Important post-earthquake political debate: who pays?

An important political and ideological debate has started in the wake of the Christchurch earthquake. This debate hinges around a neo-liberal response that will devastate the lives of all grassroots New Zealanders (a case of same policies, same failures), or an alternative people-centred response that makes sure that those most able to pay - the wealthy and big corporates - foot the bill for rebuilding Christchurch. Tax continues to be a key political battleground.

Rob George, a Hamilton-based activist, has entered into this debate in response to an article by NZ Herald business columnist Fran O'Sullivan. Rob's article, Seismic events in Christchurch, food & fuel, can be read on The Standard. 

International backing grows for 'Robin Hood tax' on banks

EU ministers edge closer to financial transaction levy amid signs that International Monetary Fund is softening opposition to 'Robin Hood tax'

• Larry Elliott, economics editor
• The Observer, Sunday 5 September 2010

http://www.guardian.co.uk/business/2010/sep/05/eu-imf-robin-hood-tax

European Union finance ministers will step up talks on raising extra money from banks this week amid signs that the International Monetary Fund is softening its opposition to a "Robin Hood tax" on financial transactions.

Treasury sources said the chancellor, George Osborne, was prepared to back a financial activities tax on bank profits and pay at the Brussels meeting provided it was universally introduced, but was wary of a broader Robin Hood tax. Campaigners said last night, however, that a leaked IMF report showed growing international backing for a broader tax and urged Osborne to look at the revenue-raising potential of a levy of transactions.

David Hillman, a Robin Hood Campaign spokesman, said: "The rug has been pulled from under critics who claim that a Robin Hood tax would damage the wider economy or is unworkable. The IMF, EC and Leading Group of 60 nations have all said it is feasible. The main losers would be those who make lots of money from socially useless trades but the winners would be millions of people at home and abroad pushed into poverty by the economic crisis or whose public services are under threat."

An IMF paper, Taxing Financial Transactions: Issues and Evidence, said securities transactions taxes (STT) existed in many countries with little evidence that they distorted markets. It argued that a small levy on transactions might help to dampen the "herding behaviour" encouraged by computer-program trading. "Unilateral STTs, even if levied on fairly narrow bases, are certainly feasible as witnessed by their use in numerous developed countries. The fact that major financial centers such as the UK, Switzerland, Hong Kong, Singapore, and South Africa levy forms of STTs indicates that such taxes do not automatically drive out financial activity to an unacceptable extent," it said.

The paper added: "The impact on financial markets from a low-rate (less than 5 basis points), broad-based STT would likely be fairly modest, beyond its reduction of very short-term trading."

In its letter to Osborne, the Robin Hood campaign said a financial activities tax could, if combined with other measures, raise as much as £20bn a year in the UK. "We hope that the Ecofin meeting will provide a platform for taking this forward at the European level. Ultimately, we believe that a financial transaction tax has the greatest potential to raise revenue from the financial sector, as it offers a robust, simple to implement and fair mechanism."

Why We Need To Tax Financial Speculation

By Vaughan Gunson
Tax Justice campaign coordinator
from CAFCA’s “Foreign Control Watchdog”, August 2010

The figures are mind blowing. The International Monetary Fund (IMF) estimates that the financial crisis cost the world $US11.9 trillion. The human cost is immeasurable. And it ain’t over. The international bailouts of banks and other financial institutions have seen trillions of dollars of private debt off-loaded onto governments. The financial crisis has not been fixed. The problem has just been shifted. The bailouts have created a “sovereign debt crisis”, which is breaking first in Europe. Governments worldwide are scrambling to get debt under control. The “fiscal stimulus” that accompanied the wave of banking bailouts has now passed over to “austerity measures”, which means cuts to public services and higher taxes for grassroots people. Those who had no part, no say, and no responsibility for the financial crisis are being made the victims, many times over.

The leaders of a club of rich countries called the G20 (Group of 20) recently met in Toronto, Canada. The strategy of making us pay for the crisis was clear. G20 leaders issued a joint statement on 27/6/10 committing member countries to halving their budget deficits by 2013 [1]. As Toronto resident and anti-capitalist campaigner Naomi Klein wrote: “Faced with the effects of a crisis created by the world’s wealthiest and most privileged strata, they decided to stick the poorest and most vulnerable people in their countries with the bill” [2]. This is what the world’s elite are trying to get away with, if we let them.

