Archive | October, 2012

Question 18: What truth was there to the claim that the economic changes imposed during the Rogernomics revolution were needed to stop New Zealand slipping behind Australia and other high income countries? What was the actual experience of those year

31 Oct

Instead of the gap closing with Australia the neoliberal reforms led to a collapse on growth rates, slowing productivity growth, and a widening in the income gap with Australia and other OECD countries.

According to NZ herald columnists Brian Gaynor’s Blog the most recent data shows “Average weekly earnings have increased by 89% in Australia since mid-1994 and by just 64% in New Zealand. As a result the gap between average earnings in the two countries, in NZ dollar terms, has risen from $233 to $576 per week.”

The Dalziel paper quotes earlier also shows that the economic shocks of the period took New Zealand from a situation where the gap in GDP per capita with Australia nearly doubled from 17% in 1984/5 to 31.5% in 1992/93. Since then the gap has continued to widen. He writes:

"Figure 2 [Graph 6 below] presents quarterly index data for Australia’s and New Zealand’s per capita real GDP (seasonally adjusted) from March 1978 to December 1998, with both series scaled to equal 100 for the calendar year 1978. The graphs show the two economies following a very similar growth path until the end of 1981. The world recession of 1982 then had a larger impact on Australia than New Zealand, but Australia had made up the lost ground by September 1985. New Zealand experienced a temporary two-quarter surge in GDP in 1986 (associated with the introduction of its indirect tax, the Goods & Services Tax, on 1 October); otherwise, the two series are again similar until June 1987, which marks the beginning of a widening divergence between the Australian and the New Zealand data…..

Graph 6

"The cumulative effect of this divergence is very large. By 1998, the value of the real output index for Australia in Fig. 2 [Graph 6] was 18.5% higher than that of New Zealand. Since per capita nominal GDP in New Zealand that year was NZ$25,980, this suggests that every New Zealander could have received an extra $4806 in 1998 if their country had continued to grow at the same rate as Australia after June 1987. This is a very large figure, amounting to just over $18 billion in the aggregate. Over the entire 1987–88 period, the sum of the Australia–New Zealand differential equals 1.16 times New Zealand’s total per capita GDP in 1998; that is, $30,000 per person or $114 billion in the aggregate. These statistics demonstrate that, compared with Australia, New Zealand sacrificed a large volume of real per capita GDP after 1987.” (see Graph 6) http://unpan1.un.org/intradoc/groups/public/documents/apcity/unpan015710.pdf

Dalziel also documents a similar divergence in labour productivity between New Zealand and Australia.

"The most surprising data are in Fig. 7 [Graph 7], which shows real GDP divided by the number of full-time equivalent workers employed, rescaled so that the 1978 calendar year values equal 100. From March 1978 to September 1984, the two series are almost indistinguishable. For the next 4 years, New Zealand’s labour productivity index lies below that of Australia (except for the quarters affected by the introduction of the Goods & Services Tax in the middle of 1986), but catches up by the beginning of 1989. The series are then indistinguishable again until December 1990, after which labour productivity growth falls away in New Zealand compared with Australia (especially after December 1991). Over the last 8 years of the sample, the gap increased substantially, so that between 1990 and 1998 workers in Australia increased their productivity by 21.9 percentage points whereas the increase in New Zealand over the same period was only 5.2 percentage points. Figure 7 shows that since 1992 labour productivity growth in New Zealand has been considerably below that of Australia, after similar rates for the previous 14 years.” Dalziel concludes with an obvious point: “This observation raises profound questions for New Zealand policy makers about the effectiveness of labour market reforms intended to raise labour productivity.” (see Graph 7)

Graph 7

Economic historian Brian Easton estimates that New Zealand’s GDP per capita as a percentage of the OECD average went from 98% in 1986 to 84% by 1993.

(Part of a series of extracts from “Exposing Right Wing Lies” by Mike Treen, Unite National Director)

Question 17: How did the tax and benefit changes in the 80s and 90s affect the incomes of wealthy individuals and corporations?

29 Oct

As a result of the changes tax system there was a huge transfer of income and wealth from the poor to the rich under both the Labour and National governments from 1984-1996

The 1984-90 Labour government lowered the top corporate and personal tax rate from 66 cents in the dollar to 33 cents. A regressive consumption tax (GST) of first 10% then 12.5% on all goods and services was imposed which hits working people hardest. In 1981 24% of tax came from indirect sources. By 1991 it was 33%. Tax on business as a percentage of total taxation receipts went from 29.2% of the total in 1971 to 6.6% in 1990/91.

