Monday, March 5, 2012

Steve Baron: NZ not confronting the Important Issues

Just as inflation was the scourge of the 70's and 80's, income inequality (the gap between
the rich and the poor) has become the scourge of today. A famous Kiwi once said that New
Zealanders would not understand a fiscal deficit if they tripped over it in the street and perhaps they do not understand much about income inequality either, or how it effects them—but they should. It is an issue that past and present governments have been ignoring—probably because they are not sure how to fix the problem.

'Income inequality' are two words that quickly spurt with enthusiasm from the mouth of most devout socialists. Even though I consider myself a capitalist (with a social conscience), these two words have been concerning me also.

Income inequality is growing in New Zealand and with it comes economic, social and political problems. Income inequality makes it harder for those at the bottom of the socio-economic ladder to get ahead. It traps them, breeds resentment for the free market system, for political leadership, for those with wealth and creates two classes of people—the 'haves' and the 'have nots'. I am not about to start bleating on here about taking from the rich to give to the poor, petty jealousies or giving people something they do not deserve. Certainly, there are no-hoper's out there that are too lazy to achieve anything, all they want are handouts, but they are a small minority. Most people do not want handouts, most have pride and simply want, and deserve, an equal opportunity to be able to achieve all they are capable of achieving as individuals—income inequality pulverises this opportunity. It creates an uneven playing field.

An OECD report showed that income inequality has grown mostly due to technological progress which has created more demand for highly skilled workers. This demand exacerbates the gap in earnings between low and high skilled workers. Governments have tried to fix this problem with various benefit payments and tax reforms. This helps reduce income inequality to some extent, but only goes so far. Technological advances and a struggling economy leads to less employment for the unskilled, it also puts pressure on governments to cut the cost of social security. On top of this we have an ever deepening public health black hole we continue to poor money into. Compounding the problem is an ageing population and growing superannuation costs which are all becoming unsustainable—but still our governments stand defiant as if they had a magic wand. Social security, health and superannuation alone, form the bulk of government expenditure. These issues are all intricately intertwined and immensely important for any government that truly wants to reduce income inequality and help New Zealand become a wealthier society.

If governments are able to leave more money in New Zealanders pockets by reducing government expenditure which must be funded either through more debt or taxation, then the economy has the ability to grow and create further employment. Dramatic policy changes are needed in these areas but are mostly avoided by governments for fear of being thrown out at the next election over such controversial issues. These issues need to be placed over and above politics and they need to be addressed now, before the problem feeds on itself. Governments can reduce spending in these areas by putting the responsibility back on New Zealanders for their own healthcare and superannuation—we can not carry on as we are and these services can no longer be funded through taxation. When a service like public healthcare does not operate in a competitive environment they are rarely efficient and usually lack innovation. When a service is also offered free of charge it is often abused or misused. Public healthcare in New Zealand has become inefficient and ineffective. Privatising all public hospitals is now an option and encouraging citizens to insure against the need for healthcare is inevitable. Privatising hospitals will reduce the funding burden of an inefficient healthcare system on taxpayers. Placing the responsibility of superannuation back on individuals will also empower New Zealanders to stand on their own two feet. Such a policy would steer New Zealanders away from their fixation with residential real estate as an investment and enforce New Zealanders to seek a more balanced plan for their retirement. This would improve domestic savings and investment which could be freed up to expand the economy therefore reducing the likelihood of residential homes being seen as an investment, possibly increasing the chance of cheaper homes and a home owning society for the right reasons.

An important part of individual responsibility comes from having a job. More jobs need to be created but that is easier said than done—especially in tough economic times. However, with the changes highlighted above, more jobs are likely to be created. Just having jobs is not enough though, to reduce income inequality. There needs to be a focus on increasing human capital with job related training for the low skilled along with on-the-job training and improved training procedures. Unfortunately there are very few incentives for employees and employers to make this investment but these are key requirements for reducing income inequality.


Royal Albert Ross said...

You say most people want equality of opportunity, but the rest of your article is about inequality of income, which does not in iteslf prove inequality of opportunity - it is also the result of equality of opportunity. If you want income equality you have to ensure inequality of opportunity, tipping the playing field in favour of the least able and holding back the most able.

Anonymous said...

Surely the poor have always been with us. Probably they always will be.

Jesse said...

I agree that income inequality is a growing issue of concern in NZ. Quite apart from social concerns, the IMF also draws strong correlations between countries with high income inequality and sluggish / sporadic economic growth.

However I should point out that the OECD also considers that the gradual & deliberate flattening of the tax structure in western countries over the past few decades has also been a contributor to growing inequality in these countries, and this needs to be addressed.