Austerity Hits New Zealand

The New Zealand economy nose-dived into recession in 2009 as the financial crisis quickly spread to the real economy. There have been widespread job losses and general job insecurity, as well as stagnant or declining wages relative to inflation. Many people are struggling under the burden of mortgage and credit card debt. Our Government has not bailed out banks like the US or Britain, but the impact of the crisis on the Government’s budget has been similar to overseas: declining tax revenue from falling economic activity, combined with increased spending demands, like unemployment benefits.

The policy “solution” that the John Key government is pursuing is no different from the dominant policy response by governments around the globe. Protect the rich and do everything possible to get the economy going again under much the same model as before. Increase taxes on grassroots people, while restricting their access to public services. National’s 2010 Budget saw direct cuts to Government spending, like early child care. And effective cuts, as funding increases for health and education failed to keep pace with inflation. More social spending cuts have been signalled. Many public sector employees are facing the axe as the budgets of Government departments are slashed.

Amidst this austerity, National still delivered tax cuts to the rich and big corporates. This benevolence to the rich was funded by increasing the goods and services tax (GST) from 12.5% to 15%. It’s widely accepted that GST is a regressive tax which disproportionately impacts on grassroots people, who spend most of their weekly income on the basics. Many people in New Zealand and around the world smell a rat. The scale of the much reported banking bailouts, the ongoing impact of the crisis on our lives, as we worry about our jobs and paying off debt, has raised the question for many: is there something wrong here?

The Speculators

We need to understand what’s wrong so we can organise strategically to defend ourselves. Crucial to that understanding, is grasping the dominant role financial speculation has assumed in the world economy. Financial speculation is defined on Wikipedia as “the buying, holding, selling, and short-selling of stocks, bonds, commodities, currencies, collectibles, real estate, derivatives, or any valuable financial instrument to profit from fluctuations in its price, irrespective of its underlying value” [3]. Speculation has long been a part of the capitalist economy, with its damaging effects well documented, if often ignored.

But what we’re seeing today is historically unprecedented. In 2008, the trade in derivatives [4]– the most speculative of financial transactions – was $US500 trillion, which was ten times the value of the entire world’s output of tangible products and services. Much of this speculative activity is computer automated, with “purchases” lasting minutes or even seconds. The rapid growth in commodity speculation over the last decade has led to such perverse phenomena as a barrel of oil being traded, on average, 27 times before it reaches the pumps.

The reason for all this speculation is quite simple: the profits to be made from traditional investment in capitalist enterprises that produce something of value has been in decline since the post-war economic boom came to an end in the early 1970s. Today’s unprecedented levels of financial speculation represents the desire, on the part of the world’s elite, to continue reaping high profits, way more than the stagnant real economy will allow [5]. To achieve this, governments worldwide have removed all barriers to financial speculation and encouraged a supply of cheap credit by banks and other sanctioned lenders. A giant financial casino has been created, where everything that fluctuates in price has attracted the speculators [6].

Just like in the real economy, where large companies grow to dominate industries, so it is in the world of financial speculation. The last two decades have seen the rise of giant investment funds, where investors – usually rich wealthy ones – pool their money together in the hope of achieving better returns from long term investments and short term speculation. Billion dollar pension funds and hedge funds, by the very size, can influence the markets. In 2008, it was estimated that pension funds globally controlled US$20 trillion in assets. Hedge funds, which are most often involved in pure speculation, managed around $US2.5 trillion immediately prior to the financial crisis[7]. In sum, financial speculation has grown to 60 times the level of the world’s combined gross domestic product (GDP)[8].

Government-Banks-Speculator Nexus

The governments of the world have acted as the “public facilitators” of global financial speculation. They’ve done so in partnership with the big banks, who are the “private facilitators” of speculation. The world’s big banks are either directly engaged in speculation, being at the epicentre of all financial activity and thus able to read trends and manipulate the markets, or they supply the credit with which others play in the casino. Thus the banks are the biggest speculators of them all. And they’ve got fatter and fatter. America’s six largest banks have combined assets totalling 63% of the United State’s gross domestic product. The extent of the banks’ ascendency is revealed by the fact that only 15 years ago the combined assets of the six biggest banks were 17% of GDP9.

