it were done mostly by men.

A decade ago, another care worker, Kristine Bartlett, won a landmark case proving that she and her colleagues were underpaid purely because they were women. That, in turn, forced the National government in 2017 to approve a $2 billion pay settlement for care workers and pass a law enabling further pay equity cases.

Having previously followed the Bartlett case, I must admit that at this point I switched off, thinking: job done, justice served. But not so.

Although Labour amended the law in 2020 to make pay equity claims easier, and approved several large deals, a further problem loomed. The Bartlett settlement gave care workers the biggest pay rise of their life, but that boost was rapidly eroded by inflation and other factors. And when the settlement came up for renewal in 2022, Labour, under pressure to constrain spending, balked at finding the money to once again close the gap between care workers and men in equivalently skilled professions.

Hence the situation in which Baddeley and her colleagues find themselves. She estimates that, in the 1000 days since their settlement lapsed, they would each have earned $18,000 extra had they got another 20% pay rise like the one Bartlett earned them in 2017.

When I interviewed Baddeley a few years back, she was already feeling “taken for granted, underappreciated, overworked and underpaid”. And since the current Government gutted the pay equity process in the Budget, dishonestly scuttling 33 deals already underway, those feelings have only intensified.

Much of the current anger is rightly directed at the coalition, which took away an estimated $2.7b a year in future settlements for care workers, midwives and the like. According to RNZ political editor Jo Moir, ministers “don’t think they are losing” on this issue, the public having been scared by the big costs being waved around. But that looks, for the moment, like a delusion.

Polling released last week by Talbot Mills showed just 29% of people think the pay-equity cuts are “a sensible way to reduce government spending”, while 62% believe they are “putting cost-cutting ahead of fairness”. The pay-equity message wins by a two-to-one margin.

Whether that sentiment lasts, once the media spotlight has moved on, depends heavily on how well the unions and other campaigners mobilise the issue. It is, as one activist said to me recently, a gift from the Government.

It crystallises the wider discrimination that women experience, harnessing and focusing the anger of the lower paid in particular. It could replicate – even if to a lesser extent – the Treaty Principles Bill’s mobilisation of Māori. And it exacerbates two of Prime Minister Christopher Luxon’s great political weaknesses: the public’s sense that he is out of touch with the concerns of ordinary folk, and his poor polling among women.

National’s only real strategy here is to argue that the male-dominated occupations with which women are claiming parity involve utterly different work; the comparisons are thus “ridiculous”. But such comparisons are based not on an exact job match but on finding occupations with similar levels of training, responsibility and experience.

Once the public understands that, it no longer looks so silly to claim that social workers should be paid the same as air traffic controllers. Or that care workers like Baddeley should earn as much as far better paid prison officers.

The public finances, however, remain a problem. Labour leader Chris Hipkins has been careful not to promise he would restore the $12.8 billion the Government has stolen from pay-equity claims over the next four years.

He can, quite reasonably, argue that it’s unclear how National has calculated that figure. But, in light of Labour’s past failure, one might also reasonably suspect his party is reluctant to fully fund pay equity if that jeopardises other goals.

While, in short, National must take the largest share of the blame for the current situation, a deeper, more disturbing truth remains. The caring work carried out by women is often of benefit predominantly to society, rather than any individual client, and so society needs to pay for it.

But we have not, under a government of any stripe, been willing to find all the requisite funds. We have never properly valued women’s work. That is the bigger failing that goes beyond current politics, and the basic attitude that must change.