The flattening of tax rates led to a transfer of wealth from middle to high incomes, while the regressive nature of the universal GST redistributed the tax burden to the poor. According to Victoria University lecturer in economics and public policy Rob Stephens, changes in the tax structures between 1982 and 1988 meant that effective average tax rates including GST for couples on average earnings with two dependents increased from 18.7 percent to 24.1 percent. Average tax rates for similar couples on three times the average income declined from 40.3 percent to 34.9 percent.

The promise that wage earners would be compensated for the rise in consumption taxes and user charges by a cut in direct taxes proved to be a lie for most. Between March 1985 and March 1991 the average income tax rate for the bottom 20% of full time wage and salary earners increased from 15.7% to 18.3%, the middle 20% went from 25.1% to 23.6% while the top 20% went from 31.8% to 25%. It seems clear that for the big majority of wage and salary earners the tax changes would have made them worse off.

Economist Brian Easton wrote that the 1988 tax reform reducing the top rate from 48 to 33% resulted in a “substantial increase in the incomes of those on high incomes. Typically those in the top tenth of income recipients were about 25 percent better off.” Easton calculated that in 1988 the top 10% of disposable household incomes (adjusted for size of household) averaged twice the average income. In 1991 they averaged 2.5 times the average largely due to the 1988 Douglas tax cuts.

From 1984 to 1998 the top 10% of households increased income by 43% and the bottom 50% of households decreased income by 14%.

A Statistics New Zealand report for the period 1982 to 1996 found that the gulf between rich and poor in New Zealand grew significantly. The wealthiest 10 percent of households increased their share of the country’s after-tax income from 20 percent in 1982 to 25 percent in 1996. The middle 70 percent of income earners share dropped from 71 percent to 66 percent. The bottom 20 percent never earned more than 9 percent of total income.

A paper by Paul Dalziel of Lincoln University documents the actual experience in a paper titled: “New Zealand’s Economic Reforms: an assessment”. The charts below are from that paper. Dalziel wrote:

“There was a substantial shift in New Zealand’s income distribution during the reform period. First, the lowest income deciles suffered a large loss of income during the depths of the recession in the early 1990s. The average income of the lowest decile in 1991/92 was 21.6% lower than in 1983/84, and that of the second decile was 10.3% lower. These two groups shared in the post-1991/92 recovery, but by 1995/96 their average incomes were still 8.7% and 4% lower than in 1983/84. Secondly, half of the New Zealand distribution had lower real incomes in 1995/96 than before the start of the reforms, and for 40% of the distribution the loss of income was greater than 3%. These data support reports by a wide variety of community groups in New Zealand during the 1990s that poverty and social exclusion have caused widespread problems, particularly among low-income households with children (confirmed by Stephens et al., 2000, p. 31). Finally, Table 4 [ renamedTable 2 above – ed] shows that large gains were made at the top end of the income distribution during the recovery that peaked in 1995/96. Compared with 1983/84, the average income of the top 10% had increased by more than one-quarter (26.5%).

Table 2

“Note carefully that this result does not simply say that the income distribution in New Zealand widened during the course of its economic reforms. As is well known, income distribution dispersion is a global phenomenon (see, for example, Dixon, 1998; Easton, 1996). In New Zealand, however, it appears to have been accompanied in the 1980s and 1990s by a significant fall in the absolute amount of real purchasing power by the lowest-income groups. At the beginning of the reform process in New Zealand, a government-sponsored Economic Summit Conference (ESC) agreed unanimously that the costs of economic adjustment ‘should not be borne by the relatively disadvantaged’, but ‘policy should aim to minimise the impact of social and economic dislocations on vulnerable groups and communities’ (ESC, 1984, p. 304). The data reveal that these objectives were not achieved.” (See Table 2 + 3)

Table 3

(Part of a series of extracts from “Exposing Right Wing Lies” by Mike Treen, Unite National Director)

Matt McCarten: Deadly errors no problem for officials on pedestal

28 Oct

Herald on Sunday, October 28, 2012

The Urewera raids revealed the cluelessness among sections of our police force. Photo / NZ Herald

By Matt McCarten Email Matt
In a democratic society we elect our politicians who, in turn, employ a bureaucracy of professionals to carry out their decisions.