It’s an open secret that Wall Street banks have entered markets with the aim of generating a price bubble. After making their speculative profits they’ve exited the market, collapsing the bubble, before moving on to the next market. The housing bubble followed the dot.com bubble, then the oil price bubble. Next it was the food price bubble. These aren’t speculative bubbles caused by the random vagaries of the market, but orchestrated on high by powerful banking interests, with the blessing of Washington regulators.

Grant Morgan, in his essay “Beware! The End is Nigh! Why global capitalism is tipping towards collapse, and how we can act for a decent future”, argues that financialisation is the central pillar of neo-liberalism, the economic agenda promoted by Big Business and imposed by governments around the world over the last three decades. He likens the massive expansion of the financial sector, with its easy credit and speculative bubbles, to a global Ponzi* scam, one protected by government laws, corporate politicians and state officials[10].

[*A pyramid scheme whereby original investors are paid beguiling dividends from new advances. Bernie Madoff is the most high profile recent perpetrator. These scams are still called Ponzi schemes, after Charles Ponzi, who provoked the 1925 Florida real estate bubble. Ed.]

Speculation has been hard-wired into the global economy. Those who control financial systems reap the rewards, but only by causing structural damage to the whole system. All reasonable logic says that this must end, that it’s unsustainable. But as global capitalism has bet everything on financialisation, there’s no possibility of turning back. The government-banks-speculator nexus, from the point of the view of the world’s elite, has to continue[11].

Crimes Against Humanity

Waves of global speculation have had an enormous impact on the world economy and the lives of the grassroots majority. The housing bubble pushed house prices through the roof and caused grassroots people to be burdened with historically high levels of debt. When the housing bubble in the US burst in 2007, the big financial players quickly went looking for a new market to speculate in. They turned to another necessity of life: food. World rice prices – a staple for much of the world’s population – increased by 320% between January 2007 and June 2008. The price for wheat went up 240%[12]. There was no reason for this other than the deliberate creation of a price bubble by powerful financial players able to shift billions into these markets, chiefly big American banks, with the rest following.

That bubble burst as the financial crisis hit, but food prices haven’t come all the way back down. Once prices rise, other corporates in the food chain have an interest in keeping prices at the higher level. Food distributors and supermarket chains are quick to seize the opportunity to skim some extra profit. So we’re still paying more for rice and bread than we were in 2007. Governments, big and small, are facilitating this crime against humanity. In 2000, the United States government passed the Commodity Futures Modernization Act, which allowed non-grain producers to buy derivatives on the grain futures market. The intended beneficiaries of the law change: pension funds, hedge funds, and all sorts of other financial speculators, including big banks.

Of course if you’re a big corporate bank you don’t want to actually physically own a whole lot of grain, to sell or do anything else with it. But what derivatives markets do is allow speculators to trade in pieces of paper (“promises to buy” in the future) instead. Jayati Ghosh, a respected Indian researcher and campaigner, explains: “[W]hat’s happened, really, in this decade, is that the possibility of speculation in food grain has been delinked from the physical holding of the commodity: you don’t need to hold a commodity anymore; you can hold pieces of paper, which are contracts on the price for the future”[13] .

Speculative bubbles never last, but if you’re a big player able to manipulate prices through the sheer scale of your purchases, then you can make a killing. And it’s a killing field indeed, because grain, or any other basic food commodity that gets turned into a speculative bubble, means a global price spike, which causes the world’s poorest to starve. In 2007-08, the number of people suffering from malnutrition globally rose from 800 million to one billion. This was the direct result of financial speculation in food. Ghosh believes another food bubble is being manufactured. World food prices have been rising since April 2009, and not because of increasing demand or contracting supply, but speculation again in commodity futures markets.

Speculation In New Zealand

While New Zealand’s finance sector is not big by world standards, the same banks-speculators-government nexus exists. Since 1984 a priority of both Labour and National governments has been deregulation of all parts of the financial industry. This has opened up New Zealand’s financial markets to international and local speculators, resulting in price volatility and inevitable cycles of boom and bust. One market that attracts high levels of speculation is the New Zealand currency market. The Kiwi dollar is the 11th most traded currency in the world. New Zealand certainly isn’t the 11th biggest economy in the world with a massive turn over of trade. Global speculators have created a market for the Kiwi dollar. It’s like a special game of roulette has been created in the South Pacific for the world’s high rollers.

Despite its relatively small size the New Zealand stock market is also subject to plenty of speculative activity. The volume of shares traded is quite substantial. In June 2010, for example, daily turnover ranged between $50 million and $120 million. Like all stock markets around the world a large percentage of this trade is by speculators – mostly overseas ones – betting on share price fluctuations. Share purchases for long term investment are only a small fraction of regular trading activity.

