A system where the privileged get wealthier just because they own assets is leading to a polarised society.

On Monday I made several thousand dollars on paper. The share prices of electricity companies surged following the election.

If I had sold my holdings I would pay no tax on my gains because I am an investor rather than a trader.

Meanwhile a worker who spent the day toiling in a warehouse or factory might earn $15 per hour and pay a marginal tax rate of 17.5 per cent. I am a capitalist with a small c.

I was fortunate to be born into a middle-class New Zealand family. I had parents who had a successful marriage and were frugal and wise in their approach to managing their money.

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My father gained a modest inheritance from the sale of the family farm early in his marriage. My parents invested in housing using their fortunate endowment wisely. They were both shaped by the Great Depression and as a result had an overwhelming desire for financial security. They valued education and instilled this in their children.

My siblings and I are very fortunate recipients of multiple inheritances because we are well educated, financially literate and likely to benefit from the material wealth harboured by our parents.

This is the growing divide that is playing out in New Zealand and other Western economies. Wealth generally creates more wealth. This is not an expression of middle-class guilt or angst. I am an economist and see the world in terms of efficiency and equity.

Efficiency in economics means maximising material prosperity. Equity means fairness. There is little doubt that a market system based on the pursuit of profit and enterprise has been successful in encouraging innovation, risk-taking and creating general prosperity since the industrial revolution in the 18th century. The problem is that this wealth created by capitalism tends to concentrate over time. This can lead to dysfunction, particularly in a small society such as New Zealand.

A key function of governments since the Great Depression has been to ensure that the extremes of wealth and income distribution do not reach a level of dysfunction.

Last week a car pulled up in our street in the middle of the day. Three individuals got out. They walked calmly up the path to the porch. They kicked in the front door of the house over the road in plain view of several neighbours. One neighbour rang the police on his cellphone while the three culprits walked out with a widescreen TV, electronics and jewellery. They sped away. This may be an isolated incident or it may be evidence of the creeping polarisation of our society. The obvious solution is a society of economic apartheid where those with wealth hide behind security fences and alarms and gated communities while those left behind prey on each other or the affluent who fail to protect themselves.

ROTORUA DAILY POST
22 Sep, 2014 8:59am
2 minutes to read

This election was a vote for the status quo. That is understandable given the apparent benign economic situation at present. But there is something wrong in a system where those with wealth can gain just through the appreciate of the assets they own. Those who earn a living and come from less affluent or privileged backgrounds continue to pay taxes on often meagre incomes. It is not a question of just doling out money to the poor. It is about a tax system that doesn't discriminate between those who earn an income from their labour as opposed to those who enjoy capital gains from owning assets.

It is about ensuring that the redistributive function of a government is effective and fair on both the taxation and spending sides. It is not about rewarding star teachers but ensuring all children have access to quality teachers.

Regardless of the inadequacy of their parents all children need to be well fed and healthy and educated. Otherwise they cost us all in the future.

The electorate has spoken and it has gone for the status quo. Middle New Zealand prefers the security of the known. We are becoming a polarised society. The resentment and desperation that this breeds is real as are the outcomes. We are a small community living on a few isolated islands. We often think that overseas experts and ideologies have the solutions. The reality is that we need to work it out for ourselves. We are failing to do so.

Peter Lyons teaches economics at Saint Peter's College in Epsom and has written several economics texts.
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