Things have happened recently that make me wonder about the line between those we employ as public servants and their accountabilities.

I’ve written about the conduct of some sections of our police force and their legal advisers in terms of the Urewera raids and the Dotcom fiasco.

This week, 21 gangsters got off because the police seemed to think the law didn’t apply to them. Mistakes are made, of course, but it’s the level of incompetency that should disturb us all. How did they not know that faking a prosecution against an undercover officer could turn pearshaped?

The overreaction of the ninja uniforms terrorising the Urewera population, and the commando assault on an individual’s home, is one thing.

But it’s the continuing dripfeed of basic systematic cluelessness on the part of our public servants, all the way to the top of the bureaucracy, that is alarming.

We are constantly assured by our politicians that we need to pay our senior civil servants up to 10 times more than the average taxpayer earns because we need the best. We are told that we could pay them less when they had a job for life, but now they are treated like their private-sector colleagues who can be sacked at any time if they don’t perform. Really?

When was the last time we heard of a senior public servant getting the sack? Even when they retire with gold-plated pensions they still manage to get perk appointments.

I don’t particularly mind them getting paid a lot of money if they are good at their job – they are workers after all – but what I do resent is they seem to feel they can do whatever they like and when they mess up nothing happens.

The extreme example was the judge in the Christie Marceau case, who let the kidnapper out on bail about 300 metres from his victim. She and her parents were rightly terrified of this assailant and begged the judge not to release him.

The cops stridently opposed bail. Even his mother said she thought he was a danger, and her daughter moved out of the family home through fear. With that background, I wonder how anyone could have granted bail.

I’m told by friends who associate with judges that they really are an odd lot. They don’t mix with the rest of us because it may compromise their objectivity, which I think means they fear they may be compromised by association with the riff-raff. I kind of understand that reasoning but I can’t help thinking that makes them less in touch.

I’m told that judges are under a lot of pressure, just like a surgeon in an emergency room, and mistakes will happen.

This is nonsense on two levels. First, if health professionals make a mistake and someone dies there is an investigation and the culprits may lose their job and career.

Here we have a situation where a judge is dealing with a violent kidnapping of a girl at knifepoint by a man who stripped and terrorised her. The victim, the victim’s family and the cops strongly opposed bail.

I’m told the judge feels terrible and probably has had sleepless nights. Poor thing. What about the parents who, I bet, have had sleepless nights every night since her death?

In the private sector, does anyone doubt that an employee who ignored all advice and made a contrary decision that led to the death of someone would not have been sacked?

Our senior public servants get paid oodles of money, they receive all the trappings of power, but it looks to me like there are no consequences no matter how incompetent they are, and then they retire with benefits that the rest of us can only dream about.

We blather on about one law for all when it comes to race, but it’s clearly another set of rules when it comes to our senior public servants.

By Matt McCarten Email Matt

Coca-Cola denies workers rights – again

24 Oct
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This week we’re passing on urgent action appeals from the Philippines and Korea, an update on a worsening situation in Zimbabwe, and a chance to help get $87,000 for your favorite union or website that campaigns for workers’ rights.

Coca-Cola in the Philippines has replaced collective bargaining over wages with arbitrary individual wage increases as part of a broader assault on workers’ rights. Unions representing Coke workers there have taken to the streets in protest. The IUF has launched a global campaign to back these workers – to learn more or to show your support, click here.

ING, the Netherlands-based bank, has been restructuring and the result in Korea has been a strike lasting more than two months. The company is refusing to consult with its workers and UNI global union, which represents workers in the banking sector, has launched a global campaign to pressure ING. To learn more and to support the campaign, click here.

Meanwhile in Zimbabwe, a member of the Executive Committee of the newly-formed IndustriALL global union, Angeline Chitambo, has been dismissed from her job and this follows the sacking of 135 workers by the Zimbabwe Electricity Supply Company (ZESA) in July 2012. Full details about this latest attack on the union can be found on the IndustriALL site. If you’ve not yet done so, please send your message of support to the Zimbabwe Electricity Workers Union (ZEWU) here.

