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The first tentative steps to a sustainable New Zealand – Dennis Dorney

News and views from New Zealand

I was disappointed that Prof Herman Daly believes his ten policies for a steady-state economy (Jan-Feb 2014 issue) are politically ‘beyond the pale’ at the present time. If citizens can be pushed out of their comfort zone by an event that cannot be dismissed by economists as being beyond their understanding, they might be tempted to rebellion and would be receptive to any ideas that provide the greatest physical relief for the least financial pain and in the shortest time. That would preclude those ideas that are hard to apply without international co- operation, such as population control (which is in everybody’s too-hard basket), cap and trade schemes for natural resources, and international trade regulation. Important as they are, concerted action seems a long way off but much can still be done.

Global warming could be the motivator for Australia, following their recent record-breaking temperatures. Since New Zealand is not suffering from too much sun (quite the reverse) and perhaps due to a natural Kiwi reticence, it might be hard to get a decent rebellion started here. Issues that could be implemented quickly and should cause little angst are those which are financially neutral. This means that tax reform is the easiest place to start because any government has a tax reform agenda; how the reforms are carried out depends purely on the mind set of the Government and a balanced budget is always achievable (though not always desirable). In order of effectiveness such tax reforms would be:-

  1. A minimum and a maximum income. Prof Daly’s suggestion tops the list because it is arithmetically self- balancing and would probably boost the economy as well. Those at the lower end of the scale are more likely to spend their money in the local economy than the rich, who are prone to hiding their surplus in the Bahamas.
  2. A Financial Transaction Tax. This meets the requirement of ideal taxes – tax the undesirable incomes (i.e. financial speculation) and spare the desirable (personal income). One of the arguments against a Financial Transactions Tax is that it will fail unless implemented simultaneously by all major trading nations, as investors will simply trade off-shore. However a number of countries have implemented this tax without this claim being vindicated yet.
    Additionally this tax may be able to replace the GST, which is an undesirable tax because it is a flat tax that discriminates against the poor, taxes everything indiscriminately and actually favours internet purchases (which pay no GST) against local retailers (who do pay GST).
  3. A Land Tax

This gets no mention on Prof. Daly’s list but is extremely important as a way of reducing speculation on houses. A land tax can be implemented in at least two ways. The rateable value of a property, from which Council Rates derive, can be changed to consist purely of the Land Value, so an occupier is not penalised for improving the value of his home. This used to be the case in NZ and was apparently successful in reducing speculation, and hence house prices. This change could be implemented immediately.

More ambitiously, Land Value could be excluded totally from the price of a housing site, as I have suggested in a previous article. All the land would belong to all Kiwis and the Government be merely the custodians of it. The land would be rented by the occupant on a long term and renewable lease. This would be a very difficult concept to promote and would have to be introduced gradually by the government acquiring cheap land as it became available. I suspect that initially rural land and low-lying coastal land (possibly at risk from rising sea levels) would be early targets. However difficult to begin, when the process were completed the outcome would be that speculation on housing would stop completely.

Stirring the hornet’s nest

This brings me to the issue that might stir Kiwis out of their apathy in this years coming election. Home ownership has reached a tipping point. If house prices continue to rise young would-be owners will be pushed out of the market, leaving it as a pure speculators bubble. This is the most likely outcome. Or the market could suddenly collapse pushing large numbers into negative equity. Either way young Kiwis will suffer. I think it will be difficult for the government to persuade voters that this was an unforeseeable event.

It might also focus voter’s attention on the whole issue of bank debt. In NZ banks are about as popular as politicians, mainly because the banks are Australian owned. People may start asking why it takes 30 years of careful scrimping, from a young couples combined earnings, to pay off a house mortgage. If the speculative element in land prices could be removed from the equation and if our tradition-bound building industry embraced new materials and designs there is no reason why house prices could not fall by 40%. While that would cause strong protests from present owners, which is why it would need a gradual introduction, everyone would benefit in the long term. When that point is reached, the necessity for the present mortgage system would look questionable.

Already in NZ there are signs of community building groups forming to share labour and financial resources. If successful it is likely that Building Societies will start to offer special financial deals as well as their expertise. This has the potential to revolutionise local economies.

Mortgages are the life blood of private banks but they are as bad for local economies as they are good for bankers. Community building groups could make mortgages redundant and reduce banks to mere intermediaries as they should be. Apart from creating local employment and recycling their own savings at the local level, these Community groups, would as a quite separate, but fundamentally important outcome, be a wonderful antidote to the hostile, competitive, dog-eat-dog society that we have been building these last 30 years.

At this juncture many of the other points raised by Prof. Daly, which on a global level are more important than these local innovations, will cease to be politically unsaleable and will seem both natural and inevitable.

Dennis Dorney is a NZ member of ERA

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