The John Key government wants to encourage more speculation in New Zealand. Perhaps this is not surprising, given that John Key made his fortune in the world of high finance. But it also reflects the fact that the Government, and the economy as it stands, is locked in tight to the model of hyper-financialisation which remains the source of so much profit for the rich. The Government has given the green light for NZX, the company that runs the New Zealand stock market, to create a derivatives market for milk. This market for “promises to buy” will see milk prices directly influenced by local and international speculators. Milk and milk products will therefore get caught up in any food price bubble[14].

John Key has also floated the idea of turning New Zealand into a “financial hub”. The plan rests on enticing global investors to New Zealand with the promise of tax breaks. A recent Inland Revenue Department report entitled “Allowing a zero per cent tax rate for non-residents investing in a PIE [portfolio investment entity]” reveals what’s being considered. Under this proposal, overseas investors would be allowed to operate in this country and not pay New Zealand tax on their international investments. Perhaps the greatest wrong is the establishment of an Emissions Trading Scheme, or pollution market, as it should truthfully be known. The Government’s pollution market will be another opportunity for the speculators, which is precisely why the world’s big banks and other financial institutions are pushing carbon trading as a solution to climate change. It won’t be a solution, far from it, but it will be another market for them to profit from.

Tax The Speculators!

The scale of the bailouts, in the US and Europe in particular, has caused great anger amongst grassroots people worldwide, and this has led to some politicians proposing measures to try and reform the financial industry. The global crisis has not, however, reversed the “free licence” that governments have given to the world’s financial speculators. Their ability to grow their wealth and power remains intact. But they are potentially vulnerable, for the reason that the role the banks and other financial institutions have played in the crisis is becoming understood by many grassroots people. It’s therefore imperative that our side flames the fires of anger by further exposing the government-banks-speculator nexus, while at the same time putting forward solutions.

That’s where the New Zealand campaign for tax justice launched by Socialist Worker and the Alliance Party comes in. The immediate focus of the campaign is a non-citizens’ initiated referendum petition which requests Parliament to 1) Remove GST from food; and 2) Tax financial speculation. These two demands address major injustices in New Zealand’s tax system. Grassroots people have to pay tax on one of life’s necessities, food, while financial speculation goes untaxed. Overseas speculators playing New Zealand’s financial markets do not pay a cent of tax on their market gains to the New Zealand government. Likewise, the rich in this country pay no tax on their wheeling and dealing. The main exemption from GST today is for “financial services”, which includes all the activities associated with financial speculation. Taxing financial speculation, as demanded by the Tax Justice petition, would be a progressive reform of a tax system that currently favours the wealthy[15].

Build The Real Economy

The first principle of progressive taxation is that you tax the rich more than poor. On this count taxing financial speculation is progressive. It’s only the very rich who speculate. The second principle of progressive taxation is that you tax things that society wants to discourage. Global financial speculation ruins more lives than smoking, and costs society astronomically more in dollar terms, so if any bad habit needed to be taxed, it’s financial speculation. The best way to make the speculators pay more tax is to hit them at the point where they accumulate their wealth, which is when they buy and sell. This can be done through what’s called a Financial Transaction Tax (FTT), a small percentage tax (perhaps 1% or less) on financial transactions.

Barry Coates, executive director of Oxfam New Zealand, is all for a Financial Transaction Tax, so that “taxes on life’s essentials [like GST]” can be replaced “with a tax on socially destructive financial speculation”[16]. A Financial Transaction Tax would net billions, for example, from speculative trading in the Kiwi dollar alone. Not all of this trade occurs in New Zealand, but a sovereign country can place a tax or levy on the trade of its own currency taking place any where in the world17. A big positive of a FTT is that it would reduce the volume of short-term financial transactions, often computer automated, by large institutional speculators, big banks, pension funds, hedge funds, and the like. A small percentage tax at the point of purchase and sale would wipe out any profits the really big spenders are able to make from short term speculation.

