The Real Philanthropists

Sunday, 23 July 2023, 7:46 pm
Opinion: Ian Powell

On 12 July many New Zealanders were stunned by Prime Minister Chris Hipkins’ unexpected announcement (called a ‘Captain’s Call’) that there would not be a capital gains or wealth tax on his watch: Prime Minister Hipkins rules out wealth and capital gain tax; end of story.

What made it so stunning was that it was preceded by the publication in April of meticulous research by the Department of Inland Revenue on the level of tax avoidance not by the rich, but by the ‘super-rich’: High-Wealth Individuals Research Project.

Ignoring research on tax avoidance by super-rich

The research was commissioned by Minister of Revenue David Parker. In his media release on 26 April, Parker commended its rigour: Wealthy New Zealanders pay much lower tax rates than other earners.

Parker’s media release included the following observations:

The data, based on full income information from 311 of our wealthiest citizens, shows that the average person in this group pays an effective tax rate of just 8.9% tax on their economic income – that is, income from all sources, including capital gains on investments.

In contrast, most New Zealanders pay tax at more than twice that rate. For example, someone earning a salary of $80,000, with no other income, pays 22% tax on that income, excluding GST.

The difference is mainly because the very wealthy earn only a small portion of their income from wages and salaries, unlike most New Zealanders.

Tax avoidance may be immoral but it is not unlawful. It is an action taken to lessen tax liability and maximise after-tax income. It is not tax evasion, a deliberate failure to pay or underpay, which is unlawful.  

Parker and Minister of Finance Grant Robertson had been working on a tax switch involving introducing a tax on untaxed income of the ‘super rich’ in order to fund a tax threshold at $10,000 per annum. For those on low incomes it would have meant a boost of $20 per week.

Not only did Hipkins’ pull the plug on its inclusion in last May’s Budget. He also prevented it becoming part of Labour’s policy for the election on 14 October (and for as long as he continued to be prime minister).

A stark difference between Parker (at least) and Hipkins is that the former had read the works of French economist Thomas Piketty, in particular his Capital in the Twenty-First Century. In contrast Hipkins evidently had not.

Piketty’s essential argument, based on an impressive amount of historical economic research, was that when the rate of return is greater than the rate of economic growth then inequality increases as a consequence.

Further, contrary to capitalist mythology, inherited wealth is a major driver behind this situation.  

Reactions

Hipkins’ announcement generated considerable media coverage such as by experienced political journalist Vernon Small (who had previously also worked in Parker’s ministerial office).

On 16 July Small wrote a strong opinion piece in the  Sunday Star Times: Hipkins sinks long-term hopes of a fairer tax system.

If Small was critical of Hipkins’ announcement, economist Susan St John was scathing. But his was not just about the Prime Minister.

She was damning of the ‘modesty’ of the Parker-Robertson proposal, which would have benefited those on low incomes by a mere $20 a week.

Her point is well made, given the wider context of the extensive level of poverty and deprivation in New Zealand, in her article published by The Daily Blog  on 17 July:   Scathing rebuke.

The proposal rejected by the Prime Minister was reducing the level of tax avoidance by the ‘super-rich’, not the rich. To some extent metaphorically (to some extent not) it would have been the 0.1% rather than the 1% who would have been required to reduce their tax avoidance.

Aside from a sense of outrage, the Hipkins announcement got me to thinking of the role of philanthropy.

What about philanthropy

One of the justifications of the super-rich for their extreme wealth is the philanthropy some engage in. A philanthropist is someone  who a person who seeks to promote the welfare of others, especially by the generous donation of money to good causes. At least that is the image.

Imagine the horror of a recent investment conference of the super-rich in the palatial five star Savoy Hotel on The Strand in London organised by Spear’s wealth management magazine.

Established in 2006, Spear is Europe’s leading wealth management authority with a wealth management and luxury lifestyle media brand. Its flagship magazine has a readership made up of extremely wealthy individuals and families (average assets of £5 million+).

The conference was reported by Rupert Neate, The Guardian’s Wealth Correspondent [sic] on 30 June: Super-rich warned to beware of pitchforks and torches unless they do more. 

Attendees were warned by “progressive advisers” that there was a “real risk of actual insurrection” and “civil disruption” if the “yawning gap inequality gap between rich and poor was allowed to widen…”

This led on to critical observations about the philanthropic efforts of the wealthy which had earned a “bad reputation”. There was too much focus on feelgood and too little on actual need.

Many wealthy wanted to set up their own educational or health foundations without checking whether there was a need or an existing charity or government-funded programme working to address the issue. There was too much of a wish for quick wins.

The real philanthropists

So if the super-rich’s philanthropy is more deserving of pitchforks and torches, are there real philanthropists around?

Recently I read an insightful article co-authored by American socialists Fred Magdoff and John Bellamy Foster published by Monthly Review (May 2023): Grand theft capital – the increasing exploitation and robbery of the US working class.

It has to be qualified by the fact that the article is about the comparatively harsher level of “exploitation and robbery” of workers in the United States. Nevertheless it is relevant to New Zealand, albeit it on a different scale and with more worker protection.

The article is well worth a read in its own right within the context of capitalism’s development and revising forms since the 1930s. But what struck me, in the context of the role and power of the super-rich, was a brief discussion on philanthropy.

In the context of increasing employer power over and exploitation of workers, a distinction is drawn between “standard exploitation” and “actual appropriation” (“theft” is another word used to describe it).

The latter is where people are paid less than they need to exist; when they work for less pay than they can live on. When, for example, people go hungry so that others can eat more cheaply or conveniently.

These people (the ‘working poor’ as they are sometimes called) are, in fact, the major philanthropists. Their philanthropy is to the wealthy owners of businesses; their philanthropy allows these owners to accumulate even more capital than if these ‘real philanthropists’ were paid a living wage for their work.

The differences are that the ‘working poor’ don’t volunteer to be philanthropists. They are forced to do so because they have no economic power. The super-rich are the beneficiaries of this extracted philanthropy.

Read, absorb and act

Compounding this “actual appropriation” is that whereas the ‘working poor’ can’t reap rewards from tax avoidance, the super-rich can, do and do so easily without remorse.

Prime Minister Hipkins needs to focus on the ‘bread and butter’ of the former instead of focussing on the ‘wine and caviar’ of the latter.

He needs to first read and absorb Thomas Piketty and then act on it.

© Scoop Media

Ian Powell

Otaihanga Second Opinion is a regular health systems blog in New Zealand.

Ian Powell is the editor of the health systems blog 'Otaihanga Second Opinion.' He is also a columnist for New Zealand Doctor, occasional columnist for the Sunday Star Times, and contributor to the Victoria University hosted Democracy Project. For over 30 years , until December 2019, he was the Executive Director of Salaried Medical Salaried Medical Specialists, the union representing senior doctors and dentists in New Zealand.

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