Finally, we’re very pleased to once again pass on the news about the Arthur Svensson International Prize for Trade Union Rights, which was established by the union Industri Energi (in Norway) in 2010. In its first three years, the prize has been granted to Wellington Chibebe, Secretary General of the Zimbabwe Congress of Trade Unions (ZCTU), Shaer Sae’d, Secretary General of the Palestinian General Federation of Trade Unions (PGFTU) and the C.CAWDU (Coalition of Cambodian Apparel Workers Democratic Union). The prize will be granted annually to a worthy winner, based on proposals from trade unions around the world. The prize money is NOK 500,000 (approximately $US 87,000). The deadline for the 2013 nominations is 31 January 2013. Nominations can be made in Norwegian, English, French or Spanish espen.loken.

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Eric Lee

Which campaigns have I missed? Click here to find out.

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Matt McCarten: The human cost in our capitalist competition

23 Oct

Herald on Sunday October 21, 2012

Small towns and communities are losing to The Warehouse. Photo / Dexter Murray

By Matt McCarten Email Matt

This week my favourite retailer vanished

I was confused when I couldn’t find his shop doorway and had to pace backwards and forwards to try to find the signage. It took a few seconds to dawn on me that part of my history had been replaced by a papered-over front window.

I’d known my retailer and his family for almost three decades.

I used to be a daily customer and even after I moved out of the area I managed to drop in regularly.

My guy never failed to greet me and other customers by our first names. He was always relentlessly positive and you never left his store without feeling your spirit had lifted. He knew all his products and if he didn’t have something, he’d offer to order it.

A few years ago one of those box retail chain stores opened down the street. Initially, little changed but in recent times I noticed gaps in his shelves.

The last time I saw him his cheerfulness was strained and his smile fixed.

On the brink of tears he told me he couldn’t compete with the chain store and his mounting debts had caught up with him. I hoped he’d be able to continue to eke out a living.

We know abstractly that in our capitalist economic system it’s the natural order of things that big corporations eat smaller businesses to grow bigger still.

When we see the human cost it’s difficult to be so philosophical.

And now he is gone.

It was cruel irony on Friday that I read a glowing article in the Business Herald on the hundreds of jobs being created in a new Warehouse and a couple of supermarkets in Silverdale on Auckland’s North Shore.

I could feel the pride of new employees who were so enthusiastic and grateful for a chance to earn a living with a big employer. It may not be full time and the workers may have to give up their evenings and weekends, but it’s the price for having the dignity of work.

I wasn’t sure if the writer was being sarcastic when he mentioned a 17-year-old young woman was “happily” doing a 50km round trip each day to get to work. Given it would cost her more than $100 a week from her after-tax minimum wage, she’s certainly a trooper.

What wasn’t said, of course, was that opponents of these giant national retailers claim that for every job they create, one-and-a-half existing jobs are lost as they squeeze smaller retailers out of business and use their dominance to reduce the margins of their suppliers, who also shed staff to stay operating.

Just about every small town has lost its battle with The Warehouse. It’s hard to resist the lure of cheaper prices of goods from countries such as China.

Trading our local small community business owners who know us with faceless staff in the same corporate uniforms, trained to say and act in the exact same way, is one thing.

But now it seems these corporates are moving to the next level of reducing costs and maximising profit.

Have you noticed how The Warehouse and supermarkets now expect us to check out and pack our own goods? If we insist on a checkout operator, do you notice the fewer stations and longer waits? Eventually, the only human we’ll see is a security guard making sure we don’t pinch anything.

After using a convenient free carpark, I sat in the comfort of my air-conditioned mall where it never rains or is windy, musing over the fate of my former shopkeeper.

For good reason we should blame faceless corporations and the Stephen Tindalls of this world for destroying our way of life.

But we bear some of the responsibility by accepting the demise of our local communities, where everyone knows our names.

We have traded it for the impersonal but convenient shopping malls and sheds where no one even cares to ask.

Welcome to the future.

The final Union Report with Sue Bradford & Chris Trotter discussing the future of the NZ union movement

23 Oct

Issue 1: What are the challenges confronting the modern Union movement politically in NZ?
Issue 2: Is globalization strengthening or weakening Unions?
Issue 3: What solutions must Unions champion for 2014?

Question 16: Why do big business and the government want to cut welfare spending?

19 Oct

Big business wants to cut the costs of welfare for two reasons. Firstly, benefits above the barest minimum are seen as a barrier to lowering wages. The costs of welfare are also seen as a barrier to the government’s programme of cutting taxes on business and the rich. Cutting social welfare and cutting taxes for the rich usually go hand in hand.