The main obstacle to taxing the speculators is political. The beneficiaries of the current environment of gung ho speculation will oppose any move to curb their profits and power. That’s what privileged elites have always done. They’ll put up arguments like: “it’s too difficult”, when it’s not. They’ll say it will cost “Kiwi jobs”. It won’t, because speculation only benefits the speculator, creating economic havoc in the process. The global financial meltdown of 2008 will forever be proof of this. The political arguments for taxing the speculators can be won. Following the global financial implosion, the time is right to popularise a tax which hits the most hated global purveyors of greed and exploitation. That’s the aim of the Tax Justice campaign (for more information go to http://www.nogstonfood.org/).

In the longer term we need to wrest control of the economy off the speculators, banks, and those politicians wedded to hyper-financialised capitalism. We need to re-engineer the economy and direct energy and expertise into the sustainable production of real things, useful things, by useful people. Deciding the direction to go is not really the problem, there’s plenty of good ideas around that can guide us towards a more people-centred economy. The challenge is connecting with people on a mass scale, and achieving the necessary unity of action to begin that journey. A popular campaign for tax justice could be a spearhead for a wider movement that takes on the speculators and raises an alternative vision of an economy that works for us.


End Notes

1. Larry Elliott and Patrick Wintour, “G20 nations commit to halving budget deficits by 2013”, guardian.co.uk, 28/6/10.

2. Naomi Klein, “Let’s take no orders to slash and burn from this G20 club”, from guardian.co.uk, 29/6/10.

3. See http://en.wikipedia.org/wiki/Speculation.

4. Derivatives are contractual promises to buy a commodity at an agreed price in the future. See http://en.wikipedia.org/wiki/Derivative_(finance).

5. One measure of the floundering real economy is under-utilisation of industry capacity, which was 70-80% prior to the financial crisis, and has worsened since.

6. See the section on financialisation, “Follow the money”, in Grant Morgan’s essay, “Beware! The end is nigh! Why global capitalism is tipping towards collapse, and how we can act for a decent future”, Unity Journal, March 2010, pp16-27.

7. See http://en.wikipedia.org/wiki/Hedge_funds.

8. Barry Coates, “We could replace tax on essentials with one on destructive speculation”, Stuff News, 2/3/10.

9. Grant Morgan, “Beware! The end is nigh! Why global capitalism is tipping towards collapse, and how we can act for a decent future”, Unity Journal, March 2010, pp.20-21.

10. Grant Morgan, ibid. p.21

11. But the point where it’s impossible for governments to be the “lender of last resort”, and bailout the system again, is fast approaching. The whole hyper-financialised world economy faces collapse as it comes up against real world economic and political limits.

12. Jayati Ghowsh interview, The Real News Network, http://therealnews.com/t2/index.php?option+com_content&task+view&id+31&Itemid+74&jumival+5067

13. Jayati Ghowsh interview, ibid.

14. Hamish Rutherford, ‘‘Serious interest’ in derivatives”, 18/4/10.

15. He wasn’t speaking for all New Zealand’s mega-wealthy, but Trade Me founder Sam Morgan was telling the truth when he said he hardly pays any tax.

16. Barry Coates, “We could replace tax on essentials with one on destructive speculation”, 2 /3/10.

17. Barry Coates, ibid. Collecting this levy should be one of the functions of a Reserve Bank operating in the interests of the grassroots New Zealanders rather than the international financial institutions.

National refuses support on GST food exemption bill

From Radio New Zealand
Updated at 6:10pm on 21 July 2010

National won't support a Maori Party member's bill to remove GST from healthy foods, saying it doesn't want the law changed.

Rahui Katene's bill would scrap GST from foods, including fruit and vegetables, breads and cereals, milk products and lean meats.

The bill is due to be debated by Parliament, but won't get past its first reading.

Prime Minister John Key says it is difficult to demarcate between different food groups and the loss of revenue - estimated by the Government at $360 million a year - would be high.

Mr Key says the GST system is simple and exempting some items would start a trend.
But Ms Katene says financial transactions are already excluded from GST.

She also says Australia's tax office has a computerised model for GST on food and beverages, which would made it an easy matter to manage.

Copyright © 2010 Radio New Zealand

The GST rise big story of the Budget

By David

The GST rise is definitely the big story of the Budget, even Greenpeace’s press release focuses on it.

Although, disappointingly, they call for the “strengthening” rather than scrapping of the ETS pollution market, and offer an endorsement of the UK’s new Tory leader David Cameron, who allegedly possesses “some forward-thinking and visionary ideas.” (Which is news to me, as I was under the impression he was just another Margaret Thatcher / Tony Blair corporate clone... rather like John Key.)

