Inequality is now at its highest level

18 Sep

By Peter Conway

Dominion Post 17/9/12

OPINION: There are serious questions about the competence of the Government’s economic management. This is not confined to the asset-sales process.

The Government tries to portray itself as strong on economic management. In fact, the evidence suggests otherwise.

Unemployment remains persistently high, with 271,200 jobless and another 109,500 people seeking additional hours of work.

The outflow to Australia has now reached record levels, with 53,900 leaving in the last year (or 39,800 if we subtract those who returned).

Inequality is now at its highest level. A recent Social Development Ministry survey shows that the median household income fell by 3.0 per cent over the 2010/11 year. This is the first time the median household income has fallen since the early 1990s.

Income for the bottom two-thirds of households fell, mainly from lower employment income. But average household income rose 1.1 per cent because high incomes rose. And two out of five of the 270,000 children in poverty are in households with a waged worker.

Traditionally a National government will focus on reducing the size of government, tax cuts for those on high incomes, privatisation, reduced work rights and attacks on beneficiaries.

Some of the people have changed since the 1990s, and the branding is different – but the prescription is the same.

Take the tax switch, which was actually more of a swindle. The logic of less tax on income and more tax on property made sense but the implementation was dreadful.

As a result of the tax switch, inequality widened, a fiscal hole of more than $1 billion was opened up despite claims the switch would be revenue neutral, there was an inflation spike to reach over 5 per cent and there was no stimulus to the economy.

The tax cuts in the last term of the Government resulted in the take-home pay gap between someone earning $30,000 a year and $150,000 a year widening by $135 a week. This is extremely poor economic management. It is also grossly unfair.

In tough times we see what the priorities for government really are. At first it looked like jobs would be such a priority. The Jobs Summit of early 2009 sent a strong signal that the impact of the global financial crisis would be looked at through a jobs lens.

But within months the focus had switched almost exclusively to public debt. The measures that the Government brought in to boost employment were welcome – but too small, and short-lived. Unemployment is higher worldwide as a result of the global financial crisis.

New Zealand’s ranking for unemployment was regularly among the lowest in the OECD (and was actually lowest in 2005) but is now 14th. The Government has not prioritised jobs to the same extent as many other OECD countries.

I am reluctant to be critical over the response of the Government to the Canterbury earthquakes as the overwhelming scale and complexity of what is required would test any government. However, I am critical of how the Government has implemented policies that clearly worsen income inequality, and has failed to prioritise jobs. There is also an issue about framing of the economic debate.

While the last term of Government was focused on responding to the global financial crisis and fiscal consolidation, in this term there is a more obvious effort on a wider economic framework. However, the framing is by now severely constrained and politically motivated. Gone is a reference to sustainable development or economic development.

Even the economic growth agenda has been abandoned for what is now called the ‘‘business growth agenda’’. This framing is important. It sends a signal that business growth is what really matters and that all other benefits flow from business success.

The six-part agenda on capital, exports, infrastructure, innovation, skilled and safe workplaces and natural resources includes some sensible initiatives such as the Advanced Technology Institute.

However, essentially the framing is that the Government will assist businesses to become competitive, and while this will include some initiatives that will add value, it will also mean, for instance, that employment law is changed to make it harder for workers in unions to get wage increases. The Government needs to recognise that a narrowly focused business growth agenda is no substitute for a decent plan of how to lift economic performance in everyone’s interests.

Peter Conway is secretary of the Council of Trade Unions.

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