Archive for March, 2019

Where to Miss? To the stars.

The 2017 “Stars in their Eyes” talent show at the Community hall. Who will forget it? The pre-show favourites were Bill, Paula and Steve, “and tonight Mathew we are going to be the Hues Corporation with: ‘Rock the boat, don’t rock the boat baby.'” A very solid, if uninspiring performance.

Then next onstage came ‘the moment’. Grant and Jacinda stage-whispered the immortal words from Titanic to each other of “where to Miss?” “to the stars”  before launching into their tear-inducing rendition of theme song “My heart will go on”. So patiently rehearsed, secretly over months and so movingly presented on the night that an unexpectedly large number of swinging voters, swung, making it a very close contest.

Finally came the drama of Winston’s solo effort of Englebert Humperdinck’s “After the loving” and many of the old dears who had always liked nice Mr English were now swaying their i-phone torches and swinging their knickers and that performance gave Winnie enough votes to allow Rose and Jack to take the “Stars in their eyes” title.

It was an ominous choice of song that Jacinda and Grant chose as it turns out. We forgot that movie ended with an iceberg and a lot of people were made quickly boatless and floating in the freezing Atlantic.

The Clark/ Cullen team had always steered clear of that iceberg; the Key/ English team didn’t even allow it on their radar; even Andrew Little saw it in time to make an emergency turn and avoid collision. But now the Ardern/ Robertson team, with the grinning masks firmly in place, are steering straight back towards it.  Capital gains/ inheritance tax. The hidden iceberg that would sink the ‘New Zealand that we know’ as surely as the unsinkable Titanic.

What is the difference between us and one of the many poverty-stricken 3rd world countries in Africa, South America, Asia or even increasingly in Europe? Answer: It is a dominant middle class. The middle class is the ballast that keeps a country stable.

China has only emerged recently from the 3rd world status, when they only had a labour class and a political elite as their social structure, to the second biggest economy in the world with a political strategy to create the biggest middle class in the world.

But the growth of China’s middle class has been at the cost of middle classes in the west, including New Zealand. Lured by the temptations of retail warehouses full of cheap, disposable consumer goods, we have sold our middle class soul to indulge ourselves.

Only a generation ago Dunedin used to make things, lots of things.  We had Sew Hoys clothing factories; Ellis’ mattress and bedding factory; Zephyr heater factory; McLeods soap factory, Hudsons biscuit factory, Mosgiel wool and yarn mills, Methven taps and plumbing equipment factory, McSkimmings brick factory and even Hillside trains workshop. And we had large head office infrastructures to support these factories. We were far less dependent on the outside world back then; and we had plenty of goods to trade for those that we needed to buy in. Now we don’t. Plain and simple. And that story is not unique to us, it is repeated in every town and city around the country.

That time is gone. We now gorge ourselves on Chinese-made consumer goods and more and more of us are using credit cards to do it. More and more have no earned income, that is income that has created an asset on the other side of the balance sheet. The socio-economic gap is widening; the middle class is shrinking. The middle class is progressively joining the social welfare queue and the pressure on social welfare taxes is forcing more and more off the bottom rung and onto the street. That is evidence we can’t deny.

Jacinda and Grant’s solution is to collect more taxes to pay more social welfare and provide more social services and so a Tax Committee is established to achieve that. That report recommends a Capital Gains and Inheritance tax of 33% be introduced. But history teaches us well that tax webs catch the butterflies and bumblebees but are no more than a minor nuisance to the magpies and hawks. Living outside the legal system or moving wealth into offshore tax havens are the options that the criminals and the wealthy take. The tax webs catch the law-abiding middle classes. And so the economic gap widens ever more. Venezuela here we come.

Venezuela was once the wealthiest country in South America based on its oil industry.

Hugo Chavez

Chavez was a caring, smiling man who spent much of the income from the boom years on social services; he did not invest in maintenance and development of his oil industry infrastructure and in diversifying their economy. So a few decades on, a run-down oil industry infrastructure in combination with a downturn in global oil prices meant his country’s income stream collapsed. When Maduro took over the presidency in 2013 the Venezuelan people were in a deep economic crisis with more and more depending on social welfare. And he responded the only way he could with a collapsing economy; he borrowed to meet increasing social spending, with China being the largest creditor having loaned over $US60 billion over the past decade, according to the Centre for Strategic and International Studies in Washington. Today 90% of Venezuelans are living in poverty; the economy had 80,000% percent hyper inflation in 2018 and there is no way out. Food is at a premium, electricity supply is unreliable, homelessness a norm and people cannot get even the most basic medical help. Nearly three million have left the country as refugees. And it can only get worse. Any bailout will take over ownership of their oil reserves and they will be a slave nation.

It can happen quickly even to wealthy countries and happens under the most well-meaning, but commercially naive, political leaders in charge. Those with smiles on their faces and stardust in their eyes.

New Zealand still has a middle class, but with the massive undermining of  our manufacturing industries, the new middle class will inherit that status from the investments made by the baby boomers during years of full employment. When we had workers, supervisors and managers in a huge range of manufacturing and service businesses. If Jacinda and Grant bring in a Capital Gains and Inheritance tax, that middle class will be decimated in this generation. Family income generating assets will be sold off to meet social welfare demands and down the rabbit hole we go. Within two generations the middle class, the ballast of the nation, will be all but gone. There will be a huge welfare state class and the 1% super rich. Unchartered waters for New Zealand but look around the globe at other countries’ experiences and you see massive poverty, massive civil unrest. No doubt Jacinda and Grant will have hoped to be based in New York by then on some UN gig. Auntie Helen mentored them both into their roles in politics, Auntie Helen knows people at the UN.

There may well be a theoretical rationale for CG&I tax, but any such debate is dependent on timing and circumstances. When a couple or single parent is struggling week to week just to pay the rent, food, electricity and transport costs for the family, there is not point telling them they need to put aside 30% of their income for their retirement in 30 years. Likewise when we have a generation that is already in debt, due to declining infrastructure and inflationary property costs, and is dependent on inheriting capital assets to just maintain the lifestyle of the previous generation, then it is counter productive to talk about 33% of the current market value of those assets being handed over to the state for disbursement to the low/ zero income earners. That just creates a progressively bigger pool of low / zero income earners and a progressively smaller pool of capital investments from which to generate future social welfare and services. The rich get richer, buying up those middle class assets, and the middle class becomes poor. At that point Jacinda has to go to the international loan sharks and, as Venezuela has discovered, that is the end of life as you knew it.

The old socio-economic systems are heading us straight for an iceberg. Rampant consumerism is driving technological advances far beyond our ability to manage the consequences. It is destroying our middle class, destroying our ecology.

Brave new intelligent solutions need to be found and only brave, intelligent leadership can find them. But a CG&I tax is, as the metaphor states, just moving deck chairs on the Titanic. Back to the movie and what happens when the ballast is compromised:

“She can stay afloat with the first four compartments breached but not five. Not five. She goes down by the head, the water will spill over the bulkheads, from one to the next back and back there’s no stopping it.”

“But this ship can’t sink!”

“I assure you, she can. And she will. It is a mathematical certainty.”

Footnote: While the report said ‘full steam ahead, that is no iceberg it’s a mirage’ Jacinda sniffed the wind and decided if she wanted to go back to the ballroom where she was the belle, she had better steer a by-pass course to starboard. Iceberg averted, mirage or not.

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