Joe Hendren

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Tuesday, July 22, 2008

Labour is complicit in National's work-for-the-dole madness

The Standard highlights the likely implications of National welfare spokesperson inviting an Australian work-for-dole 'provider' to visit New Zealand. National plans to give them business by introducing work for the dole if it becomes the Government.

While Collins adopts the key approach of 'deny deny deny', Mission Australia's chief executive is keen to cross the Tasman.

Steve Pierson at the Standard is right when he describes work-for-the-dole as a nice sounding slogan that does not work in practice. In adopting such a policy "National is following ideology, rather than doing what makes sense."

But there is a problem with this analysis. The fact is that Labour adopted significant assumptions of the underlying ideology behind work-for-the-dole when they passed the Social Security Amendment Act. I have blogged on similar issues before. As Louise Humpage and Susan St John point out this amendment changed the fundamental purpose of the Social Security Act.

"[T]he Social Security Amendment Bill wipes away any notion that our social security system is about ensuring everyone can participate as citizens. Instead, it makes getting people into a job, any job, the fundamental duty of citizenship. This principle is baldly stated “Work in paid employment offers the best opportunity for people to achieve social and economic well-being”.

Even worse, the new Act allows for pre-benefit activity to be completed before a person can even apply for an Unemployment Benefit. So thanks to Labour, National will not even have to change the law to bring in work-for-the-dole, they can just pass a regulation to require registration for make-work schemes as part of 'pre-benefit' activity.

It is an irony that the right make so much of the 'excess' jobs offered by NZ Rail prior to corporatisation in the 1980s, when these jobs where of far more value to society than the neo-liberal work-for-the dole schemes, of the late 1990s, and of the early 1930s. In his book 'The Slump' historian Tony Simpson described how this philosophy and practice failed to address the demands of the depression.

"By and large it reflected the 19th century viewpoint that anything for nothing would be instantly exploited by the unscrupulous and feckless poor. The circumstances of giving must be unpleasant as possible and it must never amount to more than the lowest wage available otherwise it will encourage sloth."

The 1930 Unemployment Act provided for a sustenance payment of 21 shillings a week to unemployed men, with an additional 17s and 6p for a wife, and 4 shillings per child (even though working women contributed, they were not eligible). This was financed by a poll tax - in effect it was a compulsory insurance scheme.

"These rates were never paid. Instead, the unemployed were referred to local authorities, which were instructed to provide work and granted subsidies from taxation with which to pay the workers involved. A stern instruction accompanied this scheme. No one was to be given payment unless they actually reported for work. This led to ludicrous, even scandalous, situations where local authorities scrambled to create work which was clearly unnecessary or even useless (such as shifting sandhills from place to place)."

If local authorities could not create work payment was withheld. Despite this example being from the 1930s it still demonstrates the weaknesses of a work-for-the-dole policy, and how it can lead to further retrenchment. The work involved is either going to replace genuine jobs or it is not. If not, this can only mean sandhills. If a government (or a private provider) is inclined to cut 'benefit' costs further, restricting the amount of 'work' available becomes a very handy way to do this.

Its not just the Social Security Amendment Act. Consider Sue Braford's analysis of Steve Maharey's 'Jobs Jolt' policy from 2004.

"In this context, for those people who are living in poverty, on wages and benefits which aren’t enough to sustain a remotely decent standard of living, the ‘Jobs Jolt’ means little more than increased harassment by the State in a situation where there are still far from enough jobs to go around....This is why I view the ‘Jobs Jolt’ and the thinking behind it as intrinsically right wing, fundamentally unjust from a social equity perspective, and a clear signal that Labour is far keener on picking up votes from the beneficiary-bashing part of the political spectrum than it is from low income workers, unemployed people and beneficiaries, and those who support their right to jobs and a living wage.... Overall, I sense that the Government’s lurch to the Right on welfare as epitomised by the ‘Jobs Jolt’ is a product of their lack of any cohesive ideology or coherent thinking about solutions to structural unemployment, endemic poverty, a failed, fractured welfare system and an entrenched and increasing gap between rich and poor in Aotearoa New Zealand. "

In other words, the circumstances of giving must be unpleasant. If the Nats introduce work-for-the-dole it will be a logical extension of Labour's own policy, or perhaps lack of one. If Labour had wished to vanquish work-for-the-dole to the historical dustbin it belongs, perhaps it should have made more effort to challenge the neo-Victorian attitudes underlying the ideology of work-for-the-dole.

