Who Pays the Piper

At election time we test the democratic process in New Zealand.  But is it fair?  Just as we question the social and economic system of capitalism in times of crises or cronyism, so too a form of government in which the people can vote for representatives to govern on our behalf.  A system based on the principle that everyone in society is equal.  One man, one vote.  The rich, the poor.  The black, the white.  The Muslim, the Christian.  The young, the old.  The stupid, the intelligent.  The liberal, the conservative.  The left, the right.  All equal at the ballot box.  Except for the ability to rationalise (a logical reason for an action or attitude).  The democratic system is self correcting due to the governing term of each successive party (but not entirely – governments often retain legislation which is clearly inappropriate for the long term well being of a nation, due to opinion polls and voter popularity.)

The time bomb in NZ (as with Western nations vs. Asian and African) – is demographics and the Age wave.  The Great Recession from the recent Global Financial Crisis led to record peacetime, government budget deficits in the US, Europe, Japan and New Zealand.  It highlighted the unsustainability of the generous and increasingly costly entitlement programmes that had been enacted years earlier.  Furthermore the finance company collapse erased millions of dollars of wealth from consumer balance sheets, leaving many with insufficient assets to realise the comfortable retirement that they had once expected.

In the US against this backdrop of declining economic fortunes (exacerbated by housing market collapse), pollsters detected a marked loss of confidence in America’s future.  In 2010 less than half of Americans responded yes to the question “Do you think that your children will be better off than you are?”  The American dream was fading.  Who will buy the assets of the elderly and who will supply the demand?  The cost of housing is creating similar questions here.  Middle class Mums and Dads are financially assisting their children into their first homes.

“But viewing the future through the lens of each country’s demographics is wrong.  One must envision the world as one economy and not as separate nations where each tries to match its own consumption to its own production.  In a world of expanding global trade, the young of the developing nations can produce goods for – and buy assets from – the retirees of the world’s developed nations” (Jeremy J. Siegel – Professor of Finance, University of Pennsylvania).

This is an important economic issue for us at the next election.  We are lucky to be close to the world’s emerging middle class markets of Asia and Indonesia.  They are producing goods for and buying assets from us.  Not all politicians and not all New Zealanders support this development but it is fundamental to our continued lifestyle and sustainability.  Immigration will once again be necessary to maintain and build this nation.  Whilst you don’t see or hear much of this rhetoric in the public domain – you do see political opportunism.

“Labour’s Best Start package will give 26,000 families more time with their babies, provide up to $60 per week extra for over 100,000 children, mainly in modest and middle income families, and give many families with a child in early childhood education $25 each week.  The fiscal impact of the Best Start package is estimated at $530 million in 2018/19, the first year of full implementation.”

Should we tax the childless and the wealthy retirees’ households more to support this kind of voter incentive offering. Someone has to pay!  10% of households now pay 70% of all personal taxes.  ‘Working for Families’ on its own costs around $2.6 billion a year – more than the government spends on communication and transport.

The problem with a tax take that people believe is becoming unfair (not necessarily the amount we pay – but how it is distributed) is the development of tax minimisation through fair means and tax evasion through foul.  The ‘cash’ economy is estimated to be $7.1 billion a year.  We (NZ) are already ranked high globally, for tax evasion at 5.1% of GDP.  You watch it blossom if the incoming government focuses to increasing the tax take.

The information provided in this blog is not intended to be a substitute for professional advice. You may seek appropriate personalised financial advice from a qualified professional to suit your individual circumstances.