Professor says outrageous NZ has no capital gains tax
Sunday 14 July, 2013
Susan
Wood interviews Professor Robert
Wade
Professor Robert Wade from
the London School of Economics says it is “outrageous”
that New Zealand has no capital gains tax.
Speaking on the issue of growing
inequality in New Zealand, Professor Wade told TVNZ’s Q+A
programme capital gains tax should receive more political
attention.
“And, I mean, it is I think quite
outrageous that in New Zealand there's no capital gains
tax… But of course if you have a situation where economic
policy is being made by the top 1% for the top 1%, then the
last thing you're going to get is political movement towards
a capital gains tax.”
Professor Wade says people
who are concerned about rising inequality should be paying
relatively less attention to issues of tax and public
spending and look to
“pre-distribution”.
“That is, examining the
way in which government laws, regulations, policies have the
effect of making market income – that’s before taxes and
transfers – more and more unequal.”
Wade says
laws, regulations, and policies need to be examined to see
how they’re impacting on income
distribution.
“Corporate governance law has a
very strong impact on income distribution. Why? Because the
law allows senior executives of corporations to appoint the
boards of directors, number one, and number two the boards
of directors set the salaries of senior management. And so
there is a “scratch my back, I’ll scratch your back”
kind of ethic that evolves and the result is a spiralling
upwards of the salaries of senior management. So you need to
change corporate governance law. You need to change trade
union law so as to strengthen the rights of trade unions to
bargain over matters of salary and other things.
“
Wade says incomes in developed countries like
New Zealand over recent decades have become more unequal,
especially in terms of concentration of income at the
top.
“Concentration of income up at the top means
that incomes lower down are stagnant or even falling. So
this is a widespread phenomenon. That’s point number one.
But point number two is that New Zealand is up towards the
top in terms of how fast inequality has increased. There are
countries in north-west Europe – Scandinavian countries,
for example; Germany, Belgium, Holland – where they are
much more prosperous than New Zealand but income
concentration at the top has increased much less than it has
in New Zealand.”
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Q
+ A – 14 July, 2013
PROFESSOR
ROBERT WADE
London School of
Economics
Interviewed by SUSAN
WOOD
SUSAN
Joining me
now from Wellington is Kiwi political economist Professor
Robert Wade from the London School of Economics. A very good
morning to
you.
ROBERT
Morning.
SUSAN
How has a country like New Zealand, based on such
egalitarian principles, become so
unequal?
ROBERT
Well, I think that many countries in the developed countries
have become more unequal, especially in terms of
concentration of income up at the top. Concentration of
income up at the top means that incomes lower down are
stagnant or even falling. So this is a widespread
phenomenon. That’s point number one. But point number two
is that New Zealand is up towards the top in terms of how
fast inequality has increased. There are countries in
north-west Europe – Scandinavian countries, for example;
Germany, Belgium, Holland – where they are much more
prosperous than New Zealand but income concentration at the
top has increased much less than it has in New Zealand. So
the point is that from that example of the north-west
European countries, you don’t need to have the New Zealand
or American or British degree of inequality in order to have
a very prosperous
economy.
SUSAN
Why has it sped up so much in this
country?
ROBERT
Well, as I said, it’s not just in this country. It’s
sped up in America, it’s sped up
in—
SUSAN
But we’ve become unequal very quickly over the past 20 or
30 years. The inequality gap has grown
dramatically.
ROBERT
Yeah, that’s right, but also the same thing has happened
to an even greater extent in the United States and also in
Britain, and some of the causes are sort of impersonal
causes like globalisation and technological change which is
biased in favour of people with high skills. But another
very important set of reasons has to do with the way in
which over the past two decades or so, economic policy in
the US, the UK and New Zealand has increasingly been set by
the top 1% or so for the top 1%. In other words, a whole
range of government regulations, government laws, government
policies – monetary policy, for example – has been set
in a way which sort of pushes or sluices income up towards
the top and the other side of that is the difficult position
of people in the bottom half of the income distribution. And
so—
SUSAN
And yet the numbers out from our minister of finance this
week – the top 12% of taxpayers in this country pay 76% of
the tax. So they would argue they’re paying more than
their share of
tax.
ROBERT
Yeah, but they’re getting a very large proportion of
nation income as well, so it’s entirely right that
they’re paying a higher portion of tax than people lower
down. It is the case that people up towards the top of New
Zealand income distribution have been doing very well, even
since the financial crisis of 2008. And, I mean, it is I
think quite outrageous that in New Zealand there's no
capital gains tax. That’s a really major area that more
political attention should be given to. But of course if you
have a situation where economic policy is being made by the
top 1% for the top 1%, then the last thing you're going to
get is political movement towards a capital gains
tax.
SUSAN
So how do you make this more equal? You’ve mentioned
capital gains tax. What else should happen in a country like
New Zealand to try to close that equality
gap?
ROBERT
I think people who are concerned about rising inequality
should be paying relatively less attention to issues of tax
and public spending. Of course that’s important. But
there's a whole other area where very little attention has
been given to, and it could be called pre-distribution. That
is, examining the way in which government laws, regulations,
policies have the effect of making market income –
that’s before taxes and transfers – more and more
unequal. Just to take a case in point, this monetary policy
called quantitative easing, where the government makes a lot
of liquidity available in the hope that this will stimulate
spending. What it’s actually doing is blowing up a bubble
in the stock market, because most households who are trying
to pay down debt are not buying and therefore investors are
not investing in things to sell to households, and so all
this money is going into banks, financial firms and pension
funds—
SUSAN
But we didn’t have
that.
ROBERT
…and private
individuals.
SUSAN
We didn’t have QE in this country. We didn’t have
quantitative easing, despite the fact that the Greens –
the most left of the parties – actually wanted it. What
sort of impact does all this have on the middle classes,
though,
Professor?
ROBERT
Just a second. Just let me explain that point, because the
point is that quantitative easing is presented as a general
sort of technical matter to stimulate the whole economy.
What is being ignored in the United States and Britain is
the way that this measure of stimulating the whole economy
is actually redistributing income upwards through the effect
in blowing up the stock market bubble and the housing
bubble.
SUSAN
But in this country, and we’re talking to the minister of
finance next, other than a capital gains tax, what can we do
to try to close that
gap?
ROBERT
Well, capital gains tax is certainly important, but the
point I’m making is you should look across the board at
government laws, regulations, policies to see how they are
impacting on income distribution – for example, corporate
governance law. Corporate governance law has a very strong
impact on income distribution. Why? Because the law allows
senior executives of corporations to appoint the boards of
directors, number one, and number two the boards of
directors set the salaries of senior management. And so
there is a “scratch my back, I’ll scratch your back”
kind of ethic that evolves and the result is a spiralling
upwards of the salaries of senior management. So you need to
change corporate governance law. You need to change trade
union law so as to strengthen the rights of trade unions to
bargain over matters of salary and other things. These are
examples of laws that seem to be unrelated to income
distribution that actually have a very big effect on income
distribution.
SUSAN
Thank you very much for your time this morning, Professor
Robert
Wade.
ROBERT
Thanks.
ENDS