In 1938 Labour's proposed Social Security Bill was the centrepiece of its election campaign. The National party called it 'applied lunacy', a bribe and a cheat. Labour not only won a majority, it won a majority of the votes cast - a first in New Zealand history.

Note: Made a small edit when I established Mission Australia are technically a charity rather than a private company. That will teach me for blogging too late at night. If National devolves welfare delivery to the charities sector it will like going back to a pre-1930s situation!

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Tuesday, July 15, 2008

Price Waterhouse Coopers oppose measures aimed to cut tax avoidance

I came across an opinion piece from the Dominion Post on Friday where multinational tax advisors Price Waterhouse Coopers (PWC) attempt to start a scare campaign about the Government introducing a capital gains tax.

The article is headed 'Capital gains tax lifts its ugly head'. All that is lifting its ugly head here is the spectre of tax advisors complaining they will be less able to help their wealthy clients avoid paying their fair share of tax.

Is the government proposing to introduce a comprehensive capital gains tax? Sadly no. Ugly? Well assuming such a tax included an exemption for the family home, it is only ugly for the well off who have taken advantage of the lighter taxation on property investments, and have driven first home buyers out of the market as a result. It is a shame Labour didn't close this complete rort when it raised the top tax rate to 39c in the dollar in 1999.

Between 1989 and 2005 the residential property market provided investors and owners with a tax free gain of 319%*.

Despite PWC attempts to scaremonger, all that is happening is that the Government is tightening the rules around existing tax law that makes investments in housing for the purpose of making a capital gain taxable. So the Government is seeking to remove the loopholes that PWC and its clients love so much. It is not a new tax. As Michael Cullen explains:
"Associated persons: ... The definitions are used extensively in the Income Tax Act, primarily in an anti-avoidance capacity to counter transactions that are not conducted at arm’s length and therefore have the potential to undermine the intent of the law. ....There are a number of major weaknesses in the current definitions, particularly in the definition relating to land sales. That definition contains some major gaps which allow land dealers, developers and builders to circumvent the land sale tax rules by operating through closely connected entities. Parliament’s clear intent in 1973, when it enacted the current land sale tax rules, was that land dealers, developers and builders would be generally taxed on all gains on property sold within ten years of acquisition, and they could not claim to hold non-taxable investment portfolios."

PWC's Chris Leatham says
"In our view, the changes will not be well received. Land dealers, developers and builders have previously been allowed to structure their affairs to avoid tainting of rental properties so that they are not placed at a disadvantage to other taxpayers."

The New Zealand tax system generally taxes property investments with a lighter touch than other forms of investment. The whole point of removing such obvious loopholes in tax law is to ensure particular taxpayers are not disadvantaged over others. Why are PWR defending such loopholes I wonder?

Opponents of capital gains taxes often make unsubstantiated claims about how unpopular a capital gains tax could be - just because they don't like it. I think views are changing. Many economic commentators, including many on the right, now support capital gains taxes because they can see New Zealand would benefit from more money being invested in companies rather than sitting in bricks and mortar. A capital gains tax introduced in a declining or flat housing market would have limited immediate impact, but it would help to slow the next housing boom that will eventually happen. Then there are the growing numbers of twentysomethings and thirtysomethings, now on good incomes, who are becoming more and more aware of how the baby boom generation have shut them out of the housing market by speculating for tax free gains on the housing market. Bernard Hickey is really onto something when he identified "The generation that New Zealand Inc failed"

If it was up to me I would introduce a comprehensive capital gains tax (with an exemption for the family home) and direct the proceeds towards affordable housing initiatives. Ironically, a declining or flat housing market can make the structural issues easier to address.

Returning to Leatham's little opinion piece, one could be mistaken for thinking that the Dominion Post are now running free advertising features for Price Waterhouse Coopers.
"The new rules will apply only to property purchases from April 1, 2009 onward (or, in the case of builders, to property improvements made after that date). This gives you the opportunity to talk to your accountant to understand the impact of the changes."

As for their views on the taxation of housing investments - their vested interests are plain to see.

* Source: Sunday Star Times (17/6/07), "The Rent Trap"

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