The focus on this regressive tax increase, rather than the cuts in income tax is bad news for National and a another sign that the public mood is turning against the Government.

In their official statement, the Maori Party did their best to accentuate the positive, by listing all the little projects that got funding, and asking their supporters not to focus on GST:

“We know that the biggest challenge will be in encouraging our constituency to look broader at the whole picture of the budget – rather than focusing on one measure in isolation.”

But such a focus is unavoidable. As Maori Party MP Hone Harawira put’s it:

“GST hits poor people the hardest because nearly all of their money is spent on things that you pay GST on – food, petrol, electricity – so any increase is going to really hurt them.”

That extra 2.5% will be increasing the impact of every peak oil petrol price hike, and every world commodity market induced rise in cheese or bread.

Harawira’s personal statement against the GST rise, and his request to party leaders for permission to vote against the increase, have earned both praise and criticism.

Marty G at The Standard urged Harawira to “have the courage of his convictions” and cross the floor to vote against the Budget even with out his party’s permission. In the event, Harawira’s vote, along with those of the five other Maori Party MPs went for the Budget.

Comments on the post have suggested that voting for the Budget makes Harawira a wimp, a sell-out or a blowhard. But while I would have applauded Harawira had he crossed the floor, I think it would have been a tactical error for him to go against the wishes of his party leaders, at this time.

The right wing of the Maori Party have already tried to force him out, for the trivial offence of using offensive language when pointing out the crimes of Pakeha parliamentarians in a private email. To break ranks over this issue would only given them another excuse.

Maori Party co-leader Tariana Turia had the support of (and was under pressure from) a hikoi of tens of thousands before she broke with Labour over the foreshore and seabed act. Who does Hone Harawira have? How many people took to the streets against the GST rise?

The only thing coming close is the few dozen of us who went out today to launch the Socialist Worker – Alliance petition calling for GST to be removed from food and financial speculation to be taxed.

Picking pick-pocketing suits

With the main points of the Budget known well in advance, the main point of interest for me was looking at the reactions.

Apart from Hone Harawera’s statement, my favourite was from the Maritime Union’s Joe Fleetwood, whose press release “National budget an attack on working class” says:

“rather than increasing GST it would be easier for workers just to hand over a $5 note every time they saw someone walk past in an expensive suit, because this was the actual effect of the GST increase.”

I thought about this when I was in town today. At first I only saw a few men in suits, but there were more when I passed near the court.

Of course I didn’t actually offer any of them five bucks. For one thing I didn’t have than much money, but more importantly, I realised that I have know idea how to pick the expensive suits from the cheap ones.

Was this man a high-paid corporate lawyer, or a common criminal dressed up in his court-appearance best? And how do you tell the difference?


National budget an attack on working class

Press Release: Maritime Union of New Zealand
Thursday, 20 May 2010, 3:24 pm

The Maritime Union of New Zealand says today’s budget is an attack on working class New Zealanders.

Maritime Union General Secretary Joe Fleetwood says the increase in GST to 15% was taking money from the pockets of workers to pay for tax cuts for people like John Key, who had so much money they would have trouble knowing what to do with it.

He says rather than increasing GST it would be easier for workers just to hand over a $5 note every time they saw someone walk past in an expensive suit, because this was the actual effect of the GST increase.

“It is a wealth transfer from low to middle income earners to the wealthy.”

GST was a regressive tax that would hit struggling New Zealand families hard.

Mr Fleetwood says that a major problem for New Zealand is growing inequality of wealth.

Inequality leads to social breakdown and long term economic and social problems, as international research has shown, and National’s budget was making inequality worse.

He says the idea promoted by John Key that only high income earners contributed to New Zealand’s economy and society was both offensive and wrong.

“If we are at the stage where New Zealand is being held hostage by a tiny minority of the super rich, maybe it is time to question whether we still live in a democracy?”

Mr Fleetwood says that the international evidence shows that excessive wealth was being accumulated by a few at the top end of the wealth scale, while the majority of workers were squeezed by rising costs and static incomes.

“John Key is rewarding the big business, finance sector CEO types who are the backers of the National Government, whose greed knows no limits.”

He says the obsession with tax cuts was leading New Zealand down a dead end road as tax was essential to pay for hospitals, schools, infrastructure and other vital public goods.

However the tax burden was increasingly falling on low to middle income earners rather than the wealthy, which was the wrong way around.