When talking about the efficiency of a health care system it is not enough to just assume that the private sector will do it better. It almost goes without saying that the health care system in the USA should be a cautionary tale in the perils of assuming the private sector is automatically more efficient. Americans spend about twice as much per capita on health care through their insurance premiums (which 1/3 cannot even afford in the richest country on earth) yet have worse health outcomes on average than New Zealanders.

Although the issue is incredibly complex, in large part the American healthcare 'market' doesn't work because there is no pricing, no information. You can not call up a hospital and ask them how much it will cost to get a certain procedure done, they will not tell you. I know this because I have tried 'shopping around for health care' when I lived there recently. It simply doesn't work.

In general if you look at the data you will see that our healthcare system is about as efficient as it gets, and any argument that privatisation will make matters better needs to be much more specific about exactly how that system would work.

Anonymous said...

Privatising health care might seem like a solution but in truth it is a problem waiting to happen.

For starters, one assumes that a tax break will coincide with privatisation. In truth, governments will quickly take back that tax break under the guise of additional need and the end result will be people worse off then before.

Secondly, insurance companies ultimate aim is never to pay out for anything so there will be an ever growing list of things that are suddenly uninsurable, limited in scope or completely unaffordable.

Thirdly, insurance companies will increase premiums as you age making healthcare unobtainable going forward at the times when it is most needed.

If you were actually wanting to go down this road, the only way it would work is if government negotiated an 'all of life'guranteed health policy for every citizen at a set rate with an insurer that could never be cancelled or limited. Premiums would be paid by the government from the tax take. Non citizens would need to purchase their own healthcare insurance. Now that might work

Anonymous said...

OK, we need more job creation...well if our employment laws were easier to deal with there would be more jobs...way more...even in these economic times.

I'm a potential employer but cannot afford to carry a non perfoming employee or get sued, so no one gets hired.....if I could hire and fire they would, and I could reward the good perfomers well.

If an employee can terminate his employment anytime it doesnt suit him, why cant the employer?
There is so much red tape and procedure in emploment law, (and other places like RMA ) that it strangles the very thing its supposed to protect.

That's the "no jobs" problem in a nutshell. Also we need to recognise that some people are just unemployable and in most cases, thats their choice.

NZ has become a country that is tied up in stupid govt interference in everything we do, and as a fix, they promote more of what got us here in the first place.

The govt then, is our biggest problem.

Gerald Lynch said...

I think most of you have missed the point, income inequality is a direct outcome of the fraction debt monaterist system we have saddled ourselves with. Allowing private banks to issue debt laden money out of thin air and then charge interest on that which cost the banks nothing to create is sheer fiscal lunacy. What is required is a credit system and a National Bank, controlled by the Government issuing money to create assetts which then return the value of such credit to Government, wiping the debt while still retaining the asset created. The use of such a credit system would be used to create such assets a Mag-Lev high speed transportation system countrywide, and many other infrastructural enterprises, which would be high paying and skilled employment which would eliminate the financial disparities that bedevil the country now days. This was how NZ and other countries survived the " great depression" of the 20s and 30s. And used by M J Savage to get this country on a sound financial footing. There is no such thing as a free market, but there could and should be a "fair" market. Where the political will exists poverty can be eliminated very quickly, by our politicians have been bought by the ever rapacious oligarchs, or elites, to whom greed is a religion, and are the greatest barrier to a fairer and decent just society. When each of us learns the value of looking out for the benefit of our fellow man we will rise far above the present lousy cess pit NZ has allowed itself to sink to. For God's sake, and our own WAKE UP !

Anonymous said...

Oh God you really are an idiot. I don't like our healthcare system but it's a LOT better than the system in the USA - where, yes, healthcare is privatised. The haves and the have-nots you speak of? Yeah, the have nots won't be able to afford high insurance premiums - certainly not ones that covered 'pre-existing conditions'. And what about a simple trip to A and E? Forget about not having to pay anything - if you were lucky, and you weren't admitted, and you had insurance, you could find yourself forking out maybe $500 for it. Up to $2000 if you had no insurance. Insurance policies under healthcare privatisation don't typically cover every single cost either. You sir are a moron.

Jens Meder said...

Would not placing more superannuation responsibility back to individuals be most effectively achieved through a proportion of taxation converted into retirement wealth accumulating Personal Accounts of the NZ Super Fund ?

This achieves visible individual contributions by 100% of the population to keep our basic NZ Super sustainable from age 65, and voluntary Kiwi Saver participation will complete individual responsibility of retirement welfare for those aiming for more than what NZ Super delivers, but not keen to rely only on their own investments management towards that purpose.

Due to persuasive consumption salesmanship, freely consumable tax reductions are not likely to achieve a 100% rate of participation in that effort.