Gareth Morgan

Gareth Morgan on the economy

Gareth Morgan and Susan Guthrie: Rot at centre of modern economics

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Once it was each man for himself and the "deserving poor" relied on private charity. That was long after Plato had espoused the morality of taxation, saying, "When there is an income tax, the just man will pay more and the unjust less on the same amount of income."

Nowadays we are a long way even from championing the principle of vertical equity - whereby those with greater wealth pay proportionately more tax than others - let alone echoing Plato's "morality of tax" creed.

Yet the values that held tax as a moral objective and vertical equity a given for any just society underpinned the thinking of the fathers (as fathers they mainly were) of our mixed economy where the state moderates the excesses of market capitalism.

It was during the industrial revolution that grotesque disparities in wealth and intensified impoverishment of the workhouse poor led the economist philosophers of the "enlightenment period" to conclude the purpose of taxation was, as John Stuart Mill put it, to "favour the diffusion rather than the concentration of wealth".

Adam Smith, the acknowledged father of capitalism and the philosopher who changed his mind when the reality of the workhouse treadmills was all around him, acknowledged that tax progressivity was desirable.

"It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion."

Smith boldly eschewed his earlier theories of "trickle down" and acknowledged the limits to the power of the "invisible hand", wherein pursuit of individual interest benefits everyone, in order to rationalise the reality the industrial revolution was revealing.

Ever since moral philosophy and economics parted ways and mathematical advances reduced the subject of economics to answering "what if" questions, we've suffered from a vacuum of understanding of why we tax and why we distribute the proceeds via state transfer payments.

Indeed we are so preoccupied with determining how big a budget deficit or size of government we can get away with, how we can cut the cost of welfare, how next year's outlook compares with last year's, that the rationale for why we redistribute has, to all intents and purposes, been forgotten.

One could be forgiven, in the light of the jargon of government-appointed tax working groups and welfare working groups, for believing that the main tax policy objective is to stop tax dodging and the main redistribution issue is to end welfare bludging. That's how dumbed-down and myopic the New Zealand discussion on tax and distribution has become.

The United Nations in 1948 last gave strong voice to the philosophical values of the classical economists cited above, when its Declaration of Human Rights (which we signed) stated: "Everyone has the right to a standard of living adequate for the health and wellbeing of himself and his family including food, clothing, housing and medical care and necessary social services, and the right to security in the event of unemployment, sickness, disability, widowhood, old age or other lack of livelihood in circumstances beyond his control."

This is an inalienable right, not one conditional upon meeting the work-ready tests or whatever the latest set of eligibility hurdles or inquisition practices the Welfare Working Group recommends. It is a human right.

Being in or ready for paid work is not a prerequisite. This right extends to everyone, including the legions of people in our society who perform unpaid work, whether it's care for children or the elderly, or voluntary work for their communities.

How ironic that GDP, the modern economists' yardstick of worth, doesn't even recognise the contribution of these people. How insulting, how absolutely bereft of any values economics has now become.

Britain is paying the price for several decades of economic policies bereft of a moral or ethical foundation.

There comes a point when people become so alienated from those who control the institutions of a society that public disorder is the only weapon they can respond with. It is their equivalent of the U2 (or Fay Richwhite) syndrome among the elite wherein the "right" thing to do has become to avoid tax (legally).

And those people in the streets of Tottenham don't have to be materially poor, either. Social or financial alienation is sufficient to inspire such reactionism. An economic model that increasingly serves the interests of the few to the exclusion of the many is not sustainable. Polarisation promotes its own impoverishment.

It is not far-fetched for New Zealand's tax and transfer regime to be overhauled so once again it can recognise the value of unpaid as well as paid work, it can ensure everyone has an inalienable right to live a dignified life and it can encourage self-reliance and maximum productivity (in the broadest sense).

Worshipping unfalteringly at the altar of paid work exhibits a tunnel view of how value is created in society. Who is going to claim that raising a child is worth less than packing shelves at a supermarket? The market certainly does.

To acknowledge the value of unpaid work and admit that by far the majority of people are in either paid or voluntary work, each making a contribution to society - that very few indeed can be accused of being a dead weight on others - means overcoming a prejudice that the unwilling should be forced into paid work.

It requires abandoning stereotypes that populist politics incites. It is not true that those on benefits or not in paid work are inferior, and need to be whipped out of their complacency, that they would be "better" people if they were in paid work.

Yet the Welfare Working Group's recommendations which National is now implementing assume just that.

That our consumer society has become so mesmerised by materialism that the common belief is that everyone should be in paid work is testimony to the corrosion of what we value and our obsession with material gain, no matter how trivial. We have, sadly, lost the plot.

As Adam Smith said of the materially poor: "The difference between the most dissimilar characters, between a philosopher and a common street porter, for example, seems to arise not so much from nature as from habit, custom and education."

There is nothing lackadaisical about the poor.

Our tax and welfare policy is in urgent need of reconstruction so it ensures equal opportunity for all to participate and fully realise their potential in society in its widest sense - whether it be the paid or the unpaid workforce.

The chauvinism in policies that disparage unpaid work - whether it be care of the elderly, juveniles or of the community - has run way too far and will alienate more and more.

- Gareth Morgan and Susan Guthrie are authors of The Big Kahuna - Turning Tax and Welfare in New Zealand on its Head - published last week.

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