ENDS

The Death of Capital

taxMichael E. Lewitt
From John Mauldin’s “Outside the Box” newsletter
May 10, 2010

Two years ago, John Mauldin was kind enough to publish my initial proposals for reforming the financial system. Entitled “How to Fix It,” the April 2008 issue of The HCM Market Letter raised a lot of eyebrows and upset many established interests on Wall Street with its outspoken call for financial reform. Among the changes I called for were the following:

•    Compensation reform to better align the interests of Wall Street executives with those of society at large.

•    Requiring private equity firms and hedge funds to be registered with regulators.

•    Taxing private equity partners’ carried interests at ordinary tax rates instead of capital gains tax rates, and prohibiting private equity firms from going public.

•    Sharply reducing the leverage of financial institutions (including hedge funds).

•    Banning off-balance sheet vehicles such as Structured Investment Vehicles.

•    Reining in quantitative trading strategies.

•    Reinstituting the downtick rule with respect to short selling stocks.


At the time these proposals were considered controversial; in retrospect it is clear that they were not aggressive enough. While many of these suggestions have been adopted or are in the process of being adopted, much more needs to be done to stabilize the financial system.

GST increase would be unfair for low and middle income earners

Alliance Party media release
4 September 2009

The Alliance Party says an increase in GST would hurt low and middle income earners.

Alliance Economic Development spokesperson Quentin Findlay says suggestions from the Taxation Review Group to increase GST to subsidize corporate tax cuts would increase the pressure on many New Zealanders.

“The vast majority of New Zealanders spend a lot of their money on food. There has been a major increase in food prices in the past years due to a range of factors. An increase in GST would push food prices even higher and in some cases out of the reach of ordinary people.”

A rise in GST would cancel the effect of the recent tax cuts on middle income earners. However, for lower income workers, beneficiaries, students and superannuitants, who didn’t get a tax cut, an increase in GST would mean real hardship as basic living costs rose even more.

“The main focus for this tax review is to push the right wing agenda as far as possible in the shortest time possible. A rise in GST would be another move backwards.”

Mr Findlay says that the Alliance was committed to removing GST and was particularly committed to removing it off food in the first instance. The Alliance advocated a Financial Transaction Tax to replace GST.

“At the moment, lower and middle income earners subsidize the rich and businesses through the tax system. The Alliance’s Financial Transaction Tax would go someway toward correcting that imbalance by being levied at a progressive rate, ensuring that those who could well afford it paid more.”

The Alliance is also opposed to placing more people on the benefit when they did not need to be. The solution to that was obvious, Mr Findlay said.

“What is needed is more jobs at award rates with their conditions guaranteed. People should not have to get a benefit merely to buy bread and the Alliance will ensure that they don’t.”

See NZ Herald article on the proposal made by the Taxation Review Group to increase GST to 15% GST hike should not be written off.

See also

• The Standard supports raising GST by Auckland Unionist
• Greens should come into line with leftists on GST by Grant Morgan
• GST – Don't raise it, take it off food! RAM media release

Building a mass movement for tax justice

As the New Depression takes hold the Left must push hard for tax justice. An economic recession will see tax revenues fall, putting pressure on government's social spending budget, which in times of severity will be even more necessary. For its part, big business will be pushing for a combination of "stimulus spending" - on their terms with the most benefit to their profits - and tax breaks. Thus social spending will come under the squeeze. Government revenue from tax, and where the government directs that wealth, will be a political battleground in the years ahead. The call for tax justice will resonate with low and middle income earners. Mobilisng masses of people behind concrete demands like getting rid of GST or a Finnancial Transaction Tax (FTT) is very possible. It will only be through truly mass campaigns that such progressive tax reforms will be won. Below is article penned by longtime US social justice and environmental campaigner, Ralph Nader, on the need for a Financial Transaction Tax in America. He argues that hundreds of billions dollars of government revenue could be raised by a modest tax on financial transcations in the order of 10 to 25 cents per hundred dollars. The left in New Zealand has long seen the need for a Financial Transaction Tax. It was one of RAM's Ten Commandments (for more detail see The RAM Plan).

How to Lighten the Income Tax Load on the American Worker: Tax the Speculators! by Ralph Nader from Counterpunch 7 February 2009 Let's start with a fairness point. Why should you pay a 5 to 6 percent sales tax for buying the necessities of life, when tomorrow, some speculator on Wall Street can buy $100 million worth of Exxon derivatives and not pay one penny in sales tax?Let's further add a point of common sense. The basic premise of taxation should be to first tax what society likes the least or dislikes the most, before it taxes honest labor or human needs.