In 1991 the then Minister of Social Welfare Jenny Shipley blamed “high” benefits for making it difficult to lower wages. Explaining her support for benefit cuts she claimed: “Benefit payments have been high enough compared to wages that for many people there has been little financial encouragement to take on paid work and employers have been unable to attract workers at rates that would maintain the viability of their business.” Commenting on what basis the benefit levels were decided she said: “Quite frankly, the research I rely on is the marketplace. If the marketplace cannot pay, there is no such thing as an arbitrary, isolated, adequacy level.”

The current government is also testing the water to impose time limits on benefits by forcing people to reapply after one year. Business Roundtable chairman Douglas Myers told the HR Nicholls Society in Melbourne in 1992: “The absence of any time-limit on the dole (following which people might be obliged to undertake training or qualify for restricted assistance) reduces the pressure on wages to adjust to competitive pressures.”

By targeting the most vulnerable the government hopes to get support for large scale cuts to basic welfare for everyone. They can then use those cuts to finance tax cuts for business and the rich. And they are happy to lie to achieve that goal. John Key claimed in February that the government would save $10 million over their lifetime if 100 sole parent beneficiaries were moved off benefits and into work. In March he upped the ante and claimed that getting 5 percent of DPB recipients (around 2150 sole parents) with a child over six off the benefit would save $200 million. This calculation assumed the full cost of DPB over another 6.5 years on the DPB. This number doesn’t actually match time usually spent on the DPB. What he also “forgot” is that nearly exactly the same amount would be spent or lost on Working For Families, In work Tax benefits, child care subsidies, payments from the other parent (which goes to the State) and the like if (as can be assumed) they work 20 or more hours a week. Working for Families alone would cost $170 million over the 6.5 years. That’s the way our benefit/wage/tax system is set up. The biggest disincentive to working is the 100% marginal tax rates for income earned by beneficiaries over $80 a week. The proposed increase in this level to $100 (for those on the DPB and invalids benefits only) will do very little remove the real disincentives that exist to working more hours while transitioning off a benefit. This $20 increase is the first increase in the limit in two decades!

People on unemployment and sickness benefits will still only be able to earn $80 a week before their benefits are reduced by 70 cents for every dollar they earn. Promising to allow beneficiaries to earn up to $100 a week before their benefit is affected was one of the only good parts of National’s pre-election policy and they have reneged on it. National’s 2008 Benefits Policy Backgrounder notes: “After paying tax on their extra income, and losing part of their benefit, beneficiaries can be in a position where they are losing up to 92 cents of every additional dollar they earn. This is a disincentive for people to work even a few hours a week.” The law change introduced by National will force sickness and unemployment beneficiaries to do exactly that.

As the economist Susan St John commented when releasing these calculations: “Reminiscent of the welfare attacks of the early 1990s, there is a disturbing lack of empathy for the hardship endured by the people who cannot work or who can only work part-time while on a benefit. Many are sole parents already carrying a huge load of caregiving work, others suffer ill-health that makes them unsuited to full-time or even any work. Then there are the alarming numbers of young people who are now pounding at the doors of tertiary institutes as the job market fails to absorb their growing numbers.”

The intrusive and punitive work test regime will set up a costly new layer of bureaucracy to police those forced onto benefits by an economic system that has failed to create enough jobs. Solo mothers on the domestic purposes benefit will be expected to work a minimum 15 hours a week if their child is over the six. For some reason Widows are exempt from this requirement even if they have no dependent children – probably reflecting the governments elitist concept of deserving and undeserving poor. If you husband drops dead you are “deserving” and won’t be work tested. If you are abandoned by a violent husband, or get pregnant outside of a good middle class family – you are “undeserving”. Sickness beneficiaries will also be assessed for part-time work and required to seek work if deemed able to work at least 15 hours a week. The package also offers case managers a new range of penalties, including cutting payments by 50 percent and suspension of payments in full. The requirement that sickness beneficiaries must present medical certificates at four, eight, thirteen and 52 weeks to verify their condition will impose considerable extra costs on everyone now on a sickness benefit, mindful that a full examination with blood tests can easily cost nearly $100 a time.

(Part of a series of extracts from “Exposing Right Wing Lies” by Mike Treen, Unite National Director)

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