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See also Who bears the tax burden - the poor or the rich? A global battleground

Ralph Nader: Tax the Speculators!

How to Lighten the Income Tax Load on the American Worker by Ralph Nader from Counterpunch 7 February 2009 Let's start with a fairness point. Why should you pay a 5 to 6 percent sales tax for buying the necessities of life, when tomorrow, some speculator on Wall Street can buy $100 million worth of Exxon derivatives and not pay one penny in sales tax? Let's further add a point of common sense. The basic premise of taxation should be to first tax what society likes the least or dislikes the most, before it taxes honest labor or human needs. In that way, revenues can be raised at the same time as the taxes discourage those activities which are least valued, such as the most speculative stock market trades, pollution (a carbon tax), gambling, and the addictive industries that sicken or destroy health and amass large costs. So, your member of Congress, who is grappling these days with gigantic deficits on the backs of your children at the same time as that deep recession and tax cuts reduce revenues and increase torrents of red ink, should be championing such transaction taxes. Yet apart from a small number of legislators, most notably Congressman Peter Welch (Dem. VT) and Peter DeFazio (Dem. OR), the biggest revenue producer of all--a tax on stock derivative transactions--essentially bets on bets--and other mystifying gambles by casino capitalism--is at best corridor talk on Capitol Hill. There are differing estimates of how much such Wall Street transaction taxes can raise each year. A transaction tax would, however, certainly raise enough to make the Wall Street crooks and gamblers pay for their own Washington bailout. Lets scan some figures economists put forth. The most discussed and popular one is a simple sales tax on currency trades across borders. Called the Tobin Tax after its originator, the late James Tobin, a Nobel laureate economist at Yale University, 10 to 25 cents per hundred dollars of the huge amounts of dollars traded each day across bordered would produce from $100 to $300 billion per year. There are scores of civic, labor, environmental, development, poverty and law groups all over the world pressing for such laws in their countries. (see tobintaxcall.free.fr). According the University of Massachusetts economist, Robert Pollin, various kinds of securities-trading taxes are on the books in about forty countries, including Japan, the UK and Brazil. Pollin writes in the current issue of the estimable Boston Review: "A small tax on all financial-market transactions, comparable to a sales tax, would raise the costs on short-term speculative trading while having negligible effect on people who trade infrequently. It would thus discourage speculation and channel funds toward productive investment." He adds that after the 1987 stock market crash, securities-trading taxes "or similar measures" were endorsed by then Senate Minority Leader Bob Dole and even the first President Bush. Professor Pollin estimates that a one-half of one percent tax would raise about $350 billion a year. That seems conservative. The Wall Street Journal once mentioned about $500 trillion in derivatives trades alone in 2008--the most speculative of transactions. A one tenth of one percent tax would raise $500 billion dollars a year, assuming that level of trading. Economist Dean Baker says a "modest financial transactions tax would be enough to finance a 10% across-the-board reduction in the income tax on labor." The stock transaction tax goes back a long way. A version helped fund the Civil War and the imperial Spanish-American War. The famous British economist, John Maynard Keynes, extolled in 1936 a securities transaction tax as having the effect of "mitigating the predominance of speculation over enterprise." The U.S. had some kind of transaction tax from 1914 to 1966. The corporate history scholar (read his excellent book, Unequal Protection ) Thom Hartmann, turned three-hour-a-day talk-show-host on Air America (airamerica.com/thomvision), had discussed the long evolution of what he calls a "securities turnover excise tax" to "tamp down toxic speculation, while encouraging healthy investment." So, why don't we have such a mega-revenue generator and lighten the income tax load on today and tomorrow's American worker? (It was one of the most popular ideas I campaigned on last year. People got it.) Because American workers need to learn about this proposed tax policy and ram it through Congress. Tell your Senators and Representatives--no ifs, ands or buts. Otherwise, Wall Street will keep rampaging over people's pensions and mutual fund savings, destabilize their jobs and hand them the bailout bill, as is occurring now. A few minutes spent lobbying members of Congress by millions of Americans (call, write or e-mail, visit or picket) will produce one big Change for the better. Contact your member of Congress. The current financial mess makes this the right time for action.